Streit Talk

by Geoff Atchison

Tensions are quickly rising within the EU as the Council of the European Union and the European Parliament face off in a dispute over increased border controls and changes to the existing Schengen Agreement. The institutional feud broke out June 7^th, after Justice and Home Affairs ministers from the Council unanimously agreed to allow member states to reintroduce national border controls in order to combat illegal migration. Stripped of its legislative authority over the proposed amendment, the European Parliament reacted harshly, rejecting the decision and suspending all cooperation with the Council on the issue. With both migration and labor mobility representing two highly sensitive EU policy areas, Parliament has painted the potential Schengen changes not only as a legal conflict between decision-making bodies, but also as a clear repudiation of EU treaty values. Analysts fear that significant revision of the Schengen Agreement may indicate a scaling back in European cooperation and create a roadblock toward future EU political integration.

The Schengen Agreement, initially signed by Belgium, Luxembourg, the Netherlands, Germany and France in 1985, set forth the goal of removing border controls and establishing a passport-free travel zone throughout Europe. Entering into official EU law with the ratification of the 1997 Amsterdam Treaty, the Schengen Agreement now includes 22 EU member states as well as Iceland, Norway, Liechtenstein and Switzerland. Five EU member states are currently not a part of Schengen; Ireland and the UK opted out from the original agreement and participate selectively, while the newer member states Romania, Bulgaria and Cyprus must reduce government corruption levels, eliminate organized crime and secure their national borders before they are able to join. As Europe works to protect itself against uncontrolled migration and possible terrorist threats, many wonder if border regulation should remain an EU competency or if this responsibility should revert back to individual member states.

Initial debate over border controls surfaced in 2011 during the Arab Spring revolutions as thousands of refugees fled to Europe to escape political violence and social upheaval in Egypt, Libya and Tunisia. Crossing the Mediterranean Sea in search of safe haven, refugees landed in Italy and Malta and then traveled across the continent to reunite with family members or establish a new life. Political and legal action became increasingly clouded as undocumented migration created an unclear triangle between internal EU security, the Common European Asylum System, and Schengen. Unable to control the sudden migration influx, France and Italy called on the European Commission to rewrite the Schengen Agreement in order to allow the temporary reintroduction of border controls. Denmark’s unilateral decision two months later to increase customs security only intensified the debate over who was in charge of regulating border controls.

A year later, in April 2012, France and Germany pressured the Council to once again revise Schengen, fearing possible instability from illegal migration and continued insecurity along the weakly enforced Greek-Turkish border. In their letter to the Council under the Danish Presidency, French and German officials pushed for increased border controls as an “ultima ratio” or a measure of last resort, temporarily establishing tighter border restrictions for a period of thirty days. Unable to ignore the issue any longer, Justice and Home Affairs ministers held a vote on June 7^th, deciding unanimously that under exceptional circumstances member states could impose national border controls for six months, with extensions of up to two years. Furthermore, they changed the legal procedure regarding the evaluation of Schengen matters, eliminating the European Parliament’s co-legislative power over the reintroduction of border controls.

Members of European Parliament expressed immediate anger at the decision, outraged not only at their reduced role in Schengen policymaking, but further upset by the shift in power from the EU to member states over issues of national border control. European Parliament President Martin Schulz voiced sharp opposition to the vote, asserting that the Council’s behavior represented “a slap in the face of parliamentary democracy.” Hannes Swoboda, Austrian MEP and head of the Socialists and Democrats group, echoed the concerns of many, stating that increased control exerted by national governments demonstrated a serious threat to citizens’ freedom of movement and fundamental EU principles. In response to the changes made by the Council, the European Parliament retaliated by suspending cooperation with the opposing institution on five key dossiers related to Schengen and internal security. Defending the Council’s position before a panel of MEPs, Danish Justice Minister Morten Bødskov explained that the judgment was a “legal decision based on contents, not on politics,” and was focused on strengthening illegal migration policy. Though disappointed with the outcome of the vote, Home Affairs Commissioner Cecilia Malmström attempted to reconcile the two sides, reaffirming the need for a European-level Schengen review system while also recognizing the need to secure borders. As both the Council and Parliament continue to fight over the issue, analysts fear that deep institutional fallout may imply grave consequences for the future of the EU.

The Council’s decision to rewrite Schengen legal procedure and allow for the reintroduction of national border controls offers a number of serious implications for the EU. First, the implementation of stricter regulations holds the potential to spark political conflict between member states as they argue over migration policy and travel restrictions targeting their own citizens. Moreover, reimposing border controls would violate the right of people to move freely and indicate a clear disregard for basic EU tenets. The new Schengen legal basis which revokes Parliament’s co-legislative power also demonstrates the EU’s growing democratic deficit, as the Council no longer requires the approval of Parliament or the Commission in order to pass Schengen reforms. Together, constraints on the free movement of people and the reduced role of Parliament would diminish EU institutional cooperation and lead to frequent political and legislative stalemate. Above all, however, implementation of the Council’s plan would signal a movement away from increased EU political integration as member states push to recognize border control as an area of national sovereignty. Ultimately, a decision allowing member states to apply their own border controls represents a political step backward for the EU and threatens to serve as a roadblock toward future Schengen cooperation and integration.

Geoff Atchison is an Intern at the Streit Council; Photo Credit: loehrwald (http://www.flickr.com/photos/loehrwald/2946900460/sizes/m/in/photostream/)

by Geoff Atchison

Stepping into office May 15^th as the first Socialist president of France in 17 years, François Hollande marks a strong departure from the center-right policies of his predecessor, Nicolas Sarkozy, and intends to focus on leading the country towards economic growth and a balanced budget. Having served in his new position only three weeks, Hollande has already made his international debut at the recent NATO and G8 Summits as well as the informal eurozone meeting among European leaders. Beating out Sarkozy in the run-off elections with 51.6% of the vote, Hollande’s victory represents a distinct shift in popular French attitudes and an overwhelming concern for the eurozone crisis and its possible consequences. While critics continue to cast their initial reviews, Hollande’s performance so far has illustrated a desire to reshape French domestic policy and to take active leadership in charting a new direction for European economic affairs.

At home, plans to reinvigorate the French economy and balance the government budget sit at the center of President Hollande’s agenda. In order to reduce the national debt, Hollande intends to raise taxes for the wealthiest portion of the population, implementing a 75% annual income tax for those earning more than €1 million.  Moreover, Hollande and his cabinet have slashed their own salaries by 30% to help achieve the President’s electoral promise of reducing the government deficit from around 4.5% to 3% of GDP.  Struggling against high public debt and nonexistent GDP growth rates inherited from the previous administration, Hollande must also confront the country’s recent credit downgrade from “AAA” to “AA+”.

Amid these economic challenges, President Hollande also intends to carry out a number of social and energy reforms. Standing out as a top priority, Hollande and his recently appointed Prime Minister Jean-Marc Ayrault advocate the immediate repeal of the current pension law enacted under Sarkozy. While the former French president raised retirement to age 62, Hollande and Ayrault wish to return the law to age 60, allowing individuals to receive their pension after working 41 years.  Although this reform will mark a symbolic and important achievement for Hollande in French social policy, the change is expected to come at a cost of nearly €1 billion.  In addition to pension reform, Hollande and his new administration have vowed to reduce the country’s unemployment rate, currently at 10% and growing, as well as minimize dependence on nuclear energy and implement a three-month freeze on gasoline prices.

Moreover, President Hollande has offered a bold approach to international affairs, touting a more independent stance towards NATO while promoting strong French leadership in European politics. At the recent NATO summit in Chicago, Hollande declared that he would withdraw French troops from Afghanistan by the end of the 2012, one year ahead of the timetable drawn up by the alliance.  Hollande’s decision to remove French troops from Afghanistan signals growing intervention fatigue among European partners in what has been a more than decade-long conflict in the country. France’s withdrawal from Afghanistan not only suggests a reduced French role in NATO, but also calls into question the strength and primacy of the organization as a leading global security force. Critics fear that mounting disinterest and selective involvement in NATO missions by France and other members may ultimately lead to a weakened NATO alliance in the future.

Meanwhile, as the eurozone debt crisis continues to ravage Greece and other parts of the continent, Hollande has emerged as a key player in ongoing efforts to resolve the financial emergency. As member states debate the possibility of another bailout or even a Greek exit from the eurozone, the rising feud between President Hollande and German Chancellor Angela Merkel over divergent solutions has created a deep fissure across Europe. While Merkel continues to push for increased austerity measures in Greece, Hollande advocates for the creation of Eurobonds to jointly hold the debt of Greece and other failing countries and encourage collective burden-sharing. Gaining support from leaders in Spain, Italy, Belgium and Luxembourg, Hollande further championed his position at an informal eurozone summit on May 23^rd. While Germany, along with Austria, Finland and the Netherlands, have demanded that Greece implement stricter financial accountability measures, Hollande’s blatant rejection of her proposal and focus instead on revitalized growth measures marks a noticeably unfavorable shift in Franco-German relations. With Merkel and former President Sarkozy almost always in lockstep on political and economic issues, the heated rivalry which has emerged between Hollande and the German leader threatens to reshape the traditionally cooperative relationship between the countries and sever the continent into two camps under opposing leadership.

As the country’s new head of state, François Hollande represents a pronounced change in French political attitudes as he looks to steer the country towards an improved social policy, fiscal sustainability, and economic growth. Working to cultivate economic stability across the region and at home, France may reduce its engagement in NATO and other international security and defense missions under Hollande. Cooperating multilaterally with the U.S. and EU, Hollande will continue to display active leadership in resolving the eurozone crisis and will further promote increased financial and economic integration. The rift between Hollande and Merkel could widen as the two leaders continue to argue over the appropriate mix of austerity and growth measures, leading to a fractured Franco-German axis and a severely divided Europe. With Hollande at the helm, France hopes to become Europe’s role model for economic and social policy as the continent attempts to weather a treacherous sea of financial instability.

Geoff Atchison is an intern at the Streit Council; Photo credit sagabardon (http://www.flickr.com/photos/sagabardon/7209236216/lightbox/)

by Uzoma Ekenna

According to a recent news report from EurActiv, on April 18 The European Commission proposed instituting an EU-wide minimum wage, increasing the current salary in many nations and introducing a minimum wage for the first time in others.  “Setting minimum wages help prevent a destructive race to the bottom in the cost of labour, and are an important factor in ensuring decent job quality,” reads the draft communication which the College of Commissioners also adopted on April 18^th.  Although that statement may be true, one can also argue that over expenditures by governments lead to debt and a deepening of national financial issues, a problem that more nations within the eurozone cannot afford to endure.

One of the first articles in the Lisbon Treaty is dedicated to social issues, as it mentions creating a “competitive social market economy, aiming at full employment and social progress”.  But in recent years, this mission has become increasingly harder to achieve, as the EU unemployment rate has climbed to 10.2% (as of February 2012) and the disparity amongst the wealthier and poorer nations continues to increase, partly due to the financial and economic crisis in the eurozone.

Interestingly enough, the nations without a current minimum wage, including Germany, Austria, and the Scandinavian countries, have some of the highest GDP’s in all of Europe.  They also hold some of the lowest unemployment rates, with Austria at the lowest of the EU member-states, at 4.3% (in January 2012).  Establishing a minimum wage in these nations may end up increasing labor costs, which could cause the prices of goods and services to rise.  Also, if companies aren’t able to afford to pay their employees, this may lead to massive layoffs and a halt in companies’ expansion.  Depending on the existing wage structure in these countries, economic growth could actually be hindered.

If an EU-wide minimum wage should be established, it would need to be high enough for residents of wealthier member states to be able to survive, but low enough so governments of poorer member states will not fall into debt by overpaying its citizens.  That itself poses a problem, because the fiscal inequality of EU member states is so great.  Luxembourg, whose GDP (per capita) as of 2011 was over $84,000, has a minimum wage set at 1,800 euros per month.  On the other extreme, one of the poorest members of the EU, Bulgaria, has a minimum wage of merely 138 euros per month (GDP of Bulgaria: $13,500).  Bulgaria maintains a very poor welfare state and lacks social service programs; even schools and orphanages in the country rely heavily on private donations to operate.  Many citizens refuse to pay taxes, creating even less funds for government operations. A government of this caliber is highly unlikely to be able to create funds that would assist in raising the minimum wage for its citizens.  It would be unrealistic for these two nations to share the same minimum wage, due to dissimilarities in economy size and the standard of living.  Countries in the same economic position as Bulgaria could be driven to over-spending, putting them in a crisis potentially worse than their current situations.

What about countries tackling debt issues due to high government spending?  Part of the Greek’s government bailout plan included a 22% cut in the minimum wage, which is currently at 877 euros per month.  After a round of tax increases and a pay cuts in both the government and private sectors, the Greek economy continues to slide into a deeper recession, increasing the number of people living below the poverty line.  How would a potential enforced minimum wage affect Greece and similar nations?  It, along with Portugal and Ireland, have agreed to cut back on government spending, but it is difficult to determine if the EU-wide minimum wage will create more an issue for countries already facing austerity measures.

One feasible alternative to an EU-wide minimum wage could be to adjust the minimum wage to the countries’ purchasing power.  That way each country is assessed relative to each other instead of the EU as whole.  Or, the European Commission could just abandon the idea of creating a wide-spread minimum wage altogether and spend more time deliberating on ways to increase funds for job creation, especially in the private sector, which would be the real solution to disparity amongst member-states.

As the eurozone crisis carries on, members of the European Commission continue to scramble to generate solutions that will improve the current economic state of the EU as a whole.  But instead of finding a collective solution, each country should be assessed separately, based on their current financial status.  An increase in the minimum wage in certain countries may be a viable resolution, but an EU-wide minimum wage could possibly be a solution that deepens the existing crisis.

Uzoma Ekenna is an intern at the Streit Council; Photo credit Images_0f_Money (http://www.flickr.com/photos/59937401@N07/5930032284/lightbox/)

by Thomas Aitchison

As of the 1^st January 2012, the EU took a bold and daring step introducing the Emission Trading Scheme (ETS) to airlines forcing airlines landing or taking off in Europe to offset their carbon emissions by trading carbon permits in the ETS. This move has angered many nations who have threatened retaliation. However, this ‘tax’ solves the problem all environmental policies have, which is free loading. Through this ‘tax’, the EU has found the best way the world can collectively tackle the global problem of climate change. Europe has once again shown itself to be the leader in environmental policies and in doing so forced others into acting.

The airline industry currently pays no tax on its fuels or emissions as they are an international entity, and as such there is no global government to impose taxes. Yet, the airline industry is one of the fastest growing emitters of CO₂, increasing by 98% between 1990 and 2006, with the UN predicting it will rise by a further 63% by 2020. Aviation emissions may seem marginal, circa 3%, but if the airline industry was a nation it would be the seventh largest emitter in the world. The EU sees aviation as getting off lightly, ‘it argues that because no global agreement on emissions reduction from aircraft is in place, it has the right to take the first step’.

The ‘tax’ works by forcing airlines to reduce their CO₂ emissions by 5%. Each airline requires a permit for each ton of CO₂ they emit. Most of these permits will be given to airline for free. However, airlines will still need a number of permits to conduct flights. Thus, airlines have to enter into the EU ETS to trade permits to amass enough to fly to Europe. The EU ETS is not just a market for airlines but also for a range of industries. The vision is that airlines will exceed their CO₂ targets_, thus reducing the cost to fly to Europe, but also making a profit in the ETS.

Although the exact costs are unknown rough estimates for a round trip flight between the US and Europe are an extra $30 per passenger. Moreover, a recent study suggests that airlines are more likely to profit than make a loss. Airline charges a would be a flat fee which would not account for fluctuating flight time, permit surplus or the price of fuel, thus ‘airlines are setting themselves up to make a killing’.

Although this is the first carbon tax, it is not the first travel charge. Therefore, the criticism that it will reduce the amount of travelers is not only exaggerated but hypocritical. In 2010, the US introduced the ESTA a $14 charge for all incoming and transferring flights. China has a travel visa requirement which costs between $30 and $160. Russia, charges airlines a fee for flying through its airspace which is estimated to cost Europe €300 million annually. Therefore, how can the US, China and Russia, three of the biggest and most vocal opponents, justify their own fees but claim an EU ‘tax’ is detrimental to travel?

The EU tax is more than the environmental benefits; it is about changing the way nations and industries think. The threat by external nations to impose CO₂ counter-taxes on EU aircraft is encouraged by the EU. The EU views any CO₂ counter-tax as a success as they have forced other nations to be environmentally proactive, by setting the agenda. ‘Countries that choose to take similar action at home will be able to [be] excluded from the E.U. program […] there is no need to control the same pollution twice’. However, non-CO₂ taxes placed on EU flights will be seen as spiteful and result in increased tensions.

The biggest concern is that the airline ‘tax’ will invoke trade wars, whereby nations penalize one another hoping to achieve concessions. China threatened to cancel a Hong Kong Airlines contract with Airbus worth $3.8 billion, but eventually backed down. It is yet to be seen if any other trade is affected by this tax but it is an area of concern.

Those that oppose the ‘tax’ argue that it restricts the Freedom of the Air agreements. The Air Transport Association argues that it is unfair to charge for the whole flight as most CO₂ emissions would be released outside of EU airspace. Yet, this misses the point, it is not about improving European air quality, but tackling the problem of the aviation industry, which is bigger than just the EU.

The initiative also hopes to change the priorities of aviation manufacturers when designing new aircraft. Boeing’s Dreamliner ‘will have a carbon footprint that is 20 percent smaller than similarly-sized aircraft’. Airbus in response to Boeing’s green Dreamliner, which has been immensely popular for its fuel efficiency, are in the process of building a greener aircraft too. Some have argued that this would have happened anyway, and that may be true, but it would not have happened fast enough. Standard and Poors argue that carbon emissions will increase quicker than the industry can improve their fuel efficiency; as such the EU is trying to close that gap.

The EU’s initiative was forced by slow progress internationally compared to fast growing aviation emissions. The International Civil Aviation Organization (ICAO) has tried to cut carbon emissions in the past but has failed. The EU hopes that in the meantime, whilst the ICAO is looking for a global solution, it’s ‘tax’ system can maintain pressure on the ICAO whilst also cutting carbon emissions.

It is shortsighted to see the EU airline tax as a green greedy tax. Instead, Europe is educating the world about collective responsibility and forcing its hand to deal with an international issue equally. The EU has always been the leader when it comes to green issues, but this time it is not just forcing the world to sit up and watch, but instead it is forcing the world to take part.

Thomas Aitchison is an intern at the Streit Council; Photo credit Olastuen (http://www.flickr.com/photos/olastuen/3727009663/sizes/m/in/photostream/)

by Mitch Yoshida

German Chancellor Angela Merkel and Greek Prime Minister George Papandreou at a European Council meeting in March. Can they hold the Eurozone together?

In the latest episode of the Eurozone’s ongoing fiscal drama, the Greek Parliament has approved a €28 billion austerity plan aimed at winning €12 billion in emergency EU/IMF funding to stave off default. Today’s parliamentary vote, which centered on the specific steps needed to implement the measures, also passed.

On the face of it, this can be easily construed as a decisive step toward resolving the crisis. Eurozone donors will be able to keep the Greek government solvent while protecting their own economies. Letting Greece default would undermine many of the currency area’s banks and reduce investors’ willingness to lend to other Eurozone states with dubious financial outlooks. While the Eurozone may be able to cope with unsustainable levels of debt in Ireland and Portugal, which have also received bailout packages, it may not be able to support Italy, Spain, and Belgium if they go under.

So, from an economic standpoint, bailing Greece out is a no-brainer. But at the moment, it’s far from clear that donor governments will be able to command the political support needed to continue doing so for years to come. It’s widely understood that Greece will need funding until, and possibly beyond, 2014. The question is, will domestic political forces in Germany (the biggest donor, aside from the IMF) and Greece (the reluctant enactor of austerity measures) allow the bailouts to continue?

A poll conducted earlier this month found that 60 percent of Germans are opposed to extending a second round of assistance to Greece; a mere 33 percent support it. This is consistent with German attitudes toward last year’s bailout of Greece, which 51 percent opposed. Support is also dangerously thin in Greece, where 47.5 percent wanted parliament to reject the austerity plan. The German public’s opposition could soften if the French and German governments convince financial institutions to share the bailout burden by “voluntarily” holding on to Greek debt for a longer period than they otherwise would. But this is unlikely to make a large enough dent given the fact that most of Greece’s lenders are public institutions. Nor are Greeks likely to tolerate much more austerity.

The reality is that the Eurozone’s Achilles heel is turning out to be its level of solidarity. It’s true that its leaders have agreed to a slew of measures designed to enhance the “economic governance” of the Eurozone, including: closer EU surveillance of member states’ economic and fiscal policies; the creation of the permanent European Stability Mechanism (ESM) to replace existing temporary bailout mechanisms; and improved financial regulation. But the ESM – the key element of this package that will effectively institutionalize Eurozone solidarity by serving as a permanent bailout mechanism – will not come online until 2013. By then, it may be too late.

Mitch Yoshida is the Mayme and Herb Frank Fund Research Fellow at the Streit Council.  Photo credit: The Council of the European Union (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressData/Pics/photoGallery/%7B607b5f39-9938-4e44-bd24-3d46346020e4%7D.jpg)