How is the EU organised and what mechanisms exist for the democratic control and accountability of EU policy?
The European Union (EU) is an economic and political partnership between (as things currently stand) 27 European countries. These member states have transferred powers to the EU in order to facilitate European policies in areas including agriculture and fisheries, the environment, trade policy, and economic and monetary issues. The EU comprises seven institutions: the European Council (composed of heads of government), the Council of the European Union (consisting of ministers from different policy areas), the European Commission, the European Parliament, the European Court of Justice, the European Court of Auditors, and the European Central Bank.
As a result of the transfer of powers, the governments of the member states cannot decide fully independently on legislation in relation to certain policy areas, while national parliaments (and the supreme audit institutions in the member states) operate more at arm’s length. This raises the question of whether proper arrangements for democratic control have been made in other ways.
Decision making in the EU
EU decisions are made based on the rules laid down in the Treaty on the Functioning of the European Union (‘EU Treaty’). Under the EU Treaty, the EU institutions and the member states are required to work together in virtually all policy areas. The European Commission (EC) prepares legislation, on which the Council and the European Parliament take (in the majority of cases) concerted decisions. The governments of member states are represented on the European Council, and, depending on the policy area, in the varying composition of the Council of the European Union. The European Parliament is directly elected by EU citizens and acts as a joint legislator (with the exception of the areas specified in the EU Treaty). The European Parliament must give its consent to the EC’s proposals and has the right to amend them. In this way, European citizens are represented in the EU’s decision-making process.
Today, most decisions of the Council of the EU are taken by qualified majority. This means that decisions are taken by a majority of votes provided that certain additional conditions are satisfied. In certain exceptional cases (such as the expansion of the union), decision-making is still based on unanimity, as used to apply to virtually all decisions. Look here for information on the various EU voting procedures.
The individual member states initially decide at a national level on their positions in the Council. In the Netherlands, these positions are adopted with the aid of what are known as BNC files. The Dutch government expresses its opinion on an EC proposal in a BNC file. This then forms the basis for a debate with Parliament on the Dutch national position. As the ultimate decision taken by the Council represents the outcome of negotiations between the member states, there is no guarantee that the Dutch position can be fully maintained.
Democratic accountability and control in the EU
The EU Treaty also sets out the mechanisms for the accountability and control of EU policies. Apart from being a co-legislator in the EU, the European Parliament is also an important actor in terms of accountability and control in relation to the implementation of EU policies. The European Parliament scrutinises the way in which the EC implements policies and the budget. The European Court of Auditors (ECA) assists the European Parliament in its scrutinising role by auditing the regularity, efficiency and effectiveness of EU policies. The ECA expresses an annual opinion on the regularity of receipts and expenditures and issues some 20 ‘special reports’ on EU policies each year. The European Parliament discusses these reports, for example in its Budgetary Control Committee. For further information, see here.
Look here for an explanation of the EU and its seven institutions.
Intergovernmental (euro area) policies
In addition to the formal, or ’community’, EU policies described above, intergovernmental policies have gained importance in the EU, especially since the financial crisis. These policies relate to agreements between specific groups of EU countries – they do not apply to the EU as a whole.
The euro-area countries are the main group of countries that are subject to separate agreements. In 1991, the EU member states decided to form an Economic and Monetary Union (EMU). The objectives of the EMU included pursuing a common economic policy, promoting price stability, and improving the operation of the single market. The ultimate objective was the introduction of the euro as a common currency. This happened in 2002. The euro area currently consists of 19 EU member states. The European Central Bank is responsible for monetary policy in the euro area.
The Eurogroup’s involvement in EU policy-making has grown sharply in the past few years. The 19 euro-area countries (i.e. the majority of EU member countries) have decided that they should play a prominent role on virtually all issues with a strong financial component. In addition to making certain agreements that apply to the EU as a whole, they also make arrangements that apply only to the euro area. The problem is that these agreements do not follow from the EU Treaty. Consequently, these agreements are not subject to the rules on accountability and control that apply to the EU as a whole. As far as we are concerned, this discrepancy affects three policy areas in particular, i.e. the European banking union, the European emergency funds, and European economic management. The arrangements made about accountability and control vary considerably from one area to another. We raised this point in several of our publications.
1. The European banking union.
The banking union regulates the supervision of the banking industry in the euro-area countries. Since 4 November 2014, the ECB has been the supervisory authority responsible for supervising significant banks in the euro area. The ECA is authorised to audit the way in which the ECB performs its new task. To this end, European law (i.e. the SSM Regulation) includes a provision identical to that in the EU Treaty on audits of the ECB’s monetary task. This means that the ECA is entitled to audit the ‘operational efficiency of the ECB’s management’. In practice, these audit powers are far more limited than the audit powers that the Netherlands Court of Audit used to have when the Dutch Central Bank (DNB) was still responsible for this task. We have drawn attention to this in a number of audit reports, including a 2017 report entitled ‘Supervision of banks in the Netherlands’. In October 2019, the ECA and the ECB signed a Memorandum of Understanding in an effort to repair this ‘audit gap’. See also the web page on the banking union.
2. The European emergency funds
Various emergency funds were launched in the throes of the crisis to provide financial assistance to ailing euro-area countries and to preserve the euro. One of the conclusions we drew in our 2015 report entitled ‘Emergency assistance for eurozone countries during the crisis’ was that there was a gap in terms of the democratic accountability and control of the Eurogroup (i.e. the Finance Ministers of the euro-area countries) as the main decision-maker on the European emergency funds, and that the bulk of emergency fund expenditure was not subject to any independent external audit.
On the insistence of the Contact Committee of the EU’s supreme audit institutions, a Board of Auditors was formed for the European Stability Mechanism (ESM) as the largest emergency fund. This Board of Auditors acts as an independent external auditor. The European Court of Auditors has no audit powers at the ESM. See also the web page dedicated to the European emergency funds. (verwijzing).
3. European economic management
In our 2014 report on the coordination of European budgetary and macro-economic policy as part of the European Semester, we found that, while the Eurogroup played an increasingly important role, the usual democratic accountability and control mechanisms had not been put in place. The Eurogroup is not accountable to any parliamentary institution, despite playing a prominent role in the 1997 Stability and Growth Pact, notably in relation to the 2011 six-pack and the 2013 two-pack reforms of the growth pact, for example. The fact is that these measures impose additional requirements on the euro-area countries that do not apply to other EU member states. See also the web page on the budgets of the EU member states.