Month: March 2015

The Debate Is Open!

Posted on by Susanna Cafaro

We all know which global challenges and concerns the world faces today.

Unfortunately, the international community lacks of adequate tools to manage all this.

All those who think that global citizens – as we all are- should do something will find a place for discussion in a Linkedin Group named Supranational Democracy.

it is a space to reflect and discuss – frankly and openly- about what to do and where to start from.

I think that possible solutions for a democratic globalization have to be intercultural and interdisciplinary.
Among the topics that we could discuss there there are: global governance; protection of human rights and development of civil and political rights at supranational level; digital democracy; innovative and creative governance; role of civil society and ways to raise awareness about the global dimension … and this is maybe just the tip of the iceberg.

It’s an open group: feel free to join, to invite new members, to contribute to discussions and suggest new topics for discussion… or even to watch what’s going on without joining.

You are very welcome!

Susanna

“With great power comes great responsibility”: the Case of ECB’s Accountability

Posted on by Susanna Cafaro

“With great power comes great responsibility”.You know where this quote comes from 🙂

I think it perfectly applies to the ECB.

When I started to study it (OMG, about 20 years ago!), I found out that its almost exclusive competence in managing the Eurozone monetary policy and its well-guaranteed independence were mirrored by a panoply of accountability tools.

The democratic legitimacy of the ECB is grounded on the respect of the rule of law and specifically on the fact that (i) it has been established by a treaty ratified by all member states; (ii) its Executive Board is appointed by the European Council, acting by a qualified majority on a recommendation from the Council after it has consulted the European Parliament; (iii) its decisional bodies act in accordance with decision-making procedures codified in the Treaties and in the Statute annexed thereto.

This legitimacy ground is complemented by the accountability of the ECB towards the European Parliament. The ECB President regularly reports on the bank’s monetary policy and other duties during his quarterly hearings before the European Parliament’s Committee on Economic and Monetary Affairs. The content of the “monetary dialogue” has evolved over time and now covers all aspects of economic and monetary policy. In addition, the President of the ECB and the other members of the Executive Board may be heard by the competent Committees of the European Parliament on  own initiative or at the request of these; MEPs may address written questions to the bank and ECB’s compulsory replies are published in the Official Journal of the EU and on the bank’s website.

The aim of these exchanges between the Parliament and the ECB is monitoring its compliance with the objective of price stability: in all documents and interviews the ECB is required to justify its work and does it by making known its monetary policy strategy in detail. The definition of price stability rests on ECB’s competence and can be found in two important decisions, adopted in 1998 and 2000.

As part of the ECB’s reporting obligations, the ECB publishes quarterly reports, weekly financial statements, and a Monthly Bulletin plus a wide range of other task-related publications. It also addresses an Annual Report to the Council and Parliament. This document is presented by the President of the ECB to the Parliament’s plenary which –few months after – adopts a resolution after a general debate. This exercise is far from being a mere formality: in 2005 the Bank’s annual report was rejected (even if this vote didn’t have any binding effect). The Members of the Governing Council deliver numerous speeches to address relevant topics of concern for the public and the ECB President and Vice-President provide an in-depth explanation of the ECB’s assessment of the economic situation and the rationale for its monetary policy decisions during regular press conferences – monthly- after each meeting of the ECB’s Governing Council.

All this was already in place before the financial crisis.

Only on December 18th 2014, the European Central Bank communicated its intention to start publishing summary minutes of its policy deliberations beginning four weeks after its next meeting, as a key part of its communications strategies. For sure it is a step forward in terms of the institution’s transparency and accountability.

A few days ago somebody made me notice that if “with great power comes great responsibility”, the contrary is also true: with great responsibility comes great power.

Once again, the ECB is a perfect example. During the financial crisis and especially after the Greek crisis exploded, the ECB took on more and more responsibility, stretching its mandate to guarantee the price stability and – ultimately – committing itself to save the very existence of the euro.

Draghi’s London speech (July 26, 2012), was a turning point:

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Starting from then, new unconventional monetary instruments were created – the Outright Monetary Transactions, the Quantitative Easing – and the communication strategy became one of them. Now, in front of this (undeniable) increased power, one legitimately asks if the accountability tools foreseen by the Treaties are still adequate. Maybe it is time to introduce a new one: a monetary dialogue with a Parliament (or a Parliament configuration) specific to the Euro area.

The proposal of signing a specific Euro Treaty for the Eurozone economic governance -establishing an executive body responsible in front of an Euro-Parliament – has been advanced by three political manifestos appeared in 2013 and 2014. The first was presented by the German Glienicker Gruppe, the other two were French: the proposal by the Groupe Eiffel and the Manifeste pour une Union Politique de l’Euro. Such a Parliament would add a new dimension in holding the ECB accountable and could contribute significantly to the democratization of the Euro-governance. In the meantime, it would be possible to establish in the European Parliament a  subcommittee to the ECON Committee composed of MEPs from the Eurozone, to prepare the ECON Committee’s work on legislative proposals and overseeing activities specific to the Eurozone, including the monetary dialogue with the ECB.

This last proposal could be easily implemented without any treaty change, not amending the European Parliament’s Rules of Procedure (where couldn’t be allowed any differential status among MEPs), but with informal agreements among political groups.

Budget Matters!

Posted on by Susanna Cafaro

A supranational democratic organization requires its own legitimacy as well as independence by its member states: they are represented and participate actively in the decisional chain, but cannot keep the decisional process hostage of their own will.

In order to be free, an international organization needs an adequate financial independence, i.e. its own budget. Without it, its decisions aren’t the result of a balance of values and interests at stake, but become mere negotiations among the most influential capitals and, ultimately, the result of a balance of power –  so undermining the added value of supranationality and multilateralism and reducing to zero the role of individuals. Real independence can be guaranteed only by specific statutory provisions and by an adequate budget.

But how a budget may be an independent one?

In 1970 a strong commitment for financial autonomy in the European Economic Community was mirrored by a genuine system of own resources – basically agricultural and import duties, complemented by a small quota of the harmonized value-added tax. National contributions (in a percentage of gross national incomes) were reintroduced in 1988 in order to complement a decrease in the own resource revenue, which became more and more relevant in the following decades as import duties decreased as an effect of evolving international trade rules.

As a consequence, what was supposed to be a transitional solution was reinforced over the years, reducing significantly the financial autonomy of the Union. It’s not surprising, now, that some States are more equal than others and speak with louder voice!

So, genuine own resources are a necessary complement to a democratic system and resources means – first of all-  taxes.

The ancient slogan “no taxation without representation” may so be easily reversed, as “no representation without taxation” because what could elected representatives do with money which is gracefully granted by the richer (if not pleasing them)?

The debate on which taxes could better fit a supranational system is open and not only in the European Union: carbon taxes, financial transactions taxes, e-commerce taxes? What makes some proposals interesting is that they could have useful side effects, such as reducing CO2 emissions, decreasing inequalities, limiting tax avoidance.

Another interesting path of reasoning is considering some resources which are revenues without being taxes. See for instance the possible income coming from the common heritage of mankind (and taxes on related activities), which could be employed for the benefit of humanity.

Some examples of the “common heritage principle” may be found in international law: in the Outer Space Treaty (1967), in the UNESCO World Heritage Convention (1972), in the never ratified Moon Treaty (1979), in the Montego Bay Convention establishing the Seabed International Authority (1982), in the UNESCO Universal Declaration on the Human Genome and Human Rights.

Which better use could be made of the principle of the responsibility of the present generations towards the future ones than designating some mankind’s sources of revenue to finance the functioning of a democratic global system? 

Democratic Experimentation

Posted on by Susanna Cafaro

A possible paradigm for democracy in international organisation is what I call democratic experimentation.

The aim of it is reinforcing the typical elements of the democratic model – legitimacy, accountability, inclusiveness – inside IOs in the most effective ways, consistently with the specific institutional frame and goals of each organization.

In order to do so, the embryonic forms of legitimacy, accountability and inclusion – already existing in a number of IOs – may be progressively strengthened and may evolve into more effective tools and channels. They may be declined in original ways to be improved gradually.

Why “democratic experimentalism”? Because the need to invent new formulas to adjust to the different fields of action and to the different global public goods involved requires that we proceed empirically by trial and error.

A model in this approach is the European Union, defined as “a new legal order” by the European Court of Justice in the famous Van Gend en Loos decision (1963, Case 26/62). It is a model only in terms of process, i.e. in the ability to proceed by trial and error towards more mature forms of democracy, but not in terms of outcome, which is the product of specific historical, cultural and geographical circumstances.

In other words, each international organization could experience a “legal order formula” of its own for  legitimacy, accountability and inclusion, which would be the result of its own specific features and aims. In order to allow such evolution, it is necessary that statutes and founding treaties  establishing the IOs foresee a clear and accessible revision procedure and that they are not considered as carved in stone.

Cultural and structural differences among the organisations prevent from finding universal solutions. What is necessary is rather to find a method and agree on the values and objective to be pursued. As was the case with the process of European integration, other international organizations could evolve into sui generis  legal orders, never seen before.

The twofold advantage of this approach would be: (i) allowing us to read in a teleological frame a series of small evolutions taking place in the law of international organizations (the multiplication  of complaints mechanisms, monitoring bodies, dialogues with civil society); (ii) giving us a key to interpret and measure their progress.

There isn’t yet a ranking of international organisations according to their democratic standards (as there is for States). Nonetheless, it would be possible to build a set of criteria and data to make it possible.

I’m sure that this would be a valuable exercise… and I’d love to contribute.

 

The Basics of Democracy: 3. Inclusiveness

Posted on by Susanna Cafaro

It could be easy to think that a legitimate governance plus a number of accountability channels give, as a result, a real democratic system. And it is so, impossible to deny.

Unfortunately, it is so in a utopian world, where citizens are really equal. Equality is a precondition to making each vote count and each trial be fair, to give everybody the same opportunities to access democratic rights and to see guaranteed their civil rights. Alas, formal equality isn’t enough and substantial equality is far from being the reality, so we need inclusiveness.

Inclusiveness is the specific target to include citizens into the channels of participatory democracy or to help them access the accountability channels. Without a specific commitment to inclusiveness, the processes to make international organizations legitimate and accountable will remain the privilege of a white, English-speaking elite, with high academic qualifications, connected to the internet. Just have a look at most of the civil society active at the global level and you will see it.

It is OK. I don’t want to delegitimize the civil society active on the global stage or underestimate its precious (invaluable!) avant-garde role. But, after the avant-garde -better soon than late- I hope to see a more diverse, multicultural civil society, really representative of the world pluralism.

A substantial -and not merely formal- democracy requires specific tools for inclusiveness aimed at stimulating the widest possible participation.

Where to start from? Let’s start from formal equality where it is still needed: gender equality (and the right to education for boys and girls), equality before the law, equality no matter the sexual orientation, the ethnicity, the origins and the life conditions.

But then, let’s move to substantial equality: fundamental rights, civil rights, political rights, rights to access and participation. We’ll discover easily that on the side of substantial equality there is still much to do almost everywhere. Nothing seems more difficult than guaranteeing equality before international organizations where we see further obstacles. This implies: overcoming the gap known as the digital divide, both in cultural as well as in infrastructural terms; going beyond the obvious barriers that stem from cultural and linguistic diversity, reaching minorities and disadvantaged groups; overcoming national barriers which may be the result of some governments’ obstructionism. A cultural engagement, here, should go hand in hand with a conspicuous economic investment and with specific strategies.

This point would deserve to be listed among the sustainable development goals…

A Case-Study: The Greek Crisis.

Posted on by Susanna Cafaro

Much has been written about the Greek crisis.

Below, some thoughts on this story seen through the glasses of democratic standards and  -specifically-  through the two lenses of the legitimacy and accountability (3D democracy vision)

The financial crisis, in Greece more than elsewhere, has highlighted the erosion of state sovereignty in key areas of typical citizen-state relationships such as the welfare system and the labor market, in which the need for choices perceived as legitimate – but also accountable – is crucial. Some fundamental rights have been touched, some less fundamental ones have been significantly reduced.

Decisions had been taken by top political bodies (Eurogroup, European Council)  and technocratic institutions (European Commissions, ECB, IMF). Let’s put aside for a moment the good intentions as  restoring sound public finances: the simple truth is that parliaments have been ignored. The Greek Parliament – of course- but also the European Parliament.

The issue regards also the method and not just the matter. The solution to the issue itself -austerity or not austerity- is strongly influenced by the method used as some institutions are more easily driven to deliver rigor than growth. Moreover, they lack the necessary legitimacy and accountability to deal with individuals’ rights.

Conditions were attached to the Greek loan facility – a package of bilateral loans by Euro area member States complemented by an IMF loan. Two intergovernmental agreements were signed and entrusted the Commission to manage the package under strict conditionality. A loan facility agreement was then signed by the Commission on behalf of the Euro area member States and by Greece. Next, the economic conditions were agreed on in a series of Memoranda.

Their respect of the rule of law as well as their compliance to the EU Treaty and the EU Charter of Fundamental Rights couldn’t be assessed by the European Court of justice because of the widespread use of atypical legal acts as well as of their intergovernmental nature.

Why? Why the Eurogroup and the German Government had such a strong voice and the Court of Justice had not? Why the Parliaments were not in the debate? Why, even now, with a clear Greek vote legitimizing a different majority in the Parliament and a different vision we still see the old movie going on again and again?

Just follow the money…

Money is not from the EU, money comes from some European governments and from the International Monetary Fund . With some help from the ECB.

The EU budget is too tiny to cope with the crises: less than 1% of EU GDP. Moreover, the 28 EU countries were not all willing to contribute, so the Eurozone States had to manage the crisis on their own. They did it through intergovernmental agreements (as creating the ESM) and according bilateral loans. The IMF – traditionally leaded by an European-  was very sensitive to the problem (even too much, according to the BRICS).

And here comes the Troika…..

The Troika is nothing more than a committee of creditors, entrusted with the management of the loans. Of course it hasn’t any accountability. Its doubtful legitimacy and lack in transparency have been clearly pointed out by the European Parliament.

If we want to assess its accountability, we have to split it into its three components:

The European Commission is an accountable institution, it has to report to the EP, answer to MEPs’ written questions and could even be dismissed by the Parliament with a majority vote. The ECB too is subject to a monetary dialogue with the EP, even if less incisive than the dialogue the Commission has with the EP. Unfortunately, having them acting together confuses responsibilities and makes harder to assess the role of each institution for the decisions taken.

And then we have the IMF.

There is a story I want to tell you about the IMF in the Greek crisis:

In a IMF Country Report about Greece (June 2013) we can read that due to the process of fiscal consolidation  the country paid a too high a price in terms of social and economic losses: “Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper- than-expected recession with exceptionally high unemployment. Public debt remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession”.  The reports makes clear there were successes as well as “[N]otable failures” in the program.

This is somehow a progress in the culture of the institution: analyzing critically the consequences of their choices. For sure the establishment of an Independent Evaluation Office in 2001 contributed to such improvement. Nonetheless, who is politically responsible if a choice is reported wrong? are there any consequences? The answers are: 1) Nobody, 2) No.
A gap in accountability is more than evident.

There is much to say about the tangle of many potential conflicts of interests inside the Executive Board of the Fund and in the IMF itself that we cannot unravel all of them here (but we’ve done it elsewhere!).

What makes the Greek crisis an interesting case study -unfortunately for the Greek people- is that it makes clear that democracy matters. Beyond matters of principle.

What is also really sad (at least for me) is that Europe is losing its credibility over the Greek crisis.