21 June 2003, Catholic University of Milan


Massimo Bordignon: I had prepared a piece in which I summarised the main proposals of the Convention. But I don’t think it is worth going through it now, because we had a lot of discussion already on the Convention in these two days and people are already well informed.

So, let me start just by making a couple of remarks, to give an idea of the spirit which surrounded the Convention’s works. I read this beautiful article in a newspaper which tells you much of what was going on. Apparently, there was this French Deputy, Lamassoure, who answering to the criticisms of a journalist who was comparing unfavourably the European Convention with the Philadelphia American Convention in the XVIII century, said “Well, this is not true. We have done a much better job than they (referring to Americans), for we had a much more difficult task. First, they were only thirteen countries while we are thirty. And second, the Americans had already found a way to deal with the British, which we haven’t….although I do not necessary approve of their method”. And the British replicated. The cover of last issue of The Economist shows a dustbin under the title “What to do with the Convention”, meaning that you can just throw it away!

Considering this background, my feeling is that the Convention has certainly done better than one could possibly hope. But I may be wrong. So my very first question to the speakers is a very broad judgement on the results of the Convention. I would ask you to concentrate on the three aspects that the Convention was supposed to solve. I think we all agree that European Union has three different problems: a problem of efficiency, which has to do with the distribution of competences across member countries and the European Union; a problem of efficacy, the ability to reach timely decisions; and a problem of legitimacy, the democratisation of the European institutions. The proposals of the Convention should be measured on the basis of their ability to tackle these three problems.

I would also like that you concluded your intervention with a personal assessment on what is going to happen in the future. If the Convention is implemented or not, in fact, it will depend on the Intergovernmental Conference of the 15th October. The Declaration, which was made by the member countries in Thessaloniki, was approving the Convention test but just as a starting point. So I would like to know what you expect it is going to happen, which of the proposals of the Convention are going to be implemented and which not, and finally if there is the political possibility that only some of the countries might go on with the proposals of the Convention, leaving the others to accept a weaker form of integration.

I realise that these questions are very deep and it would take an hour just to answer them but I ask you to keep your answer in five minutes. The first to speak in alphabetic order is Marco Buti.


The Convention

Marco Buti: Let me say, first of all, that I speak here only on a personal basis and not as a representative of the Commission. If one looks at the ingredients for the effective treaty changes in the past, three common elements emerge: first, institutional innovation; second, policy innovation; and third, a calendar for attaining the objectives.

The Single Market Programme established in the Single Act of 1995 is an example; a second example is the Maastricht Treaty of 1992 which laid out the plan for Monetary Union to be completed by 1997, or at the latest by 1999. I would like to remind you that both these treaty changes were greeted with caution if not disappointment at the time, especially from those who wanted more EU integration. Ex post we found out that these two treaties were actually powerful engines of integration. They had all the three points I mentioned – institutional innovation, policy innovation and a precise calendar.

I think this approach is useful to assess the results of the Convention: are these ingredients present in the text put forward by the Convention?

First of all, there are certainly important institutional innovations: the creation of the foreign minister, the strengthening of the power of the Commission President – potentially an important innovation – and also the establishment of a Council President. This does not mean that these innovations are always positive; there are risks, especially in the potential dichotomy between Commission and Council presidents. If this architecture is retained in the final draft of the Constitution, we will have to see how these two powerful figures interact.

On policy innovation, actually the Convention has done less. However, on issues like foreign policy – undoubtedly one of the new EU public goods – the distinction between institutional and policy innovation is more difficult to draw. On internal affairs and justice, we move to majority voting and this is potentially an important step forward.

The weakness, however, is that there is no calendar attached to any of these innovations. For instance, one would have preferred to have an indication for a timetable to extend majority voting to the remaining areas where unanimity still applies. But this is probably asking too much at this stage.

I think there is a clear responsibility of the Commission to put flesh onto what for the moment is only a skeleton of new competencies. The proposals that the Commission will put forward at the end of this year or the beginning of the next on the Financial Perspectives for the EU budget post-2006 are going to be crucial to fill up with contents these new competencies.

Looking forward at the next Intergovernmental Conference which will translate the results of the Convention into a new Constitution, I personally see more risks than opportunities. I hope to be wrong, but I find it difficult to believe that in any of the areas where the Convention remained too timid one would gather a majority for pushing towards more integration. If there will be changes in the text of the Convention, I’m afraid that that will be in the direction of bringing back under unanimity certain matters in which majority voting is proposed by the Convention. There may also be some attempt to put some cold water on certain institutional innovations.


Alberto Majocchi: Yesterday, on the Corriere della Sera, Padoa Schioppa reminded us that a camel is a horse designed by a Committee. This can be applied more or less to the European Convention. The judgement on the results of the Convention depends from the point of view that it is adopted. In my view, there were two points on the table of the Convention. The first were the left-out of Nice, the functioning of the Union with ten new Member States; the second, a Union able to address the new challenges facing Europe.

My judgement is completely different according to these two points of view. It is a good result, as far as the functioning of the Union is concerned. There is instead nothing regarding the new possibilities for addressing the new challenges – an economic policy able to cope with the new economic environment after September 11th, and a single foreign and security policy – so here my judgement is completely different.

We have made some advances in the functioning of the Union with 25 Member States, but there is no advance in the field of managing economic policy. And the designation of the foreign minister does not change the point about foreign policy. Henry Kissinger put up the main question some years ago: If I have a problem with foreign policy whom I call in Europe? Now, they say, you can call Solana. But then Solana has to call 25 foreign ministers in each member state and after six months he has the possibility to say to Henry Kissinger: “Ok, we are against the war in Iraq”. The problem is that at that point the war is already finished. It is impossible to do a foreign policy in this way.

Second point, the strengthening of the Union – you said efficiency, effectiveness and legitimacy. The usual advance in the strengthening of the Union was to confer new competencies to the European Union. In my view this is the wrong way to strengthen the European Union. The objective should be reducing the amount of competences, but increasing the effectiveness to do good policies at the European level in fields that are defined according to the subsidiarity principle. If we have a competence in the European Union, we must have the power to do policies in an effective way. The second point is legitimacy and also from this point of view there is no step forward in the draft Constitution.

Likely outcomes. I agree with Marco, if changes are introduced within the Intergovernmental Conference, the only possible outcome is a worsening of the proposal, since the ten new members or Spain or Great Britain or Ireland are already trying to weaken the improvements done in the draft Constitution. The way out, what is needed now, is a political initiative by the six founding members of the European Community – the hard core of Europe – which should take the initiative and say: “Ok, we accept all the results of the Convention for Europe as a whole but we want to make a step forward” “avec ces qui voudront”, as it was said by President Mitterand some years ago. If Spain or Great Britain do not agree, it will happen what has already happened in 1957 with the Treaty of Rome, which was proposed to Great Britain that did not accept, or with the Monetary Union.

This is the only possible solution: keep the step forward done in the Convention for managing the Union as a whole, but at the same time making some steps forward in the field of economic policy and foreign and security policy in the framework of the 6, 8 or 10 countries which agree with this institutional improvement.

Jean Pisani-Ferry: I will follow your three categories. On efficacy the biggest achievement, as Guido said yesterday, is the changing in the voting rules. This is a big achievement because the current situation is an horrible mess, and this is related to legitimacy too. To have a clear voting rule which is understandable, which every citizen can look at and understand, it is very important.

The issue of decision-making certainly does not stop with the legislative part. There is also the working of the Council. The legislative part, as I said, is positive. On the work of the Council, I am a bit more hesitant. We do not know what will come out of the ending of the rotating presidency, apart from the fact that it was inevitable for the very large number of the member countries. Some consistency within the Presidency may be lost, particularly if we have different councils with different chairing arrangements. This would go very much in the direction of having a divided government, with different sectors and little overall consistency across domains.

On efficiency, I have already said yesterday what I think is the reality of the EU today. How is it governed? We have in fact four different possibilities: one is delegation; the second is commitment, by which I do not mean that the Member States commit to implement some policies but that they commit to observe certain common rules; the third is co-ordination, by which I mean all the way of coordinating national policies with the EU Commission guidelines; and the last is autonomy, in which Member States are free to do whatever they want. If you read the catalogue of competence which was produced by the Convention, the first thing that is apparent is that many fields belong to the middle categories of commitment and coordination, for which methods of governance are still being experimented. The arrangements for the minister of Foreign Affairs go in the same direction, and they could be extended to other fields. The second thing is that the catalogue produced by the Convention does not really correspond with the above categories. Thus, we do not have a clear concept of how all this will work and who is going to be responsible for what; even for shared competences we do not know how they work. I think on this the Convention did not do a very good job.

On legitimacy, I said the proposed voting rules represent a positive change. Also the involvement of the national parliaments works for legitimacy, as does the enhanced visibility of the Presidency: these are positive elements, so I will be positive on this point although the system is still an imperfect one.

On the question of what will come out in the future, there are two risks: one, at the stage of negotiation and one at the stage of ratification; both are important. On the first one, the Convention has behaved as an agenda settler. This was its role: it has delivered something with no options, and this should be praised because to have options would have immediately reopened the discussion on everything. Here we can hope that it will be kept together. I agree that if it is changed it can only be changed in the worrying direction of reopening issues and making new compromises, but at least the Convention has done what it was supposed to do.

On the ratification, I am afraid of the risks of putting to a referendum changes coming out of the IGC at the time the public opinion will perceive that the enlargement is taking place. Each time you put a question to a referendum, people tend to answer another question than the question that is asked.

Guido Tabellini: I try to react to what I heard. Let me add one challenge that was not mentioned, but that I think is important: it is an intertemporal challenge in the sense that what is needed in the EU in the long run is probably going to be a stronger European activity in areas than we can foresee and at the same time we are not ready to delegate now. An important challenge was to create a road towards further integration in some areas without necessarily centralising too much in other areas. In my opinion there have been some positive steps in meeting these challenges, but there have been decisions that may be bad in other dimensions.

Second, I agree with what Marco Buti said on the fact that innovations have mainly been institutional rather than policy innovations. Here nobody has mentioned another innovation – I do not know if good or bad – that we will have a more political Commission. The Commission appointments become more political and I think that in the long run this will be an important innovation. It could be positive in the sense that it could enable the delegation of new powers to the Commission but in the short run there are dangers because of course we have benefited from having a bipartisan Commission acting as a Guardian of the Treaty.

Perhaps I disagree with Majocchi’s statement that nothing was achieved on foreign policy. Now we have an instrument for delegating foreign policy and that is the creation of the foreign minister. Will we make use of this instrument or not, I do not know and in the short run maybe not, but we have now a possibility of doing something that it was not possible before. Now we have somebody who can gradually be delegated more and more power. This is an important innovation. Probably the way in which this will be done will be with very small steps.

On fiscal policy and economic policy in general, Majocchi said that more should have been done. It is not obvious to me what should have been done that it is not already there, other than reforming the institutions. In terms of policy innovations, I would dispute the claim that we need a bigger role of Europe in the coordination of economic policies.

Finally, on the likely outcomes, let me add one thing to what was already said: in one of the last articles of the proposal of the Convention there is a very important statement that says “if 80% of Member States do not ratify the test, than the issue will be brought up to the European Council” which I think is a way of saying that there will have to be an important political decision whether to go ahead even without the 100% of the Member States. The threat has already been made and it is a credible threat. It is not obvious that all Member States will ratify and this will provide an institutional way, perhaps, to play the game that Majocchi suggested, not with 6 Member States but at least for resisting the threat of some of the more Eurosceptic countries.

On Economic Governance

Massimo Bordignon: Thank you all for your intervention. You really did manage in the difficult task of answering exhaustively my questions in a few minutes. I would now like you to change focus and discuss instead more in details on the economic governance of the Union after the Convention. We heard already some contradictory remarks in some of the interventions and it is now the time to go more in the depth on this issue.

To me, it doesn’t seem that the European Convention has done much on these grounds. Should have it done more? Or maybe this was not the task of a Constitutional Convention ? We will start again with Marco Buti.

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Marco Buti: I am disappointed with the results of the Convention on economic governance. Why did the Convention shy away from tackling head on the challenges of economic governance? I think one reason which prevented the economic policy trying to be reopened in a substantive way, is the “newness” of the EU economic policy regime. We are still in the very early years of Economic Monetary Union. In a sense, the new policy regime is still being tested, we are still in a period of transition. Moreover, the current rules are not only designed to govern monetary and fiscal policies in the euro area, but set also the criteria for admission of new members. So we need to ensure equal treatment. This partly explains why the Convention decided not to reopen the economic chapter of the Treaty.

I think in judging what came out of the Convention, one has to keep in mind that we are already a large union and we will become even larger and more heterogeneous in the future. This has several important implications. First, it gives rise to high transaction costs of coordinating discretionary national policies. This, in turn, implies that we will have to continue to rely on rules: policy coordination in the EU is and will necessarily remain rules-based. Second, we will have to rely increasingly on delegation . What will necessarily emerge in the future is a sort of corner solution: we will have rules on the one hand, possibly as intelligent as we can make them. Within those rules, national governments are free to decide national policies. And, on the other hand, we will delegate to competent bodies in matters where spillovers are clear. It is the case of monetary policy which is run by the ECB.

In other policy areas, where delegation will prevail, the Commission will be entrusted with carrying out the policy or setting the behavioural rules. This brings us to what Romano Prodi has called the “authority” of the Commission. This implies the role of surveillance of the respect of the common rules; the role of interpretation of the rules, which at the moment is not being given to the Commission; and the power to decide on certain matters.

If this is the overall framework, how do we assess what came out from the Convention?

I find it negative that the Commission proposal to create a Euro Ecofin has not been retained. This has been prevented by the fear of non-euro area countries of being left out of important decisions. However, the proposed compromise which widens the range of matters where only euro area countries vote in Ecofin and institutionalises the Eurogroup as an informal body may actually obtain precisely that result: euro area countries to decide behind close doors important matters in the Eurogroup so as to avoid an open discussion in the Ecofin. If so, this would be a perverse outcome for non-euro area members.

I think it is also wrong to maintain the Eurogroup as it stands now. The Commission is not a member. It is only invited. Here there is a contradiction in terms to the extent that the Eurogroup continues to be an informal body for discussing amongst policy actors delicate matter of economic policy, policy coordination, how to interpret the rules. The Commission feeds the Eurogroup with analyses and policy notes. Given the preparatory nature of the works of the Eurogroup, I would found it natural for the Commissioner in charge of economic policy to be its chairman. This would ensure continuity and coherence and, by increasing the responsibility on the Commission, would be an important innovation.

There is nothing in the Convention text on the external presentation of the euro area. I find this inconsistent with the innovations that have been made on foreign policy.

To conclude, I understand that “newness” may explain why it was decided not to reopen the Treaty chapter on economic policy. However, we could have taken the opportunity to correct some blatant contradictions while maintaining the overall framework. Take as an example, the inflation criteria for admission to the euro area. Now the performance of an applicant country is judged on the basis of the three countries that have the lowest inflation in the EU. That made sense before the creation of EMU, but not any longer. Why not looking at the convergence with the euro area inflation? This type of amendments could have been introduced easily without calling into question the whole conceptual framework of EMU.


Alberto Majocchi: I will try to address your question from a different point of view. I will start by saying that there is a discrepancy in the European institutions because we have one institution managing monetary policy, the European Central Bank, but we have no institution for managing economic policy. This means that the main task of the economic policy within the European Union is fighting inflation, while in my view the main problem now is that we are facing an economic slow-down in all Europe and that a political initiative is needed.

The second remark is that the Lisbon strategy has not worked. The results are very poor, so something should be done to try to achieve the Lisbon objectives. The situation now is the following: the Member States are responsible for managing economic policy, but they are really constrained by the Stability Pact, and the basic idea of the Stability Pact was that it was possible for Member States to face countries specific shocks, because there is room for flexibility from 0 to 3%.

The problem is that all the States are now near to 3% and not close to balance and so there is no room for stabilisation policy. What has been done in these years? The only way out has been financial creativity by finance ministers and Member States, not only in Italy, but also in many other European countries. This is dangerous from two points of view: first, since the amount of externality in managing stabilisation policy at the national level is very high, the production of the public good “stabilisation” is lower than optimal; second, financial creativity is against the idea of fiscal discipline that was in the Maastricht Treaty and that is now a part of the cultural heritage of the political class all over Europe. The only way out which I see is a political European initiative for promoting growth and this should be done by the European Commission managing a plan for implementing the Lisbon objectives through real means, and this should be supported by Member States and mainly, I hope, by the Italian Government.

To remark what has been said before by Guido, I agree with you when you say that the existence of a foreign minister is important. But there is a difference. In the process of European integration there are two approaches. The first is the Jean Monet’s approach which is a step by step approach and it was followed in the past with a very impressive outcome. The second is the Spinelli’s approach, when we reach the point where sovereignty must be given up, we have to take a different line.

In the long run perspective, the creation of a foreign minister is quite important in the building of a European foreign policy –not a common foreign policy, that is quite different since this implies only a coordination of national policies and not a single European policy– because step by step there will be discussions and step by step there will be a creation of a common European point of view in foreign policy. But as we have seen in the Irak war there was a strong disagreement between European countries, it was quite difficult to achieve a common point of view. The problem is that the international challenges are on the table now and given this time constraint I think that this solution is insufficient.

On fiscal policy: I am in favour of a high-qualified majority for multi-annual financial perspective decision. This is more or less a constitutional decision, because decisions about the use of resources and distribution of the resources between different levels of government is a constitutional decision, so we need a high-qualified majority. I think that the idea of joining national parliament members in the Congress is a good idea for this type of decisions. But annual decisions or budget decisions or single political economy decisions should be taken by simple qualified majority in Europe. This is the difference: I think the multi-annual perspective requires a high qualified majority, but in all the other cases majority should be adopted for making steps forward in the fiscal field.


Jean Pisani-Ferry: Let me say that I agree on your last point. I think that the concept of having a supermajority is an important point, it is practically the equivalent to unanimity in a large union. I also share your worry on Lisbon, but I think that this is very much a policy issue and not a constitutional issue. It is on how to implement programmes; we do not have any proposal to make in terms of changing the constitutional rule in this respect.

To me the issue of economic governance is basically formed by two questions: how does the system – set up with the stability pact and fiscal policy co-ordination – work? And second, should there be provisions going beyond what we already have for the Euro Zone? On the first point, a major difficulty is that the Commission has completely changed role with the EMU. The Commission in EMU is not at all a government. There are two bodies which have policy responsibilities: ECB for monetary policy and the Council for fiscal policy and there is no room for a third policy player with executive responsibilities. This is very much a shock to the Commission because it has always regarded itself as the embryo of a European government.

The Commission has thus to find itself a role and I think the only road is strengthening its surveillance role. By which I would mean more ability to put forward policy proposals, to set the agenda of the Council, to tell Member States something when they are doing wrong, without having the approval of the Council. With respect of these directions, it is a positive decision to accept that early warnings should be given by the Commission without the approval of the Council. This means, the Commission has responsibilities for surveillance, the Council has responsibilities for sanctions, and this is a small step in the right direction.

Without any type of constitutional change, the Commission is becoming much more able to develop an authoritative analysis on the situation in the EU as a whole and in the different Member States. If we compare the surveillance of the Commission with that of the IMF, it is apparent that on both bilateral and multilateral fronts the Commission can make progress.

On the issue of the Euro Zone, my view is that we are dealing with specific externalities which have to do with the existence of the common currency and this completely justifies having specific provisions for the member of the Euro Area. The saying that we are looking at the budgetary situation in the UK in a way which is similar to when we were looking at the budgetary situation in France and Germany is a fiction. Because the externalities clearly are not the same, the externalities within the Euro Area have to do with the monetary stability while the externality with respect to the British public debt, I do not see very much what it is, it is a general macro externality going trough traditional channels.

So I think that we have to recognise this fundamental difference and this is a justification for having an Euro Ecofin which will be able to deal with those aspects which are specific to the Euro area. Now the question is: how do we protect the interests of the area outside the Euro? Obviously, there is a question of how to protect them against decisions that would be made by the insiders as a result of taking care of their own interests. One thing could have been done and it is the following: the Euro Ecofin is created, it is able to make decisions but any decision can be referred back to the wider Council by the Commission which is after all the guardian of the Treaty and the guardian of European interests in general. This would protect the interests of the member states non participating in the single currency while leaving room for the Euro members to make decisions.

Two final points on the Euro Zone. One is on the external representation. I am not sure that I agree with Marco on the fact that this should be a role of the Commission. For the reason I gave before, the role of the Commission is not to be an executive in these fields. Sending the Commission to the G7 or giving it a seat at MF, I am not sure this would fit with this set up.

Second, what is the limit of the ability of the Euro Area Council in making decisions? I tend to think that we would need to entrust that Council with hard policy coordination responsibilities, provided they are adopted by a supermajority. This would allow the Council to make decisions that would be binding on the Member States. Assume the Euro area were in deflation. We would be facing a terrible a free-rider problem with the fiscal policy in the different Member States and we do not have any provision for dealing with that. I would be happy to consider a very high threshold for the supermajority but I think we need provisions for such decisions.

Guido Tabellini: I am going to talk about monetary policy, fiscal policy and the EU budget. I wonder whether we should perhaps be more critical on the monetary policy arrangements than it is political correct. We may well be facing a situation in which we have a very young union and it is difficult to reform it, as Marco said, but yet we have a set of institutions which are addressing yesterday’s problems, the danger of inflation, while we live in a world in which this danger no longer exists. We have now a straight jacket, which makes it very difficult for monetary policy in Europe to realise that the priorities have changed. The Convention could have taken an opportunity to address these problems; you mentioned one, the convergence criteria; but there are others, such as the extreme priority given to the price stability in the Maastricht Treaty, the methods for making decisions inside the ECB, which have been criticised by many people, and the risks aggravating this status quo bias in policy decisions. I am very uncomfortable with the monetary policy institutions that we inherited from Maastricht and maybe the Convention could have been a good opportunity to tackle these problems.

On fiscal policy: here I tend to disagree with the idea that instead Majocchi and Pisani-Ferry implicitly or explicitly push, that there is a role for fiscal policy at the European level in stabilizing output or aggregate demand fluctuations. The reason why I tend to disagree with this view is that there is very little evidence that there are spill-over effects across countries. The free-rider problem arises only if you think that these spill over effects are large. If they are not large, then decentralised fiscal policy should be adequate to cope with macroeconomic shocks. I think here the challenge is more to leave fiscal policy at the national level free to cope with idiosyncratic shocks rather than the opposite problem of having a E.U. wide fiscal policy. I am also sceptical of the idea that you can fine tune fiscal policy to cope with shocks. I think the main challenge is instead to have fiscal policy rules that enable the working of automatic stabilisers.

That takes me to the Stability Pact and to some comments made by Jean Pisani-Ferry. I am very sympathetic with the idea that we want to have a role for the Commission as an enforcer of the Stability Pact. It is good to give freedom to give warnings to the Commission, as the Convention has proposed. But is Jean advocating that we should reinforce its agenda setting power moving towards balance budget or interfering with national fiscal policy decisions? Here, again, I am more sceptical, because the Stability Pact remains “stupid”, it remains formulated on the basis of wrong criteria. I do not see at all why we should worry about France having a budget deficit above 3%; we should worry a lot about Italy, but not about France. And until this feature of the Stability Pact, which again is inherited from the convergence criteria, is reformed I do not see how we can strengthen the agenda setting powers of the Commission.

Finally, on the European budget I agree here with the distinction between the multi-annual and the annual framework and with the distinction of the two majority thresholds. However, I do not like the idea of a Congress of national representatives. This, I think, would add to an institutional environment that is already very complicated for citizens to understand. We already have a body that represents national interests, it is the Council, and the Council is the institution in which these Member States make decisions on the EU budget.

Massimo Bordignon: Clearly, on the issue of economic governance there is room for disagreement among the speakers. Maybe before going to the final question, some of the speakers wish to react to what Guido Tabellini said…

Marco Buti: Yes, I would like to reply to Guido on monetary and the fiscal policies. On monetary policy, I find that this is a policy, not a constitutional question. According to the current Treaty, it is up to the ECB to interpret the price stability criterion. The ECB has announced recently a revised interpretation of the criterion and a revision in its monetary policy strategy. Observers have pointed out that the Bank could have gone further by moving to a more explicitly symmetric target like those of the Bank of England or the Swedish central bank. Nothing in the current Treaty prevents that. So, it is not a question of constitutional relevance.

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There is one issue here which is has been much discussed: it is that of “instrument” versus “goal” independence. Now, academic and professional economists – but no one of the Conventionalists – have suggested that the ECB should have instrument independence – an issue which nobody questions – but not have goal independence, meaning that the inflation definition is set by the government. Different opinions have been expressed on this issue. In practice, I personally think this point has been largely overstated.

My conclusion is that the issue of the quality of monetary policy in EMU is orthogonal to the letter of the Maastricht Treaty.


Guido Tabellini: Can I suggest that Maastricht is unusual in the emphasis that it gives the price stability? Price stability is the primary goal, and no other goal is mentioned. There is a very peculiar emphasis in Maastricht on price stability, which then forces the ECB to interpret the criteria and then the strategy in a way that reflects this very strong formulation.

Marco Buti: There is no contradiction between price stability and output stability. By stabilising inflation at around a given target, output is stabilised around potential. Actually, there are increasing criticisms of the Fed for not having an explicit inflation target and worries about the post-Greenspan where, with a less charismatic president, the non-transparency of the Fed monetary strategy may prove damaging.

On the Stability Pact, it is true that there is the 3% of GDP deficit ceiling is an arbitrary constraint. Here attributing proper powers of the Commission – the “authority” I mentioned before – would help make sure the rules are interpreted in an intelligent way. The real policy issue is that what a country should do if its deficit moves above the 3% threshold. I think if you ask any single Treasury Minister, even those more vocal against the current criteria, they would tell you, behind close doors, that they are happy to have a constraint. It may hurt in certain situations, but it helps to focus the debate. Having a budget deficit persistently above 3% of GDP is not healthy from a medium term perspective and I doubt it that it is helpful also from a purely cyclical standpoint. With new rules providing the “authority” to the Commission one could address the issue in a consistent manner. The questions for a country with an “excessive deficit” would be the following: why have you gone above 3% of GDP? Is it because of higher permanent spending or because of the working of automatic stabilisers? Given the state of the economic cycle, how quickly should you come back below the 3%? What is your debt level and implicit liabilities? Strengthening the authority of the Commission would avoid opportunistic behaviours and increase the chance of an intelligent and not mechanical enforcement of the rules.


Alberto Majocchi: Two small remarks on what Guido said: one on Stability Pact, Guido said that this is stupid, a general assessment by now, but I think there is one point. The Stability Pact is the outcome of a choice made by Maastricht Treaty in favour of rules against discretion and if you have rules, the rules should cover every type of situations. If you want to distinguish between the Italian deficit and the French deficit you have to make a discretional choice, you have to take into account not only the amount of public debt, but also the amount of the debt of the firms and of the families, so the financial situation of the country and this requires a political assessment. If the choice has been made in Maastricht that only the rules could be at the centre of the policy, then the Stability Pact follows.

The second point: there is a difference between the Council and the Congress. In constitutional decisions, not only the governments should be represented, but also minority. This is a very important difference because if national parliaments are in the deciding body you have a representation of majority and minority, while in the Council we have only the representation of the first. It is a complication, I agree totally with you, but I think that the Congress should not be an ordinary institution, but an institution only for planning long run financial perspective and constitutional changes. In all the other cases, the Parliament and the Council should take the decisions.


Jean Pisani-Ferry: I very much agree with what Marco said on fiscal policy. If you look at the stability pact and why we had those provisions, especially the provisions on the thresholds – -2%, -0.75 and all that, these are constraints on the Commission, not on the Council, and the Council is completely free to decide in the end whatever it wants. Why has been done so? In 1994 the Commission decided not to present a report on the situation of Ireland, because in spite of the Irish debt level the Commission said that there was no case to assess that country had an excessive deficit, and the situation proved afterwards that the Commission was right. But the Council was furious and it put all these constraints on the Commission, which in effect prevent the Commission from playing its surveillance role and from producing an intelligent assessment. We try to transform the Commission into a very mechanical body and I think this is wrong. It is linked with what Guido himself said: the requirement changes the stability pact but does not change in terms of the framework of fiscal discipline but the technical operations of the stability pact.

On fiscal policy again, Guido said fiscal policy has to be decentralised and not centralised. I agree 99% on that. My worries are about the remaining 1%.

On monetary policy, let me mention an issue which is constitutional, which was not addressed by the Convention and which probably should have been addressed: the governance of ECB. We left that to the central bankers. I think this was wrong, because what they have produced results from an internal compromise, not from a very effective one. I am very afraid that in the end we will be running the risk of re-nationalising the views on monetary policy. Maastricht was very bold in this respect, and rightly so, by saying that every governor represents all the members of the Euro Zone. Are we going backward?

Guido Tabellini: My concern is that if the ECB chooses the wrong strategy, there is no mechanism to correct those mistakes. That is what is worrying and we have evidence that ECB made these mistakes, already twice: in choosing a problematic monetary policy strategy, and in proposing a cumbersome decision making procedure inside the Council after enlargement. The fact that we have created such an independent institution without any possibility of correcting the mistakes that it makes, I think is a source of concern. The Convention could have tried to emend this. But probably the ECB is too young an institution to play a round with it, and that is why the Convention chose not to do it.

On the Stability Pact, I still disagree with what Marco Buti said: ideally we would like the Commission to play the role of this benevolent agenda setter, but my concern is that the Commission does not have the authority to do it, and does not have the political legitimacy to be able to make all these discretionary choices. Do you really think that the Commission can now accept excessive deficits by France and Germany for 3 or 4 consecutive years and then when it comes to Italy, go to Italy and enforce the stability pact after it has created the precedent for France and Germany? I am sceptical that the Commission will have the political authority and legitimacy to make this discretional judgement, no matter what you say on the Treaty. Maybe a better method to impose fiscal discipline would have been to impose in the Treaty constitutional reforms at the national level. Those would have been much more legitimate. Maybe we do not have the intellectual background to be precise on what would be needed but, after all, under Maastricht we changed laws for running monetary policy, interfering with national constitutions in that area, and perhaps more should have been done to interfere with national constitutions in the area of fiscal policy.

Intellectually, I do not think we understand exactly what would be needed; probably we understand something more about budgetary procedures. Would I push the Charles Wyplosz proposals? Intellectually, I would. Would I force real world change on the basis of that? I am more sceptical. Perhaps this “risk aversion” is one reason why this was not done. But budgetary procedures is an area where there is understanding of what would be a desirable procedure, and perhaps more could have done to force a change in that dimension at national level.


The role of the Commission

Massimo Bordignon: As for my last question, I would like you to focus on the role of the Commission, because, but possibly it is only me, I did not really understand what happened. We had yesterday Guido making the point that as a result of the Convention the role of the Commission is going to be strengthened, to become more political, to have more agenda settler power. On the other hand, a lot of people say exactly the opposite, because now we are going to have not one head of Europe but two, and this President of the European Council is going to gather most of the representation of the Union. And if there is someone who is becoming really powerful in the new Convention Europe is this new foreign minister, who at the same time is the vice-president of the Commission. I am not entirely convinced that as a result of all these changes the role of the Commission is being strengthened, moving toward more political grounds. We heard already some critical comments on this point by Pisani-Ferry. I would like you to comment, in terms of the balance of powers, on which are the likely results of the Convention regarding the role of the European Commission.

Marco Buti: On the role of the Commission in the new constitution, as it comes out from the Convention, I find it difficult to say ex ante whether the Commission comes out weaker or stronger. In the test of the Convention there are different priorities and proposals going in different directions. The Commission is strengthened because its President is strengthened. Wider use of majority voting reinforces the agenda setting power of the Commission. At the same time, we have this new Council President with the risks that we have highlighted of institutional competition. It will very much depends on who the Council President will be. It is difficult to believe that a strong personality there that he would accept to be a simple chairman and travelling representative.

More fundamentally, the future role of the Commission will be determined by the shape of the new Europe. An enlarged Union will have more heterogeneous preferences and hence it will be more difficult to find a consensus. Moreover, “Brussels” will be farther away from anywhere in the Community. These features have implications for the role of the Commission. Higher heterogeneity implies less shared interests and higher costs of discretionary policy coordination. Hence the Commission will have to focus increasingly on core European business. Where spillovers are large, the way ahead is delegation. Wider distance of Brussels means that the Commission should set the rules and check their enforcement rather than being directly responsible for implementing spending programmes.

The way the role of Commission evolve in the future will very much depends on the way it will take up its new responsibilities. The outcome is difficult to predict simply on the basis of the legal provisions coming out of the Convention.

Alberto Majocchi: My remark is that the Commission is not a government now, but it is moving towards becoming the government of the European Union in the long run. I will start from what is already in the draft Constitution and what will be in the future the role of the Commission. In the draft Constitution there are both weak and strong points: the weak points have already been mentioned by Marco. It seems to me that the role of the Commission has been reinforced by the fact that the foreign minister is a member of the Commission. Article 25 states that in common foreign and security policy the Commission has the external representation of the Union. Article 26 establishes the procedures for the election of the Commission President: this reinforces the legitimacy of the Commission President. In the long run, the increased heterogeneity within the Union probably will require a reinforced role for the Commission, because if national interests are represented in the Council and if there is a large diversity in the national interests, and if we want to keep the Union on the right track, a role of the Commission is needed, otherwise the Union will be split in different conflicting policies. I am also agnostic as Marco Buti, but I am more optimistic since this contradiction probably will require a reinforced role of the Commission in the future.


Jean Pisani-Ferry: On the Commission, let me just add something that it has not already been said. This situation in which we have a Council and a Commission in a way resembles the French cohabitation system. What is the main lesson from our experience of cohabitation? It is that is not by looking at the text and at the legal provisions that you know who has in fact the power. It is an issue of legitimacy. When the President has no legitimacy because his party has been defeated in general elections, he does not exist in most part of policy, except where he has an explicit role, which is foreign policy and defence. But when he is elected before the general elections, and those are won by his party he has all the powers and the prime minister clearly has a much lesser role.

In a way the same could happen in Europe, it depends on who has the legitimacy in the system and my impression is that legitimacy could be more on the side of the Chairman of the European Council than on the side of the President of the Commission, especially if the former is chosen among major EU statespersons. Because the President of the Commission will basically derive his own legitimacy from the European Parliament which has very little legitimacy in the eyes of public opinion, because they do not know who are the representatives. This is a weak link and the strong link is the link with government. I can be wrong obviously, but this is my feeling.

Guido Tabellini: On the role of the Commission, I think there are two desirable evolutions for the Commission: one is to see the Commission evolving towards a European executive in the long run. In this spirit, a desirable long run revolution probably could have been to remove the monopoly of legislative initiative from the Commission, which would not be justified once the Commission will be also the European executive. We have not touched this point, except marginally, but citizens can ask now the Commission to propose legislation but the European Parliament has not gained power of initiative. This is disappointing.

On whether the Commission will be able to become a stronger European executive as a result of the Convention proposal, I tend to believe that the answer here is positive and perhaps I disagree with Jean’s assessment. It is true that we will have a Council Presidency, but remember the Council is going to be made up of 25, maybe 26, Member States. It is going to be a very complex animal with different Council formations. I have a hard time imagining that it will become a forceful institution. On top of that, the Presidency of the Council will have very limited powers. This makes me believe that the Commission gradually will be able to acquire executive powers and will be able to use them much more effectively. But it is true, as we claim in our CEPR report, that it would have been desirable to have the Convention evolve towards the Presidential model, because there the legitimacy of the Commission Presidency would have been much stronger.


Massimo Bordignon: We have exhausted our time. I would like to thank the speakers and the participants for what I think has been a very successful conference. Many thanks to all.

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