Jean Monnet Essay: Integrations Engineering – Challenges for Serbia and EU

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At the opening of last years’ Jean Monnet conference, President Barroso invited the Jean Monnet professors to provide their opinions on “How we might recover from the economic and social crisis through European integration deepening”.

Prof. dr. Boban Stojanović sent a following essay:

Introduction

I live in a country where most citizens, politicians, and intellectuals understand the process of European integration as the process of meeting the formal requirements for accession to the European Union (EU). The starting position deems it desirable for Serbia to become a part of the family of European countries associated in the EU.

The stated goal – accession to the EU – is not debatable, even though other options, such as neutrality or binding to the Euro-Asian integration, have been offered. Geographically, there is no alternative due to the fact that Serbia is located in Europe. Preference for accessing integrative courses as an alternative for autochthony, self-sufficiency and isolation is also indisputable.

In political and economic terms, it is possible to choose between at least two options. However, the choice has already been made, as the policy makers in Serbia, during a relatively long period of pronounced or (more often) weak dynamics have created conditions for the beginning of negotiations for accessing the EU. It is assumed that they (in the name of the people) have carried out a good cost-benefit analysis, i.e. realistically reviewed all advantages and disadvantages of joining the community of most European countries. The fact that the negotiations have started shows that the formal conditions have already been met.

The essence of the process is rather controversial, as well as the perception of European integration. The dilemma is whether the process is seen as meeting the requirements of negotiation chapters or a fundamental change of society and spontaneous (i.e. unconstrained) acceptance of modern society norms. In other words, it would be ideal that the negotiations follow a comprehensive transformation of society and the relationship that a state has towards its surroundings. Like any other ideal, this one is also aspired to, but it can never be accomplished completely. Imperfect as it is, the real state of affairs should be as close as possible to the ideal. In this context, the combination of constructivism and spontaneity is fully emphasized. The first component implies the task and responsibility of European integration policy makers, while the second is a result of altered formal rules and the willingness of the majority of population to change the perception of modern organized society.

The change of institutions and consciousness should simultaneously follow the negotiations. Is this feasible, and if it is, in what timeframe? The answers to this important question are in the inventiveness and creativity of elected representatives on the one hand, and the so-called social genotype, including the willingness of people to change, on the other. Having in mind the experience of countries within the existing EU, especially those which are not (yet) outside the formal European integration, the population shows the lack of desire to change, even if the government is ready to meet the goal of a comprehensive society change. Deficit or absence of one of the two factors, which influence the fundamental reconstruction of society, gives only partial solutions. Then, as a rule, the form, not the substance of the integration process, is fulfilled.

Does the EU give ample cause for optimism in the implementation of institutional change and awareness? While answering this question, the following should be taken into consideration 1) a brief history of integration and the results, which countries, comparable with Serbia in key socio- economic criteria, have achieved, and 2) a vision of the EU in the near and distant future.

I

After more than 25 years of the former socialist countries’ integration into the EU, one can derive conclusions regarding the content and effects of the process. Volume of the changes varies from country to country. The results of the procedures, which have been undertaken so far, also vary. These differences in the integration engineering and the effects of the changes suggest that the fundamental reconstruction of the economy and society implies deep political and economic transformation. Insight into the current results of transition in Serbia shows that significant reform activities have been undertaken, but there is still no fundamental reconstruction of the economy and society.

Clear definition of objectives, means and actors in the process of economic and social change is an important prerequisite for successful integration. In addition, the instrumentation implementation changes must be adjusted to market economies and democratic society. To achieve the objectives, it is necessary to change the institutional framework, and in certain segments, the construction of new institutions and constitution of new code of conduct.

II

The differences in the performance of European integration process in some countries is not easy to explain due to the simultaneous effects that economic and non-economic, external and internal factors have on the course and content of the process. To achieve the goal of integration, one must take into account all the parameters relevant to the process. After reviewing the existing conditions, the change of the institutional framework and, in certain segments, new institution building, are initiated. The process should imply initial broad understanding of institutions as a set of formal and informal rules that determine the social relations through which regularities in the interactions of individuals and social groups are exhibited.

In its broadest context of new-institutionalism, attention is drawn to the analysis of free order and constructivism. Free order implies respecting the rules, regardless of the intentions of individuals or interest groups, which are formed as a result of historical processes of shaping social relations. Formed over a long period of time, such rules become laws, which are verified in everyday interactions of individuals, social groups and institutions. These general rules are based on tradition, customs, religion, culture. Since the informal rules are exhibited independently of the needs and demands of a social process, their effect on the process has parameter character. As objectively given and immune to the influence of individuals or groups’ will, informal rules are not subject to “violent” changes. Spontaneously established rules should not be changed by economic or any other interventionism. It can even be argued that interventionism is harmful because it represents a violation of the natural order. At the same time, states must ensure the respect of the rules, necessary for the operation of the spontaneous order, and their evolutionary development.
Constructivism refers to the design of standards created in the inner circles of experts and/or politicians. If one would achieve spontaneous construction of the desired state, the process would require a long period of time. Time, however, is a very limited factor. Therefore, creation and (violent) implementation of solutions that should generate new or modify the existing institutions to accelerate the process of achieving the goals, seems quite rational. Examples include newly created EU standards in monetary and fiscal policy. Is the EU, in this respect, a good role model?

III

For eurosceptics, many problems in the functioning of the EU are evidence of powerlessness of ideas and institutions, while for eurofanatics EU is a supranational ideal community that, regardless of the short-term distortions, in the long term functions harmoniously and in accordance with established rules. More moderate supporters of European integration suggest flexibility measures and resistance to internal and external shocks. Problems with the implementation of the Lisbon Agenda, the instability of the monetary union and the lack of a unified fiscal policy and the global economic crisis have accelerated the search for an exit strategy. Faced with the imbalance between the proclaimed goals of the Lisbon agenda and the actual situation, in 2010 the European Commission launched a common platform, called Agenda 2020 with the aim of finding a way out of the economic crisis and preparing the EU for the leading role in the world in the next decade, based on the new development model. The shift toward economic issues, which take precedence over the political, is rather striking. Policy priorities are essentially economic: growth based on knowledge (knowledge, innovation, education and digital society), sustainable development (efficient production while increasing competitiveness), increasing employment and reducing poverty. However, in 2011 Greece opened Pandora’s Box: the uncontrolled budget deficit, economic dysfunction, high unemployment, huge debt, the collapse of the bond, a decline in GDP. EU citizens have begun to live in risk and uncertainty. It has become clear that the convergence of Europe 2020 objectives could not be achieved without stable monetary and fiscal union and clear binding rules of conduct. This was done in 2012 by Agreement on fiscal discipline. Eurozone tends to control the crisis, which, not coincidentally, has resemblance to Bretton Woods’s reincarnation. Temporary European Financial Stability Fund has been rapidly transformed into a permanent European Stability Mechanism (ESM) with an initial capital of 500 billion euros, with the prospect of increasing. The Fiscal Compact, as an exit strategy of monetary union, gives the Eurozone the opportunity to use better ratings of the relevant agencies to eliminate concerns of the population and potential investors about the precarious and weak Europe, whose leaders have not had enough ingenuity to prevent distortions.

Agreement on the fiscal discipline requires of the Member States to include the legal limits of the budget deficit from 0.5 % of GDP and public debt from 60 % of GDP in their legislation. Temporary deviation from this “balanced budget rule” is allowed only in exceptional economic circumstances, for example during severe downturns in the economy. If government debt is significantly below the reference value of 60% of GDP, the limit for the deficit can be set at 1% of GDP.

The “debt brake” is activated automatically after exceeding the limits, which will expose the state to the punishment of the European Court, which defends the interests of the EU as a sovereign fiscal union. With this agreement on a common fiscal policy, the ESM activism, stability and economic growth in the Eurozone become possible, even probable. Prudent budgetary policy is essential to keep the level of debt under control. The question of scheduled implementation remains due to at least two problems of mismatched economic potential of member states:

1) unity in terms of monetary policy is necessary for the full fiscal union and 2) numerous consequences of sovereignty loss and (further) transfer of authority from the national level to the European Commission.

Time is a very limiting factor for the EU as well. EU must not allow the extensiveness of the implementation of commitments and disregard for common measures adopted. If crucially important documents of Maastricht and Lisbon have been stumbling, and even straying for 20 years, the implementation of ‘new Maastricht’ is expected to be rapid.

Proclaimed fiscal union is an important stage towards a federal political structure of the EU. This fits the long-term goals of the Lisbon strategy and the creation of the United States of Europe. However, the fact is that more intense the road to federalism has been forced by the crisis, not as a result of spontaneity. Problems in functioning are evident, at least due to the orientation of UK and Denmark not to join the monetary union. The long history of these countries has shown side problems of Greece, Spain, Portugal or Italy. But what if these countries face these or other economic or political challenges? Further problems are related to various levels of productivity and purchasing power in different parts of the EU, which prevents the desired functioning of a single market. The budget deficit, the volume of debt, unemployment, and other parameters are outside the proclaimed goals of Maastricht, and therefore the Fiscal Compact. The single market is distorted in the financial area with vast differences in, say, interest rates on government bonds. In addition, the creation of a fiscal union is a project of political leaders who articulate interests of the people. However, these people may, in changed circumstances, impose other solutions that may be contrary to the intentions of the creators of recovery plans. Constructivism, as an approach to problem solving, has to give way to spontaneity, so that the broad layers of the population could embrace measures and act accordingly. Both citizens and businesses should feel the benefits of new rules. Thus, the EU leaders would not have to explain high intellectuals that the changes have actually been accomplished in their favor.

Last but also quite important is the competition of forces of economic and political power on a global scale, which questions the realization of long-term goals of the EU as a world leader. A good example is China, which in the past twenty years has recorded much higher growth rates. Economic trends in the U.S. as the most important trading partner have traditionally been more favorable than in the EU. The difference in productivity on the world level has caused similar problems as within the EU. Many serious analyses indicate a long-term loss of EU competitive advantages, so that the leadership on a global scale is very uncertain. One of the dilemmas is whether to use the exchange rate to increase the competitiveness of the non-European markets and stimulate economic growth. According to some analysts, euro appreciation is the reason for the euro devaluation.

The Fiscal Compact is a good anti-crisis solution. However, eliminating the existing problems is not a solution for itself. There should be a permanent mechanism for anti- crisis activities. Citizens must begin to live within the limits of their possibilities. With good intentions of the Fiscal Compact and political willingness, monetary union might have a way out of its vicious cycle. Institutional, organizational and normative base should be permanently completed. Otherwise, the EU can expect new challenges, perhaps even greater than those which have awakened it from comfortable daydreaming about harmonious functioning.

What is necessary for better future is a sharp approach on a wider platform of the EU, not just in the monetary union. The harder way will remove the negative effects of the past, and then individual, but supervised, implementation of recovery plans and the Covenant by States will follow. Therefore, the extracted federalism may become normal in the long run.

IV

The candidate countries for EU membership have faced even more challenges. Fulfillment of the requirements of Copenhagen is only a necessary but not sufficient condition for achieving the objectives of Agenda 2020. Serbia will also face many challenges of convergence. Through the implementation of the Stabilization and Association Agreement, and the started Accession negotiations, Serbia accepts the rules and adopts the acquis communautaire. But, is the vision of the EU at the same time a Serbian vision, since for the period covered by the strategy 2020, Serbia will not be a member of the EU? Serbian Strategy 2020 does not exist. One gets the impression that the political elite circles do not have their own vision and cannot, even formally, share the vision of Europe 2020 with other countries. Apart from that, the overall objective should be the same, in order to stabilize economic development, realize the production and export development model, and consequently increase employment, living standards and social security of citizens. If we take into account that Serbia is not affected by the Fiscal Compact measures and the fact that the budget deficit is 7% of GDP, and the share of public debt to GDP ratio in excess of 65%, Serbian future is full of challenges.

As it does not participate in the institutions of the EU, Serbia has to formulate its own goals, which, having in mind the proclaimed convergence, are compatible with agendum 2020: 1) the establishment of a development model based on the production and export of goods and services and the rational use of natural resources, especially energy, 2) adoption of long-term program for development of entrepreneurship, re-industrialization, strengthening competitiveness and modernization of the economic structure, 3) employment increase, 4) adoption of the program of human resource development, increasing the number of high educated people, especially in the natural sciences and IT sectors, reducing the ‘brain drain’, 5) investment in knowledge, research and technology development work at least 2 % of GDP in the 2015 and 3 % in 2020, 6) implementation of the state program of deleveraging, businesses and individuals, 7) implementation of necessary reforms in the country, especially the territorial organization of the public administration, pension system, etc.

This holistic approach would allow Serbia to follow European political and economic trends. But for Serbia, as well as for other candidate countries, there is a circulus vitiosus: the output of the general economic and social problems would be faster and easier to achieve if it were an integral part of the EU which required achieving standardized performance as a condition for accession. One gets the impression that the latest EU measures have made the accession more distant. This brings us back to thinking about the integration engineering, which must rely on its own strength, with a slight help of the pursued communities. This certainly means a slower and less efficient path, and so the future of Serbia in EU becomes very distant. Other solution is fast connection of Western Balkans to the EU. It would not be a precedent, because some decisions about access have been adopted based on the dominant political criteria.