Draghi the Heretic Has a Vision for Europe

(Bloomberg Opinion) -- Mario Draghi is rarely afraid to adopt difficult positions on the subject of Europe’s future. The president of the European Central Bank has advocated that the euro zone should build a capital market union, complete the banking union and move toward a centralized budget – even though political leaders are reluctant to take those steps.

Last week, Draghi took up another unpopular cause when he highlighted the risks of relying too much on common rules between EU member states. His preference is for Europe-wide institutions, just like the one he heads. “Where executive power has been invested with institutions, most would agree that the institutions have performed relatively well,” he said in a speech in Bologna.

This is hardly mainstream thinking. EU governments are more and more skeptical about delegating power to centralized institutions, preferring to make decisions as a group of individuals. Since the euro zone debt crisis at the start of the decade, the European Council (made up of heads of state or government) has relentlessly gained power at the expense of the European Commission (the EU’s executive arm). The argument against institutions is that, at a time of rising nationalism, it would be foolish for governments to relinquish yet more sovereignty to an external body. Far better for elected leaders to strike compromises that take into account different points of view.

The problem, as Draghi notes, is that these commitments rarely hold. From the euro zone fiscal rules, to those governing the distribution of refugees, there are many examples of EU governments rowing back on collective decisions. Sometimes, politicians blame predecessors for striking deals they now see as unfavorable. On other occasions, compromises are based on such loose wording that everyone can pretend they mean something different. Most important, such rules are extremely hard to enforce. Either there are no instruments to punish rule-breakers, or states prefer to go soft on other members in the expectation of being treated the same way.

What’s more, it’s silly to pretend that all countries have equal weight when sitting around the European Council table. Size matters and even attempts to team up only go so far. Take the recently formed “Hanseatic League,” made up of the Netherlands, Ireland and other northern and eastern European states. It’s hard to see it offering meaningful opposition to France and Germany, should they decide on a particular course of action. Of course, the big member states tend to occupy most of the roles in common institutions, but smaller countries at least have a guarantee that they comply with the interests of the EU or euro zone as a whole.

Plus, it’s quite possible that having governments fighting it out over the establishment of rules merely encourages nationalism, because politicians have an incentive to prove that they have bargained hard vis-à-vis other nations. That begs the question of whether this really is better than having institutions. 

Of course, there are problems with the emergence of new bureaucracies. Draghi maintains that bodies such as the ECB are democratic because they’re accountable to the European Parliament. But European elections are usually not taken anywhere near as seriously as national ones. When Draghi goes to Brussels or Strasbourg to answer to MEPs, many voters won’t feel he’s addressing their concerns.

Similarly, an institution is only as strong as its officials. At the end of October, Draghi will end his term. The choice of a new president will be the result of a round of EU horse-trading, which will include other important jobs such as president of the European Commission. There’s a risk of the central bank becoming increasingly politicized, as former politicians set their hopes on the central bank’s top job. The choice of a weak ECB president – or a weak Commission president – would diminish the case for stronger European institutions.

Growing unhappiness with the EU and euro zone has been interpreted as a call for the repatriation of institutional powers. Yet it may just be a cri de coeur for Europe to work better. If so, more years of watered-down compromise between governments isn’t what citizens are asking for. Draghi’s ambitious vision might serve them better.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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