How is the EU organised and what mechanisms exist for democratic control and accountability for EU policy?

EU decision-making on, for example, the drafting of new EU legislation is based on rules set out in the Treaty on the Functioning of the European Union (TFEU). 

The TFEU provides for shared competence between EU institutions and the EU member states in most policy areas. New legislation and rules are drafted by the European Commission, and decisions on them are then taken (in most cases, together) by the Council of the EU and the European Parliament. Ministers from the member states are involved in decision-making through the Council of the EU, while citizens from EU member states are involved through the European Parliament, which is directly elected by EU citizens. 

In most cases, the European Parliament is a co-legislator as it has as much say on the Commission’s legislative proposals as the Council of the EU. It can also ask the Commission, at its own initiative, to submit a specific legislative proposal. In some areas, however, such as tax, foreign policy and EU security policy, the Parliament is just ‘consulted’ and can then only approve or reject the Commission's legislative proposals or propose amendments.

These days, most decisions in the Council of the EU are taken by a ‘qualified majority’, such that a proposal is adopted if:

• 55% of the member states vote in favour (i.e. 15 of the 27 member states);
• the member states in favour of the proposal represent at least 65% of the total EU population.

Decisions on some matters (such as EU expansion) require unanimity. In other words, a proposal can only be adopted if all the member states vote in favour. In the past, all EU decisions required unanimity. 

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 a Commission 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 will be achieved in full.

More information:

• How does the Council vote? - Explanation on voting system EU by the Council of the EU
• Aanwijzing 9.15 BNC-fiches - Policy and rules regarding bnc-fiches (Dutch only)

Community policy

The policy areas in which the EU member states conduct joint European policy (such as agriculture and fisheries, the environment, trade, and economic and monetary policy) are regarded as community policy of the EU.

The TFEU sets out the provisions for control and accountability in the implementation of community policy. Essentially these are as follows:

• the European Parliament scrutinises the way in which the Commission 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 revenue and expenditure and issues some 20 special reports on EU policies each year;
• the European Parliament discusses these reports, for example in its Budgetary Control Committee.

The Budgetary Control Committee is also responsible for the annual discharge of the Commission (and other EU institutions) for its/their implementation of the EU budget.

More information:

• Committee on Budgetary Control, the work of the Budgetary Control Commission of the European Parliament

Intergovernmental (euro area) policies

In addition to the formal, or ’community’, EU policies, intergovernmental policies have gained importance in the EU, especially since the financial and economic 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 subject to separate agreements. The euro area currently consists of 20 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 20 euro-area countries (i.e. the majority of EU member states) have decided that they should play a prominent role in virtually all issues with a strong financial component.

In addition to certain agreements that apply to the EU as a whole, they also agree arrangements that apply only to the euro area. However, these agreements do not follow from the EU Treaty. Consequently, they are not subject to the control and accountability rules that apply to the EU as a whole. There is consequently an ‘audit gap’ in the provisions for control and accountability within the euro area. As far as we are aware, this discrepancy affects three policy areas in particular, i.e. the European banking union, the European emergency funds, and European economic management.
 

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 Single Supervisory Mechanism (SSM)) 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 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’.

More information:

• What is the European banking union and will it prevent a future banking crisis?, Netherlands Court of Audit
• Supervision of banks in the Netherlands, Netherlands Court of Audit (September 2017)
• Memorandum of Understanding between the ECA and the ECB regarding audits on the ECB’s supervisory tasks

2. 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 the democratic accountability and control of the Eurogroup (i.e. the finance ministers of the euro-area countries), the main decision-maker on the European emergency funds, and that the bulk of emergency fund expenditure was not subject to independent external audit. 
On the insistence of, for example, the Contact Committee of the EU’s supreme audit institutions, a Board of Auditors was formed for the European Stability Mechanism (ESM), the largest emergency fund. This Board of Auditors acts as an independent external auditor. The European Court of Auditors has no powers to audit the ESM.

More information:

• Emergency assistance for eurozone countries during the crisis, Netherlands Court of Audit
• Have the European emergency funds achieved their objectives, and when will the loans be repaid?, Netherlands Court of Audit

3. European economic governance

In our 2014 report on the coordination of European budgetary and macroeconomic policy in the European Semester, we found that the Eurogroup was playing an increasingly important role, but that 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. These measures impose additional requirements on the euro-area countries that do not apply to other EU member states.

More information:

• European Economic Governance (September 2014)  , Netherlands Court of Audit
• How does the EU ensure that its member states keep their budgets in check? - Netherlands Court of Audit explanation on EU budget surveillance