British Politics and Policy at LSE

The Eurozone crisis has brought the EU’s division into two types of membership into relief, with the euro member states moving closer towards deeper fiscal and economic union, and the others, such as the UK, who remain in the single market with no wish to join the Eurozone, at risk of becoming ‘second class’ states. Damian Chalmers, Simon Hix and Sara Hobolt write that there is now a growing separation between the governance of the single market and the euro area. They propose new reforms which would protect the interests of all EU and non-member states in decision making, give national parliaments a role in proposing and approving EU legislation, and reform the single market to give more sectoral flexibility. All of these proposed reforms, they argue, could be made without Treaty changes.

There are now two types of membership of the European Union.  The first is the Eurozone group of states, heading towards deeper fiscal and economic union – with tight constraints on national macro-economic and welfare policies and potentially new fiscal transfer instruments at some point.  The second is a group of countries who would like to remain in the single market and its associated policies but are unlikely to join the Euro. These two groups are not – to repeat the tired metaphor – two trains on the same track go at different “speeds”.  Instead, the two trains are on different tracks heading to different destinations.

Some policy-makers at the heart of British government like to argue that what we are seeing is simply a new version of “variable geometry”, with Britain “at the top table” on some issues, namely defence and the single market, yet opting-out of other issues, such as Schengen and the Euro.  However, this conception misses the powerful dynamic at the heart of the Eurozone in the wake of the sovereign debt crisis, which is captured by the political commitment to “do whatever it takes to save the Euro”.  This commitment has so far produced the European Stability Mechanism, the Fiscal Compact, the Euro-Plus Pact, 6-Pack, and now 2-Pack of instruments to monitor and shape basic domestic macro-economic policy choices.  Building a more tightly governed economic and monetary union is now the driving force for the Eurozone.  Regulation or reform of the single market is a secondary concern.

Credit: Kaptain Kobold (Creative Commons BY NC SA)

This challenges the constitutional design of the European Union.  Two parallel decision-making processes are starting to emerge.  The single market is still governed by the Commission, the Council of Ministers, the European Parliament and the Court of Justice, with the European Council as an arena for resolving disputes.  The Euro area, meanwhile, is currently governed by the Euro Group and the European Central Bank, and in time there will be pressure for a Eurozone “Finance Minister” and for a sub-set of MEPs from Eurozone states to monitor the ECB, the Banking Union, and approve the legislative instruments governing macro-economic constraints.

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