European Affairs

Fall 2001

 

European Integration
The Nice Treaty Should be Ratified - Then Repaired
Erik Berglöf

 

The rejection of the Treaty of Nice by Irish voters in June came as a shock to those who had negotiated it in four days of seemingly endless horse-trading on the Côte d'Azur last December. At best, the No vote in the Irish referendum presented them with the delicate problem of how to push the treaty through a second referendum.

At worst, it threatened to throw the whole process of the EU's Eastward enlargement and internal reform off course. But the Irish No also bought time for modifications in the treaty text, an opportunity that European leaders should seize.

The Nice summit had two goals: to remove obstacles to enlargement imposed by the Amsterdam Treaty of 1997; and to adopt reforms that will ensure EU institutions operate efficiently and legitimately after the number of members nearly doubles.

The summit results fully met the first objective, in the sense that no treaty-based hurdles remain to enlargement. Unfortunately, the EU's leaders failed almost completely on the second.

In a recent report, "Nice Try - Should the Treaty Be Ratified?", my fellow authors and I used quantitative tools from voting game theory to document the failure of Nice. We found that, far from maintaining efficiency, the Nice voting reforms will lower the enlarged EU's ability to act.

In other words, decision-making efficiency in an EU with 27 members would be higher with no reform at all. The Treaty also lessens the system's legitimacy. It shifts power to large nations to such an extent that the historical balance between the EU as a union-of-states and as a union-of-people has been altered. The balance was originally deliberately designed to move Europe away from the historically so destructive "Great Powers" approach, where power is allocated based on the wealth and size of population, to a distribution of power that gives a disproportionate weight to small states.

The Amsterdam Treaty left open three major issues, and explicitly required that they be settled before enlargement: the size and composition of the Commission, extension of qualified-majority voting in the Council of Ministers, and reform of Council voting rules.

The summit failed on Commission reform. It adopted a makeshift, temporary fix guaranteeing each member state a Commissioner. The formula applies only from 2005 to the date when the 27th member has joined. No long-term solution was agreed. As in Amsterdam, the tough decisions were postponed.

The summit also failed in reforming decision-making in the Council. Efforts to extend qualified majority voting to a broader set of issues, and thus make decision-making more efficient, came to almost nothing. The results brought little or no change in sensitive areas.

In terms of rebalancing the votes on the Council, Nice actually made things worse. With little more than hurried, late-night staff work and their political instincts to guide them, EU leaders adopted a massively complex system.

Nice was supposed to implement all the institutional reforms necessary to prepare for enlargement, but reform of the European Central Bank was not on the agenda. Enlargement presents the ECB's Governing Council with the same "numbers problem" that got Commission reform on the Nice agenda.

Enlarging an unreformed ECB to include five or 12 new members would turn this critical policy-making body into a big, unwieldy group that would have trouble taking difficult decisions at the right time.

And the newcomers will start joining economic and monetary union (EMU) and the single currency more quickly than most people seem to think, perhaps as early as mid-2005 if they enter the EU in January 2004.

The treaty, however, does recognize this problem. It invited the ECB and the Commission to propose solutions, and instituted an "enabling clause" that allows limited ECB reform in what amounts to a single-issue Inter-Governmental Conference (IGC), the EU negotiating format for agreeing treaty changes.

The Nice summit also failed to lock in the enlargement schedule with firm "entrance exam" dates and transparent criteria for evaluation similar to the EMU evaluation dates dictated by the Maastricht Treaty. Enlargement is a process, not an event, and there is a strong possibility that the first enlargement wave may seriously delay subsequent waves and hinder the reform momentum in applicant nations, both by relieving some of the political pressure to enlarge and by creating a potential constituency of new entrants reluctant to let in more members.

To redress this, the EU should commit to a series of Maastricht-style, fixed "entrance exam" dates for evaluating which nations are ready to join. Strictly speaking, this was not on the agenda in Nice, but it would have been an ideal opportunity for a political commitment to dates.

The treaty will significantly alter the way the EU functions, although it is not obvious that the EU leaders realized this at the time. Owing to reduced decision-making efficiency in the Council, the hitherto standard method of European integration - which relies on legislation and thus the Council's ability to act - will, we argue, be massively slowed.

Further integration, if it occurs, is likely to rely more on member states' initiatives, perhaps channelled into "enhanced cooperation," the new format spelled out in the Nice Treaty for groups of member states wanting to go ahead further on their own.

Thus, to the extent that the European Parliament and Commission derive their power from influencing legislation, Nice reduces their power. As a body, the Council's power will also be diminished.

The winners will be those members who wish to proceed with deeper or broader integration in the form of enhanced cooperation or outside the EU framework altogether. The Commission has a crucial role in enhanced cooperation arrangements (ECAs); so if ECAs become more common, the Commission's influence may expand along this dimension. This may have been the Commission's biggest victory in Nice.

This is not a positive assessment of the treaty, so the question is: Should the Nice Treaty be allowed to become law? My colleagues and I say, yes.

Institutional reforms can wait; Eastward enlargement should not. The European ideal was born amid the devastation of a war caused by intolerance and destructive nationalism. The East-West division of Europe is the last remaining element of that catastrophe, and only the EU's Eastward enlargement can remove it.

Enlargement will fulfil the aspirations of 100 million Central and Eastern Europeans who chose freedom, democracy and markets; it will ensure political and economic stability in Europe. Enlargement, quite simply, is a historical imperative. Council voting weights will be a historical footnote.

Moreover, killing the Treaty would recreate the situation that led to the mess in the first place. The Amsterdam Treaty made EU reform a precondition for enlargement. This sequencing was at least part of the reason why the Nice summit became the longest IGC in history and still did not manage to achieve its goals.

When reform is a precondition for enlargement, interests that are lukewarm to enlargement are granted important leverage. Had enlargement been locked in first, such "hostage taking" would have been less effective.

Now, if the treaty is ratified, the sequencing will be reversed. When EU reform is next considered, enlargement will have happened or will be imminent, and no one will face the choice between accepting damaging reforms and delaying enlargement. There is even hope that the new members will have some say, making the agreed reforms more sustainable.

Fortunately, Nice also created a window of opportunity for reform - the IGC due to be held in 2004. That conference is aimed at unrelated issues, such as governance, the level at which EU decisions should be made, and the proposed Charter of Fundamental Rights. But its agenda could be expanded to include "emergency repairs."

The ECB's numbers problems should be fixed soon, and the treaty's "enabling clause" should make it possible well before the next IGC. There are three practical solutions: (1) the rotation of voting rights among central bank governors, (2) the representation of groups of nations by a single central bank governor, or (3) delegation to a group of independent experts - such as the Executive Board, possibly extended to include outside experts, as in other central banks - with the governors participating in the debate but not in the vote.

We recommend the third option; it would yield a manageable-sized voting body with a stable composition. A further important consideration is that, unlike the other two options, it does not encourage the public to view monetary policy from a national perspective.

The ECB is likely to reach deadlock over what solution to propose and this hands a unique opportunity to the Commission. The Commission should exploit it by tabling the only rational proposal - delegation.

Then, presuming EU leaders do want a Council of Ministers that can act, the IGC in 2004 should re-adjust Council voting procedures. The Nice summit instituted a new, complex voting procedure from 2005 that involves a triple majority. The damage done to efficiency in a 27-member EU could be mended with "emergency repairs" that lowered two of the three majority criteria.

Specifically, the next Treaty should only require two thirds of the total votes for a majority decision, instead of the 74 percent vote threshold agreed in Nice. This would restore the Council's ability to act.

Such a change would, however, further reduce the power of small and medium size members. With the lower vote threshold, greater importance would accrue to the requirement that majority votes must be backed by governments representing a certain percentage of the EU population (62 percent in the Nice Treaty). This side effect could be avoided by lowering the population threshold to one-half, making the threshold easier to pass and thus reducing its importance relative to the other two criteria. It would make it easier to meet this criterion and thus lower its relative role.

All the above, however, assumes that EU leaders meant what they said that the goal of the Nice summit was to "ensure that the European Union's institutions can continue to work efficiently after enlargement." It also assumes they knew what they were doing when they finally adopted a series of bleary-eyed compromises in Nice at 4:30 am on Monday 11 December.

In one view, EU leaders did not realise the damaging implications of their actions for decision-making; the outcome was a collection of unintended consequences stemming from ill-prepared late-night debates. This interpretation is not entirely implausible.

The specific Council voting system that was eventually adopted was never discussed during the IGC, but was the outcome of last-minute negotiations. The reforms do not look so bad from the perspective of an EU with 15 members - the Council format that these eminently practical leaders know well. Yet in an EU of 27 members - a Council that might seem distant and abstract to leaders who are unlikely to hold office for even five more years - the efficiency consequences are dramatic.

In another view, the EU leaders got what they bargained for - a crippled legislative process that strips the Commission and Parliament of their agenda-setting power and hamstrings the old "Community Approach," the search for the common community interest.

In this view, future Euro-pean integration will be guided by intergovernmental initiatives, with the large members inevitably playing a role more commensurate with their economic and demographic importance. This view is not implausible either.

For some members, integration has reached the furthest level perceived as legitimate by the voters. In these countries the leaders may be quite satisfied with an EU in which the key institutions are seriously constrained and decisions are mainly taken directly among governments.

There may also be those who never accepted the notion that a dozen or more small nations - with populations no bigger than that of a big city - should have a major say in how to run a Europe that produces one third of world output and boasts almost 500 million citizens. Holders of this view may also be satisfied with Nice.

The question of which reading is correct matters greatly for what comes next. If the Nice failure was caused by an oversight, then there is still time for some emergency repairs and the IGC of 2004 will provide a perfect opportunity.

If it was wilful, it may take a high-profile decision-making crisis or two in the enlarged EU - a deadlock over the EU budget, for example, or over reform of the Common Agricultural Policy - to mobilize the resolve necessary to reform the Nice reforms.

Either way, the Treaty of Nice was no better than a "nice try." Although it failed to adjust EU decision-making to the realities of an EU with 27 or more members,

it did open the door to enlargement. It should be ratified and then repaired.