Governance Report: EU leaders must not turn muddling through in crisis mode into a system

Download: Executive summary: The Governance Report 2015

Berlin, 14 April 2015 – Since the onset of the euro crisis, the euro zone’s national leaders have been navigating by sight. The authors of the Hertie School’s Governance Report 2015 label this type of government leadership exploratory governance, expressing their understanding that leaders initially exercised care in making decisions. However, from an academic perspective, recent EU policy carries with it the danger of a further loss of legitimacy. For this reason the authors Henrik Enderlein, Mark Dawson and Christian Joerges warn against turning the policy of muddling through into a system. Not only would permanent economic instability become a real threat but also growing political protest, which is developing more and more into fundamental criticism of the EU. The Governance Report 2015 is published by Oxford University Press and will be presented today (14 April) in Berlin. The keynote speech will be by Italy’s former Prime Minister Enrico Letta.

Using an indicators system developed for the Governance Report, co-author Liam McGrath shows how the euro zone’s economies were converging following the introduction of the euro but since 2007 have drastically diverged, due especially to the drift from the crisis countries Greece, Italy, Ireland, Spain and Portugal. Trust in EU institutions fell from a peak in 2004 to an all-time low in 2013 in these countries, while trust in each of the national governments suffered less of a blow during the same period. This contrasts with other EU countries outside the euro zone with a similarly high rate of unemployment, where governments experienced a loss in trust while the EU institutions showed stable ratings. As Henrik Enderlein, Hertie School Professor of Political Economy, comments, “Europe has become a scapegoat for the misery in the crisis countries. This is extremely dangerous because the crisis can only be overcome if the nation states and EU work together. An open confrontation, such as the one we are currently seeing with Greece, can only harm the euro.”
 
Exploratory governance came about because government leaders were unable to foresee the results of the decisions they made during the financial crisis. They introduced a new style of government leadership as a makeshift solution, which now urgently needs to be reconsidered. “This form of governance does not offer any guarantee for economic, political and social stability”, Christian Joerges, Professor of Law and Society, says. The authors provide various recommendations to political decision-makers, among them:

Close the gaps in political accountability:
Mark Dawson, Professor of European Law and Governance, explains: “Ironically, the European Central Bank is the institution most capable of acting. It also happens to be the one that carries the least accountability to the public. This example illustrates the increasing power of the executive – which is, however, only indirectly legitimized. This is why it is urgently necessary to strengthen parliaments at the national and European level.” The European Parliament should take part in a strengthened “economic dialogue” with the other EU institutions and be allowed to veto key instruments of financial governance. The political argument that is bound to ensue should not be stifled but instead accepted, since innovative potential is very often a result of controversial dialogue.

Rethink the relationship between solidarity and conditionality:
The EU needs a programme that guarantees a lender of last resort without creating incentives for an irresponsible fiscal policy. An EU debt agency could be created, for example, that would only be allowed to intervene in the budget policies of member states when their debt level exceeds a certain amount. This would make the relationship between solidarity and conditionality more transparent and predictable.

Adjust euro zone economies:
Economic structures and cycles must be adjusted. For the most part, domestic factors shape the development of national economies; this promotes asymmetrical shocks which in turn could destabilize the euro zone as a whole. To prevent this, structural reform is necessary as well as putting into place mechanisms that provide an automatic balance between countries with opposing economies.

About the Governance Report

The Governance Report 2015, edited by the Hertie School, is published by Oxford University Press. The companion volume to all the report’s topics with contributions by Michelle Everson, Marcel Fratzscher and Jean Pisani-Ferry, among others, is expected to appear in November 2015. You can find further material on the Governance Report, including an interactive app for the governance indicators, at www.governancereport.org.

The annual publication examines special challenges in governance, introduces innovative developments in the area and provides analyses based on newly-developed indicators. The Governance Report especially takes into account the interdependence between states as well as between state, economy and civil society. The team of participating academics aims to contribute to the explanation and solution of current governance problems with applied analyses and specific policy recommendations.

Authors of the Governance Report 2015:

• Mark Dawson, Professor of European Law and Governance, Hertie School
• Henrik Enderlein, Associate Dean and Professor of Political Economy, Hertie School
• Christian Joerges, Professor of Law and Society, Hertie School
• Liam F. McGrath, Research Associate, Hertie School

The presentation of the Governance Report on 14 April 2015 at 6:30 pm is open to the press. We kindly ask that you register in advance by sending an e-mail to pressoffice[at]hertie-school[dot]org.