Photo by European Council via CC BY-NC-ND 2.0

Why Meseberg is Important

This week saw France and Germany announce proposed reforms to eurozone economic governance. But the jury is still out on what the effect of these reforms will be, and many details remain to be worked out. Here Mark Hallerberg looks at two common critiques and the possible outcomes of the Meseberg Declaration.

On June 19, French President Emmanuel Macron and German Chancellor Angela Merkel announced an agreement on a series of measures to reform eurozone economic governance as part of a broader document on a shared Franco-German vision of Europe entitled the “Meseberg Declaration”. The proposals included a common eurozone budget, a more developed European Stability Mechanism (ESM) including a fiscal backstop for its Banking Union, a goal to bring the currently intergovernmental ESM under European Union law, an enhanced monitoring function for the ESM, and a working group to prepare a proposal for a European Unemployment Stabilization Fund by December 2018.

Some critics of the agreement have focused on what is left out. The economist and member of the German Council of Economic Experts Isabel Schnabel argued that the agreement ignored more fundamental issues plaguing the eurozone, such as the “sovereign-bank doom loop,” the credibility of the fiscal framework, and sovereign debt restructuring.

Appearing on Bloomberg news, the Bruegel Think Tank Director Guntram Wolff, while praising the agreement among the political leadership of the two countries, called the Meseberg banking package “very weak” and noted that the changes on fiscal capacity were “very small”. The German economist Marcel Fratzscher emphasised that the agreement is a good starting point, but argued that it does not include policy tools needed to stabilitise the economy.

But other critics, and particularly members of the Bavarian Christian Social Union (CSU), complained conversely that the agreement went too far. Bavarian Minister-President Markus Söder stated that he did not want “any additional hidden budgets that weakened the stability of the currency.” He then implied that the Chancellor had tried to use German payments into the European Union for Macron’s projects to secure his agreement on her position on asylum politics.”. The commentator Holger Stetzner claimed in the conservative Frankfurter Allgemeine Zeitung that a common eurozone budget would divide Europe because it would leave out non-eurozone member states like the Czech Republic and Denmark.

How one reads the Meseberg Declaration depends on how one thinks the European Union functions. The position that all major changes to the European Union must come through intergovernmental summits lends itself to the “too little” critique; to those who think change should come from day-to-day politics in the mostly Brussels-based European institutions, the “too much” argument is more sympathetic.

There are two points at issue in understanding the implications of the Meseberg Declaration. First, one should consider the relationship between the “principal,” in this case the member states, and the “agents,” the European Commission and ESM. How much discretion the principals give the agents to conduct their policies is as-yet undetermined. In its current form, the ESM is beholden to its member states. But the Meseberg Declaration is vague in its prescriptions on this front. For example, the purpose of the eurozone budget as laid out in the declaration is to spur “competitiveness and convergence, which would be delivered through investment in innovation and human capital.” What, exactly are the definitions of these items? Who decides on definitions and disbursements of funds? How would this budget differ from the structural funds under the new Multiannual Financial Framework (MFF)?  At this stage, one cannot know until the member states agree as a whole on the details. So from this perspective the jury is still out on whether Meseberg is a major step.

But there is a second perspective. Once institutions are created at the European Union level at a summit agreement they can evolve and take on different functions over time. For example, the ESM was created during the EU crisis with a narrow mandate, but the current discussion concerns widening its mandate and moving it under European Union law. Such discussions are only able to take place because the institution already exists. For critics who complain that there are not counter-cyclical policy tools in the proposed eurozone budget, the question is what would happen if there is another crisis.  Would the member states be tempted to disburse funds immediately? This is also the threat for those who think that the EU should not be in the business of counter-cyclical policy—even though the mandate for the common budget is initially narrow, there is nothing to prevent an expansion of this mandate in the future. Indeed, arguments about the day-to-day politics playing a more important role need institutions in place in the first place. Moves towards a common eurozone budget and a common unemployment fund are steps in this direction.

More details are needed about the extent of true delegation to the European Commission and the ESM under these proposals. But even so, France and Germany really are talking about new tools at the EU level and new responsibilities for the ESM, and that makes the Meseberg agreement novel regardless of its outcome.

Mark Hallerberg is Dean, Professor of Public Management and Political Economy at the Hertie School of Governance and is Director of the Master of Public Policy and Master of International Affairs programmes. He sits on the Dahrendorf Forum working group on governance, institutions, and policy.

photo by European Council via CC BY-NC-ND 2.0

The opinions expressed in this blog contribution are entirely those of the author and do not represent the positions of the Dahrendorf Forum or its hosts Hertie School and London School of Economics or its funder Stiftung Mercator.