Convergence and Competitiveness Instrument

Steffen Stierle (Attac Germany), April 2013

At the end of March 2013 the European Commission put forward two Communications following on from political negotiations in the European Council and making practical proposals for implementation. The first Communication relates to the future ex ante coordination of economic reforms, while the second concerns the “Convergence and Competitiveness Instrument” (CCI) /1/. It is this second Communication which is the subject of this assessment.

In the CCI the Commission develops practical concepts around an idea previously also discussed as bilateral reform contracts, arrangements of a contractual nature or a Competitiveness Pact. The following analysis places the CCI in the context of the political debate on the Deepening of the Economic and Monetary Union and examines and assesses its content.

The “deepening of the Economic and Monetary Union”

In June 2012 the Big Four /2/ put their proposals for deepening the Economic and Monetary Union before the European Council. The paper Towards a genuine Economic and Monetary Union /3/ which they presented on that occasion made a whole series of proposals for reforming EU governance, with the idea of creating a fiscal, economic and banking union. One of the proposals was the introduction of bilateral contracts to be concluded in future between the individual eurozone countries and the European Commission, in which the Member States would commit to various structural reforms.

When the paper by the Big Four was presented, the Council decided that Van Rompuy should revise the various reform proposals taking account of criticisms from the Member States, and should present them again in December 2012. Many of the proposals were amended in the course of this revision process, but the idea of bilateral contracts remained unchanged.

At the summit in December 2012 the European Council then decided on priority areas for the forthcoming reforms on the basis of Van Rompuy’s revised paper. In the economic policy field /4/ two ideas were to be pursued in the first half of the year: mechanisms for the ex ante coordination of economic reforms, and bilateral reform contracts, if appropriate in conjunction with solidarity mechanisms /5/. The Commission was asked to develop practical concepts in these priority areas with a view to their adoption in June 2013 /6/.

In January 2013 Chancellor Merkel used her speech to the World Economic Forum in Davos to put forward the Federal Government’s ideas about what the mutually agreed contracts should involve /7/. She coined the term Compact for Competitiveness and said that the contracts should aim to bring down wage costs, for example, and make public administrations more efficient. She also said that the contracts should implement structural reforms designed to make the eurozone as a whole more competitive /8/.

The European Commission proposal

On the basis of the political developments described above, at the end of March 2013 the Commission put forward the idea of a Convergence and Competitiveness Instrument (CCI), in which it proposed to combine mutually agreed contracts with “solidarity mechanisms”.

The contracts are to be concluded between the individual eurozone countries and the EU. Their content is to be based on the Country Specific Recommendations from the European Semester and will primarily relate to reforms that would be relevant to the Monetary Union as a whole. The Commission argues that the crisis has shown that the necessary reforms have often been implemented too slowly or not at all in the Member States, and this has had a negative effect on other countries. The CCI now aims to take the European dimension into account in economic reforms and to enable the Member States to implement the reforms more swiftly. Essentially, the reforms in question will increase competitiveness, largely by deregulating labour and product markets. The aim will also be to target public spending more competitively /9/.

As regards participation, the Commission proposes two options to the Council: 1) confine the instrument to the eurozone only; 2) open it up to other EU countries. The Commission puts forward various options for when the use of the CCI should be triggered: 1) voluntarily, at a government’s request; 2) when a country is under the Macroeconomic Imbalances Procedure; 3) when the Commission decides to use it.

When the CCI is applied, the Member State concerned is first required to put forward a reform plan taking account of the recommendations from the European Semester. The procedure then involves making this plan into a binding contract containing specific timetables for implementing the reforms. The contract is negotiated between the Member State in question and the Commission, and approved by the Council.

The solidarity mechanism which has also been proposed is designed to provide a financial incentive to sign up to the contracts and implement them quickly. Funding is to be made available so that part of the cost of the reforms is borne at EU level. This might be used to finance vocational training, for instance, or measures to increase the effectiveness of active labour market policies /10/.

For the funding to be made available, the Commission proposes to create a new budget within the EU budget but outside the Multiannual Financial Framework. As for the size of the budget, the Commission merely says that this should initially be limited, but that it could grow over time if the CCI proves to be an effective reform mechanism. According to the Commission’s proposals, the budget will come from participating countries’ contributions, calculated according to a ratio based on their economic performance.

Once the contract has been agreed, the Commission will monitor compliance with the arrangement. If Member States do not fulfil the contract they will first receive a warning. If they still fail to comply, their payments might then be suspended or they might be instructed to reimburse payments already made. The Commission makes it clear that financial support should be strictly contingent on fulfilment of the conditions laid down in the contracts /11/.

Criticisms of the Competitiveness and Convergence Instrument

The CCI and/or Compact for Competitiveness mark a new phase in the neoliberal, authoritarian remodelling of the EU. While the agenda hitherto has primarily involved the neoliberalisation and de-democratisation of fiscal policy, the focus has now shifted to economic policy. The Compact for Competitiveness brings both dimensions – neoliberalisation and de-democratisation – to economic policy, just as the Fiscal Pact and ESM did with fiscal policy.

Neoliberalisation results from the content of the contracts. The purpose of these is to bring about structural reforms which attack wage standards and workers’ rights (protection against dismissal, minimum wage, etc.), but also things like environmental standards, for the sake of competitiveness. This approach can be seen in the action taken up to now by the European Semester, which has been in operation since 2011 and will play an important part in shaping the content of the contracts.

De-democratisation results from narrowing the economic freedom of national parliaments. The contracts will be negotiated between the governments, the Commission and the Council. The Commission does propose involving the parliaments as well, but only gives vague hints about how this might work. In the end it will probably come down to the parliaments saying yes or no to the various contracts without having any say in what they contain. This yes or no decision will be further distorted by the solidarity mechanism. Parliaments will be deciding not just on the content of the contracts, but also on whether to accept or reject EU funding /12/.

This will create a mechanism for the entire eurozone that is very similar to the memoranda policy which the Troika is pursuing under the ESM with Greece, Portugal and others. EU funding is to be made available on condition that a neoliberal reform agenda is implemented.

What is not clear, however, is whether the European Parliament (EP) will have a part to play. The Commission proposes to base the contracts on secondary EU legislation. The Federal Government, on the other hand, is calling for a solution based on international law, similar to contracts under the Fiscal Pact which fall outside European law. The Commission’s model would require the EP to be involved, while the Federal Government’s model would sidestep the EP. The Federal Government will probably win. This assumption is based on experience of recent reform negotiations in the EU, as well as the fact that there is not really any sound basis for the planned contracts in European law /13/.

A third fundamental criticism relates to the aggressive world trade strategy implied by the CCI. Angela Merkel clearly stated in Davos that the aim is to secure our prosperity by expanding global markets. By focusing rigidly on the German model of competitiveness and external trade, globally powerful European businesses are to be created that will capture global market shares. First of all, this model is not a suitable way to secure our prosperity, only the prosperity of our elites. Increased competitiveness will ultimately come at the cost of low wages and poor social standards. Secondly, ensuring prosperity for the elites will also cost the rest of the world, since economies and living standards in other regions of the world will, of course, come under greater pressure /14/.

1 COM 2013(165); COM 2013(166).
2 Big Four: Herman Van Rompuy (European Council), Manuel Barroso (European Commission), Mario Draghi (ECB), Jean Claude Juncker (ex-Eurogroup).
3 EUCO 120/12
4 As well as economic policy, the main aim in the first half of 2013 was to make progress with the banking union.
5 Solidarity mechanisms: these were previously discussed under the heading “fiscal capacity of the eurozone”.
6 Conclusions of the December Summit, EUCO 205/12, p. 5.
7 The speech may be read online at:
8 For further information see the commentary by A. Ulrich and St. Stierle: “Pakt für Wettbewerbsfähigkeit“.
9 This means investing less in social protection systems and public employment measures, and more in research and education.
10 If there is no agreement, there will be no contract – and therefore no financial support for the reforms.
11 Precautions are also to be taken to prevent reforms from subsequently being reversed.
12 In times of financial difficulty especially, the Member States will hardly be in a position to reject the contracts.
13 For more detail on the legal options, see: Vom neuen, über den autoritären zum progressiven Konstitutionalismus (L. Oberndorfer, in: juridikum 1/2013).
14 On this subject, see in particular Chancellor Merkel’s Davos speech.

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