What is the state of economic convergence in the euro area? And will the redefinition of the Stability and Growth Pact result in a more effective policy for achieving convergence? A common currency, together with the four freedoms, was assumed to lead to economic convergence. This Clingendael Report reviews the state of convergence in the euro area by focusing on nominal, real and institutional convergence. Despite a range of policy initiatives and monitoring systems, convergence has not been achieved neither in terms of monetary and economic performance nor of the quality of governance at the national level. Despite some major successes in convergence, welfare has continued to diverge in some countries and differences in debt levels have increased up to the point of threatening the - economic and political - coherence of the euro area. Public spending also varies considerably while higher public spending does not ensure higher growth levels. The paradoxical situation has arisen in which countries that (drastically) reduced debt levels performed better in terms of growth and reduction in unemployment.

Using comparative economic data for the more than 20 years since the introduction of euro, the Report among other things reaches the following conclusions:

• Upward convergence has been successful in among others Ireland and in East-European member states. These countries witnessed relatively high growth while debts were reduced. Portugal managed to bring down unemployment during the past years. Yet, a limited number of member states continue to struggle with debts, growth, and attracting investments.
• Trend analysis shows that European investment funds have failed to make a difference. Major benefactors of EU investment funds in Southern and Eastern Europe show diverging growth patterns. Ireland and East-European countries succeeded in terms of catch-up growth whereas Southern countries lagged behind. Further study is required to explain the differences in convergence and its relation to public investment.
• Contrary to the general impression that fiscal consolidation has hampered growth, we find that the countries that did cut expenditure also achieved relatively high growth levels, were able to attract investments, and managed to reduce unemployment. By implication, the notion of investment deficits in eurozone countries needs to be re-examined.
• Also in national federations with explicit stabilization mechanisms, such as the US and Germany, convergence is hard to achieve. Hence, it is probably more important to accept divergence while preventing that stability of the monetary union is undermined. Convergence is not a necessary condition for the economic stability of a monetary union as long as public debt levels do not cause negative external effects large enough to jeopardize the stability of the system.

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Authors

Adriaan Schout, Senior Researcher, Institute Clingendael & Professor European Public Administration, Radboud University

Arthur van Riel, Senior Research Fellow, Netherlands Scientific Council for Government Policy

The EU’s open strategic autonomy agenda is quickly gathering pace, especially in the trade and industrial domain. A host of initiatives and autonomous instruments have been introduced to strengthen the EU’s resilience, reduce its strategic dependencies in key sectors, and protect its industries against economic coercion and unfair trade practices. The EU has generally been careful to ensure that its efforts do not undermine the openness of its economy. However, there is an undeniable tension between the ‘open’ and ‘autonomous’ components of the agenda. Guaranteeing compatibility will require a careful balancing act, contingent on a coherent strategy not only for strengthening the EU’s strategic autonomy but also for fostering and preserving its openness. This policy brief offers concrete suggestions for operationalising the ‘open’ component in the EU’s open strategic autonomy agenda. 

Authors 

Luuk Molthof, Research Fellow at Clingendael’s EU & Global Affairs Unit

Luc Köbben, former intern at Clingendael’s EU & Global Affairs Unit

From concept to practice

Amidst the weakening of the multilateral system, the rise of multipolarity, and the Covid-19 pandemic, the concept of European strategic autonomy (ESA) has gained considerable traction. In fact, according to European Council President Charles Michel, the strategic independence of Europe is ‘our new common project for this century’ and ‘goal number one for our generation’. Long seen as a French pipedream, and first applied in 2013 to Europe’s defence and security policy, the ambition of strategic autonomy is now backed by a growing number of member states and is increasingly applied to a broad range of policy areas, including industrial and trade policy.

Open strategic autonomy

The EU’s desire for more autonomy in the trade and industrial domain has been given a boost by the Covid-19 pandemic, which crucially exposed the vulnerabilities in the global production and supply chains. Even the Netherlands, which was long sceptical of previous (French) proposals for strategic autonomy, acknowledges the risks of asymmetric dependencies in strategic sectors and the growing need for the EU to protect its economies against economic coercion and unfair trade practices.

Until recently, the Netherlands, along with some other member states, was concerned that the ambitions for strategic autonomy would lead to an interventionist industrial policy, would fuel protectionism, would provide German and French ‘industry champions’ with an unfair advantage, and would erode the interdependence that has brought Europe so many benefits.

To assuage such concerns, the European Commission insisted that its goal is ‘open strategic autonomy’, and that strategic autonomy can be achieved without resorting to protectionism and while preserving the open economy and the benefits of interdependence. In a recently published joint non-paper with Spain and another recently published joint statement with France, the Netherlands gave its cautious backing to this new open strategic autonomy agenda.

But what does this agenda look like in practice? What are the implications for the EU’s industrial and trade policy and for some of the EU’s key industrial ecosystems? To what extent are the twin aims of achieving strategic autonomy and preserving an open economy actually compatible with one another? And how can a member state such as the Netherlands both contribute to and benefit from the EU’s open strategic autonomy agenda? This report will address these questions.

Authors

Luuk Molthof, Research Fellow at the EU & Global Affairs Unit of the Clingendael Institute
Dick Zandee, Senior Research Fellow and Head of the Security Unit of the Clingendael Institute
Giulia Cretti, Junior Researcher at the EU & Global Affairs Unit of the Clingendael Institute

When the corona crisis broke out, it was clear that eurozone economies were ill prepared for new setbacks. Put differently, the SGP had failed to produce convergence. The RRF offers an opportunity to reconsider the effectiveness of economic governance and to strengthen national ownership for sound economic policies. Despite its potential merits, the RRF was not designed to reinforce national institutions to monitor and correct their own economic policies.

Creating the required ownership for sound economic policies would have demanded empowering the independent National Productivity Boards (NPBs) and Independent Fiscal Institutions (IFIs), and integrating them in a redesigned independent network-based European Fiscal Board (EFB). The failure in 2020 to include the NPBs, IFIs and the EFB also implies a major break with the Fiscal Compact, Two Pack and Six Pack that aimed at empowering national institutions.

The RRF concerns a major financial commitment and could thus have been used as bargaining chip to strengthen the long-term reform measures by insisting on a subsidiarity-based European monitoring and enforcement system, including mutual inspections, and build around the nascent macroeconomic independent national and EU agencies. Such decentralized systems have proved their worth in successful European policy areas such as in monitoring the state of the environment in member states. This will have consequences for the organization of the EU Commission.

Using the lessons from the RRF to (forget to) strengthen national institutions is also relevant for redesigning the SGP. Firstly, redesigning the NPBs, IFIs and EFB will offer a suitable model for monitoring national policies as a replacement of the current centralized control under the SGP by the Commission. Secondly, the future development of the RRF and NGEU can be used as bargaining chip in the negotiations on the SGP.

The review of the SGP will involve adaptation of rules, reinstituting the ESM, and deciding on new emergency funds. The negotiations ahead offer opportunities and leverage for steering towards a pro-active and constructive role for the Netherlands in the elaboration of subsidiarity-based economic governance.

Authors

Adriaan Schout, Senior Research Fellow at the Clingendael Institute

The required complementary governance agenda draws on experience in success EU policies areas and is aimed at converging national institutions in the framework of EU networks. When it comes to the SGP, rules are important but they are meaningless without ownership for the intentions behind the rules. This will demand a switch in roles from the European Commission and in particular from DG ECFIN and the European Fiscal Board (EFB). In essence, the proposed new approach is based on the subsidiarity-based distinction between first and second-order control. The member states have to supervise themselves and the Commission has to monitor whether they have the required independent institutions.

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Author 

Adriaan Schout (Senior Research Fellow, the Clingendael Institute)

Jens Kuitert (Intern, the Clingendael Institute)

The future of EU health policy after the COVID-19 pandemic changed conventional thinking

The COVID-19 crisis has prompted the European Union (EU) to rethink its health policy, or rather those of its policies that influence the health policies of member states, as those largely comprise a national competence, and sometimes a subnational one. During the pandemic, EU institutions and EU member states identified issues where more EU coordination was desirable, for instance with regard to stockpiling and joint purchasing of medical products. Much is still unclear, however, about how a broadly supported revised EU health policy should look, particularly as this has traditionally been a field where EU citizens and EU member states saw little added value in the EU becoming involved. A newly proposed EU4Health programme saw a setback right at its inception, with its proposed funding being cut drastically by the European Council, even though EU health expenditure will continue to rise. This policy brief explores the future of EU health policy after the COVID-19 pandemic changed conventional thinking.

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Authors 

Louise van Schaik (Head of Unit EU & Global Affairs, the Clingendael Institute)

Remco van der Pas (Senior Research Associate, the Clingendael Institute)

Watch online debate ‘The Covid Crisis: what EU Role in Health?

Diagnosing enforcement of EU border control

Enforcement is a major challenge in the EU’s multilevel system. Solving the tensions between sovereignty and interdependencies requires internalisation of the core values and objectives embodied in EU legislation. Internalisation depends on strong involvement in all phases of policy-making through teamwork. States in the EU’s multilevel administrative system have to regard themselves as fully responsible for EU policies. High levels of interaction among experts in enforcement contribute to the required professional cultures. In organisational terms, a multilevel (subsidiarity-based) administrative system is based on cooperation in which the centre (the Commission and/or EU agencies) assumes essential managerial roles without eroding the integrity of the member countries.

Subsidiarity is generally seen as a legal principle. This paper presents the practical governance consequences of subsidiarity. Subsidiarity is well grounded in the EU treaties. Yet, the implications are little understood by policymakers when it comes to creating the conditions for effective EU policies at the shop floor of national administrations.

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Authors

Prof. Dr. Adriaan Schout (Research Fellow at the Clingendael Institute, Professor of European Public Administration at the Faculty of Management Sciences of Radboud University in Nijmegen)

Ingrid Blankensteijn (intern at the Clingendael Institute)

Will it be able to deliver?

Greening the huge Corona recovery investments and the revised Multi Annual Framework is marketed as a once-in-a-lifetime opportunity. The European Commission is keeping its Green Deal ideas at the heart of its Next Generation EU package, but meanwhile the recovery measures of individual Member States are aimed mostly at ensuring the jobs and businesses of the grey economy. Moreover, an east-west divide is emerging over the Commissions’ green ambitions. Successful implementation will certainly depend on the steering authority the Commission might acquire.

This policy brief analyses the effectiveness of key steering instruments available to the Commission. And it analyses how this effectiveness is influenced by the political context of the European Council.

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The author

Paul Hofhuis (Senior Research Associate at the Clingendael Institute)

One of the most praised elements of the workings of the European Union (EU) is its ability to reach compromises between its Member States. Yet, evidently, the integration process of the EU is also characterised by protracted decision-making, resulting in poorly-functioning policies in domains that are highly politicised, like migration, enlargement and Eurozone policy. Even when difficult compromises could be stuck, compromising on salient political issues has proven to be problematic in several ways: policies are not functioning as intended because some of their actual consequences were unforeseen; policies are not functioning as well because they were poorly thought through; policy initiatives have suffered from questionable (ideological or overoptimistic) assumptions; policies suffer from poor substantiation; or policies stretch the interpretations of EU treaties (also known as creeping integration), for example in taxation policy. Difficulties related to enlargement, the functioning of the eurozone and border control can be related to the dynamics in the ways in which compromises were substantiated and agreed. One simple solution, often is to streamline EU decision making e.g. by abolishing unanimity voting in sensitive areas such as in economic governance. Before going down that road, this policy brief critically examines whether institutional short-cuts to pre-empt tough and protracted EU decision making should be supported.

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The authors

Adriaan Schout (Senior Research Fellow at the Clingendael Institute)

Adriaan Nunes (Junior Researcher at the Clingendael Institute)

Het jaar 2019 was in twee opzichten een kanteljaar. Na de verkiezingen in mei is een nieuwe Europese Commissie aangetreden met opnieuw grote ambities. De grote ambities van Juncker zijn deels vastgelopen op de lidstaten en hetzelfde dreigt te gebeuren met de ambities van Von der Leyen. Ten tweede sluit 2019 een woelig decennium af. De lessen van de afgelopen periode zijn essentieel om het draagvlak in de jaren 2020 te bewaken. Kwaliteit van beleid en van het gezamenlijke Europese bestuur moeten voorop staan.

Author:

Adriaan Schout