FEDERAL EUROPE
     
Speech by José Manuel Barroso at the 4th Brussels Think Tank Dialogue on towards federalism or fragmentation.
"To go the road of functional federalism, a democratic pooling and sharing federation of nation states, might increase the chance to lose the connection with the people" stressed President Barroso 22 April 2013 during the 4th Brussels Think Tank Dialogue, where he delivered a speech on 'State of the Union 2013 – Federalism or Fragmentation: Spelling out Europe's F-Word'. Not a superstate, but to build with member states a United States of Europe, where a convention for the purposes of treaty changes is needed for.

"A half-hearted attitude towards the project of European integration only serves to strengthen its opponents," President Barroso argued, "to concede the political momentum to those on the side of nationalism and populism. Only by calling it by its name do we get a chance to debate the real issues, to make clear what is behind the word federalism. 

"Rather than a threat to Member States, functional federalism as developed throughout European history is also a guarantee for subsidiarity: 'Federalism is in itself a concept with two faces: searching for unity whilst recognising, respecting and reconciling genuine autonomy. At its very core is the idea of unity in diversity. Now, what can be more European than that?

"Institutionally, the EU has developed tremendously during the crisis in order to avert fragmentation.

The real risk today comes from elsewhere," the President said: "I am deeply concerned about the divisions that we see emerging: political extremes and populism tearing apart the political support and the social fabric that we need to deal with the crisis; disunion emerging between the centre and the periphery of Europe; a renewed demarcation line being drawn between the North and the South of Europe; prejudices re-emerging and again dividing our citizens, sometimes national prejudices that are simply unacceptable also from an ethical point of view."

Read here the full speech

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At the end of June 2012, the Spinelli Group presented a “Federal Act”, containing 12 elements following the outline of the 4 blocks identified by the “Towards a genuine economic and monetary union” produced by the 4 Presidents. The Spinelli group calls for a banking Union, an Economic and fiscal Union and a political union.

Not only Andrew Moravcsik was engaged in federalism in the EU, in March 2012, also the Spinelli Group by discussing federalism. Daniel Cohn-Bendit, co-chair of the Green/EFA group and one of the frontmen of the federalist Spinelli Group, called for primaries to be held one year ahead of the 2014 European elections to choose candidates for the next European Commission president. An alliance should organise a primary in 2013 to choose a candidate to succeed to José Manuel Barroso, he said. He called the alliance a "pact for social and ecological democratisation of Europe". "We don't need to ask anyone," he said, referring to other proposals aimed at giving legitimacy to the selection of Barroso's successor.

Cohn-Bendit said that if the alliance would have the majority in the 2014 election, leaders of EU countries could still propose candidates, but the only candidate who could pass in Parliament would be the one chosen through primaries. The next year should create "a democratic space" in Europe, said Cohn-Bendit.

He admitted that the number of voters likely to participate in the primaries would be low - between six and ten million people of an estimate 260 million.

Speaking at the same event, ALDE group leader Guy Verhofstadt said the European People's Party (EPP) could also organise primary elections. But some EU countries to not have a tradition of holding primaries, he conceded. He outlined the various ideas in preparation for the 2014 elections. On the transnational lists, he said, there was "a lot of opposition also inside the European Parliament". The two largest political groups, the centre-right EPP and the centre-left S&D, reportedly oppose transnational lists.Verhofstadt said an alternative to the transnational list would be to give candidates the possibility to run in several national constituencies. The third possibility he outlined was to decide that the next Commission president would chosen from amongst the MEPs.

Regarding the need to increase the turnout at the European elections, Verhofstadt pleaded for a European tax to be paid by all EU citizens, which in his view will make them more responsible and more interested in the EU elections.

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CEPS Annual Conference 2012 provided discussions on federalism and economic governance, chaired by Giuliano Amato, prospects for the euro with views from Yves Leterme and William Kennard, and on how non EU-member states could bring their contribution to bear with Iain Begg.

With the opening words "we were wrong", Guiliano Amato, former Prime Minister of Italy, recalled expectations at the time of the EMU construction, pointing out that economists and politicians at that phase of integration were keen to make progress and hopeful that imbalances and high levels of debt would subside through a deep process of convergence within the euro-area. "In the early years, the euro was a shield", but the expectations were not fulfilled and now the euro crisis offers an opportunity for further integration.
Amato argued that an intergovernmental approach is still present but communitarian integration will gather momentum through the integration of economic and fiscal policy as well. The concept of trust was raised for the first of many instances during the conference. The hostile response to austerity measures plainly shows that trust between the peoples of Europe is wavering. Politicians are faced with the goliath task of demonstrating that European integration benefits all and that its main focus is growth not austerity.

Amato further emphasised that a 19th century federal state is no longer adequate and two Europes with different speeds of integration will emerge more clearly than before, where some countries take part in selected aspects of integration while others subscribe to the entire packages.

Panel member Beatrice Weder Di Mauro, Member of the German Council of Economic Experts, expanded on the notion of trust and gave insights into the debates currently being held in Germany, and how new integration steps such as the Fiscal Compact can facilitate trust. Weder Di Mauro further pointed out the existence of conflicting goals concerning the fiscal and financial architecture. With regard to the financial architecture, she argued that the completion of the cross-border financial market can be achieved alongside national interests of maintaining control over the national banking sector, but that a third target of financial stability may conflict with the other two. The same conflict applied to the fiscal architecture i.e. no bail-out, no exit option and a no-transfer system.

Phillipe Gudin de Vallerin, Director of Macroeconomic Policies and European Affairs of France’s Ministry of the Economy, highlighted the integration achievements of the troublesome past years e.g. the ‘six-pack’, the European Semester or Fiscal Compact. He emphasised that a deep reform of economic governance will be politically difficult but is nonetheless necessary. The agenda must now include enforcing the new rules and even more importantly explaining them in order to gain citizens’ support.

To launch the next debate on the day’s agenda, moderator Daniel Gros, Director of CEPS, remarked on the necessity of coordination for the stability of the euro, in order to create, for example, robust financial markets. Gros further elaborated that coordination took place but not always positively, as he reminded the audience of the Franco-German cooperation to break the Stability and Growth Pact or when the real-estate bubble in Spain was widely ignored. Finally, Dr. Gros stirred up some controversy by stating that the possibility for a member country to leave the euro area is present and that Greece could vote to leave the eurozone. After a lively debate a metaphor was struck, comparing the exit option with a house: there might not be a proper door (explicit option) but there are windows to jump out of.

Hereafter the debate lingered on the conflict of economic growth and austerity. Prof. Amato reaffirmed his belief that the image of the EU should not be dominated by austerity measures but by growth and stability, mentioning a few tools such as a European Monetary Fund or the infamous Eurobonds.

Weder Di Mauro highlighted in this context the role of the European Central Bank and confirmed that the ECB already functions as a transfer system and has helped to restrict the banking crisis. Correction of the macroeconomic imbalances, however, is far more difficult, according to Amato, since it depends not only on fiscal behaviour but on household and business behaviour as well. The panel members concluded that some progress had been achieved, displaying both an intergovernmental and communitarian approach, but that more lessons need to be drawn from past mistakes.

As Di Mauro pointed out, it is not enough “just to do anything, but to do the right thing”.

In his keynote speech in the second session, former Belgian Prime Minister and current Deputy SG of the OECD Yves Leterme set the scene by asking the provocative question posed in the panel’s title. In the ensuring discussion, all three of the other distinguished speakers responded to the question in the affirmative, predicting a continued future important international role for the EU and the euro.

As stressed by Mr. Leterme, necessary actions would have to be taken in order to overcome the crisis. At the EU level more should be done to increase trust in the EU’s ability to halt the crisis and head off contagion from the periphery by reforming eurozone governance. Mr. Leterme acknowledged that progress had been made with the latest rescue package for Greece, but called for more action to establish a credible firewall to stop the crisis from spreading. He added that further credit tightening by banks should be avoided, while at the same time making the banking system more resilient to losses. At the national level, Mr. Leterme argued the need for further fiscal consolidation in some countries and continued efforts to step up structural reform of products and labour markets. This would enhance future potential growth, but, importantly, welldesigned structural reforms also have the ability to deliver short-term gains in growth performance, as shown in recent analysis by the OECD. The Commission could play a role by ensuring further strengthening of the internal market, in particular regarding services. H.E. William E. Kennard, in his address, underlined the importance of the EU to the US, not just as a major trading partner, but also as an ally more broadly on the international scene.

Concurring with the positive sentiments of Mr. Leterme, he also saw progress on several fronts. However, while the current direction and speed of reform were encouraging, he worried that the present sense of urgency throughout the EU will disappear, as soon as the crisis starts to abate. This concern conveyed his central message: an important post-crisis task will be to keep reforming and searching for a viable model that will ensure longterm.
growth.

H.E. William E. Kennard, in his address, underlined the importance of the EU to the US, not just as a major trading partner, but also as an ally more broadly on the international scene. Concurring with the positive sentiments of Mr. Leterme, he also saw progress on several fronts. However, while the current direction and speed of reform were encouraging, he worried that the present sense of urgency throughout the EU will disappear, as soon as the crisis starts to abate. This concern conveyed his central message: an important post-crisis task will be to keep reforming and searching for a viable model that will ensure longterm growth.

Striking a positive note, Brazilian Ambassador Ricardo Neiva Tavares expressed no doubt that the euro would survive and went on to note the importance to Brazil of a prosperous EU. Listing some of the important economic achievements of Brazil in the last decade, he highlighted the success in reducing poverty in his home country. Even if the EU is more prosperous than Brazil, poverty is an issue that the EU has to take seriously. He cited Eurostat figures showing that more than 100 million people in the EU are at risk of poverty and social exclusion. And while acknowledging the differences in starting points and institutional structures, he suggested that this might be an area where the EU should study the Brazilian experience.

The Turkish Ambassador, Izzet Selim Yenel, observed that the euro crisis is followed very closely and with intense interest in his country. He too expressed confidence that the euro would survive and also predicted that the crisis would ultimately lead to a deeper union with more solidarity among members. He stressed that, from his point of view, Greece will have to be saved and kept within the union, suggesting that it was of key interest to Turkey to see how the EU handles a member in grave difficulties.

The third session was opened by Stefano Micossi, Director General of Assonime and Member of the CEPS’ Board of Directors, who described the noneurozone members as being on a rollercoaster they have no means of steering. Yet, the panel participants managed to elaborate on possible contributions and influence of their nations within the euro crisis. From the perspective of the United Kingdom, Iain Begg, Professor at the London School of Economics, identified three dimensions of contributions: ideas (e.g. concerning the institutional design, employment policies or the completion of the single market), political facilitation or rather non-obstruction and the third dimension ‘cash’, which is without doubt the most difficult one. As he pointed out, however, Britain has indeed already contributed through the Irish bail-out.

Jesper Berg, Head of Financial Stability at Nykredit, explained how Denmark’s fixed exchange rate to the euro has disciplined the country to limit debt increases and stabilised the balance of payments in order to sustain the exchange rate. Thus, similar welldesigned mechanisms could facilitate rebalancing in the eurozone. Jan Zahradil, a Czech MEP, objected to treating ‘noneurozone countries’ as one coherent group, since there is a clear split between ‘old non-eurozone countries’, i.e. the UK, Denmark and Sweden, and the ‘new noneurozone countries’ such as the Czech Republic. Zahradil asserted that New Europe was no longer eager to join the euro area and it had become apparent that the “eurozone is not for everyone”. The Czech Republic will not sign the Fiscal Compact, but public expenditure will be cut by national forces while at the same time reducing dependence on the eurozone. Thus, the Czech Republic contributes by showing an alternative route in contrast to deeper integration.

In the ensuing discussion, a variety of issues was explored, such as a two-speed Europe, the introduction of a financial transactions tax and citizens’ participation, and while country representatives often had divergent views, they agreed that the non-eurozone countries had an important role to play, whether as outside supporters or admonishers of current policies.