EU Watcher

With three months until the next elections of the European Parliament, it is time to consider the possible impact on Europe’s business climate. The outlook is anything but rosy. Here is an overview of political outcomes, followed by a prediction of the lobby agenda by the private sector.

Charts-Pollwatch-19-02-20141. First of all, the new EP will become less pro-European. Eurosceptics are now mere sounds from the fringes, and their parties are plagued by scandals and infighting. After 2014 however, they will become a strong political voice from millions of disengaged Europeans. Pollwatch predicts around 220 seats for the anti-European parties. The current political groups are afraid their power base and their pro-European course may be threatened.

Already influential MEPs like Jo Leinen are calling for a ‘Front Européen’, which means that the pro-EU parties should team up and form a bloc against the EU-haters. This strategy, of course, is counterproductive because it will only corroborate the image of a Eurobubble elite that ignores the voices on the street. An elite that will strike down any alternative views on Europe, as Martin Schulz, current EP President and S&D candidate for the function of President of the Commission. He stated that the ‘populists’ exploit feelings of resentments. ‘Resentments we thought we had overcome a long-time ago.’ Linking the eurosceptics to the Second World War – excellent tactics.

2. The balance of power may change dramatically. Right now almost every decision in Parliament is dependent of the liberal faction ALDE. This is because the christian-democrats EPP do not have enough seats for a single majority, nor do the social-democrats S&D. With the ALDE faction they get a majority on most policy areas, other factions like the ECR are too small (or too extreme in their positions to be a partner).

Schermafbeelding 2014-02-27 om 15.03.21
Nominal and actual power in the EP. Source VoteWatch

Polls suggest that the EPP and S&D will be more or less the same size in the new EP (now the EPP is substantiallly bigger). But with the eurosceptic / populist parties getting more than a quarter of the votes, the two big centric blocs will undoubtedly be pushed into a ‘Grand Coalition,’ also because the Greens and ALDE are expected to lose seats. This kind of coalition-forming between the two traditional antagonists is already happening in many member states; the latest version will define Germany’s politics for the next years.

3. More horse-trading What is the effect of such a coalition going to be on the European Parliament? We can expect big fights over key positions such as the President of the Commission (to be ‘suggested’ by the EP), the President of the Council, the High Representative for Foreign Affairs. EPP will claim the Commission leadership. EPP and S&P will do a lot of power politics and flex their muscles after the key positions have been filled in. This could paradoxically lead to more horse-trading and games, instead of more transparency and dialogue with citizens.

4. Impact on policy choices A more eurosceptic parliament will still be pro-European, but in certain areas may lose its enthusiasm to expand the EU’s role. It will also be more critical of the spending of the EU and ask for stricter auditing.

Major issues in the EP will be the continuing fight of the eurocrisis, as the economic outlook remains neutral-positive. The continuation of high (youth) unemployment levels will be on top of the agenda, though the role of the EP is limited. More influence can be expected in the setting up of the banking union, the fulfillment of the (digital) internal market, the TTIP (trade deal EU-US), data protection regulation and privacy issues, telecom regulation, environmental policies (including ETS) and the expansion of the External Action Service.

Another agenda item might be treaty change. Though most actors in the EU will try to avoid treaty negotiations, it may well be necessary. The options to mitigate the eurozone crisis are already hitting against the legal boundaries of the Lisbon Treaty.

5. A less liberal Europe The ALDE faction may shrink considerably. The German and British liberals will be marginalized at home, while they make up almost 30% of the ALDE seats in the current composition. A smaller liberal group may well lead to a less liberal EU.

First of all the ALDE group can lose its influential position of kingmaker, to get majorities in the European Parliament. Then the EPP and S&D will have to take less acount of the liberal views, mainly on policies on the internal market, trade policies, immigration, environment and civil rights. Alas, the new EP will take less liberal decisions.

There is empirical evidence for this prediction. According to recent research by Votewatch Europe, ‘the political/ideological composition of the EP has a decisive impact on the shape of EU legislation.’ The NGO analyzed ten key decisions of the EP in 2012 (ranging from Eurobonds to maternity leave, from the MFF to the ETS) and found that EPs vote not so much nationally, but more in line with their political family. As the next diagram shows, the influence of the liberal group is currently relatively large on economic and environmental themes. This will no doubt change dramatically in the next EP’s composition.

As a knock-on effect of the elections, the new European Commission President will be less inclined to give Commission positions to the liberal party. Right now there are eight liberal Commissioners, this number will undoubtedly decrease.

Business lobby agenda for the next five years

How will Europe’s companies respond to the elections? Let’s look at their priorities. What Europe desperately needs is a better level playing field between the old continent and the rest of the world. The EU’s policies and politics should become more consistent, while right now many directives, measures and action plans conflict with each other. Also innovation and investing in infrastructure are more key than Europe’s institutes recognize. According to Commissioner Kroes (Digital Agenda), the new EU budget for 2014-2020 is ‘a budget of the past’ rather than of the future, still focusing mainly on agriculture, structural and cohesion funds.

Therefore the private sector will probably have this lobby agenda for the next term of the European Parliament and the European Commission (until 2019):

  1. A monetary union with a full-fledged banking union, possibly including Eurobonds. Implementation of Basel III. Further structural reforms in the (weaker) member states
  2. A central position for Europe’s industry, as the motor for growth and employment. Europe has to remain an attractive place for industries and that implies a better coordinated and streamlined industry policy. Drafting new regulation should include an impact assessment for the EU’s industry, for instance on energy and climate issues.
  3. Better regulation, less bureaucracy. Progress has been made but it’s not enough especially when it comes to the consistency and coherence of policies. A preference for regulation instead of directives will decrease the risk of ‘goldplating’ and increase the speed of the implementation process. It will also mean that the discussion on subsidiarity will become clearer.
  4. The single market needs to be improved and should become a top priority for the next Commission and Parliament. Concrete measures to be taken are the abolishment of national protectionist measures, the streamlining of state support rules, and above all the completion of the digital, energy and transport market.
  5. More allowance for innovation: no specific preference for sectors, reform intellectual property, increase the role of the government as ‘launching customer’, establish goals instead of focusing on technological solutions
  6. Reform labour markets and invest in knowledge. Though politicians close their eyes to this, Europe’s population is ageing rapidly. Millions of vacancies are unfulfilled, especially in the digital sector, while many more millions are unemployed. Migration policies are too tight and the EU lacks the open and inclusive culture of the US. Social rights are not transferable, a.o. leading to low internal labour mobility.

An excellent read on the EU’s challenges is the report Our Global Future, published in 2013 by CBI (the Confederation of British Industry).


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