international analysis and commentary

Creditor vs debtor countries in the EU: a problem of legitimacy

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While striving to achieve greater internal cohesion, the EU has always been characterized by internal cleavages that time and time again have threatened to undermine its internal stability, identity, sense of purpose and policy-making capacity. Prior to the current crisis, the main intra-EU division was between “old” and “new” member states. New member states are those Central and Eastern European countries that joined the EU in 2004 and 2007. The grossly simplistic and in many ways inaccurate old/new distinction allegedly captures some substantive differences, with the former supposedly being more advanced and pro-integration, while the latter less developed and more Atlanticist (i.e. pro-US). As the economic crisis hit Europe in late 2009 and the entity of the Greek public deficit and debt problem emerged in full light, another division started gaining ground: that between creditor and debtor countries. The former are those that keep their state budgets more or less in order, the latter instead run excessive deficits and debts. While creditor countries are mostly located in Central and Northern Europe, debtor countries, like Italy are concentrated in Southern Europe, with the notable exception of Ireland.

Hence, the emergence of a north-south divide in the EU. Northern member states are characterized by strong economic performance, relatively widespread public satisfaction with domestic politics and leadership, and the view that so-called debtor euro countries should keep their state budgets under control. The latter are characterized by unhealthy economies, deep dissatisfaction with domestic politics and a narrative calling for greater intra-European solidarity. Recent EU-wide public opinion polls tend to confirm this divide. As revealed by a Pew Research Center report (2012), Germans and Greeks diverge on critical issues, including the benefits of EU membership, and satisfaction with domestic politics and economics. For example, 68% of Germans view the EU favorably, as opposed to 60% of Italians, 59% of Spanish and only 37% of Greeks. While more than half the German respondents (53%) are satisfied with the economic conditions in their country, only small minorities of Italians (11%), Spanish (10%) and Greeks (2%) say likewise. The percentage of people inclined to think that the economic situation will improve over the next year is again larger in Germany (29%) than in Southern European countries (25% in Spain and 22% in Italy), with a mere 9% being optimistic in Greece.

The current cleavage features also divergent narratives of the crisis itself. According to creditor countries, the chief cause of the debt crisis is the deplorable management of public spending in Greece, the absence of structural reforms and poor labor productivity in Italy, the lack of banking vigilance in Ireland and the housing bubble and private debt in Spain. According to debtor countries instead, the crisis should be attributed to the inflow of money following the introduction of the euro, the low level of domestic demand in Germany and its export-oriented strategy. As for the remedies, creditor countries call for fiscal restraint, good governance and structural reforms in debtor countries and resist the European Central Bank’s (ECB) empowerment to rescue ailing eurozone economies. Debtor countries believe that fiscal austerity is not only insufficient but can hamper growth, which instead requires counter-cyclical policies. In addition, the ECB should be allowed to assist insolvent countries and mutualize public debt through the emission of Eurobonds. Finally, debtor countries share the perception that policy-making in Brussels, especially at top political level, is dominated by creditor countries, notably by Germany. This also links with the issue of democratic legitimacy.

While the question of democratic legitimacy is not a newcomer in the EU political and academic debate, it has acquired new saliency because of the crisis and is felt in both creditor and debtor countries, but particularly in the latter. Both creditor and debtor countries share some dissatisfaction with the way decisions are taken at the EU level and are concerned about the so-called democratic legitimacy. In particular, referring to the different typologies of the concept of legitimacy (Wagner, 2005), what seems to worry both creditor and debtor countries is input legitimacy (i.e., deriving from the compliance with democratic-parliamentary procedures) while output legitimacy (i.e., deriving from the impact on citizens) appears to concern mostly debtor countries. For instance, Italians who declare they are unhappy with how democracy works at the EU level stand at 47%, against 40% who are satisfied. Germans appear to be only a little more satisfied with democracy at the EU level (49% against 44%).

When looking more in-depth into the reasons why public opinion, as well as the political class and civil society, are critical towards the EU decision-making system, here again it appears that the reasons behind dissatisfaction are indeed different. In creditor countries like Germany, the main problem lies with the perception that key decisions on the euro and, more broadly, on the future of the EU, need to be legitimized by the national parliament. According to Andreas Vosskuhle, the President of the Karlsruhe-based Federal Constitutional Court, “essential decisions are negotiated in the anonymous thicket of the Brussels bureaucracy, in nightly sessions of the European Council, or somewhere else, without adequate public discussion and influence.” In particular, decisions concerning the budget must remain in the power of elected representatives, because “It would be tragic if we were to lose democracy on the way to a rescue of the euro and more integration.”  

In debtor countries like Italy, the perception, especially among the elites and the more politically active sectors of civil society (as opposed to public opinion at large) is that the main decisions taken at the EU level (the austerity-first policy being a case in point) are called for not by the EU as such, but more and more by single EU countries, and in particular by Germany. This risks to convey the idea that the key principle of equality among EU member states, that has been strongly supported by Italy in the course of European integration, might be jeopardized. According to Italian Prime Minister Mario Monti, “sooner or later [in Italy and other debtor countries] there will be a backlash against fiscal and structural austerity. So Europe really needs to accelerate its efforts […] to limit contagion […]. I believe that countries that are at the core of the system, which have had the merit of instilling a culture of stability in the EU in the first place, most notably Germany, should reflect deeply, but quickly on these aspects.”

Considering how the common concern for the perceived lack of democratic legitimacy is felt in potentially divisive ways in creditor and debtor countries, a crucial step would be to strengthen the role of the European Parliament and find ways to enhance its links with European citizens. National parliaments will certainly continue to play a decisive role, but  national constitutions endow them with uneven prerogatives in some respects, and history has produced different parliamentary practices. In any case, there is no escaping the question of how to confer a more robust political mandate to the European Parliament. The current controversies over debt and legitimacy are bringing this fundamental issue to the forefront.