the european parliament in the economic governance of the european union

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JCMS 2003 Volume 41. Number 2. pp. 249–67 © Blackwell Publishing Ltd 2003, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA The European Parliament in the Economic Governance of the European Union CHRISTOPHER LORD University of Leeds Abstract This article analyses how the European Parliament’s contribution to policy outcomes varies across three branches of economic decision-making and two roles typical of a parliamentary body. The former are based on Majone’s distinction between stabilization, redistribution and regulation. The latter draw on Habermas’s distinc- tion between the role of the legislator in bargaining and preferences, and setting norms of collective action, which are taken here to include standards of public con- trol and rights entitlements that must be secured in the delivery of policy. Introduction The designation by the Convention on the Future of Europe of a working group to consider the economic governance of the Union demonstrates the importance of the topic to questions of future institutional design. But do we fully understand how the European Parliament (EP) presently contributes in the economic governance of the European Union (EU)? The mechanics are easily described, as follows. The bulk of internal market laws are co-decided by the Parliament and Council of Ministers on a proposal from the Commis- sion, as are social and environmental regulations, which indirectly impact on competitiveness. The Commission reports to the Parliament on its manage- ment of competition policy. The EP has the final say on changes to non-com- pulsory expenditures in annual budgets. The Parliament scrutinizes the Euro- pean Central Bank (ECB) and a range of other economic co-ordination mecha- nisms, including the Stability and Growth Pact, the Broad Economic Policy Guidelines (BEPG), and the open method of co-ordination. Yet comparatively little has been written on how the EP shapes policy outcomes in these areas, beyond what can be inferred from general accounts of political behaviour in the Parliament, and analysis of its role as a legislator.

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Page 1: The European Parliament in the Economic Governance of the European Union

JCMS 2003 Volume 41. Number 2. pp. 249–67

© Blackwell Publishing Ltd 2003, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

The European Parliament in the EconomicGovernance of the European Union

CHRISTOPHER LORDUniversity of Leeds

Abstract

This article analyses how the European Parliament’s contribution to policy outcomesvaries across three branches of economic decision-making and two roles typical of aparliamentary body. The former are based on Majone’s distinction betweenstabilization, redistribution and regulation. The latter draw on Habermas’s distinc-tion between the role of the legislator in bargaining and preferences, and settingnorms of collective action, which are taken here to include standards of public con-trol and rights entitlements that must be secured in the delivery of policy.

Introduction

The designation by the Convention on the Future of Europe of a workinggroup to consider the economic governance of the Union demonstrates theimportance of the topic to questions of future institutional design. But do wefully understand how the European Parliament (EP) presently contributes inthe economic governance of the European Union (EU)? The mechanics areeasily described, as follows. The bulk of internal market laws are co-decidedby the Parliament and Council of Ministers on a proposal from the Commis-sion, as are social and environmental regulations, which indirectly impact oncompetitiveness. The Commission reports to the Parliament on its manage-ment of competition policy. The EP has the final say on changes to non-com-pulsory expenditures in annual budgets. The Parliament scrutinizes the Euro-pean Central Bank (ECB) and a range of other economic co-ordination mecha-nisms, including the Stability and Growth Pact, the Broad Economic PolicyGuidelines (BEPG), and the open method of co-ordination.

Yet comparatively little has been written on how the EP shapes policyoutcomes in these areas, beyond what can be inferred from general accountsof political behaviour in the Parliament, and analysis of its role as a legislator.

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A received view is that the Parliament exercises its powers in support of adistinctively ‘European’ model of economy and society that draws eclecticallyfrom the economic ideologies of the centre-left and centre-right (EuropeanParliament, 2001d, p. 6). The assumption here is that even if the EP starts outfrom a high level of ideological differentiation amongst MEPs on economicand social policy, institutional biases in the internal and external politics ofthe Parliament assure centripetal outcomes. Decision rules that require anabsolute majority of MEPs, the incentive to secure large majorities for reso-lutions if they are to reinforce the credibility of the Parliament’s ‘signalling’strategies, and the need to adopt positions acceptable to the other EU institu-tions have all been cited as powerful incentives for MEPs to converge onconsensus solutions (Corbett et al., 2000; Hix and Lord, 1997; Hix et al.,1999; Kreppel, 2000).

One shortcoming of this received view is that it does not in itself tell ushow much ideological differentiation is sacrificed in the search for consen-sus. A couple of indicators – the EPRG survey of MEPs (see Table 1), andplenary amendments – would suggest the answer is, quite a lot. The EPRGsurvey confirms that MEPs do, indeed, start out from significantly differentideal positions on economic policy. On each of the four questions shown inTable 1 – the role of politics in reducing economic inequality, the value ofintervention in markets by public bodies, the regulation of labour rights, andtrade-offs between taxation and welfare spending – the average positions ofthe party groups in the EP are between 1.59 and 2.02 points apart from oneanother out of a maximum of 4 points. The amendments that MEPs table tocommittee reports provide further evidence of how the economic and socialmodels favoured by different groups of MEPs are distributed around the con-sensus positions they eventually adopt. Even where they maintain the con-sensual pattern of passing final resolutions by oversized majorities, MEPsoften split ideologically on a significant number of amendments to those reso-lutions (Kreppel, 2000, p. 354). Cleavage lines typically revealed by amend-ments tabled include regulated v. deregulated labour markets, shareholding v.stakeholding in capital markets, public ownership v. privatization, discretion-ary v. rule-based demand management, redistributive v. pareto-improvingpolicies, and extensive v. restricted welfare provision.

This article is, however, mainly concerned with a second shortcoming inthe received view of a Parliament preoccupied with consensus outcomes ineconomic policy-making, namely its failure to distinguish how the EP’s con-tributions to policy outcomes differs across types of economic policy, on theone hand, and its varied roles as a representative body, on the other. The pointwill be made by analysing how the EP serves two parliamentary functions –the aggregation of preferences and the setting of norms of appropriateness –

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across each of the three branches of economic policy identified by Gian-domenico Majone: stabilization, redistribution and regulation (Majone, 1996a,p. 263). That legislatures have the often conflicting task of simultaneouslybargaining interests and developing the normative underpinnings of collec-tive action is hardly an original conclusion: ‘the legislature interprets andelaborates – and creates – rights as it pursues its policies’ (Habermas, 1997, p.439). In the case of the EP’s contribution to the economic governance of theUnion, those rights fall into two categories: first, the rights of the public tostandards of accountability and control in relation to each of the Union’s poli-cies; second, the rights of individuals to economic and welfare protections;third, the rights of individuals to certain procedural standards, such as equaltreatment, legal certainty, and so on.

Yet it is rare for the analysis of parliaments to give as much attention to thedeliberation of norms as the aggregation of preferences in areas such as eco-nomic policy-making. In the case of the EP this is surprising, since opportuni-ties to bargain and aggregate preferences in ways that influence substantivepolicy outcomes are often constrained, while the need to involve an elected

Table 1: MEP attitudes on Economic Governance by Party Group

Party Economic Economic Labour WelfareGroup Inequality Intervention Regulation Spending

Greater effort Government More/less Current welfareshould be made should play a regulation of spending should beto reduce greater role in labour rights maintained even ifinequality of managing is needed it means raisingincome the economy taxes1 = agree strongly 1 = agree strongly 1= a lot more 1 = agree strongly5 = disagree 5 = disagree 5 = a lot less 5 = disagree stronglystrongly strongly

Ave SD Ave SD Ave SD Ave SD

EPP 2.84 1.22 3.94 0.95 3.36 1.21 3.61 1.05

PES 1.48 0.80 2.56 1.01 1.87 0.82 2.15 1.02

ELDR 2.53 0.90 3.84 0.76 3.30 0.86 2.95 1.03

G 1.25 0.45 2.50 0.79 1.67 0.76 1.58 0.67

EUL/INGL 1.00 ( !) 0 1.92 0.83 2.07 1.28 1.73 0.75

UEN 2.20 0.45 3.0 0.71 2.67 1.5 3.40 0.89

EDD 2.80 1.30 3.75 1.89 3.2 1.09 2.40 1.14

Source: MEP Survey 2000, available at «http://www.lse.ac.uk/Depts/eprg/data.htm».Note: For an explanation of party initials, see the glossary.

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body in the deliberation of minimum norms of collective action is made moreacute by the novelty and contestedness of the political system.1 Indeed theargument that will be made here by comparing in turn each area of economicpolicy – stabilization, redistribution and regulation – is that at best the incen-tive for MEPs to focus on bargaining of preferences is limited to opportuni-ties to make incremental changes to outcomes in selected areas and, in manycases, the economic and social models on which integration is based are ex-ternal to their powers. In contrast, the contribution of the EP to ‘norming’policy frameworks is significant across the range of the Union’s economicpolicies.

The argument is illustrated by key reports agreed by the EP, most of whichare taken from the period 1999–2002. This ensures the analysis is up-to-dateand uniformly based on the same set of treaty rules (Amsterdam) and thesame EP (the Fifth Parliament, 1999–2004). An exception is that it is impos-sible to understand the EP’s position on monetary union without also includ-ing the Randzio-Plath report of 1998.

I. Stabilization

EU economic policies are most obviously exogenous to the powers of the EPin the area of stabilization. Co-ordination of national policies that affect thestability of the economic cycle is based on an implicit policy rule in favour ofstructurally balanced budgets, and on a mixture of peer review and penalties,including public warnings for inadequate convergence on multi-annual pro-grammes and fines for excessive deficits (above 3 per cent of GNP). Hodsonand Maher (2001) usefully categorize these co-ordination mechanisms, asfollows. The Stability and Growth Pact provides a ‘hard co-ordination’ mecha-nism to discourage Member States from imposing negative externalities onone another in the management of their economies. The Broad EconomicPolicy Guidelines (BEPG) are a form of ‘soft co-ordination’ aimed mainly atsmoothing the aggregate ‘policy mix’ between the monetary policy of theECB and the sum of national fiscal policies. The open method of co-ordina-tion (OMC) allows Member States to choose different paths to agreed objec-tives in those cases where ‘one size fits all’ solutions would be sub-optimal.The OMC has thus been the chosen instrument for making factor marketsmore flexible now that other means of dealing with ‘shocks’ to the stability ofthe economic cycle have been removed by monetary union.

The key point for any analysis of the EP is that all three mechanisms workthrough what Hodson and Maher (2001, p. 735) describe as an ‘intensive

1 For an exception, however, to neglect of the EP’s deliberative role, see Costa (2001).

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trans-governmental process’. The Parliament has thus expressed frustrationat its peripheral role by ‘complaining of the democratic deficit in Europeaneconomic policy’ and by calling for the negotiation of an inter-institutionalagreement to cover the new forms of economic co-ordination (European Par-liament, 2000d, p. 8). Although the Commission makes inputs to the assortedco-ordination mechanisms, and there is, accordingly, scope for the EP to beconsulted, this gives the Parliament less influence than under the consultationprocedure used for legislation. Any EP views on the economic co-ordinationmechanisms that are accepted by the Commission are included only in rec-ommendations to the Council, not in legislative texts that constrain choicesavailable to the Member States. At most, the EP’s scrutiny of the macroeco-nomic co-ordination mechanisms serves a function of ‘publicity’ in its literalsense: the EP provides a public place where the different processes of warn-ing, recommending and reviewing can be collated and compared, with thepossibility of awkward questions being asked about equality of treatment anddiligence of follow-through (Hodson and Maher 2001).

The monetary policies of the ECB are, arguably, still more exogenous tothe politics and powers of the EP than the trans-governmental economic co-ordination mechanisms. As is well documented, the drafting of the EU’sMonetary Constitution was delegated to ‘conservative’ central bankers (Dysonand Featherstone, 1999) who entrenched a sound money paradigm in an insti-tutional design that provided for an unusually independent central bank. Inaddition to the general treaty prohibition on the ECB taking instructions fromany source, the EP is excluded from the mechanisms by which independentcentral banks in other systems come under long-term pressure to adjust tosocial preferences expressed through representative structures (Lohmann,1998). The terms of delegation to the EU’s central bank are not amendable bya majority of its legislature, but by treaty change. This means that while thereare multiple veto holders on changes to the ECB’s agency, the EP is not amongstthem. Nor, indeed, do rolling appointments to the ECB’s Governing Councilrequire formal confirmation by the EP. The European Council is obliged onlyto consult the EP on appointments of the President, Vice-President and othermembers of the Executive Board who, in any case, currently comprise onlyone-third of the ECB’s decision-making body (the Governing Council).

Otherwise, the EP’s role under the Treaties is confined to reporting rights.The Treaty obliges the President of the ECB to present the Bank’s annualreport to the Parliament in person, and anticipates that the Parliament willdebate it. It further allows for hearings of members of the Executive Boardbefore a committee of the Parliament either at the mutual agreement of theinstitutions or at the request of the EP (Consolidated Treaties of the EuropeanCommunities, Article 113).

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Monetary policy, however, offers intriguing confirmation of the argumentin this article that restricted influence over substantive outcomes need notstop the EP from working to promote norms of appropriateness for the exer-cise of powers by other Union-level institutions. In preparing to operationalizethe EP’s treaty powers to scrutinize the ECB, the Economic and MonetaryAffairs Committee (EMAC) consulted senior monetary economists, whoseconsensus view was that the TEU was a sub-optimal monetary constitutionthat missed opportunities to institutionalize a higher level of central bankaccountability within a given level of central bank independence. In particu-lar it was unnecessary and undesirable for the ECB to have what monetaryeconomists (Rogoff, 1986) call ‘goal independence’ (the power to define whatis meant by the treaty mandate to deliver stable prices) as well as ‘operationalindependence’ (free choice of means to deliver goals). The EP was advised topromote reporting norms vis-à-vis the ECB that would ameliorate these de-fects in the Treaty (Author’s notes, EMAC meeting, February 1998).

As set out in the Randzio-Plath report (European Parliament, 1998b), theEP responded by putting a maximal interpretation on its treaty rights and bydeciding to deploy them cumulatively. It billed consultations on the appoint-ment of the first executive board of the ECB as ‘confirmation proceedings’(European Parliament, 1998a). Each nominee was required to return writtenanswers to a standard questionnaire and appear in person before EMAC. Amechanism for requesting the withdrawal of nominees was also written intothe EP’s own rules of procedure (European Parliament Rules of Procedure,Article 36). During the ‘confirmation hearings’ the EP further reached an agree-ment with the incoming ECB President, Wim Duisenberg, that regular hear-ings before EMAC would be held every three months.

Beginning with the ‘confirmation hearings’ the aim was to press the ECBinto ever closer specification of its targets, forecasts and policy rules, and forMEPs then to use those statements as criteria to judge the ECB in each subse-quent hearing or procedure. It was thus hoped that the ECB’s relationshipwith the EP would be turned into a form of self-appraisal, made all the moredevastating by any possibility of dismissing it as political interference, whoseassumptions derived from anywhere but the practitioners of independent cen-tral banking themselves. In addition, by boxing the ECB into its own pre-specified performance criteria, the EP expected to limit any scope for theBank to obscure underperformance through vague objectives or retrospectiveredefinition of targets. It was, finally, made clear that grave or persistent fail-ure by the ECB to live up to the performance standards it had set itself inparliamentary hearings could be grounds for the EP to use its treaty rights torequest an unscheduled meeting with the ECB. Such a move, the EP evi-dently believed, would stand out as a ‘summons’ in public and market per-

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ception, and act as a powerful disincentive to underperformance in the firstplace.

With some exceptions, the ECB has willingly co-operated with the EP’soperation of its reporting obligations. EMAC understood from the outset thatits proposed ‘monetary dialogue’ with the ECB would be supported by incen-tive structures inherent to central banking itself. Given that control of infla-tion is a ‘credibility good’ that is achieved at lower cost the more a monetarypolicy rule is internalized into the expectations of wage and price fixers, cen-tral bankers have at least a qualified interest in public explication of theirintentions (Briault et al., 1996, p. 9). Yet, the ECB relationship with the EP ismore than a matter of policy efficiency and public relations. The Bank’s ownpronouncements suggests it sees legitimation benefits that might be summa-rized in three propositions:

• absence of legitimation by election, or even by a form of delegation thatis revocable by democratic procedure (as opposed to intergovernmentalnegotiation), means that the only source of legitimation available to theECB is its ability to justify its policies publicly;

• justifying policies under cross-examination from elected representativesmeets tests of public justification over and above any success inmaintaining the credibility of financial markets;

• of all representative bodies, the EP is the most likely to accept policyjustifications in a form that respects the ECB’s mandate to set monetarypolicy for the euro area as a whole (European Parliament, 1998a).Representatives of elected national governments or national parliamentswould be more likely to quiz it on the suitability of monetary policy forspecific Member States, which is not its mandate.

Although significant convergence has thus taken place between the EP andECB on norms of accountability by ‘reason-giving’ (Majone, 1996b, p. 292),the EP has by no means been uniformly successful in pressing its own inter-pretation of reporting standards on the Bank. Differences remain between an‘account giver’ (the ECB) anxious to maintain margins of ambivalence andan ‘account receiver’ (the EP) eager to narrow them (March and Olsen, 1995,p. 159). The main dispute has centred on what counts as transparency. TheECB’s argument that publication of minutes of its meetings would compli-cate attempts to frame a monetary policy for the euro area as a whole byexposing members of the General Council to pressures from different na-tional audiences has drawn the riposte from EMAC that the range of opinionsexpressed at meetings could be released without attributing any views to in-dividuals. Likewise, EMAC has responded to a tendency by the ECB only tostate its forecasts for key economic variables as wide ranges of possibilities

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with an (albeit oxymoronic) call for the Bank to prepare a ‘user-friendly econo-metric model’ that would allow external critics to run reality checks on ECBdecisions (European Parliament, 2001e, p. 7).

II. Redistribution

The budget is the institutional mechanism that comes closest to allowingredistributive functions of economic governance to be delivered through theEU. Although Union regulations have redistributive implications, it would bedifficult to argue that they are well used for such purposes. In contrast, theUnion budget transfers resources to particular regions (the structural funds)and sectors (the CAP).

The annual budget begins with a proposal from the Commission, whichthe Council amends and sends to the Parliament. At the end of the day the EPcan reject the budget outright. Most of its efforts, though, go into pressing fordetailed changes according to procedures that differ for compulsory and non-compulsory expenditure.

On closer examination, however, the EP’s budgetary powers are tightlyconstrained. They relate only to annual budgets that must, in turn, respect afive-year ‘financial perspective’ on which the Parliament is merely consultedprior to a decision by the Council. Together with other constraints, this hasthe following implications:

• the EP has no powers over the revenue component of the budget;• the EP’s powers of amendment are only procedurally strong in relation

to the 54 per cent of the budget that goes on non-compulsory expenditure;• even then, the EP is only able to vary the non-compulsory expenditure

up to a ‘maximum rate of increase’ which, for example, was just 3.2 percent in 2001;

• the EP has to keep to no fewer than seven further ceilings, since thefinancial perspective also specifies maxima for each of the ‘headings’into which the budget is divided (Laffan, 1997).

In recent years, the last factor has been a special cause of frustration to theParliament. Although the overall Union budget has been in substantial sur-plus, the EP has had almost no room for manœuvre, since the priorities forwhich it has been most interested in finding extra resources – support for thereconstruction of the Balkans, various internal policies and administrativereform of the Commission – all fall under budgetary headings that are alreadyup to their ceilings (Carlos Costa Neves MEP, Debates of the European Par-liament, 11 December 2001). In each of the three budgets between 1999 and2001, the EP had to agree to raid the ‘flexibility reserve’ to achieve its objec-

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tives (European Parliament, 2001a), although it was itself a critic of that mecha-nism at the time of the inter-institutional agreement on the budget in 1999(Terry Wynn MEP, Debates of the European Parliament, 11 December 2001).

EP amendments typically only increase the overall budget by around €1mor 1 per cent of the total. Since this corresponds roughly to what the Councilnormally shaves off the Commission’s proposal in the first place, some MEPshave suggested that the budget process approaches the status of an emptyritual: ‘the Commission presents a proposal, the Council takes a slice off theproposed amount, the EP adds a bit more in, and we are supposed to come upwith something wonderful in conciliation’ (Kathalijne Buitenweg MEP, De-bates of the European Parliament, 11 December 2001). The difficulty, as thisquotation partially suggests, is that the Council may be able to use the advan-tage of moving before the EP in the budgetary procedure to anticipate thelatter to the point at which the Parliament’s impact on the overall budget totalamounts to little more than restoring cuts made in expectation of its ownamendments.

Whether this conclusion is fair or not, it is clear that MEPs have next to noscope to pursue a redistributive social philosophy through budgetary changesthat usually amount to just around €1bn or 0.01 per cent of Union GNP. Nordo they have much more margin to pursue redistributive goals on behalf ofspecific interests. Given the constraints of the maximum ‘allowable rate ofincrease’, additions to the budget have to be targeted in a way that does notallow the ‘pork barrel’ to move very far between the diverse interests repre-sented in the Parliament. For 2002, for example, the two largest additionsmade by the EP in favour of geographically or sectorally specific interestswere €197m for the reconstruction of the Spanish and Portuguese fishingfleets following a failure to negotiate an anticipated fishing agreement withMorocco, and €50m for ‘border areas’ faced with loss of funding status onenlargement. In fact, the largest increases for which MEPs have pressed since1999 have been for expenditure outside the Union – mainly reconstruction ofthe Balkans – for which there is no obvious constituency or lobby interest.

If, however, the EP is deeply constrained in how far it can use the budgetto achieve redistributive outcomes it is, in keeping with the argument of therest of this article, well able to use the budget as a means of elaborating andasserting norms of public control. It does this directly in relation to norms offinancial management and indirectly in relation to wider principles of publicadministration that can be promoted through the budget. The former has typi-cally involved attempts to use the Union’s financial rules to reinforce normsof parliamentary scrutiny. For example, the ‘rule of unity’ – that income andexpenditure are best monitored where they are included in a single budget –has been used by the Parliament to resist the funding of the common foreign

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and security policy (CFSP) and justice and home affairs (JHA) from outsidethe Commission’s budget and thus from outside its own purview. When theCouncil proposed to fund CFSP peace-keeping envoys from its own budget,the EP threatened to terminate the ‘gentlemen’s agreement’ by which theCouncil and Parliament have abstained from intervening in the other’s budgetsince 1970 (European Parliament, 2000b, p. 26). A second example is that theEP has used the rule of specification – that each budget line should have aspecific purpose – to object to proposals that the Commission should be al-lowed to decide for itself on transfers between chapters in the budget and toinsist that money from suspended budget lines should be put in reserve untilthe Parliament decides what to do with it (European Parliament, 2001b).

Use of the budget as an instrument for asserting general standards of pub-lic control (that go beyond norms of financial management per se) focuses onthree procedures: first, EP attempts to micro-manage the procedural and sub-stantive conditions under which each budget line can be spent by amendingthe so-called ‘remarks’ in the budget; second, decisions to put funds in re-serve so they can be released only on further application to the EP; and thirdexploitation of the treaty rule that only the Parliament can discharge the Com-mission’s accounts for budgets spent in previous years. The latter deservesspecial attention, not least because it was the discharge procedure that trig-gered the investigations leading up to the resignation of the Santer Commis-sion in March 1999. Amongst demands that the EP has tried to link to dis-charge since 1999 are that the Commission should reduce errors in its expen-ditures from 5 to 2 per cent, and that it should tackle persistent failures tospend budgets in some areas of policy. Such failures, in the EP’s view, consti-tute a drift in the Commission’s agency away from the intentions of the electedbudgetary authority. In addition, the EP has made it clear that criticism ofparticular programmes in previous discharge procedures could be groundsfor scaling back their allocations in future budgets (European Parliament,2001b). A difficulty, however, faced by the EP in asserting these principles ofpublic control is that the Commission mostly only oversees disbursementsunder the EU’s budget, 83 per cent of which are made by Member States. Inthe vote on the discharge of the 1999 budget, the EP, accordingly, proposed asystem of naming and shaming that would analyse the number of criticismsmade by the Court of Auditors, both by Member State and by Directorate-General of the Commission itself (European Parliament, 2001c).

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III. Regulation

Internal Market Legislation

Although the main legislative drive towards the internal market programmewas concentrated on the period 1986–92, the EP has to deal with a continuousflow of further proposals from the Commission. These cover three catego-ries: first, single market ‘leftovers’ which have not been tackled earlier onaccount of their political or technical difficulty: second, demands for newregulation associated with the creation of new markets or with new cross-border spillovers in the organization of established markets that could nothave been imagined in 1986–92; and, finally, responses to the experiences,frustrations and unintended consequences of earlier internal market legisla-tion, themselves fed back into a political system that may have sufficientlychanged for holders of ‘revisionist’ preferences to aim for a ‘re-match’. Suchchanges in the institutional and strategic environments for the decision ofinternal market legislation include, of course, the EP itself. On the one hand,the rules by which it participates in internal market decisions have changedfrom co-operation (1986–94), to co-decision I (1994–99) and now to co-deci-sion II (1999–). On the other hand, the balance of opinion in favour of moreor less regulation may change between Parliaments. For example, the 1999–2004 Parliament is the first since the launch of the internal market in 1986where the centre-right EPP, and not the centre-left PES, is the largest group. Itis also the first in which the EPP has claimed to have no other reason than thelogic of numbers to privilege the PES over the often market-friendly Euro-pean Liberal, Democrat and Reform Party (ELDR) in its coalition-buildingbehaviour. Table 2 lists some of the most important internal market reportsthat have had to be decided by the EP since 1999.

Enjoyment of co-decision does not, of course, imply that the EP operatesin a ‘constraint-free’ environment in deciding positions on internal marketregulation. As is well documented elsewhere, the logic of co-decision is thatthe Parliament can change outcomes only within a range of preferences ac-ceptable to the Commission and Council, though the width of that range is amatter of some academic dispute (Crombez et al., 2000; Garrett et al., 2001).A further consideration is that internal market regulation is an area where thefunctional demands of implementation may require the EP to accept that muchof the detail of its legislation will be ‘filled in’ by committees on which it isnot represented (comitology). The 1999–2004 Parliament has been confrontedby a striking example in the form of the Lamfalussy proposals. The goal ofcreating a single market in financial services by 2005 raised the question ofhow to create a single regulatory framework for an industry whose practicesoften change more quickly than can be dealt with by a time-consuming

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legislative cycle. Lamfalussy, accordingly, proposed that only very broad prin-ciples should be passed by co-decision of the EP and the Council. Two newcommittees – a European Securities Committee and a European Regulators’Committee – should then have extensive delegated powers to frame and changedetailed measures.

Not only is it important to understand the foregoing constraints on theEP’s contribution to market regulation. It is also important to understand thedual character of its role. As Majone points out, for any legislator the positiverole of responding to different interests in the demand and supply of regula-tion always has to be combined with the normative one of judging what are‘socially desirable activities’ in need of ‘protection or control’ (Majone, 1996b,p. 9). As he puts it, ‘even when regulation is best explained by the pursuit ofselfish ends … legislators, judges and the public wish to know how it is justi-fied’ (Majone, 1996b, p. 34). A study of recent committee reports reveals justhow deeply the EP is drawn into the task of considering why some rights,rather than others, merit protection through internal market legislation. This,in turn, means it has to debate a number of other questions. First, who has ‘theright to have rights’ delivered through Union-level regulations? Second, howshould conflicting rights claims over the regulatory process be adjudicated?Third, how should rights established through internal market legislation re-

Table 2: Examples of Internal Market Reports, 1999–2002

Name Subject Procedure Date Committee

Vallerlesundi E-commerce CO-D 2 Apr 00 LAIM

Wieland 1&2 Professional qualifications CO-D 2+3 June 00+Jan 01 EMAC

Lehne 1&2 Takeover bids CO-D 2+3 Nov 00+Jun 01 LAIM

Inglewood Company accounts CO-D 1 April 01 LAIM

Karas Pensions CO-D 1 June 01 EMAC

Mayer European company statute Consultation June 01 LAIM

Von Wogau Financial services (Lamfalussy) Own initiative Jan 01 CAC

Ferber Postal services CO-D 1+2 Feb 02

Goebbels Insider dealing CO-D 1 Feb 02 EMAC

Rapkay Energy market liberalization Feb 02

Berger Distance marketing CO-D 2 Apr 02 LAIMfinancial services

Note: CAC = Constitutional Affairs Committee, EMAC = Economic and Monetary AffairsCommittee, LAIM = Legal Affairs and Internal Market Committee.

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late to those constituted elsewhere, particularly through national forms ofmarket and social regulation? Fourth, what should be done where EU legisla-tion is able to control only some aspects of market behaviour that, in the viewof MEPs, impact on rights in need of protection?

Several examples of these normative aspects of its regulatory role are tobe found in the Parliament’s work since 1999. Proposals to promote a singlemarket in postal services, gas and electricity required the EP to deliberatewho has rights to universal or ‘general interest’ services and in what way. Amore isolated, but highly telling, example is the insider dealing directive.Here the EP objected to a pattern of delegation to comitology committees thatwould have offended the principle that only an elected body should have theright to define offences that could lead to the criminal prosecution of indi-vidual citizens.

The most dramatic example of the interplay between the positive and nor-mative aspects of regulation in the politics of the Parliament was, however,the directive on company takeovers. The proposal from the Commission wasthat company managers should be restricted from taking defensive measureswithout consulting shareholders. At first and second readings, the EP agreedamendments that would at least require the company making the takeover bidto ‘declare its hand’ in relation to proposals for future levels of employmentand location of activities. However, the legislation was lost when MEPs split– 273 votes to 273 – on whether to approve the outcome of a conciliationbetween the EP and the Council. Amongst important lessons were that theconventional wisdom that institutional constraints will blend ideological dif-ferences into compromise solutions will not always hold, since the ‘absolutemajority rule’ applies only to the rejection of legislation at second readingand to the passage of amendments, and not to a rejection at third readingwhere only a majority of those voting is required. Second, MEPs were pulledin different ways by a mixture of national interests (all German MEPs votedthe same way), on the one hand, and ideological and normative preferences,on the other. Amongst the latter were real differences on who should haverights that merited protection in the event of a takeover bid – shareholdersalone or wider groups of stakeholders – and on how the Union should pro-ceed given that it could not legislate for all the conditions affecting fairnessbetween parties to takeover bids. In particular MEPs were exercised by thepossibility that less efficient but more protected companies from outside theUnion’s jurisdiction might be able to take over more efficient but less pro-tected companies within the EU (European Parliament, 2001f).

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Social and Environmental Regulation

The EP also affects economic outcomes through its social and environmentalregulation. On the one hand, this affects producer costs and competitiveness.On the other, social and environmental regulation is the main means availableto MEPs to promote their competing conceptions of economy and society,given there is no welfare state at Union level and MEPs are even reluctant totake decisions likely to impact on the autonomy of national welfare states.When, for example, the present Parliament was asked to decide a pensionsdirective, it was eager to emphasize that ‘as a matter of principle arrange-ments for retirement provision are matters for Member States’ and that therole of the Union should be restricted to cross-cutting issues such as theportability of pension rights across national boundaries (European Parliament,2002).

In its role in aggregating preferences, the Parliament is usually portrayedas being systematically more likely than the Council to back stronger regula-tion of social and environmental questions, for a variety of reasons. First, it ismember governments, and not the Parliament or the Commission that bearthe cost of social and environmental regulation. Second, the Union is, in anycase, assumed to be the regulator of preference for a Parliament that normallyprefers ‘more Europe’. Third, the Commission, for similar reasons, backsbold parliamentary amendments against a Council that is often divided onsocial and environmental questions. Yet, recent experience is that the relativepreferences of the EP and Council for more or less regulation are also condi-tional on the left–right balance in the two bodies. When, in the first half of the1999–2004 Parliament, a centre-right majority in the EP faced a Council witha preponderance of centre-left governments, there were occasions (e.g. thedirectives on end-of-life vehicles and on workers’ consultation) when EPamendments produced less regulatory outcomes than those preferred by theCouncil.

Moreover, MEPs do not just differ from the Council on the positive as-pects of social and environmental regulation, but on their normative aspectstoo. In responding to legislative proposals in these areas, the EP has raisedprofound issues about the nature of obligation, consent, and individual andsocial choice. Any preference for ‘more regulation’ is not just one of scope. Italso extends to scepticism on the part of the EP towards the current fashionfor voluntary agreements or those that have few sanctions even if they havethe force of law. In matters of social regulation in particular, the Parliamenthas also asked whether there should be certain minimum standards that ‘can-not be diminished’ even with the agreement of those entitled to the rights laiddown by legislation. This question has, in turn, been associated with a sec-ond, namely when is it possible to be sure that a choice is voluntary where

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relationships between employer and employee, or producer and consumer,may be asymmetric? A third problem that has taxed the Parliament is therelationship between aspirational and effective rights. Thus, for example, itwas eager to press for amendments to a directive on the rights of employeesto information and consultation that emphasized that, to be effective, thesewould have to be secured at an early stage in the making of corporate deci-sions (European Parliament, 2002).

Competition

Whereas the EP co-decides internal market and social and environmental regu-lation, it merely scrutinizes rules designed to maintain competition in the faceof market concentration, price-fixing, state subsidies, and so on. For the mostpart, the Commission operates as an independent enforcer, with parliamen-tary oversight limited to an obligation, on the one hand, to submit annualreports to the EP and, on the other, to consult the EP on new regulations anddirectives.

Yet, as with monetary policy, the EP has compensated for limited opportu-nities to influence substantive policy outcomes by attempting to develop arole in defining and upholding norms of conduct in the execution of the Un-ion’s competition policy. Amongst norms which it consistently asserts acrossthe range of its reports on competition matters, are that the Commission shouldbe able to show equality in its treatment of individual cases. To cite someexamples since 1999, the EP criticized the Commission for ‘making inequita-ble use of its discretionary powers’ in sanctioning steel subsidies on the groundsthat ‘it was prepared to authorise, and even suggest, exceptions to bans onsubsidies’ if they fell within its own steel code, while refusing to considerwhether they were permissible under Article 95 of the ECSC Treaty. This, inthe EP’s view, amounted to preferential treatment for those Member Statesplanning privatizations when the original purpose of allowing exceptionalaids for industrial restructuring under Article 95 of the ECSC Treaty was toencourage even-handed reductions in surplus capacity (European Parliament,1999a, p. 7). A further example is the Parliament’s concern that discretionarywaivers or reductions of fines amount to unequal treatment of those subject tothe full rigours of the Union’s competition policy (European Parliament, 1999b,p. 15).

Indeed, due process is a further norm that has informed the EP’s scrutiny.The central reason for this is a concern that the structure of the policy makesthe Commission ‘both prosecutor and judge’ in competition cases (EuropeanParliament, 1999b, p. 14). The Parliament has responded by monitoring ap-plications of competition policy for proper authorization in primary or ena-bling legislation, on the grounds that it is acutely important in the case of a

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procedure that conflates the roles of judge and prosecutor that commercialinterests should be able to expect legal certainty. The EP has also been anx-ious that the Commission should be able to demonstrate what it believes to bethe public interest in the Union adjudicating what would otherwise be ac-cepted as the freely disposable property rights of private individuals or Mem-ber States. It has thus urged the Commission to justify competition decisionswith clearer reference to consumer interests. In addition, it has criticized theCommission for reporting state aids at a ‘high level of aggregation’ that nei-ther distinguishes reasons for different kind of aid nor evaluates their contri-bution to social or environmental objectives (European Parliament, 1999c).

Issues of legal certainty, consistent application and clarification of a ‘pub-lic interest’ have been made acute since 1999 by Commission proposals todecentralize the application of competition policy to Member States. The EPhas supported these proposals to the extent that competition policy itself isthreatened by overload on the part of the Commission and a backlog of casesput at 1200. However, it has also insisted that any decentralization be accom-panied by the specification of what is expected of national competition bod-ies; that the latter should themselves be ‘federated’ at Union level in waysthat would encourage them to monitor one another; and, above all, that theCommission should remain the ultimate guarantor of the ‘uniformity and cred-ibility of the system’ (European Parliament 2000a, p. 19). To achieve the last,the EP has urged the Commission to continue to accept appeals, to retain theright to take over cases in the event of suspected ‘forum shopping’ betweenMember States, and to insist on rights to override national decisions and makesubmissions to national courts, even where that would raise difficult constitu-tional issues (European Parliament, 2001g).

Conclusions

This article set out to show that the EP’s contribution to the economic govern-ance of Europe varies across three branches of economic policy-making(stabilization, redistribution and regulation) and two parliamentary functions(the aggregation of preferences and the setting of normative standards for theexercise of public powers). Now that the analysis is complete, it can be sum-marized by way of conclusion in Table 3. The Parliament’s powers to aggre-gate preferences into substantive policy outcomes are generally more variedthan its opportunities to participate in the setting of norms by which thosepowers are exercised. The former vary from policies that are largely exog-enous to the powers of the EP (monetary policy and to a lesser extent compe-tition policy) to those where it co-decides outcomes (internal market and so-cial and environmental legislation). In contrast, the EP is active in defining

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standards of public control and individual rights protections across the rangeof economic policy.

Correspondence:Christopher LordPOLIS, University of LeedsLeeds LS2 9JT, UKTel: (+44) 0 113 233 4402,email: [email protected]

Table 3: Summary of the EP’s Contributions to the Economic Governance of theEU

Stabilization Redistribution Regulation

Monetary policy The budget Internal market,social and

Broad Economic environmentalPolicy Guidelines legislation.

Competition policy

Aggregation Low influence EP powers over As co-decider ofInfluence over the budget allow internal market, socialsubstantive policy only limited scope and environmentaloutcomes through for it to produce legislation, the EP hascoalition-building redistributive significant scope towithin the EP and outcomes influence outcomes,bargaining with other within the parametersinstitutions of its relations with

the Commission andthe Council.Competition, on theother hand, is largelyexternal to the EP’spowers

NormingDefinition of standards EP has influence EP uses budget to The EP contributes toof public control, and on reporting uphold norms of the normative aspectsindividual rights to be standards expected financial of regulation – theobserved in delivery of of the ECB management and definition of rightspolicy of public control worthy of legal

more generally protection – acrossthe range of the EU’sregulatory functions

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