Greece will be bailed out before it defaults or restructures

So it seems that Greece will actually need to be bailed out. Wolfgang Munchau offers a good explanation of the underlying dynamics and mechanisms, while Jean Quatremer provides a more accessible version, for those who speak French. Its particularly relevant in terms of the accounting and maths of it all. Please read them if you have a chance. I must say I identify more with the optimistic perspective of M. Quatremer, in that Greece will be bailed out. I'm not saying it won't default. I'm just saying it will be bailed out and if that's not enough, then it will default. My hope for the bailout is that it will save Greece from falling further into a debt deflation dynamic such as the one described by Jacques Depla, which would then create real lasting problems. If this proves true, then we end up in Wolfgang Munchau's scenario number two, where the EU and the IMF bail out Greece. Contrarily to him I assume that member states can bail each other out, within the limits of some set out by article 103a of the Maastricht Treaty(in page 13), which reads as follows:

"ARTICLE 103 a 1. Without prejudice to any other procedures provided for in this Treaty, the Council may, acting unanimously on a proposal from the Commission, decide upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products. 2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken."

Granted that all of Greece's problems are not motivated by "difficulties caused by exceptional occurences beyond it control", but they are partially. As long as it is possible to determine that an economic shock is not purely endogenous, this article allows for the intervention of the Council upon a unanimous decision of its members. Given that economics is not an exact science, and that we are unlikely to create a European Court of Macroeconomic Justice, it is fair to say that as long as an economic shock is symmetrical(meaning as long as everyone else is also experiencing a recession), those who are suffering less will always be able to bail out those suffering more, even if everyone is suffering.

I also disagree with Munchau on his last comment that "the message from the EU, and from Germany in particular, is that member states are not ready to co-ordinate economic policy in the short run, and move towards a minimally sufficient fiscal union in the long run, and that as a result EMU is doomed". To me this is a syllogism. I think that the EU is more than the sum of its parts, particularly in terms of institutional reform, which is what is relevant from the point of view of fiscal

Also, if common sense is not a good enough explanation for German self interest in dealing with its neighbours, here is a fairly comprehensive review of all the possible reasons why Germany does not want to offer Greece any outrageous bailout.

This is why we need European independent revenue, ie EU taxes. This way there will be another level of government whose preferences are the result of an aggregation of the preferences of the populations of all EU member states, weighted by the machanics of the European parliament's electoral system.

This way, the greeks won't complain about Germany. They'll complain about Europe. And if Europe does not help them with structural funds, they'll burn EU flags or vote for more leftist representatives in the EP, who will be more generous with how they spend EU funds.

On a final note, this issue of the bail out from the EU has been a controversial topic since the beginning of the financial crisis, before it expanded to the rest of the economy. There's an interesting distinction that must be made. States can, under some circumstances bail each other out, the ECB cannot. Both the member states and the ECB can bail out the private sector. The explanation for this can be found in Article 104 of the Maastricht Treaty:

"ARTICLE 104

1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’)in favour of Community institutions or bodies, central governments, regional, local orother public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

2. Paragraph 1 shall not apply to publicly-owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the ECB as private credit institutions."

So if you are wondering why people talk about the help that the ECB gave to businesses during the financial crisis, it did so through paragraph 2. It provided credid facilities to "private and publicly owned credit institutions." In conclusion, member states can bail eachother and their private sector out. The ECB can also bail out the private sector but not country. The ECB can increase its credit lines to private institutions all over the Euro-zone, which may then buy credit from the state. So in principle, the ECB could bail a state out. However, it is rather unlikely that the ECB will provide a credit line exclusively to one bank of a specific country, which would serve as a proxy of the state, as this would be highly frowned upon. Alternatively, it could provide that credit line to everybody, but it seems very unlikely that all those banks would then flock to a troubled country and just hand that money to it.

Mr Herman van Rompuy, President of the Council of the EU

This is why Van Rompuy might be a good president of the Council of the EU. Summary: Consensus builder; from a small, core EU country; Why does this matter? Because the EU does not need a big ego. The EU system is not about one country or institution imposing its will but rather about the ability of political actors to reach consensus. This is obviously a problem for a country like the UK, used to majoritarian decision making typical of its FPTP electoral system. Tough luck though. You can't accommodate 27 different countries by giving them a president that tells them what to think. A Belgian might just be the best thing that happened to the EU. After all, if you can manage Flemish and Wallons, that's probably as good a practice for a EU job as there is. Regarding Turkey? No worries. He is not the only one with a word on the issue as the HRUFAS also has a vote on the matter. Regarding Van Rompuy's ability to stand up to Hu Jintao and Obama, I believe that the weight of 500 million EU citizens and 13 trillion $ of GDP ought to do the trick. After all the EU is the biggest trading partner of both of those countries.

Lisbon Treaty and the road ahead

So it turns out that the Lisbon Treaty really is going to come into force (here, here and here), probably by the end of December or January, latest in February of 2010. That's nice! It means that the decision making in the EU will be simplified, that the European Parliament will have a stronger voice in that decision making, thus reinforcing (albeit only marginally the EU electorate would say) the democratic legitimacy of the EU. This will be done by decreasing the threshold for the approval of directives (EU legislation approved by the European parliament and by the European Council, tantamount to ordering countries to pass legislation that achieves a certain end, leaving it to the countries to find out what the most appropriate way is). Countries will be given a de jure opportunity to leave the EU and individual citizens of the EU will be able to present petitions to the European Union, for the proposal of new legislation. The EU will get 1 representative for foreign policy (and security BTW...) with rather wide ranging powers, although he will not be the boggey man that Eurosceptics would make him/her out to be. He will be no where near the president of the USA, but more like his secretaries of state or defence. Nonetheless there will be nothing resembling an imperial presidency of the EU, along USA lines. Indeed, the role of the permanent president of the council of the EU is still very much unspecified and there seems to only be some consensus that his or her influence will be shaped by whoever becomes the first permanent (only 2 and half years mandate renewable only once). Thus if a Blair type becomes the first president, he will try to shape it into some wide ranging position. If however a Juncker type would take over it would be a more discrete political role, building consensus and setting the agenda, which would be a good idea. As a matter of fact all that this treaty really does is to give more coherence to European institutions, and decrease the noise around the voice of Europe (by simplifying decision making and defining the division of labour within the EU better, once we'll know what the president does). Member states are still able to make a fuss, to posture and more importantly, to defend their constituents' interest.However, and until the next generation of EU treaties comes along, they will not be able to freeze European integration; at least not without a far reaching support for their position. Hopefully, by providing this new framework for decision making it will allow the EU to be a more determined government. Hopefully by decreasing the threshold for legislating it will make the EU more responsive to political concerns. "Hopefully", because there's a ton of things to take care of and the end of this constitutional soap opera eliminates a most distracting excuse. As Barber puts it, now is the time to turn to the daily business. Here is a prior discussion and beneath are some ideas: Fiscal policy - The SGP (stability and growth pact which regulates the size of deficits <=3%) is likely to be a rather deficient tool, although only the recovery from this economic crisis will tell. How can the EU sort its fiscal policy out? It needs to decrease fiscal deficits, while allowing for a system where in the face of economic contraction, it allows for deficits to rise in order to permit tax smoothing. The present SGP permits such a thing to happen, but it has three problems and one advantage: first, it is likely to be too lax, there are too many excuses for running a deficit. Secondly, it is a system where the states police themselves. For anyone who knows human nature and anyone who's studied delegation (eg: to central banks) or principal agent problems, it is obvious that humans very easily tend to follow an atomistic, myopic short termist behaviour, and as a whole or as a group we should not be trusted to regulate ourselves, as there will always be an incentive to break promises ex post. Moreover due to alliances in the EcoFin committee it has created an environment where legislation is not applied equally and where smaller countries endure and larger countries do what they please. Finally, the present arrangement of the SGP does not have much in the way of (European) parliamentary supervision. This may be right (given that national budgets are scrutinised by their respective national parliaments) or not (given the fact that there are externalities and spillover effects from one country's budget to the next), however somebody ought to seat down the economic thinking heads and figure out what could be done to make this process better and then someone ought to seat down the political thinking heads and ask them to figure out what the best course of action in order to approve that preferred process. The advantage that the SGP has is that it is flexible (enormously so). At the moment this has been good. Keynesian economics are very useful during a crisis. However, once the economy picks up it will be interesting to see whether the EcoFin committee will be able or even willing to coerce member states to decrease their deficits. A concluding remark on fiscal policy should say that in the present context of recovery economics it is better to run a little too high deficits than to run too little ones. Pollution - I know little about this, other than that if we don't decrease carbon emissions we'll cook ourselves to death like frogs and that if we don't find a sustainable and reliable way to diversify our sources of enegy, Russia will eventually reprivatise it's industries along national lines and we won't be able to do anything about it except pay the natural gas bill at the end of the year. (this is a very far fetched scenario until Russia develops anything close to a sustainable form of economic growth and development based on anything else than exports of raw materials) Foreign policy - Will the HRUFAS be able to create a better more coherent and far reaching foreign policy for the EU? Will there be a coherent approach to USA, Latin America, China, India, and (most doubtfully) to Russia? Will some countries prefer to abandon their diplomatic missions abroad and delegate this task to the EEAS? Or will it become more and more apparent that the national diplomatic missions are fundamental lobbies for the maintenance of contracts and export agreements from smaller European nations to non EU states. Will this mean that the nations will further decrease their diplomatic missions and specialise them in their trade targets? On another topic, how loud will the HRUFAS be in the defence of Human Rights? Security and Defence policy - What will happen to European military and security cooperation? One of the biggest problems is that different EU states have different weapons and military gear. This means that in the unlikely even that we go to war, French and British pilots will not be able to fly each others planes, or operate eachothers tanks. It decreases the size of the market and thus the economies of scale that can be derived from it. This is caused by the fact that military industries are still considered to be strategic national industries and that despite their security cooperation, European states still want to be able to develop armament independently of the USA and of each other. The biggest military contractors are german, british and belgian companies which face some competition from Belgium (I think) and Sweden ( or scandinavian conglomerate). Moreover, the majority of these industries have a monopoly-monopsony type of relationship with their national governments. Will we finally get a proper European procurement? Only if one way or another, these industries are given some protection, ie only if the EU and the national industries are able to come to an agreement where profits are not threatened and job losses are minimised, while countries still feel comfortable and safe in their defence. There is thus a triangle of interests, which must be protected in order for military integration to happen: National security - profits to investors in the arms industry - workers in this industry. What will the HRUFAS do? We shall see...

The Lisbon Treaty and David Cameron: Ideologies and Interest and What Happened to Portugal

My first exploration of the Lisbon Treaty attempted to give a "what if" view of the future of European integration, in light of what could go wrong and what were possible plots. I briefly argued that one of the reasons for Gordon Brown to stay on as PM had to do with this treaty. I maintain that he must get a hearful from his European counterparts each time they meet him (particularly Sarkozy and Merkel). Probably the actual more immediate reasons lie closer to home. Instead of looking at the interests and behaviour of Gordon Brown, lets do the similar analysis for David Cameron.

Cameron and Klaus, sitting on a tree...

According to this article, Cameron told Klaus that he would hold a referendum if the Lisbon treaty was not yet adopted when he came to power. The question is thus, what is it that providing that information to Klaus means. Logically speaking, Cameron knows (because everyone knows) that Klaus is a Euro-sceptic, who does not like the Lisbon treaty, which he legitimately sees as an encroachment on Czech sovereignty. It is thus legitimate that within some reasonable boundaries of his own perceived long term self-interest, he would like to sink the Lisbon treaty so as to save the nation-state and all that. Taking this into consideration, and assuming that Cameron did too (and wasn't just being candid), his sharing of that information with Vaclav Klaus would have implied that he wanted to sink the Lisbon treaty as well and was effectively saying "hold the boat for another year. I'm coming, we can sink it together and I'll offer my protection and that of the mighty United Kingdom". This all makes sense, and if all agents are rational, without any boundaries or behavioural biases, this is what a politician who wants to sink the Lisbon treaty would have done.

The question however is whether sinking the Lisbon treaty is really in the interest of anyone politician or country specifically, David Cameron and the UK. This issue can have 2 approaches. One focused on the interests, and another focused on the ideologies. My argument is that only when a very specific view of partisanship is taken to outweight other concerns does it make sense to take the approach that I have described Cameron taking.

IDEOLOGIES (PARTISANSHIP)

This issue has to do with clusters of ideas. Ideologies are the personalities of parties. It has to do with how groups of people make sense of the world, in accordance with their interests. Thus rich people who strive under the present status quo support right wing parties which are conservative and normally reactionary. They like the way the world presently works because it made them well off playing under these rules. Poorer people obviously do not support the same party. They do not strive. They do not do well under the present game rules. They want to support a party that stands for change, in the hope that hardly any system will be worst than the present one. Parties represent classes, religious groups, ethnicities, and geographical groups, who are either happy with the present status quo or not.

From this very abstract, stereotyped perspective of the world it becomes fairly evident that new ideas cannot be adopted by reactionary groups. Conservative parties may be able to take new approaches and structure narratives differently, but they will not be able to adopt new ideas that alter the status quo in any way that threatens those who benefit from it. Thus the conservative party is ill fitted to be a natural supporter of European integration. European integration means the erosing of sovereignty by one country to the rest, as all member states pool their resources and coordinate their policies in order to minimise undesired and negative externalities. If the conservative party continues to be anchored in the belief that the UK is better off by selecting bits and pieces of European integration, because it considers it to be an economic project, rather than an all encompassing political and social one as well, it can hardly be an advocate for the project and for a reform of the rules which extends the scope of European integration and facilitates decision making.

If one assumes a utility function (U) based on two variables, taste(P) and output(Y), U=U(P,Y), where satisfying ones political taste has intrinsic value which increases utility through P, then it is possible to explain David Cameron's behaviour and willingness to give a signal to Vaclav Klaus regarding his willingness to support the demise of the lisbon treaty. It's basically his position. However as this article and the other argue, he does not seem to have a lot of security in his choice, which would indicate that the partisan channel is not the root cause. It would seem rather that the explanation should be found in opportunistic, electoral reasonings.

ECONOMIC (SELF) INTEREST

This section deals with Y and it's potential variants. Y may be an expression of the interest of the politician or of the country/economy.

Country

From a purely economic self-interest point of view the Lisbon treaty does more damage to small countries like the Czech republic than to the UK, by decreasing the majorities needed for approving EU directives and other forms of European legislation. The connection here is that the EU is another arena for countries to conquer markets and wield influence to conquer more markets. This in turn would be reflected When a super majority is needed small countries play a bigger role in vetoing. When a smaller majority is needed, smaller countries loose out. Table 1 provides game theoretical measures of power within the different voting procedures of the EU and shows clearly that there is a decrease in the influence of smaller countries as the years have gone by (0 is minimum and 1 is maximum). So the UK's interests are overrepresented in comparison to smaller states (FYI, this is not unfair. The Lisbon treaty deals with one of the issues that was brought up by the German Supreme Court, which has to do with equality of representation. It failed to recognise the European Parliament as a democratic institution because it said that it attributed more influence to some countries (e.g. Luxembourg) than others (e.g. Germany). the UK may be more powerful in terms of relative votes than before. But this should overall make the system fairer).

My point however is that Cameron would be smart to try to get all the help and all the friends inEurope that he can get. Particularly when his partners in France and in Germany are also conservatives giving him an easier time finding overlaps than if the PS and the SPD were in power in France and Germany respectively. If he informs Klaus that he'll veto if Klaus holds it out until 2010, then he'll be held accountable by french, spaniards and germans. The UK is in dire fiscal straights. He can't lower taxes and lowering expenditures in a downturn is not very popular (despite the IMF and the Washington consensus). With limited room at home he can't possibly alienate European partners and if he is intelligent he has realised that the UK does not play in the same league as the US, and would therefore be intelligent to not expect much help from that side of the Atlantic (China seems to be the US's most relevant partner at present. It has a similar scale and holds a lot of US bonds and is responsible for a lot of US trade deficit).If bad luck strikes and the UK needs help (as its situation as a small open economy, on the world market, exposes it to), its good to have more friends than few.

Individual

Whoever is to blame for the demise of the Lisbon treaty is not going to make friends anywhere in Lisbon. Now that's ok for Klaus and Kaczynski. They are at the zenith of their careers and can't possibly conceive of doing much more of relevant in the upcoming years. They have well established cronies who'll support them (either for fear of friendship, but certainly with respect). Stopping the Lisbon treaty should not be a big problem for them. Without ignoring internal political bickering, they can claim to be of a line of politicians who actually believe that the Lisbon treaty is a step too far. They don't like the idea of moving from one sphere of influence (USSR) to another (EU), and have made it clear that that's the way they see it. Cameron on the other hand is not that kind of politician. He is not in power, though him and everyone else rightly assume that he will soon enough be. More importantly he has never been in power and has a very limited number of cronies who need him. He has friendships but is rather inexperienced (this article actually gives the idea that particularly regarding Europe, the Conservative party seems to have several important players) . He probably has all the money that he is allowed to have and has done a good job at keeping friends close and enemies at bay. However he lacks the political ability of Peter Mandelson and the historical political stance of Margaret Thatcher. He will suffer the same shortcoming that Tony Blair had when he came to power, without many of his skills (Jack Straw, Peter Mandelson, Gordon Brown, New labour etc). He does not propose a revolution (despite many efforts, labels and rebranding of the conservative party) like Tony Blair's New Labour. He is not going to win because he has new ideas. He is going to win because the other guys will have been at it for 13 year, which has given then enough room for mistakes (Iraq, Financial Crisis). However he is not even able to fully benefit from these blunders, given that they were really caused by a refocus of Labour around the centre and even to the right which was successful by its ability to appeal to and steal conservative votes. Quite simply, Cameron for all his youth and charisma is inexperienced, poorly connected internationally, ideologically dull and the upcoming leader of a big European country but small international player, in the middle of a severe economic crisis, lucky enough to oppose 12 years of political leadership from his political adversaries. And this is not an insult: luck and charisma may be more empty of content but probably go a longer way to win an election than does substance and experience. So he is not Klaus (old ideas, a lot of experience) and he is not Blair (new ideas, but little experience ) either.

Regarding Europe it seems that he has no ideas except those of his party. Not ever having experienced it, he really doesn't seem to care enough to stand up for what he believes (stand up against his party's dominant euro-sceptic fringe, or with his party against the EU). He is torn between William Hague, Liam Fox and Mark Francois' Euro-scepticism, and Malcom Rifkind and Ed Llewellyn Europhilia.

Conclusion

In conclusion, Mr Cameron is in a bit of a pickle. If he helps sinking the Lisbon treaty his and his country's interests will be pushed far to the back of European discussions, thus marginalising British interests among its most important partners. If he seems to be anything less than indignant with the Lisbon treaty, he'll loose support from his party. Thus Mr Cameron's utility function does not so much depend on P as his P seems to be equal to zero (he couldn't really care less). However, his Y seems to be informed by other people's P as well as by the Y of the UK. U=U(P,Y)=U(Pc,Yuk), where Pc is the dominant partisan position of the conservative party that the Lisbon treaty is evil, and "Yuk" is the economic benefits of the UK from not crushing the treaty, which should be a reflection of good governance by Mr Cameron and hopefully ensure his dominance in British politics for a while, thus ensuring his own income.

Of course there's the ideological issue brought up previously, but that only precludes David Cameron from staying quiet, if he feels like Klaus. If he is personally indifferent to Europe which I actually think he is (if for no other reason that he would have otherwise made a lot more fuss about the 2nd Irish referendum, and about the treaty itself), then it would be smart for him to not put his words into action. If as I think, he is only playing the field, trying get the support of Euro-sceptics which are abundant in the UK, but who do not prioritise the EU very much, then its better to seem against the Lisbon treaty but to not stand in the way, than to strategise about how to bring it down. Badmouth the treaty and the European bureaucracy all you want, but don't start signalling other players something which you don't seriously want to happen.

The UK, with all its opt-outs and its European size has a lot to gain from this treaty and David Cameron has a lot to win from being perceived as reluctantly having to accept the Lisbon treaty as a fait accompli resulting from the bad policies of his predecessors. He gains very little from being the guy who destroyed 10 years of European integration efforts.

I would like to finish with a colourful warning. I am Portuguese and can base myself in my country's experience. Portugal was a great Empire, once upon a time. We gave the Western world Africa. We uncovered Japan, the Americas and found new paths to India a to a rich commercial route when Europe's path was blocked by other geopolitical entities (Ottoman Empire of Suleiman). We made a lot of money, failed to invest it properly and progressively became a footnote on the westernmost edge of Europe. We were stuck in a locked political system with dominant reactionary views of the world and entrenched in our past glory. We watched the cue pass by. Our greatest ally (UK) robbed us of our colonies (1890: the pink map). We lost. That is what will happen to England if it does not understand its place in the world and the fact that its interdependencies lie with Europe. It is not an empire. In a global economy no one is isolated and no one is an island. It is a major player in an internationally integrated economy and solidly represents the interests of 10% of Europeans. That's less than 0.1% of the world.

Lisbon after the Irish ratification

It may have been the financial crisis and the intervention of the ECB, the redundant and legally binding commitments made by the other 26 countries that the EU would not attempt to conscript Irish youths into a European Army nor would it force irish women to perform abortions, or the galvanization of the private sector (at least Intel,of all ppl, and Ryan Air made clear their support for the Lisbon Treaty), the lack of major blunders by public officials or the fact that Declan Ganley got thoroughly defeated in the European Parliament elections (which must have made him loose face and interest). Regardless of what the causes were, there is one less obstacle to the implementation of the Lisbon treaty (a brief description here and the actual text here).

There are only 5 things left to do. The treaty has been ratified by all the member states. The next step is Presidential assent (where this is still needed: Ireland and Czech republic). The last step (according to the information on wikipedia, which states that the Polish president Lech Kaczynski has given it his assent) is then to deposit it in Rome.

In conclusion there are two steps left. First, the presidents of Ireland and of the Czech Republic still need to sign the laws. In the case of Ireland this is a mere formality which should not take long, given the President's outspoken support for the Lisbon treaty. In the Czech Republic Vaclav Klaus will take his time. As this article puts it, there's a legal challenge against the treaty (the second such challenge actually) brought by 17 Czech senators. Finally Ireland, the Czech Republic and Poland still need to deposit the treaty in Rome.

This could be done in 5 hours maximum. It's ridiculous, and a testament to political bickering, that it may take all the way to December before anything relevant happens.

The Lisbon Treaty, National Politics and the potential backlash

The Lisbon treaty is an annoying little monster which may be messing around the normal path of domestic politics... This is the case in the Czech Republic, Poland, Ireland and the UK. In the latter, this may be particularly strong. I'm not sure about this and it is only a hunch. However, if only on the surface of it, the story takes turns which seem to plot to make me believe I am right. Here's what we know:

If Gordon Brown had called an election just around the time he came to power, he would have probably won it. At least so everyone said in the summer of 2007. Certainly he would have had a better shot at it than what it seems he will in june 2010. He was deemed as politically unable for not having done so. I really ought to know more about British politics, but I think that the Lisbon treaty might have had something to do with it. Could it have been that Brown feared having to address the issue during the election and that that would have exposed the issue and made it more salient raising even more problems for the EU? Could it have been the looming financial crisis which kept on growing? Could it have been the bad polls? its hard to say... It also hard to understand why no one has yet made a decent leadership challenge. Really Brown is a fairly lame duck prime minister. Many things would change if the Tories came to power, though may be not as many as people would want to. Anyway, may be I am not cynical enough, but one thing I do suspect would happen would be a referendum on the Lisbon treaty, which if the media and the last European elections are at all representative would result in the reversal of the British position on the Treaty. This would make a mess for everybody. Who is holding the boat for labour? I believe it is Peter Mandelson, who was a EU trade commissioner and is just about the only person aside from Miliband with a decent knowledge of politics and of the influence of the EU, and most, likely no significant ambition for the premiership. Could he be protecting Brown in order to protect the EU treaty, or could I have the causation all wrong, and despite rivalries, he is protecting Brown in order to aid himself and as a result that protects the EU treaty. Its difficult to untangle these causalities, but the matter of the fact is that at this stage the UK is an extremely important player.

Nonetheless, I must say that if Ireland rejects the Lisbon Treaty for a second time there really isn’t any precedent to throw around. Normally countries and treaties get a second chance, but not a third. It is either unnecessary (because their vote does not stop others from moving forward: Norway, Sweden, Denmark) or undesired (because national politicians refuse to call a second referendum: France potentially the Netherlands too). There's never been talk of a third referendum. Not even now. The idea is that Ireland will pass the referendum. There is no plan B.

So now we know when Ireland will hold its second referendum: 2 October 2009. In the most optimistic of scenarios, Ireland approves the treaty, the Czechs and the Poles deposit their treaties in Rome sometime before the British election is held and then no one cares any longer about what happens to Gordon Brown. But what if either or all of these 3 things happen:

1)What if the Poles decide to delay the deposition of the treaty?

2) What if the Czechs decide to delay the deposition of the treaty?

3) What if after the treaty is passed in Ireland, the House of Commons withdraws support from Brown and the election does not happen in June 2010, but in January? What if everyone else does everything right, but Brown is kicked out too early?

If any of these things happen, on retourne à la case zero as the French say...And here is where it gets interesting. Imagine that either one of these countries fails to ratify the treaty and effective puts an end to the process, with 5 years waisted in meetings, votes and referenda and no advancement made... Can you imagine the backlash? Whoever makes a mess out of this won't get a thing from the other countries, particularly from France. the one who has a better chance is Ireland, but still there, if the treaty fail, Sarkozy is going to beat the Taioseach into a gruesome rotten peach for not campaigning better. It won't be pretty. If it's one of the two Eastern European countries, they will be so heavily pounded they will be sorry for joining the EU... The same applies for England who might actually decide to do that, under Cameron.

So what happens then? European academics like to say that countries join because of each other. The UK joined because the EEC(read France and Germany) was growing faster. This made Ireland and Denmark join too, because they were heavily dependent on the UK for trade. This coupled with the fall of the Soviet Union also incentivised the rest of Scandinavia to join in. Would Denmark and Ireland leave if the UK left and become simple members of EEA, like Switzerland and Norway? Would Sweden and Finland also leave?

que sera sera

German Ruling on the Lisbon Treaty's Constitutionality: Legitimacy and Shared Sovereignty

Interesting days for European Integration...

Ireland sets a date for its referendum (2/10/09), the German Supreme Court ruled on the constitutionality of the Lisbon treaty ( check here for the full but only preliminary version of the ruling. BTW kudos must go to the German Supreme court for publishing its rulings in English as well as in German) and I, for lack of imagination and choice, seem to continue to engulf myself in the economic effects of budget deficits and their implication in the analysis of the credibility of the Stability and Growth Pact (SGP). It's fiscal policy analysis with budget deficits, cyclical budget deficits (the potential output version, please...) and their determinants and their effects on Repo rates, flying all over the place.

Here's an interesting article about the German ruling and it's potential consequences. I haven't yet had the opportunity to read the entire ruling and I doubt that I will have the time until September, but based on this article, here's what I its seems to say:

1) That sovereignty rests with the state according to article 23 of the Basic Law

2) That the European Parliament is not a genuine legislature

3) It clearly states what policy areas should not be covered by European Integration, one of which is fiscal policy (ie:fiscal policy is national not European)

I know nothing of Common or Civil Law, much less of the specificities of the German Basic Law, but here's what one can make out.

1) seems to be self evident in explanation, ie: sovereignty rests with the national state because it is said so in the German basic law. The ruling does not specify that all sovereignty rests with nation-states, but only specifically in Germany and as far as stated by article 23 (which for lack of knowledge I will just assume that it is absolute within the boundaries of common sense, ie: as absolute as it is permitted and more or less customary in a developed liberal democracy). This is interesting because all that seems required to change this is to change article 23 of the Basic Law. If it is changed in a manner that ensures that sovereignty can be "pooled" or that recognises European legislative mechanisms as not jeopardising German sovereignty, it shouldn't be much more difficult to solve this problem in the future, than to get the necessary super majority to change the German Basic Law. I don't know why probably because of Munchau's sentence: “Power may be shared, but sovereignty may not", I keep on remembering that sentence I heard about the competing views of the EU. Proponents say that the EU pools resources while opponents claim it uproots sovereignty by sharing it with other nations, and allowing them to have a say in their decisions.

This then brings us to the second point, the EUs lack of legitimacy. I will limit the discussion as the court itself did to input legitimacy, as only that rightly seems to make sense in judicial decisions (however the Chinese would probably like to see this included, at least if they want to legitimise their state on anything else than brutality and raw ability to keep u quiet...). 2) is justified on an interesting basis. One point that keeps on creeping up is the fact that the EU legislative process is not legitimate because of the electoral rule guiding the European Parliament and the assignment of seats. There seems to be a problem of "electoral equality" (II.cc). This is interesting... I've spent the best part of the last 2 years trying to learn about the EU its perks and its problems and I swear to god this never showed up... at least not in any relevant manner. The only time I heard a discussion about it was during the discussion itself of the Lisbon treaty where the Polish president or his brother wanted an electoral rule that accounted for the dead poles of WWII... The courts talk is in exactly thr opposite direction. The other two problems of legitimation are indeed more common. the complainants argue that the Commission is not a representative body, that there is no European political competition and that the commission's monopoly of power to initiate legislation is unconstitutional. I wonder what the court has to say about all this.

I still havent come accross the reason for the different reasons of all policy areas. However it seems plausible that the court goes through all of them individually and at length.

For the decision it really gets interesting only from heading "C", which is about half way through the paper. But again, I'll go through it later.

Finally I must say I do like the mess that it might have created with the SGP and how there might be some problems coming up...

Here's what's interesting: Munchau complains that everybody is cheering that the Lisbon Treaty can be ratified, but nobody realises the constraints that have just been put on future European integration. I believe that this is true, but quite irrelevant for now. The truth is that right now the priority is to get the treaty ratified. It's been 5 years, closer to 6, everyone is fed up with this and its about time to get things moving! We keep on talking about process, not substance, and really process, unless it is corruption, bores people. It's too technical, too confusing. (I just witnessed this today when I tried to explain to a friend the application process for jobs at the EU). Anyway, to go back to the point, European and National officials just want to get this over with. The motto is: "tomorrow, we'll worry about tomorrow". This approach is actually benefitted from this ruling and its meanders. As a matter of fact it helps that someone came along and said: "listen, the EU has problems. It's decision making is not ideal and actually parliaments ought to have a bigger say. Moreover if you want to delegate more powers, to the extent that a delegation of legitimacy will occur, you can't do through the back door. The UK and France won't simply leave one day the UN security council and be replaced by a EU rep due to backstage plotting. If you want the USE (the united states of Europe), you have to do it right. You have to change the constitutions and to properly address issues of where sovereignty lies." Specifically this helps the case of pro-Lisbon in Ireland a lot. Here's a ruling from a pretty pro-European country, saying explicitly that the Lisbon treaty does not delegate power in all those policy areas which spooked the Irish electorate, with images of Irish soldiers fighting and dying for Italy (god forbid), while their one-night-stands were forced by Brussels to abort their unwanted children, and their unwanted children were taught Esperanto in school, so that they could fill up their Esperanto European tax revenue form. According to Cerniglia and Paganni (2007: 12-14), there is a pretty decent match between present delegation of policy areas to the EU and the preference of Europeans for such delegation. Actually, it would seem that there is even some room left for further European integration in defence, humanitarian aid, the environment research and development and foreign policy. But I lose myself... The point here is that this ruling may help the cause of the Lisbon treaty for the reasons that Munchau thought it would hurt European integration. If only the Irish pro-Lisbon side can get properly organised and if their dumb politicians can shut it, we might get a chance to have this thing over and done before David Cameron comes to power and messes it all up for everyone (him included)...

As to the rest, I'm sure that the nation state will be as less fashionable in 25 years as it is today in comparison to 25 years ago...

BTW, another interesting issue for me is the idea repeatedly (6 times) stated of "the will of the people". This is interesting for someone like me who has studied political economy for a while because we get used to talk about majorities and minorities, not "the people" and much less "the will of the people". Obviously I suppose that it is implied in the courts language that "the will of the people" is proxied by "the will of the majority of the people". A Rousseauian reminiscence...