EU Economic policy in view of the new Draft Constitution

By Eugene Eteris, from Denmark

Our magazine has already twice published short comments on the new constitutional draft (See our Summer Nr. 10 and Autumn Nr. 11 issues).

We present now a short analysis of the most important issues concerning another aspect of the EU future, i.e. its economic development. Needless to say that economic development within the presently planned EU structure very much resembles a division of competences in the federal-type states, although the notion “federalist” has never been mentioned in the Treaty establishing a draft Constitution for Europe.

Press-photo Silvio Berlusconi, President of the Italian Council of Ministers, meets Romano Prodi

After the draft Treaty was turned down at the EU inter-governmental conference in Brussels in the middle of December 2003, leading officials in the EU expressed strong desire to revive negotiations on the Union’s constitution. Present EU’s rotating presidency for the first half of the year 2004 holding by Ireland has termed it as “an urgent issue to tackle” and as quickly as possible.

Among most burning questions discussed in Brussels around the draft text, i.e. institutional issues, new member states’ representation, etc. were the problems concerning Union and member states’ economic development; especially, at present when various member states’ economy has been declining. It is important to mention that in the draft Treaty most attention, in fact about two-thirds of the whole text, is devoted to policies and functioning of the Union (part III).  

Economy as the Union’s priority

The EU economic issues revolve around two major items. First, it is about “common” spheres of the European Union’s economic development; these spheres are divided into three main “economic competences”, i.e. exclusive EU competence, areas of shared competence and that of supporting, coordinating or complementary actions. Second, it is about EU member states’ economic development in order to make it more efficient, productive and more competitive economy on the European and the world markets.

These two items of EU economic development are, of course, closely interconnected and interrelated, e.g. the better is the member states’ economy the better will be the general Union’s economic stability. On the other hand, the growth of the member states’ GDP is directly influencing the Union’s budget allocation (formed, in part, as a percentage share of national budgets). 

Generally, the EU economic policy guidelines are composed of several sectoral spheres of development, mostly in line with the national economic policy divide, although severely influenced by the Union’s competence. It is to be remembered that the Union possesses various competences to promote and coordinate both the economic and employment policies of the member states. This economic principle has been specifically included into the EU constitutional draft (art. I-11, part 3). We already mentioned that as soon as the Draft is divided into four parts all articles in the draft are cited by a corresponding draft’s part, followed by an article in question.  

Part III of the draft is called “The policies and functioning of the Union”; and the policies are divided into (1) internal policies and actions: – articles III-14 to III-68; and (2) the Union’s external actions: articles III-193 to III-231. In this BC issue we’d only touch upon internal policies and actions. Important to see that, first of all, the drafters of the new Treaty provisions have concentrated on internal market, economic and monetary policy and those spheres of economic development that are covered below.

In the chapter concerning “Internal market” the following issues are dealt with, i.e. free movement of persons and services, free movement of goods, capital and payments, rules on competition, fiscal provisions and approximation of legislation.

Press-photo Jos� Maria Aznar, President of the Spanish Government, and Romano Prodi, on the right

Division of competence

So far, the division of economic competences in the constitutional draft has been classified within the following three main sectors.

1. Exclusive competence. This EU competence is based on already established common rules necessary for the optimal functioning of the internal/common market, with four major freedoms (goods, persons, services and capital). At the same time, there are four areas of exclusive Union economic competences, i.e. monetary policy and EMU (for the countries which have adopted the Euro), common commercial policy, sphere of economy within customs union, and common fisheries` policy (only conservation of marine biological resources). In these areas the member states’ competence is heavily dependent on the EU legislation.

2. Shared competence. This competence mainly falls into six-seven sectoral economic activities, i.e. agriculture and fisheries, transportation, energy, environment, consumer protection, labour social and health aspects of economic development. Specific shared competence should be mentioned concerning economic, social and territorial cohesion, as well as areas of research, technological development and exploration of space. In these areas the member states rely upon the EU legislation as the guiding principles in national decision-making.      

3. Areas of supporting, coordinating/complementary actions. These areas of competence cover the following spheres of economic development: industrial policy development, protection and improvement of human health, education, vocational training and sport, culture, civil protection. It has to be noted that Union actions in these fields may not entail harmonization of member states’ laws and regulations, in contrast to the two previous spheres of competence.    

It’s well worth mentioning that before the clear cut division of economic competences were established in the EU Draft Constitution, various other “division principles” have been explored, e.g. vertical and horizontal division, etc.

At the same time, it is important to note that economic cooperation is subject to certain principles. And more than that, at the same time, there are established limits to Union economic competence, which are governed by the principles of conferral, as well as that of subsidiarity and proportionality. Thus, under the principle of subsidiarity, in areas which do not fall within the union’s exclusive competence, the Union shall act only if and insofar as the objectives of the intended action cannot be sufficiently achieved by the member states (either at central or at regional level), but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. 

Under the principle of proportionality, the content and form of Union actions shall not exceed what is necessary in order to achieve the objectives of the Union coordination and cooperation.

Economic development in the previous

Press-photo Gerhard Schr�der, Chancellor of the Federal Republic of Germany, on the left, and Romano Prodi

EU Treaties and constitutional draft 

The very first Community Treaty of 1952 regulating coal and steel usage, sale and production was apparently first attempt to integrate two commodities into a common economic area. The attempt was so successful that it was followed by another much broader economic treaty of 1958 which was aimed at further integrating efforts among European member states. Major subsequent treaties added both new economic spheres of integration and enlarged “common” economic spheres of cooperation. These were such treaties as Single European Act (1987), Maastricht and Amsterdam Treaties of 1993 and 1999, Nice Treaty of 2003, as well as member states treaties of accession. The latter included mostly some member states’ reservations concerning participation in “common integration efforts”.  

From the first Community Treaties up to the present Draft Treaty establishing “Constitution for Europe”, the European Union and the member states have been engaged in a fierce struggle to formulate and share economic competence aimed at fostering economic cooperation, integration and general economic progress of the whole European community and that of the member states. But national protectionism measures, which persisted in Europe until the early 1990s by means of technical barriers to trade, greatly hampered the initial integration approaches to economic development.  

Almost all articles in the “consolidated version” of the Treaty establishing the European Community (and including all eighth existing Treaties) are devoted, to a certain degree, either to economic cooperation or to integration issues. Although, it has to be mentioned specifically, such issue as the division of economic competence between the Community and the member states has been somehow omitted. Instead, such terms as “common rules”, “community policies”, and “common policies” have been widely used.

It is to be mentioned that starting from the EEC Treaty the communities` policies were chiefly regulating the common market in industrial development through such “regulatory means” as rules on competition (in competition policy), approximation of laws (in a special chapter of the Treaty), etc. including measures of the basic freedoms, tax provisions and other regulations. According to the EC Treaty, for transport and for agriculture and fisheries the member states should have common policies, which, in fact, were aimed to replace in the long run the corresponding policies of the member states. It has been true, so far, only for the EU’s agricultural policy, and some other “policy agendas” that were called “unions” (such as customs union, economic and monetary union, common market) and common commercial policy.

Five broad spheres of the Communities` social and economic development begun during the stages of the customs union and the common market and have been continuously developed for the sake of economic integration: regional and social policies, taxation, competition and environment policies. 

Even without a clear- cut division of economic competences between the EU and the member states the Treaties provided certain regulatory measures. This what one can see, for example, in chapters on customs union, on prohibition of quantitative and qualitative restrictions on trade between member states (art. 28-30); on free movement of persons, services and capital, on transport (art. 71); in the Title VI on “Common rules on competition, taxation and approximation of laws”, in the Title VII “Economic and Monetary policy”, Title VIII “Employment” (art. 125), as well as that on public health (Title XIII), consumer protection (Title XIV), trans-European networks and industry, etc.

It has to be mentioned that certain issues of economic cooperation have been dealt with in “the old Treaties” in various decision-making procedures.

Conclusion

While mentioning a strict and clear- cut division of competences in the first part of the draft, its authors did not dare repeat that division in the draft’s third part. Thus, in the latter the first two spheres of competences were named as (1) policies in other specific areas (after articles on internal market and economic and monetary policy), and (2) area of freedom, security and justice. It does not seem to happen accidentally, as the drafters’ intention was so clearly defined in the first part of the constitutional draft. The answer lies somewhere deeper, e.g. in the desire to present a strictly “federative division” of economic powers among the EU and the member states and, at the same time, in the need to reckon with existing, mildly said, some member states’ hesitant stance towards Union’s federalism aimed to follow more independent “from the centre” position in economic development.