Why the EU Is Failing | naked capitalism %

The Democratic Deficit is one reason why the EU is perceived to be failing; but there are others such as too much power being concentrated in one unelected institution and a lack of transparency

On the face of it, the European Union is a good idea. A large market, filled with well educated industrious workers and a subsequent significant GDP. Coupled with the free passage of goods and people and customs-less borders make for the potential to become an economic super power. And now, all of that is draining away.

So, What Went Wrong?

If we look at the structural underpinnings of a stable Federal Republic, like the United States, we see the following: an Executive, that will undertake the tasks assigned to it via laws passed by the legislative and fund allocation body (Congress) and agreed to or amended by the deliberative body (the Senate) with a legal system that will tease out meaning from any acts that are passed and ensure they comply with the constitution. This tripod of executive, elected representatives and judiciary is very stable, with each branch being able to direct and control the desired outcomes. It’s easy to understand and it works.

Now look at the structure of the EU: Under Article 13 of the Treaty on European Union: instead of a simple tri-partite structure there are seven principal decision-making bodies of the European Union:

1. European Court of Auditors: Founded in 1975 and consisting of one member from each of the EU states (27 in all) and supported by a staff of around 800 people, it is responsible for auditing the whole of the EU (since the Maastricht Treaty) and its institutions. Its principal responsibility is to ensure that the EU budget has been implemented correctly and that EU funds have been spent legally with good managerial oversight. They compile a report (the one for 2023 is here) outlining expenditures (and problems – usually in the form of unauthorized and/or suspect payments) in the previous year.
2. European Central Bank: The ECB Governing Council makes monetary policy for the Eurozone and the European Union, administers the foreign exchange reserves of EU member states, engages in foreign exchange operations and defines the intermediate monetary objectives and key interest rate of the EU. The governing board are appointed by the European Council.
3. Court of Justice of the European Union: The court acts as an administrative and constitutional court between the other EU institutions and the Member States and can annul or invalidate unlawful acts of EU institutions, bodies, offices and agencies.
4. Council of the European Union (of member state ministers, a council for each area of responsibility), is one of two legislative bodies and together with the European Parliament serves to amend and approve, or veto, the proposals of the European Commission, which holds the right of initiative (i.e it can request, but not propose, new laws except in certain areas like foreign relations, economic and monetary union and security policies). It is the only EU institution that represents the views of the various countries of the EU, represented by a minister (rather than the EU itself or the people of the EU).
5. European Council: is a collegiate body of people who define the overall political direction and priorities of the EU. It is widely considered as being part of the executive of the EU along with the European Commission as it has the power of appointing the commission. It is composed of the heads of state (i.e King or President) or of government (for example, the Prime Minister) of each of the EU member states.
6. European Parliament: is one of the two legislative bodies of the European Union and one of its seven institutions. Together with the Council of Ministers, it adopts European legislation, following a proposal by the European Commission. The Parliament is current composed of 720 MEPs (Members of the European Parliament).
7. European Commission: is the primary executive arm of the EU. It operates as a cabinet style government, who represent the EU and not the individual commissioner’s home countries (they swear an oath to that effect), with a number of Commissioners (currently 27 including the President) roughly corresponding to two thirds of the number of member states unless the European Council unanimously decides to alter this number. It controls an administrative body of about 32,000 European civil servants. The commission is divided into departments (known as Directorate Generals and are analogous to ministries) that are each headed by a Director-General who is responsible to a Commissioner. It is the Commission that currently holds the overwhelming amount of executive power over the European Union.

The Treaty of Lisbon changed the expression of the executive power of the EU, which was previously exercised by the Council, to the Commission, which exercises its powers purely by virtue of the various treaties. Only in a few areas, like foreign and security policies, is the power actually held by the Council of the European Union and the European Council.

Not only does the Commission exercise almost complete control over the executive power over the EU but it is the only body that can propose legislation. This was done in order to “ensure coordinated and coherent drafting of EU law”, which is purely an administrative function, to ensure the rights of smaller member countries of the EU and to further the interests of the EU as a whole. The Council and Parliament may request the commission to draft legislation, though the Commission does have the power to refuse to do so and EU citizens are also able to request the commission to legislate in an area via a petition carrying one million signatures (from at least 7 countries), but this is not binding.

The Commission’s powers in proposing law have historically centered on economic regulation. However, it has put forward a large number of regulations based on a “precautionary principle”; for example, if there is a credible hazard to the environment or human health. One example is where the Commission has committed EU member states to carbon neutrality by 2050. As opposed to most regulations, where the effects on the economy are factored in prior to legislation, these regulations do not take the economic impacts into consideration and the laws are often stricter than those enacted by individual governments. In addition, the commission has moved into enacting Criminal Law.  It was challenged in the European Court of Justice but upheld. If the EU passes a law it has supremacy over national laws.

These expanding powers have often come at the expense of laws existing within members states. For example,  back in 1964, the European Court of Justice decided in  Costa v ENEL  that Union law should take precedence over conflicting national law. This meant that national governments could not sidestep what had been agreed at a European level by enacting conflicting domestic measures or by already having in place conflicting national legislation, but it also potentially meant that the EU legislator could legislate unhindered by the restrictions imposed by fundamental rights provisions enshrined in the constitutions of member states.

The form of regulations/laws include binding regulations, directives, decisions, and non-binding recommendations (which are not binding on member states but are used to encourage member states to include them within their national laws) and opinions (essentially a warning to member states to implement EU directives or laws – usually within 60 days):

• A regulation is a law which is binding in its entirety and directly applicable in all Member States without needing national implementation.
• A directive is addressed to the Member States as a framework for their legislation. It is “binding as to the result to be achieved”, but Member States can choose their own form of implementation.
• A decision is a law that addresses a specific issue. Addressees may challenge a decision via a judicial review.

Legislative acts are enacted via the legislative procedure, initiated by the Commission, and ultimately adopted by both the Council and European Parliament.

Non-legislative acts include implementing and delegated acts, such as those adopted by the Commission in pursuance of policy, which often involve so-called comitology committees.

As stated previously, any new law must be proposed and drafted by the Commission. This will then get passed to the European Council and the EU Parliament for ratification. Either of these bodies may send the proposal back to the Commission for amendments. In the case of the parliament, it just needs a simple majority (50% + 1) to pass; whereas, the Council needs a Qualified Majority (54% of Governments, representing 64% of the EU’s citizens) in order to pass. If 4 or more countries’ representatives (irrespective of the size of their populations) vote against the proposal then it will be passed back to the Commission for amendment or it may not be passed at all.

This may be one reason why there has been so much effort in undermining Georgescu’s Presidential bid in Romania. Already, the EU has 2 “problematic” ministers in the Council (Robert Fico of the Slovak Republic and Victor Orban of Hungary) and they previously had a 3^rd, with the “right wing” government in Poland (who were defeated in their General Election). Giorgia Meloni of Italy also posed a threat of being too far from what the Commission wanted, particularly when she railed against Brussels’ bureaucrats and the LGBT lobby, so she was threatened with “tools” to bring her into line by Ursula Van Der Leyen. Which, in fairness, seemed to have worked as Meloni does not go against the wishes of the Commission, but the fear is she could stray if another “Far Right” President (such as Georgescu) were to take power.

In addition, Fico was the subject of an attempted assassination and both he and Orban have been the victims of smear campaigns and attempted “Color Revolutions” against their governments. They also had their gas (and in Hungary’s case its oil) cut off by the Zelensky regime in Kiev, seemingly at the behest of the Commission, and they have had funds, that they are legally entitled to, withheld by the Commission because they voted against continuing to supply arms and cash to the Zelenskyy regime. This prompted Orban to release a list of his Government’s demands:

We demand a Europe of nations.

• We demand equality before the law for all Member States.
• Restore the competences¹ unlawfully taken from nations.
• National sovereignty and a strong veto for national governments.
• Expel Soros agents from the Commission and remove corrupt lobbyists from the Parliament.
• Do not mortgage our grandchildren’s future, eliminate the Union’s debt.
• Do not obstruct our national guard from protecting our borders. Do not bring in migrants, and remove those who have arrived illegally.
• Corrupt dollars and euros must not flow into Member States.
• Ban the unnatural re-education of our children.
• Protect Europe’s Christian heritage.
• We demand peace in Europe.
• A Union, but without Ukraine.

Taxes and Other Revenue

The EU has no tax raising powers of its own; instead, it obtains its revenue from the following four sources:

1. GNI-based own resources: comprising a percentage of each member state’s gross national income (GNI).
2. VAT-based own resources: comprising a percentage of Member State’s value added tax (VAT) base.
3. Original resources: Customs duties on imports from outside the EU and levies collected on behalf of the EU.
4. Other revenue: including taxes from EU staff salaries, bank interest, fines and contributions from third countries.

This is likely to be the next area of friction between the Commission and the member states. The Commission wants its own tax raising powers and has tried, stealthily, to raise money during COVID and now via their war frenzy (note, they avoided discussing the €700+ Billion for European re-armament and arming Ukraine until after the German election to avoid the wrong result). The EU proposed to raise the €750bn for their COVID recovery fund on the capital markets repayable over 30 years. It then proposes to service that debt with the introduction of four new “own resources” (aka “EU controlled taxes”). These taxes are listed as:

• Extension of the Emissions Trading System based own resources to the maritime and aviation sectors to generate €10 billion per year.
• Tax or income stream based on operations of companies, that draw huge benefits from the EU single market, which, depending on its design, could yield around €10 billion per year.
• Carbon border adjustment mechanism to raise €5 billion to €14 billion per year.
• Digital tax on companies with a global annual turnover of above €750 million to generate up to €1.3 billion per year.

There is also an EU Tax Policy Focus already in existence and under it the EU aims to:

• Support the smooth functioning of the single market.
• Harmonize taxation to reduce obstacles to cross-border economic activity.
• Combat tax evasion, avoidance, and fraud.
• Promote cooperation between tax administrations.
• Ensure that national tax policies support wider EU policy objectives.

The role of the EU Commission is to propose new EU laws and policies in the area of taxation and to monitor the implementation of these laws and policies. And the role of Member States is to introduce, remove, or adjust taxes within their own jurisdictions under a tax system they deem most appropriate, provided it complies with EU rules and they have the responsibility to collect taxes and decide how the collected revenue is spent; again, as long as it complies with EU rules. You can read, in detail, about EU tax laws and how they are evolving here.

Meanwhile, here are some examples of EU Tax Policy Initiatives:

• Energy Tax Directive: The Commission is working on reforms to the Energy Tax Directive to promote a carbon-neutral continent by 2050. Note, the link is to the new revisions that include, aligning the taxation of energy products with EU energy and climate policies, the promotion of clean technologies and the removal of outdated exemptions and reduced rates that currently encourage the use of fossil fuels.
• Anti-Tax Avoidance Directive: This directive aims to create a minimum level of protection against corporate tax avoidance in the EU.
• VAT Directive: The EU VAT Directive allows Member States to apply reduced VAT rates or grant VAT exemptions for certain products.
• FASTER Directive: This directive aims to make withholding tax procedures in the EU more efficient and secure.

In addition, bonds, such as the “Green Bonds” are also issued to fund Commission initiatives. For example, the European Investment Bank issued €13.15bn of Climate Awareness Bonds in 2023 and the European Commission issued €12.46bn NextGenerationEU Green Bonds in 2023.

The Commission may also act quasi-judicially in settling matters relating to certain EU laws, a power defined in Article 101 and Article 102 of the Treaty on the Functioning of the European Union. One such case was in the area of personal data protection.

The Democratic Deficit

Many of the problems that Europe is now facing have come about since the implementation of the Lisbon Treaty, where the overall power within the EU was taken from the Council and handed to the unelected Commission (the Council members were elected as part of their national elections). This has, in effect, meant that the Commission can exert power across the EU without any apparent checks and balances. Particularly so, when the Commission grants itself more and more competences at the expense of the member states’ freedom to act in certain areas (immigration being a prime example).

And, according to Nigel Farage (during his documentary on his last day in Strasbourg – worth watching if you have 10 minutes free), the commission is unelected, unaccountable and impossible to remove. The Commission President could be removed by the Parliament and the Council, but is unlikely to happen, as Farage explains, most MEPs go native once they are ensconced in the Parliament and would not want to jeopardize their significant perks (it is not unknown for the EU to smear or campaign against any awkward MEPs so they lose their seats – for example: Mick Wallace & Clare Daly):

• MEPs get €10,337 a month in salary (the typical ordinary worker salary in the EU, according to Eurostat, is €2,944 a month)
• monthly expenditure allowance of €4,950 to manage office costs in their home constituency.
• MEPs can claim a flat-rate allowance of €350 per day, intended to cover accommodation, food, and other costs while in Brussels or Strasbourg – but that doesn’t cover weekends or non-sitting days. According to the Parliament’s calendar, there are political, committee or plenary events for around 150 days per year, making this worth around €4,400 per month on average.
• MEPs are allowed to have second jobs (such as work at lobbying firms), and the average MEP earns €12,000 extra per year.
• MEPs also get a monthly budget allocation of €29,557 to pay their assistants’ salaries, benefits and other associated costs.
• They also get €4,886 a year for travel and accommodation, in addition to when they are in Brussels or Strasbourg, where they have access to parliament’s own fleet of chauffeur driven vehicles (usually a Mercedes). MEPs are also refunded for travel to and from the European Parliament itself, which includes business-class air travel, first-class rail, or refunds for car journeys. An MEP driving from Toulouse to Strasbourg, for example, could claim back €580 per trip.
• MEPs continue to draw an allowance even after they leave office – for instance if they aren’t re-elected. It’s worth the same as their monthly salary, and they continue to draw it for a transitional period that depends on their length of service. For example, an MEP who served five full terms could thus earn €124,000 per year.
• MEPs also qualify for a pension when they turn 63. It’s worth as much as 70% of their salary – accruing at 3.5% of salary for each year they served.

The Parliament is the only EU institution that is directly elected by EU citizens; all the others are appointed (with the exception of the Council which have a mandate granted to them by their national elections). MEPs are generally elected using either Proportional Representation on a nationwide basis or via a single transferable vote. This means that a European citizen does not have an MEP representing them (which raises the question of why they should have a constituency office – see 2 above – as they don’t actually have a constituency), but instead they are represented by a party.

But even this notion of representation is not generally followed as most MEPs put aside their party upon being elected and join one of the EU parties (the supposedly center-right EPP is currently the top party in the Parliament – they were instrumental in backing the appointment of Ursuala von der Leyen both in her first term and in her second). It is this lack of citizen participation that distinguishes the EU from other federal republics (like the USA). It means that the governing body of the EU and its dependencies run the risk of becoming decoupled from the needs of the general population leading to accusations of authoritarianism and in only catering to the needs and desires of a small part of the citizenry (i.e. people inside the Brussels bubble).

Another issue is lack of a unified structure from the outset. For example, the Council only came into existence in the 1990s, meaning that prior to that there was no political control or guidance within the EU. Partly, this was due to the fact that the EU was conceived as a technocracy, such as the French model, where highly skilled bureaucrats administer the community for the benefit of the citizens. The School of Administration in Strasburg (France), founded by Charles de Gaulle in 1945, was supposed to be the blueprint for how bureaucrats were to be trained but since the rapid increase in membership of the Union and the need to employ citizens from all member states, many of which do not offer schools or even courses on public administration at a high level, the standards have slipped.

And it is not just the administrators. It also applies to the executive. Many of the Commissioners are ex-politicians whose careers have been curtailed by being voted out or “promoted” because they couldn’t deal with the portfolio they were given at home. Ursula von der Leyen is a perfect example; she was previously the German Defense Minister and under her watch the German Armed Forces were short of every type of equipment, including rifles (German troops has to carry broomsticks painted black and shout “bang” during a NATO exercise) and there was evidence of corruption in the ministry as to how contracts were awarded (something that has resurfaced while she has been the EU President for how COVID vaccines were sourced – so far she has managed to avoid any investigations into the affair). Her greatest strength was that she was an unflinching supporter of Angela Merkel who subsequently lobbied hard for von der Leyen to get the EU’s top job.

Regarding her management style, current and former aides describe her management style as distant and defensive, she surrounds herself with a small group of aides who kept tight control on the flow of information. You can read more about her career here (it’s a good read).  Former European Parliament President Martin Schulz put it best when he said: “Von der Leyen is our weakest minister. That’s apparently enough to become Commission president.”

In summary the EU is suffering from the following:

• An unwieldy structure
• Poorly trained bureaucrats
• A weak parliament
• A poor-quality unelected leadership
• A lack of consensus

The EU Should Be a Confederation Not a Federation

In order to become a successful federal republic a group of states need certain traits and values:

• A common language
• A common currency (some EU countries haven’t adopted the Euro)
• A common history and underlying culture
• A common voting system (there is still no voting method in place across the whole of the EU)
• Citizen participation, through elections, at all levels of the federation
• A simple, understandable federal structure
• A common foreign policy
• A common tax code with most taxes being administered at a federal level
• Elected representatives that are accessible to the public and to whom grievances may be addressed
• A constitution that upholds citizen’s rights, not the rights of the executive
• National pride

Given those constraints, why are EU politicians hell-bent on enacting a federal republic when the citizens are so obviously against it and when a confederation of strong nation states, with an EU bureacracy (not a decision making body) administering it on their behalf, would better serve the needs of the citizens of Europe?

FAQs

EU Sanctions

EU sanctions are adopted unanimously by a Council decision in the field of the Common Foreign and Security Policy (CFSP), which is binding in its entirety for all Member States. If the decision provides for the reduction or interruption of all or part of the economic and financial relations with a third country, an EU regulation shall be adopted by qualified majority (see below) upon a joint proposal from the Commission and the High Representative of the Union for Foreign Affairs and Security Policy.

Qualified Majority Votes

As mentioned previously, these require a > 54% of governments representing >64% of citizens (and subject to the >4 state veto). The areas covered by QMV are as follows: Administrative cooperation, Asylum, Border checks, Citizens initiative regulations, Civil protection, Committee of the Regions, Common defense policy, Crime prevention incentives, Criminal judicial cooperation, Criminal law, Culture, Diplomatic and consular protection, Economic and Social Committee, Economic and Social Committee, Emergency international aid, Energy, EU budget, Eurojust, European Central Bank, European Court of Justice, Europol, Eurozone external representation, Foreign Affairs High Representative election, Freedom of movement for workers, Freedom to establish a business, Freedom, security and justice – cooperation and evaluation, Funding the Common Foreign and Security Policy, General economic interest services, Humanitarian aid, Immigration, Initiatives of the High Representative for Foreign Affairs, Intellectual property. Organization of the Council of the European Union, Police cooperation, President of the European Council election, Response to natural disasters or terrorism, Rules concerning the European Defense Agency, Self-employment access rights, Social security, Space, Sport, Structural and Cohesion Funds, Tourism, Transport, Withdrawal of a member state.

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¹ A competence is the power to control and legislate on a particular subject. Currently, the EU has exclusive competence in areas like the customs union, competition rules, monetary policy for Eurozone countries, the common commercial policy, and the conservation of marine biological resources. It also has shared competences with member states, and can support, coordinate, or supplement actions in certain areas. Here’s a more detailed breakdown:

EU exclusive Competences:

• Customs Union.
• Establishing a common customs policy, including tariffs and trade barriers.
• Competition Rules. The EU sets and enforces competition rules within the single market, ensuring fair competition and preventing monopolies.
• Monetary Policy in the Eurozone, in setting monetary policy, including interest rates and the exchange rate of the Euro.
• Common Commercial Policy. The EU negotiates and implements trade agreements with other countries, setting common standards for trade and investment.
• Conservation of Marine Biological Resources. The EU has exclusive competence in managing and conserving marine resources, including fisheries, under the Common Fisheries Policy.
• Education and training.

Shared Competences (with member states):

• Environmental Policy: Both the EU and member states can enact environmental regulations, but the EU can act when it’s necessary to achieve a common objective that cannot be achieved effectively by individual member states.
• Economic, Social, and Territorial Cohesion (Regional Policy). This includes the promotion of economic, social, and territorial cohesion, including regional development and structural reforms.
• Agriculture and Fisheries (except in the conservation of marine biological resources).
• Areas related to freedom, security, and justice, including border controls, asylum, and immigration. However, the EU alone has the authority to establish the conditions for entry and legal residence in a Member State, including for family-reunification purposes, applicable to nationals of non-EU countries.

Supporting, Coordinating, or Supplementing Actions:

• The EU can support, coordinate, or supplement the actions of the Member States in areas such as culture, tourism, and research and development.
• Climate Action: The EU and Member States can enact climate policies, but the Member States can do so only where the EU has not exercised its competence or has explicitly ceased to do so.

You can read a scholarly review of the ‘Competences Problem’ here.