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2. The EU: institutions, competence, decision making

2.1 Main features of the institutional set up

2.2 The principles of subsidiarity and proportionality and areas of Community competence

2.3 Methods of decision making

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The institutional triangle

The European Council

The Council

The European Parliament

The Commission

The Court of Justice, the Court of Auditors

The ECB

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The European Commission

Its task is to articulate, represent and promote the common European interest

It has the sole power to initiate legislation, its proposals for legal acts can normally be changed only by unanimity, and it can withdraw its proposal if it so decides

The Commission monitors implementation of Community legislation and policies by nation states, it is the ”guardian of the treaties”

Each member state nominates one commissionar (so far), but he/she represents not his/her country but the common European interest

Decisions of the Commission are taken by a simple majority in the college

Each commissionar is in charge of one or several Directorates, the EU bureaucracy

The Commission, a supranational body, is both a political and a technocratic body

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The Council of Ministers of the European Union

It acts under the guidance of the European Council

Primarily a decision-making body, often in codecision with the EP (for legislation)

This is a forum for pooling sovereignty of member states and for finding acceptable compromizes to conflicting national interests

It is chaired by a rotating presidency with responsibilities for organizing work of the Council

The Council meets in different compositions depending on topic, for finance issues it is Ecofin Council that matters

While typically working on the basis of Commission proposals and in codecision with the EP (for legislative issues), the Council is the most important decision maker in the EU (except for or in additon to the European Council)

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The European Parliament

It is the only EU institution directly elected by EU citizens

A strange parliament: It cannot initiate legislation, only the Commission can; it cannot legislate on its own, only in codecision with the Council

It cannot decide on taxes or revenues of the EU, only member states can do this

Yet, the powers and influence of the EP have increased over the years and it now plays an important role in Community legislation and in deciding on the Community budget

The EP may, with a two-thirds majority, force the resignation of the Commission (as happened to the Santer Commission in 1999)

The EP is located and meets in Brussels, Strasbourg and Luxmebourg!

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The European Council

Gives overall political leadership to the EU, sets its priorities, gives impetus for further work, ensures horizontal coordination of the work of the various Council formations, and reconciles conflictual issues

It consists of the heads of state or government of the member states plus the president of the Commission

It is chaired by the President of the European Union

Meets (nowadays) frequently, meets also in the composition of euro area member states

Takes political decisions only, legal and other implementation is for the other bodies as well as for member states

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Other EU institutions

The European Central Bank (ECB): independent body responsible for the monetary policy in the euro area, located in Frankfurt (see later)

The Court of Justice: The legal authority of the EU, located in Luxembburg

The Court of Auditors: monitors and evaluates the management of the Community budget, located in Luxemburg

The European Investment Bank (EIB): financial institution designed to facilitate financing of projects of common interest for the European Union, located in Luxemburg

There are numerous other EU institutions and agencies, often located in the member states (including in Finland)

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EU: areas of competence and the principle of subsidiarity

The principle of subsidiarity implies that decision should be taken at the national (or local) level unless there is a strong and specific case for Community action; the principle of proportionality complements this by limiting action so as not to go beyond what is needed to achieve a specific objective

Community action is thus justified primarily if there is some clear case of ”market failure” with cross-border dimensions; otherwise the heterogeneity of preferences and the risk of political failure caution against Community action

There is a clear case for Community action (with QMV) to set up the internal single market and safeguard the four freedoms (to avoid free-riding and national protectionism); there is a much weaker case for Community action in areas like social policy or taxation (and in many areas of structural policies)

The case for Community action in the field of monetary and fiscal policy is a matter of some dispute (cf.later)

NB that the Community budget is small, roughly 1 % of the area-wide GDP (and badly spent)

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EU and member state competence in the area of economic policy (roughly)

Competence Macroeconomic Structural policy policy

Member fiscal policy (and labour market & states monetary policy social policy,

outside the euro area) tax policy etc.

European monetary policy in the internal market: Union the euro area, some competition, trade and

fiscal policy coordination state aid policies

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Does the EU meet requirements of democratic accountability?

All EU member states are democratically governed at the national level (one of the Copenhagen criteria)

The European Parliament is elected by European citizen and the Commission can be forced to resign by a 2/3 majority of the EP

All the members of the Council and the European Council are accountable domestically (but not separately for their EU policies)

The supranational power of the Commission (e.g. competition and state aid policy) or the ECB (monetary policy in the euro area) are not to be seen as undemocratic if/as the delegation of these (specific) powers have taken place by democratic means (through the treaties agreed upon and ratified by member states)

However, de facto the ECB is more independent (and further away from democratic accountability) than any other central bank, and giving further powers to the ECB in the area of financial supervision may raise questions

NB that small and big states have the same amount of votes in the governing council of the ECB, that small nations have more influence in the Council than their share in the population of the EU, and that candidates from small nations need fewer votes to get into the EP (violating the ”one person one vote” principle)

Negotiations in Brussels are often time-consuming and complex, with a key role for committees of civil servants, giving considerable influence and a strong role to key officials in the ministries of member states

Also, agreements reached late at night in the European Council or the Council occasionally put the national parliaments in a situation of fait accompli, creating strains for national democratic procedures

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Rodrik’s trilemma (adapted)

National autonomy (fiscal policy)

(present conundrum) (as it used to be)

Deep integration (EU/EMU) (Political Democracy union)

NB: decisions on, e.g., generalized cofinancing risk undermining democratic legitimacy

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Issues of relevance for decision making

Who identifies the problems?

How is preparatory work organized?

Who sets the agenda of meetings of decision-making bodies?

Who defines the decision alternatives?

How and by whom is the debate run and the decision process organized?

What is the required majority for a decision?

How much scope is there for ”horse trading”?

How are the decisions recorded and communicated?

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Methods of decision making: intergovernmental contra supranational

Intergovernmental cooperation (IGC) as compared to supranational action (SNA):IGC SNA

is voluntary Yes No is binding (sanctions) No Yes needs common institutions No Yes is based on the unanimity principle Yes No

Supranantional action can take the form of delegation of powers (to a supranational body, such as the Commission or the ECB) or the pooling of sovereignty (such as in the Council and in codecision)

Decisions in EMU are IGC or SNA, and are taken by a supranational body or by

unanimity or qualified majority of member states of the euro area (depending on the case)

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The required majority and efficiency

cost total costs

procedural or decision costs

external costs

½ m 1 majority (degree of)

The higher the required majority, the bigger the negotiation or procedural costs, and the smaller the external costs imposed on those in the minority. The cost minimizing or efficient majority will depend on these costs, which differ depending on the problem

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Characteristics of unanimous decision making

The risk of the tyranny of the majority is avoided (national sovereignty is respected)

Negotiations to find solutions become very cumbersome and time consuming and encourage ”strategic” behaviour (bluffing)

Anybody can use the veto (”hostage taking”) to protect its interests and to insist on privileges or special conditions, sometimes totally unrelated to the issue at hand (side payments, cf. The Italian milk quotas)

It often turns out that no decision is possible, paralysis

The biggest nation may in practice acquire a disproportionate power as it possesses the most credible threat possibilities (the right of veto carries limited weight if a big power can bully small member states)

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Characteristics of qualified majority voting (QMV)

A minority could be exploited by the majority (the ”tyranny of the majority”, cf. below)

No consistent preference order may emerge, the ambiguity of collective choice (cf. the voting paradox)

May give a lot of scope for ”horse trading” (useful or harmful)

The specifics of the decision procedure matter a great deal: sequential versus comprehensive decisions, the specification of alternatives, the order of voting between alternatives, the scope for negotiations …

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Majority voting and the national interest

T S d c Q z b

a w e

Q T

N

There are two sorts of countries: S and N, their welfare levels measured vertically and horisontally. Original

position is a. Intergovernmental cooperation allows any point on QQ between z and w (both gain).

Supranational action allows any point on TT, also those to the left of d or to the right of e, that is, some

countries may lose if outvoted in decisions by a majority useing its position to exploit the minority

NB: No weird assumptions are needed for assuming that the

majority may wish to exploit the minority, rationality and

nationalism may be enough

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The voting paradox (Condorcet)

Assume that the preferences of voters A, B and C over the alternatives x, y and z are as follows:

A x > y > zB y > z > xC z > x > y

The resulting majority decision violates the transitivity condition: x is preferred to y, y is preferred to z, yet z is preferred to x

NB: The literature triggered by the Arrow paradox: there is no way to aggregate individual preferences so as to result in a majority voting procedure meeting certain ”reasonable” requirements (such as transitivity)

NB: The attraction of majority voting (and democracy) is with the procedure, not with some inherent characteristics of the outcome

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Sequential majority decisions

Assume that the optimal points of three decision makers are given by A, B,C: the closer one gets to the Y B preferred point the better (in both dimensions X and Y). Start at point E; everybody A M agrees to go to F. If decisions F on X,Y are voted separately, C the result will be M (which E . illustrates the mean voter X theorem).

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”Nothing is agreed until everything is agreed”

Assume one decision on both X and Y together with three alter- natives a, b and c. A choice Y . B between a and b gives b (voted by B and C). Pitching b against c a b gives c (by A and C), but then a A . choice between a and b would give a (instability of ranking). The c . C outcome may be determined by the one who sets the agenda or X decides on the voting order.

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The power of the agenda setter

Assume now that the agenda- setter has the power to specify Y . B one option to be pitched against b’ the status quo, assumed to be at a b the point a. If B is the agenda- A . .G setter, he could get to a point like b’ (with votes of B and A). A c . C neutral agenda setter (such as the Commission) could engineer X a more even-handed solution (such as at point G).

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Horse trading

Version X Version Y

Project I II III I II IIIVoter A -6 -6 -12 -1 -1 -2Voter B +2 -1 +1 +7 -1 +6 (payoff matrix)Voter C -1 +2 +1 -1 +7 +6 Σ = -5 -5 -10 +5 +5 +10

NB: No majority for projects I and II (version X) but B and C could agree on both together (= project III) though this would harm voter A disproportionately (and A might perhaps avoid this by making side payments to B and/or C)

NB: Ditto in version Y but now the outcome is more favourable in the aggregate (and A might receive a side payment). Horse trading may be useful or harmful, depending on the case.

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Decision making in the EU: conclusions and further considerations

Unanimity risks locking in status quo but is inescapable for decisions where the scope for redistribution is considerable (like the EU budget)

The outcome of QMV-decisions can be heavily influenced by the definition of the alternatives and the procedure (like voting alternatives)

The rotating presidency gives incentives for self-restraint for the presidency (there is scope for ”tit for tat” in repeated games)

The Commission can steer the process, notably in legal matters (right of initiative and right to withdraw proposal)

The President of the EU (and of the eurogroup) are designed to assume the

role of ”honest broker”

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Part 2: Sort of summary The European Council is at the top (has the best legitimacy in the eyes of the citizens)

The institutional triangel is key for Community legislation

There are considerable differences between intergovernmental and supranational decision making; the former is common (also in the EU) but the latter is of key importance

Supranational decisions come in two forms: delegation of certain powers to specific institutions or pooling of soveregnty in the hands of the Council

The principles of subsidiarity and proportionality are (should be) overarching guidelines

Community competence varies a lot between various areas

The EU meets requirements of democratic accountability – but there are dilemmas

The specifics of the decision process matter a lot, there is a need for the Commission and the Presidency to act a ”honest brokers”