Relaxing whilst doing Competition Law is not an Oxymoron

Sunday Politics

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A few days ago in Brussels, 26 Member States (“MS”) of the EU layed the foundations of a still-to-be drafted European Treaty.

Amongst the key measures to be included in the Treaty, a “golden rule”  which will force MS to introduce in their Constitution the rule that budget deficits should not exceed 0.5% GDP. The European Court of justice will verify MS compliance with the golden rule.

With this forthcoming European measure, Sarkozy can put his main rival to the presidential election, François Hollande, into a corner. A few months ago, when the government tried to impose a golden rule domestically, the socialist candidate had proferred criticism. At the time, the socialists announced that they would not back a change of the Constitution to this effect. For those not versed in French constitutional law, amendments to the Constitution must be voted by a majority of 3/5 of the aggregate votes of both the Senate and the National Assembly (or by referendum). Currently, the National Assembly is dominated by the right wing and the Senate by the left wing…

But now that the measure has been endorsed by 26 MS, and that it will be imposed by a European Treaty, there’s little the socialists can criticize unless they want to be depicted as UK-Cameronesque politicians. No wonder why the socialists have been voiceless over the past few days. Sarkozy 1 – Hollande 0.

On closer analysis, the socialists’ “oppositional” options appear very meager. Sure, the socialists could be tempted to criticize the Treaty as insufficiently ambitious  (e.g., on eurobonds or on the ECB mandate), and use this a a reason to refuse the ratification of the Treaty. Back in 2005, several socialists heavyweights (notably former Prime Minister Laurent Fabius) had actually used such rethorics to stand against the EU constitution. But the value of the argument is limited, given the reluctance of many other Member States (e.g., Germany) to more ambitious reforms.

The socialists could also play the good old nationalistic anthem. Challenging transfers of sovereignty to Brussels often has traction on the French political scene.  My prediction: it is a matter of days before the Montebourg, Mélenchon, and Chevènement of this world announce that the forthcoming Treaty will rip off France’s fiscal sovereignty. I however doubt that Hollande, who is often presented as the spiritual son of Delors, could credibly side with them.

At any rate, what is close to certain is that the ratification procedure will again tear the socialist party apart. Sarkozy and his European colleagues just managed to revive the divisions that have plagued the socialist party before the referendum on the European Constitution. And with all this, I suppose that Hollande prays for a slow drafting process and a late ratification procedure, well after the presidential election of May 2012. Sarkozy 2 – Hollande 0.

Now here’s what could be the hat trick for Sarkozy. A quick Treaty drafting + ratification before May 2012 is unrealistic. But this does not prevent Sarkozy to launch a debate on the procedure to be followed for ratification during the presidential campaign, in a bid to expose the socialists’ internal divisions. There are indeed many procedural options on the table and experience suggests that they often give rise to fierce discussions in French politics. As hinted above, international treaties are normally subject to ordinary legislative procedure (Article 53 of the Constitution). Yet, if they entail amendments to the Constitution, an additional consultation must take place. The President must either request  approval of the French citizens by Referendum, or, in the alternative, request the Senate + National Assembly to back the proposed modifications under a 3/5 majority rule (Article 89 of the Constitution). And even if the Treaty does not entail a change of the Constitution, the President can still hold a referendum on the Treaty, provided it has an “influence” on French institutions (Article 11 of the Constitution). A sovereignist left winger, Chevènement, just demanded the organisation of a referendum.

To date, Sarkozy still lags behind Hollande in the polls. But the shape of events to come is unpredictable, and the EU summit just gave Sarkozy a number of good cards to play.

PS1: Sarkozy could even score a 4th goal. With worrying threats on the French “triple A” rating, he could seek to anticipate on the future EU obligation, and already introduce the golden rule in the Constitution before the presidential election…

PS2: I was astonished by the lack of press information on the content of the agreement crafted in Brussels. A usual with EU affairs, I found a very good description of the agreement on the excellent blog of Jean Quatremer.

PS3: With this post, I am a little far from the core market of this blog. I even take a risky stint at French constitutional law. I thus apply for leniency with our readers, and already present my apologies for potential inaccuracies, errors, etc. The thing is that  “we are just as politics geeks and fervent EU supporters as we are competition law geeks”  like Alfonso said the other day, and I could not resist writing something on the EU summit.

Written by Nicolas Petit

11 December 2011 at 8:56 pm

Posted in Uncategorized

One Response

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  1. My understanding is that the structural deficit should not exceed 0.5% of GDP, which leaves some scope for cyclical adjustment. The problem with this instrument though is that structural deficits are difficult to estimate, as witnessed by the difficulties the indipendent fiscal wachtdog (called OBR) is having in the UK with the recent highly contentious review of the permanent structural deficit.

    Anyway, the so-called “fiscal compact” aims also at coordinating tax policies, preventing countries like Ireland to fiscally compete by undercutting corporate taxes, thus fuelling a “race to the bottom” which has tilted the balance in favour of capital (and the so-called super-rich) against labour.

    To coordinate against the “race to the bottom” in an attempt to raise corporate taxes (alongside welfare/labour standards) is as much left-wing as you can get I believe. You could think of it as a sanctioned cartel that rules out fiscal competition among member states.

    That is to say, the structural deficit could be cut also by effectively raising taxes permanently. Therefore, I am not sure this outcome is bad for left-wing parties, as only by coordinating fiscally within the EU will they be able to raise taxes without the fear of losing income base to fiscal paradises conviniently located.

    Fitoussi has made this point quite clearly.

    Paolo Siciliani

    12 December 2011 at 12:07 pm

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