Britain and EU reform

Piet Eeckhout

The concept of “EU reform” is a difficult object of academic study, because all political stakeholders appear to agree that it is needed, but few have spelled out what exactly it is about the EU that requires reform. That includes the Prime Minister, who has been vague on the matter, except for a recent speech on immigration. On the eve of the first Policy Panel of the Britain & Europe project –which will consider possible pathways to EU reform– it may be interesting to offer some further reflections on this elusive concept.

The first point to note is that the EU is no stranger to “reform”. The EU’s founding treaties are regularly updated, which is never a straightforward process and on occasion leads to serious crises. In fact the current version of those treaties has been in force for little more than 5 years, and though now generally called the Lisbon Treaty, it was originally branded as the “Reform Treaty”. That was about the best the treaty negotiators (i.e. the member state governments) could come up with as a repackaging of the failed “Treaty establishing a Constitution for Europe”. The 2005 referendum process which led to that failure – negative votes in France and the Netherlands – continues to haunt EU leaders, who are not keen to have further significant change which could trigger a new round of referendums. And particularly not with the EU’s role in managing the Eurozone after the 2008 financial crisis being so contested. The paradox here is that, as argued below, EU economic governance is where most reform is needed.

The second point is that EU reform often takes time. The Constitution for Europe, repackaged as the Lisbon Treaty, is the best example. The process started in 2001 with the Laeken Declaration, and ended with the entry into force of the Lisbon Treaty in 2009. That is an instance of reform, which required treaty change.  But there are other examples, such as the reform of the common agricultural policy. That reform was undertaken outside the treaty amendment process, and has indeed been done, but it’s taken many years.  There is no distant and impersonal “EU” to blame for this. Important reforms require the unanimous approval of all member states, or at least some level of consensus – a principle on which successive UK governments have been most insistent. It takes time and effort to build such a consensus among the EU member states and the EU institutions.

From that angle it is worrying that so little is known, at the start of 2015, of the kind of reform a Conservative-led government would be seeking for purposes of a referendum in 2017. There is very little time to achieve meaningful reform, and the 2017 deadline does not appear to be inspired by the realities and political cycle of the EU. The new Commission and Parliament have just started their 5-year term, and will not be keen to be dictated by a UK agenda in their first and second year. At any rate, the questions of what the UK government seeks to reform, and how, would need to be answered as soon as possible after the May general election.

There are of course some indications as to what the United Kingdom would like to achieve. On EU immigration the Prime Minister has made a number of demands. They are generally aimed at limiting “benefit tourism”, a phenomenon which UCL research has shown to be limited, and which the EU Court of Justice recently hemmed in (see its Dano judgment). Nevertheless, some of the proposals are far-reaching, and may well require a change in the treaties. The limitation of in-work benefits (effectively tax credits) to those who have been resident in the UK for at least 4 years would set aside what has always been a fundamental principle of EU free movement law: that migrant workers are treated equally as regards taxes and social benefits.

Next to immigration, there are some usual suspects, such as greater emphasis on completing the EU’s internal market, on de-regulation and free-trade agreements, and less emphasis on EU social policies. Apart from the fact that these are objectives which, to some degree, the EU has been pursuing for quite some time, there is of course no Europe-wide consensus on them. Remember for example the acrimonious debate on the infamous services directive. Or look today at the contestation of the ongoing TTIP negotiations. Failing a European consensus, or at least a strong majority backing among EU member states and in the European Parliament, there are not many options. Either one accepts that building a consensus/majority may take time, and may indeed fail, or one roundly rejects EU membership because it does not automatically and immediately play out according to one member state’s wishes.

EU reform may also be code for more opt-outs. But that is of course not real EU reform. Nor is it clear how many more opt-outs could be put in place without removing the very foundations of EU membership. The United Kingdom is not in the Eurozone, not in Schengen, and does not participate in a swath of justice, home affairs, and immigration policies. If further opt-outs are insisted upon, there may come a point where other governments will simply prefer a United Kingdom with something like EEA-type status rather than as a full EU decision-maker.

But there is one kind of reform which is clearly needed, and for which the United Kingdom ought to push. It is reform of the Eurozone governance arrangements. The EU’s response to the financial and Eurozone crises has been prolific, in the sense of setting up new institutions (such as the European Stability Mechanism), modifying the role of existing ones (such as the ECB), creating new rules and mechanisms (such as the Sixpack, Twopack, and European Semester), and fundamentally transforming the European financial landscape. The result is a veritable patchwork, which probably deserves the epitome of a “Europe of bits and pieces” more than the Maastricht Treaty (see Deirdre Curtin’s seminal paper on the latter). Patchworks may be attractive, but not this one. Nor is it a patchwork which the United Kingdom can afford to neglect. If one lesson was learned from the above-mentioned crises, it is that financial stability is as much dependent on well-functioning financial markets, as it is on budgetary discipline. Moreover, the dividing lines between the internal market in financial services, in which the United Kingdom fully participates, and Eurozone policies aimed at financial stability, are quickly eroding. I would argue that the time is ripe for reforming Eurozone governance, and that it is in the United Kingdom’s interest to be a protagonist of such reform.

Chancellor Merkel favours such reform, which requires treaty change, as reported by the Financial Times at the occasion of her most recent London visit. It is a kind of reform which, unfortunately, is of such complexity that it will never be high on voters’ lists of priorities. But it is crucial for fixing Europe’s economy, and for restoring the EU’s output legitimacy.

• This commentary was first published on our Britain and Europe Blog which forms part of our Britain and Europe Project co-funded by the European Commission's ERASMUS+ programme. 
• Piet Eeckhout is Professor of EU Law at UCL’s Faculty of Laws. He is a leading authority on EU law, particularly EU external relations law, and international economic law.