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Options for Europe – Part 32

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

You can access the entire sequence of blogs in this series through the – Euro book Category.

I cannot guarantee the sequence of daily additions will make sense overall because at times I will go back and fill in bits (that I needed library access or whatever for). But you should be able to pick up the thread over time although the full edited version will only be available in the final book (obviously).

[NEW MATERIAL TODAY] [BRIEF LINKING PARAGRAPH HERE ABOUT WHY THE TREATY OF MAASTRICHT LEFT OUT A FEDERAL FISCAL CAPACITY – I WENT A LITTLE AHEAD OF MYSELF TODAY BECAUSE I WAS VERY FAMILIAR WITH THE ROLE OF SUBSIDIARITY IN THE DEBATE AND THAT LED ME WHERE I WENT – KNOWING I WOULD COME BACK TO THE OTHER LINKING DISCUSSION NEXT WHEN I HAD ACCESS EARLY NEXT WEEK TO TWO DOCUMENTS I REQUIRED THAT ARE IN NEWCASTLE]

Ungerer (1997: 204) concluded that the “Delors Committe did not see a need for a decision center for economic policy, and referred, instead, to already-existing institutions. This may have reflected consideration for the desire of countries to safeguard their sovereignty but was also in line with the Delors Committee’s support for the principle of subsidiarity”.

The term, subsidiarity, a long-standing concept in political theory (as far back to Aristotle and Thomas Aquinas), entered the European dialogue in 1989 as part of a new “Eurolanguage” as the political leaders were intent on pushing through the economic and monetary union, once and for all (Millon-Delsol, 1992; Endo, 2001: 7). The concept was popularised by the Roman Catholic Church in the 1931 encylical – Quadragesimo Anno, which pronounced that “It is a fundamental principle of social philosophy, fixed and unchangeable, that one should not withdraw from individuals and commit to the community what they can accomplish by their own enterprise and/or industry” (Pope Pius XI, 1931).

The idea is generally taken to mean that in a federal structure issues should be managed at the most decentralised level that is effective. The Oxford Dictionary defines subsidiarity as “(in politics) the principle that a central authority should have a subsidiary function, performing only those tasks which cannot be performed at a more local level”.

The concept formally became part of European Law when it was included in the wording of the Treaty of the European Union (aka as the Maastricht Treaty) adopted in December 1991. The wording in the Preamble noted that the signatories resolved to create “an ever closer union among the peoples of Europe, in decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity” (European Commission, 2010: 16). The term appears again in Article 5 and Article 12 of the Treaty.

Article 5 of the Treaty notes that “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.” (European Commission, 2010: 18).

Endo (2001: 8) claims there is “built-in confusion within the Treaty” in the way it constructs the term. In the Preamble, decentralisation is emphasised (“closely as possible to the citizen”), whereas in Article 5, Brussels “simply might continue its business of integration, by finding a few justifications for such actions”. He notes that the term is ambiguous, having both a negative and a positive connotation, depending on the perspective adopted. The former emphasises the limits of competence of the central body and the right of lower bodies to look after themselves, if they can; while the latter focuses on the rights and necessity of responsible central intervention if the lower entity cannot effectively function.

Delors was clearly influenced by the principle, which has been referred to as a ‘golden rule’ for allocating functions between various tiers of European governments. Delors (1991: 7-8) said that subsidiarity is about:

… the development of each individual. But, as we all know, steps in this direction presuppose that there are men and women capable of taking on the responsibilities in order to achieve the common good.

Further on, Delors said (1991: 9) that:

Subsidiarity is not simply a limit to intervention by a higher authority vis-à-vis a person or a community in a position to act itself, it is also an obligation for this authority to act vis-à-vis this person or this group to see that it is given the means to achieve its ends.

The emphasis on the common good and its link to subsidiarity was also echoed in the Preamble to the European Parliament’s 1994 ‘Resolution on the Constitution of the European Union’, where it is stated that there is an awareness on “behalf of the peoples of Europe” that there is a “need for decisions concerning them are taken at a level as close as possible to the citizens themselves, with powers delegated to higher levels only for reasons of the common good” (European Parliament, 1994: 156)

The debate turns on the meaning of common good but there is little doubt if one examines the daily public statements of the European politicians that communitarian perspectives are inherent in their visions. This also resonates with the idea that Delor’s statement we examined earlier, that a “sense of national solidarity” is shared by “all relevant economic and monetary unions”. In terms of the common good, we regularly hear concerns expressed about the European unemployment problem and the need for more growth in Europe. While these concepts are not without contest, a broad consensus would suggest that the common good is not being advanced if there are 60 per cent of a nation’s youth unemployed or over 10 per cent of Europe’s willing workers without jobs.

When British economist John Maynard Keynes separated himself from the conservative mainstream economists during the Great Depression of the 1930s, a major vehicle he used was the concept of compositional fallacy. The origins of macroeconomics trace back to the recognition that the mainstream economics approach was prone to these fallacies. These are errors in logic that arise when something is claimed to be true in general by dint of some specific part of the whole being true. For example, a classic demonstration of a compositional fallacy is, first, to note that a single small firm might employ more workers if it cuts wages because it will have lower costs and the impact on overall spending and its sales are unlikely to be damaged by the lower incomes that the workers take home; and second, to infer from that that if all wages were cut employment would rise overall. In the general case (for the whole economy), a cut in overall wages would lower costs but would also have a devastating impact on workers’ incomes and hence their spending levels.

The important point in relation to the allocation of competencies across the levels of government is that there are some functions that have to be performed at the aggregate level in a federal system if the overall system and its components are to function effectively. Such functioning would appear to be intrinsic to the capacity of the system to achieve common good, however, broadly that is defined.

When the Delors Committee was invoking subsidiarity in its thinking of how to design the economic and monetary union, they were so embedded in free market economic thinking that they failed to understand the imperative for a federal fiscal or treasury competency. The fact is that the lower entities could not achieve their ends in a modern monetary system if the currency-issuing level of the system was constrained in the way it could deal with negative and asymmetric changes in total spending, whether generated from within the system itself or imported through trade from negative developments in other nations.

[TO BE CONTINUED] [TOMORROW WE DELVE INTO OUR THE MONETARY STRAITJACKET EMERGED IN THE DELORS PROCESS WHICH WAS RUBBER STAMPED IN THE TREATY OF MAASTRICHT – THINGS WILL FLOW MORE QUICKLY AFTER THAT – I HOPE!]

Additional references

This list will be progressively compiled.

Delors, J. (1991) ‘The Principle of Subsidiarity: Contribution to the Debate’, in European Institute of Public Administration, Subsidiarity: The Challenge of Change, Proceedings of the Jacques Delors Colloquium, Maastricht, European Institute of Public Administration, 7-18.

Endo, K. (2001) ‘Subsidiarity & its Enemies: To What Extent Is Sovereignty Contested in the Mixed Commonwealth of Europe?’, EUI Working Papers, RSC No. 2001/24, Robert Schuman Centre for Advanced Studies, European University Institute.

European Commission (2010) Consolidated Version of the Treaty on European Union, Official Journal of the European Union, 30.3.2010, C83/13.

European Parliament (1994) ‘Resolution on the Constitution of the European Union’, Official Journal of the European Communities, C61, 28.2.1994.

Kapetyn, P.J.C. (1991) ‘Community Law and the Principle of Subsidiarity’, Revue des Affaires Europeennes, 2, 35-43.

Millon-Delsol, C. (1990) ‘Le principe de subsidiarité: origines et fondements’, Cahiers de l’Institut La Boetie, 4, Avril, 4-11.

Millon-Delsol, C. (1992) L’etat subsidiaire: Ingérence et non-ingérence de l’état: le principe de subsidiarité aux fondements de l’histoire europeéenne, Paris; Presses Universitaires de France.

Wilke, M. and Helen Wallace, H. (1990) ‘Subsidiarity: Approaches to Power·sharing in the European Community’, Issue 27 of Royal Institute of International Affairs Discussion Papers, London, Chatham House.

Ungerer, H. (1997) A Concise History of European Monetary Integration: From EPU to EMU, London, Quorum.

Pope Pius XI (1931) Quadragesimo Anno, http://www.vatican.va/holy_father/pius_xi/encyclicals/documents/hf_p-xi_enc_19310515_quadragesimo-anno_en.html

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.

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