Democracy and Eurozone structural adjustment programmes

12 May 2016

Alexandros Kyriakidis - Doctoral Student, Department of Politics, University of Sheffield

The European Parliament’s new role in Eurozone structural adjustment programmes is institutionally ambiguous and offers only limited democratic improvement

By now, there can be little doubt that reforms to the European Union during the Eurozone crisis have impacted negatively on its democratic performance. After all, this has been a recurring and haunting ‘curse’ of the Economic and Monetary Union’s political economy and ordoliberal foundations. Of particular concern has been the lack of input by the European Parliament (EP) in the making of Macroeconomic Adjustment Programmes (MAPs) or signing of Memorandums of Understanding (MoUs) with Eurozone member-states which have received financial assistance through the European Stability Mechanism (ESM) and its predecessor programmes.

EU and Eurozone institutional arrangements are complex and so it is worth spelling out exactly what is the ESM and what are MAPS and MoUs. Essentially, the ESM is an international organisation outside of the EU legal framework that operates like the International Monetary Fund (IMF) but only for Eurozone member-states.  It provides financial assistance (‘bailouts’) to Eurozone states through conditional structural adjustment programmes.  These are called MAPs or MoUs and are agreed jointly by the member-state and the ‘Troika’ (comprised of the European Commission, European Central Bank and the IMF).

The process of negotiating and implementing the MAPs/MoUs has been criticised for lacking in democratic performance. To address such concerns, the Greek Prime Minister wrote to the President of the EP in August 2015 requesting that the EP, as the democratically elected, representative institution of the EU, be directly and fully involved in the review process of the third Greek MoU. Following this request, multiple discussions took place in meetings of the EP’s Conference of Presidents, with the result that, in January 2016, a new mechanism establishing the involvement of the EP in the MAP/MoU process was agreed.

I have seen the letter sent to the Chair of the Parliament’s Economic and Monetary Affairs Committee, which outlines the specific conditions of this new mechanism. For confidentiality reasons, it isn’t possible to share the letter (official document reference D300414/11.01.2016), but its contents can be revealed as follows.

The mechanism consists of a new Financial Assistance Working Group (FAWG), comprised of 30 elected members of the European Parliament’s Economic and Monetary Affairs Committee. FAWG is tasked with the ‘monitoring of the implementation of financial assistance programmes supported by the ESM’. However, the new working group is not ‘to take part directly in the decision-making itself or in the implementation of programmes by the institutions’. FAWG’s actions focus therefore on organising:

The letter also entrusts some relevant tasks to the EP’s Economic and Monetary Affairs Committee, which:

Moreover, plenary debates in the Parliament relating to the financial assistance programmes are now to be organised at least once a year.

All the above is to be set out in a new Inter-Institutional Agreement to delineate the operational specifics. According to additional new information I have obtained, the EP has confirmed that FAWG and relevant provisions will apply to all Eurozone states currently with a structural adjustment programme – that is, Greece, as well as the post-programme Eurozone states (Ireland, Spain, Portugal, Cyprus) which have previously agreed MAPs or MoUs in return for financial ‘bailouts’.

The legislation referenced in the aforementioned letter setting out the new role of the EP advocates greater transparency and accountability by enhancing inter-institutional dialogue between the EP, the Council and the Commission, and further includes the possibility of economic dialogue with representatives of the Troika. Regarding MoU/MAP processes, Regulation 472/2013 Articles 7 and 18 are referenced:

If these are the new arrangements, the question immediately arises as to whether these provisions effectively provide a strong legal foundation for the EP’s activities as outlined in the above letter (FAWG and so on). The truth is that the legal basis underpinning the arrangements is rather thin and, hence, the presented democratic improvement is somewhat limited.

Why? First, in three of the above four provisions only the Commission is referenced (and not the other members of the Troika), while the representation of the ESM is not provided for anywhere within the referenced Regulation.  It is, therefore, ambiguous as to how FAWG is legally covered to interact and hold meetings with all three Troika institutions and the ESM.  Second, even just for the Commission, the referenced provisions include only a one-way obligation of information provision to the EP.  It is doubtful whether this could cover the much broader process of establishing a genuine exchange of views with the EP.  Third, the exclusion of the EP from any actual decision-making processes in relation to MAPs/MoUs is rather limiting in terms of democratic oversight. Overall, then, it is not at all clear from this Regulation that the EP can, in fact, legally monitor the implementation of the financial assistance programme.

Nevertheless, this new mechanism is an important and necessary first step for introducing some democratic oversight into the making of EU structural adjustment programmes. However, the deficit of democratic representative provisions in the existing legal instruments calls into question the effectiveness of even this very modest attempt.  There is still a need to take further initiatives that introduce stronger representative input.  For example, amending the provisions within Regulation 472/2013, specifically to delineate the participation of the EP in the programmes, would offer a much stronger legal foundation for the greater involvement of the EP in the actual programmes and their implementation.

In sum, this new mechanism establishing greater participation by the European Parliament in the MAPs/MoUs processes is a welcome, but only modest step. Serious questions about the democratic legitimacy of the process remain.

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