Routes to a Resilient European Union: Interdisciplinary European Studies 3030931641, 9783030931643

Citation preview

ROUTES TO A RESILIENT EUROPEAN UNION Interdisciplinary European Studies

EDITED BY ANTONINA BAKARDJIEVA ENGELBREKT PER EKMAN · ANNA MICHALSKI · LARS OXELHEIM

Routes to a Resilient European Union “In an increasingly globalized world, the EU stands out for its economic strength and value-based social and environmental consciousness. However, our democratic system is being tested from inside and outside the union. It is therefore crucial to strengthen the EU’s resilience on the internal market, security, digital transformation, and climate change. This book is therefore highly relevant. It discusses resilience from different perspectives and is a welcome contribution to debates on the subject.” —Ambassador Christian Danielsson, Head of the European Commission’s Representation in Sweden, former Director-General for Neighbourhood and Enlargement Negotiations, and Deputy Secretary-General of the European Commission “This volume offers novel, interdisciplinary analyses on the resilience of the EU facing multiple crises. It is a must-read for anyone interested in how these crises may be tackled.” —Professor Jarle Trondal, University of Oslo and University of Agder, Norway

Antonina Bakardjieva Engelbrekt · Per Ekman · Anna Michalski · Lars Oxelheim Editors

Routes to a Resilient European Union Interdisciplinary European Studies

Editors Antonina Bakardjieva Engelbrekt Faculty of Law Stockholm University Stockholm, Stockholms Län, Sweden

Per Ekman Uppsala, Sweden Lars Oxelheim Hägersten, Stockholms Län, Sweden

Anna Michalski Stockholm, Sweden

ISBN 978-3-030-93164-3 ISBN 978-3-030-93165-0 (eBook) https://doi.org/10.1007/978-3-030-93165-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022, corrected publication 2022 Chapter 4 is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/). For further details see licence information in the chapter. This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Bradley Dennien/Shutterstock This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

2

3

4

5

6

The EU and the Precarious Routes to Political, Economic and Social Resilience Antonina Bakardjieva Engelbrekt, Per Ekman, Anna Michalski, and Lars Oxelheim Improved Framework Conditions for a More Entrepreneurial, Innovative and Resilient EU Niklas Elert and Magnus Henrekson Towards a Climate-Neutral Union by 2050? The European Green Deal, Climate Law, and Green Recovery Karin Bäckstrand

1

15

39

Legal Preconditions for an Environmentally Sustainable European Union David Langlet

63

COVID-19 and the EU’s Ability to Manage and Prevent Health Crises Louise Bengtsson

89

The Demographic Challenge Facing the EU: Roads to Sustainability in an Ageing Europe Titti Mattsson

115

v

vi

7

8

9

CONTENTS

How Can a Banking Union Make the EU More Resilient to Crises? Jens Forssbæck

141

EU Resilience in the Internal Market After Financial Crisis: Political Resolve and Legal Responsiveness Carl Fredrik Bergström

169

Immigration and Asylum in the EU: A Resilient Policy for Integration? Karin Borevi

195

10

Intra-European Labour Migration for a Resilient EU Erik Sjödin and Eskil Wadensjö

11

Conclusion: The EU and the Search for Sustainability and Resilience Antonina Bakardjieva Engelbrekt, Per Ekman, Anna Michalski, and Lars Oxelheim

Correction to: Legal Preconditions for an Environmentally Sustainable European Union David Langlet Index

219

245

C1

259

Notes on Contributors

Karin Bäckstrand is a Professor in Environmental Social Science at the Department of Political Science at Stockholm University and a senior researcher at the Institute for Future Studies. Her research field revolves around global environmental politics and EU and Swedish climate policy. Antonina Bakardjieva Engelbrekt is a Professor of European Law at the Faculty of Law of Stockholm University. She is chair of the Swedish Network for European Legal Studies (SNELS) and she has been Torsten och Ragnar Söderberg Professor of Legal Science (2015–2018). Her research interests include processes of Europeanisation and globalization and their influence on national law and institutions. Louise Bengtsson holds a Ph.D. in International Relations from Stockholm University and has been affiliated with the Swedish Institute for International Affairs. Her research interests include global governance in the field of public health as well as the links between health, security and the environment in particular. Carl Fredrik Bergström is a Professor of European Law at Uppsala University. The main areas of his current research are EU constitutional law and rulemaking system, constitutional theory and legal method. Karin Borevi is an Associate Professor of Political Science and Senior Lecturer in Political Science at the School of Social Sciences at Södertörn

vii

viii

NOTES ON CONTRIBUTORS

University, Stockholm. Her research interests include immigration, citizenship, multiculturalism and governance of religious diversity. Per Ekman is a Ph.D. Candidate in Political Science at the Department of Government, Uppsala University, Sweden and Coordinator for the Swedish Network for European Studies in Political Science (SNES). His research interests include the foreign policy of countries in the EU’s Eastern Partnership, state building and historical institutionalism. Niklas Elert has a Ph.D. in economics and is a Research Fellow at the Research Institute of Industrial Economics (IFN). He focuses on economic dynamics, the relationship between institutions and entrepreneurship and the effects of entrepreneurship education. Jens Forssbæck is an Associate Professor of financial economics at the Department of Economics, Lund University School of Economics and Management. His research interests include financial intermediation and international corporate finance. Magnus Henrekson is a Professor and Senior Research Fellow at the Research Institute of Industrial Economics (IFN). He served as IFN President 2005–2020 and was Jacob Wallenberg Professor at the Department of Economics at the Stockholm School of Economics until 2009. His primary research field is entrepreneurship economics. David Langlet is currently a Professor of environmental law at Uppsala University and has previously been a Professor of ocean governance law at the University of Gothenburg. He is the co-author of Langlet and Mahmoudi, EU Environmental Law and Policy (OUP, 2016). He has a strong interest in the role of law in ecosystem-based management. Titti Mattsson is a Professor of Public Law at the Faculty of Law, Lund University. Her research fields are in Health law and Social welfare law, including healthcare and community care for older persons. Anna Michalski is an Associate Professor in Political Science at the Department of Government, Uppsala University and Associate Research Fellow at the Swedish Institute of International Affairs. She is Chair of the Swedish Network for European Studies in Political Science (SNES). Her research interests include European foreign policy, EU-China relations, strategic partnerships and socialization in international organizations.

NOTES ON CONTRIBUTORS

ix

Lars Oxelheim is a Professor of International Business and Finance at the University of Agder and affiliated with the Research Institute of Industrial Economics (IFN). He is the founder of the Swedish Network for European Studies in Economics and Business (SNEE). His research interests include economic and financial integration, corporate governance and risk management. Erik Sjödin is an Associate Professor of Civil Law and Senior Lecturer at the Swedish Institute for Social Research, Stockholm University. In his research, he has dealt consistently with how EU labour law can be implemented in Swedish law, and how the tensions that arise between national and EU law can be overcome. Eskil Wadensjö is a Professor of Labour Economics at the Swedish Institute for Social Research, Stockholm University. His research interests are migration, the labour market and social policy. Current research topics are international migration, unaccompanied refugee children and social and contractual insurance.

List of Figures

Fig. 2.1 Fig. 7.1

Fig. 7.2

Fig. 7.3

Fig. 7.4

Fig. 7.5

The collaborative innovation bloc—an overview Banks’ regulatory capital as a share of risk-weighted assets, Euro-19 countries (Source IMF Financial Soundness Indicators) Banks’ non-performing loans as a share of gross loans, Euro-19 countries (Source IMF Financial Soundness Indicators) Banks’ return on equity in crisis countries and other Euro-19 countries (simple averages). GIIPS + CY countries are Greece, Ireland, Italy, Portugal, Spain, and Cyprus (Source IMF Financial Soundness Indicators, author’s calculations) General government debt as a share of GDP and insured deposits as a share of GDP in the Euro-19 countries, 2020 (Sources Eurostat [government debt/GDP], EBA [insured deposits], and World Development Indicators [GDP for insured deposits]) Fiscal balance as a share of GDP and banks’ holdings of domestic government bonds as a share of capital and provisions in the Euro-19 countries, averages over 2008–2020 (Sources ECB [bond holdings/capital] and Eurostat [fiscal balance/GDP])

23

151

153

154

159

163

xi

CHAPTER 1

The EU and the Precarious Routes to Political, Economic and Social Resilience Antonina Bakardjieva Engelbrekt, Per Ekman, Anna Michalski, and Lars Oxelheim

Introduction The beginning of the 2020s will go down in history as the time when the SARS-CoV-2 virus locked down the world and threatened to destroy the global economic and social structures that have been taken for granted

A. Bakardjieva Engelbrekt Stockholm University, Stockholm, Sweden e-mail: [email protected] P. Ekman · A. Michalski (B) Department of Government, Uppsala University, Uppsala, Sweden e-mail: [email protected] P. Ekman e-mail: [email protected] L. Oxelheim Research Institute of Industrial Economics, Stockholm, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_1

1

2

A. BAKARDJIEVA ENGELBREKT ET AL.

since the middle of the twentieth century. The insecurity that ensued in the wake of the pandemic has affected people around the world, many of whom have seen their life’s work destroyed and their prospects for the future severely impeded. During the pandemic, governments, not least in Europe, were forced to adopt previously unthinkable measures to slow the spread of the virus with a serious impact on people and businesses. Closing down countries, cities and workplaces resulted in isolation, increasing unemployment and an economic downturn at a scale rarely before seen. The havoc caused by the pandemic in Europe amounts to yet another calamity in a long series of severe crises testing the resilience of European societies and underscoring the heightened vulnerability from humanity’s interconnectivity and interdependence. Beyond the immediate consequences of the pandemic, many political questions and challenges remain. The COVID-crisis may have facilitated development within some areas. For example, the change in habits and behaviours induced by the pandemic may well lead to more climate-neutral consumption patterns and the digitalization of society advanced at a great pace. At the same time, the pandemic has brought about enormous pressure on national governments that have accrued massive debt in their efforts to mitigate the economic impact. It is also disconcerting to note the speed and ease with which the internal borders of the EU were shut in the first phase of the pandemic reminding us of the spectre of protectionism and the presence of neo-mercantilistic leanings (Oxelheim & Randøy, 2021). All things taken together, the fall-out of the pandemic raised the risk of diverting resources in terms of money, time and labour that are needed in other areas. In the early 2020s, it is still too early to estimate the total effects of the pandemic on our ability to muster society’s resilience and adapt to the challenges of the Anthropocene, a term the Dutch researcher and Nobel laureate Paul Crutzen (2006) coined to characterise the world in terms of a new age belonging to humankind, which henceforth has a decisive influence on the earth’s climate and ecosystems putting potentially enormous strain on society’s economic, social and political resilience.

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

3

A Multidisciplinary Approach to Sustainability and Resilience in the EU In this book, the fifth volume in Interdisciplinary European Studies, we shed light on societal resilience and ways in which the EU can work to achieve the ambitious goal of sustainable development in economic, social and political terms. The terms resilience and sustainability are often conceived as interconnected; sometimes resilience is seen as a necessary precondition for sustainability (Lebel et al., 2006) and at other times they are regarded as referring to distinct yet concomitant processes. A useful way to think about these concepts is offered by Driessen et al. (2011, p. 1121) who observe that resilience is a descriptive term generally defined as the capacity of systems, individuals, or states to deal with change and ensure continuous development whereas sustainability is a normative concept denoting the issue of inter-generational justice in relation to the usage of national resources. The term sustainable development was famously coined by the Brundtland Commission in 1987 which defined it as a form of development that “meets the needs of the present without compromising the ability of future generations to meet their needs” (United Nations, 1987). Hence, sustainability as a concept has been with us for a while and our understanding of what sustainable development implies from a societal perspective has evolved during the past decades, not least due to the tireless work of researchers like Jeffrey Sachs (2015) of Columbia University and Amartya Sen (2013) of Harvard University. Resilience as a concept connected to public governance, however, is more recent. It was introduced in the European policy debate as a way to describe society’s capacity to deal with crises, shocks and disturbances in the wake of the food safety scares in the 1990s. Later, it was adopted by the European development community to describe approaches to development assistance that seeks to strengthen local communities. In recent times, resilience has been used frequently in the realm of external affairs in order to put emphasis on the EU’s ambition to combat security crises in its neighbourhood and to denote the strategies that the EU can deploy in order to stem outbreaks of violence (Juncos, 2017; Paul & Roos, 2019, p. 394). Global Europe, the EU security strategy of 2016, made the resilience of countries in the vicinity to the East and South of the EU a strategic priority and a pillar of the doctrine of “principled pragmatism” (European Union, 2016).

4

A. BAKARDJIEVA ENGELBREKT ET AL.

Underlying the path to a long-term resilient EU is an assumption that the road ahead depends on the existence of well-functioning political institutions taking a proactive rather than reactive stance, a high level of trust in society between citizens and politicians, predictable regulatory systems, and a stable external environment to meet the various challenges and crises which lie ahead. Whether or not the development in these dimensions will take a positive or a negative turn is still too early to tell, but given their interconnectedness the dynamics taking hold is crucial. With the European Green Deal initiative, the EU has taken an important step in building a strategy towards resilience to bolster society’s capacity to overcome crises and challenges through adaptation and change. Through funding and regulation, the European Green Deal has become intrinsically linked to the various policy areas where sustainability is pursued: environmental policy and climate change, social welfare systems, banking and financial systems, civil protection, public health, industrial policy, migration and asylum policy, as well as foreign policy and security. However, there is also a realisation that perhaps the most difficult challenge to ensure resilience in Europe lies in the transition to a sustainable societal development affecting people’s livelihoods and their immediate environment where competing economic, social and environmental interests must be balanced, along with sensibility regarding the urge to drive centralising policy on the European level, sometimes against the logic of local know-how, practice and tradition. The EU’s transition to sustainable development is dependent on the continued competitiveness of the European economy, not least in an international perspective. To meet the costs of transition for people and companies the European economy must be able to operate in equitable conditions in relation to its main global competitors. This is important not least as we are witnessing increasing income differentials in Europe, both within and between countries along with growing differences in educational and skills levels, in part due to digitalisation and global technological shifts. Moreover, the general rise in geopolitical tensions globally contributes to the widespread feeling of uncertainty and an insidious breakdown of the international rules-based system with deep implications for the conditions for international cooperation. What all of these challenges have in common is that they are in one way or the other global in nature. At the same time, they have local impact affecting people’s lives and therefore risk becoming long-term threats to resilience of Europe (European Commission and the EEAS, 2017).

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

5

Resilience and Learning from Crises The numerous crises that the EU has undergone in the last 15 years has spurred a growing interest in understanding the origins and consequences of these tumultuous episodes and their implication for European integration. These crises have different origins and are different in character which explains the various bids among experts as to which crises should be regarded as predominately “EU-crises”. Some crises are truly global in character and were not in the first place caused by internal European developments. Among such crises, we find the climate crisis, various security crises, the COVID-19 pandemic, and, to an extent, also the economic and financial crisis of 2008 and the migration crisis of 2015 which both subsequently developed into internal, political crises. Other crises are more directly linked to the EU, often with clear political overtones from the start. Among such crises, we find the sovereign debt crises of 2012 and the ongoing crisis of the EU’s fundamental values and norms. In the end, the distinction between crises originating at home or abroad seems a bit pointless given that the fall-out of the crises has in most cases required a response from the European level, tailored according to the nature of the specific crisis. Without doubt, these crises have had a strong impact on European integration, but the dramatic predictions of the demise of the EU heard in the media are not matched in research findings (for an optimistic view, see Moravscik, 2020). On the contrary, overall the crises have often resulted in institutional innovation and re-orientation of policy towards European solutions. At the same time, these developments have not been part of a grand strategy as the onset of crisis has resulted in muddling through and coping with the issues at hand (Riddervold et al., 2021). Therefore, in a context of almost continuous crisis, the EU has resorted to improvisation and short-termism as part of its crisis management and often the EU has first been thrown off guard by sudden events and only later found ways forward. Measures taken at the height of the crisis have often had unintended effects and required further adjustment. Undeniably, solutions found in these crises contain an element of neofunctional spill-over logic (Rhinard, 2019). That crises tend to concentrate leaders’ minds chimes with Jean Monnet’s famous conviction that “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises” (Monnet, 1976).

6

A. BAKARDJIEVA ENGELBREKT ET AL.

It can be argued that recent crises have resulted in learning both among bureaucracies and decision-makers on national and European levels. Not least has the experience of developing a European civil crisis capacity led to shared expertise, capability and resources (Boin et al., 2013). By the early 2020s, the EU together with the member states’ civil protection agencies had conducted successful crisis operations in connection to large forest fires and major flooding (Boin et al., 2013). Abroad, the EU has carried out a number of civilian missions, involving national police forces, gendarmeries, and legal experts, often alongside humanitarian aid workers. The EU has also carried out a handful of peace keeping missions based on member states’ armed forces. Together, this has bolstered the EU’s role as a crisis manager and stood it in good stead in various external crisis situations ever since, for instance when repatriating EU nationals from far flung places during the first months of the COVID19 pandemic. The concept of resilience comprises a strong element of learning in the assumption of society’s ability to deal with change and continue to develop in the face of turbulence. It is therefore not surprising that the experience of crisis management has contributed to a realisation in the EU about the importance to achieve societal resilience in Europe.

Charting the Routes to a Resilient EU: Perspectives from Law, Economic and Political Science In this book, scholars within the fields of law, economics, and political science critically review the steps that the EU has taken so far towards completing the transition to sustainable development and offer their perspectives on the possible routes to building a resilient EU in the long terms. The authors, who are all experts in their respective field, take a broad approach to the concept of sustainable development, focussing on the phenomenon from the perspective of political, economic and legal resilience. Common to all chapters is the assumption that in order to achieve sustainable development, societal resilience will be needed. Resilience, despite its elusiveness, is dependent on the decisions and action taken by politicians and officials on the local, national and European levels, but at the same time is in no way guaranteed by such action. Clearly, the EU is facing a conundrum as on the one hand too much intervention will stifle resilience in society, while too little support, whether

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

7

in the form of financial assistance or regulatory regimes, is likely to make people struggle under the burden of economic and social change. Exploring past crises and challenges, either generated from within the EU or imposed from abroad, is a good way to assess what the EU and the member states have learnt from them and what the road towards a resilient future might look like. In this vein, the authors were asked to consider the following questions depending on their expertise in the field: How can the EU promote an enhanced role for innovation in Europe that strengthens the EU’s capacity to achieve economic development that is both competitive and sustainable? What kind of climate change policies is the EU pursuing and what forms of leadership does it exert within and outside of the EU? What are the legal prerequisites for ecological sustainability in the EU? How has the coronavirus pandemic affected inter-generational solidarity within the EU, and what capabilities is the EU demonstrating in coordinating national policies to stem the spread of COVID-19? How capable is the EU in promoting financial stability in times of crisis and can the EU regulatory framework ensure sufficient responsiveness? How well integrated is the labour force in EU member states, and what domestic regulations apply for the integration of migrants from countries outside of Europe? These issues and others found answers in the following chapters. The overall question of competitiveness is addressed by Niklas Elert and Magnus Henrekson who emphasise the importance of innovation and entrepreneurship for a long-term sustainable EU. The authors maintain that, in the wake of the coronavirus crisis, the EU needs to regain lost ground and improve conditions for inclusive and sustainable growth which is best achieved through strengthening the EU’s capacity for innovation, something that requires significant institutional reforms to promote entrepreneurship. Drawing from their own research, Elert and Henrekson demonstrate that innovation-driven entrepreneurship is built on cooperation with several entities that have capabilities and resources that the entrepreneur him/herself lacks: inventors, key personnel, competent customers, and early-stage and later-stage financiers. The ecosystem perspective leads Elert and Henrekson to propose an agenda for reforms within six broad policy areas: (i) property rights and rule of law, (ii) taxation, (iii) savings and investments, (iv) labour law and social security system, (v) barriers to market entry and exit, (vi) human capital for entrepreneurship. The authors maintain that the proposed reforms would

8

A. BAKARDJIEVA ENGELBREKT ET AL.

strengthen EU’s capacity for innovation at a time when it is needed more than ever before. Sustainable transformation to a climate-neutral EU in 2050 is considered by Karin Bäckstrand. Her central argument is that the coronavirus crisis presents an opportunity for societal transformation of the EU into the world’s first climate-neutral continent. The EU and its member states should take this opportunity to formulate a climate-friendly recovery after the crisis. She also argues that, compared to the 2008 financial crisis, the EU is better equipped with its newly appointed Commission and its ambitious reform plan for green growth, societal transformation to a fossil-free Europe, and investments in renewable energy. The chapter stakes out the development of the EU’s climate and energy policies from Kyoto to the Paris Agreement and the role of the EU as a global climate leader for promoting sustainable development and ensuring the implementation of the Paris Agreement. The chapter also analyses the European Commission’s proposed European Climate Law and the European Green Deal, which was adopted during the pandemic as the EU’s new growth strategy for becoming climate neutral by 2050. Bäckstrand examines whether the EU’s corona recovery package promotes the climate transition and is consistent with the EU’s climate goals. Building on her research, she makes five recommendations for how a green recovery can support the climate transition once the corona pandemic is over. The legal prerequisites for ecological sustainability in the EU are investigated by David Langlet who examines the European Green Deal and its roadmap for a sustainable economy. To Langlet, tackling environmental and climate-related challenges is our generation’s most important task. He points to “resilience” as a recurring theme in the roadmap, especially in the face of environmental and climate-related risks. Resilience is seen as a prerequisite for a sustainable EU, not only in ecological terms but also from an economic perspective. Against this backdrop, Langlet assesses the potential of the EU’s instruments and structures for creating and maintaining the conditions for environmental sustainability, and thereby the chances for realising a resilient society. From the vantage point of a legal system perspective, he argues that the EU has clearly accepted the idea that there are ecological boundaries that society must respect to avoid undermining the survival of humankind. There are many mechanisms in place to generate knowledge and transform objectives of varying clarity into concrete measures. Even so, the EU is highly dependent on the

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

9

resources and capabilities of individual member states for both knowhow and policy measures. According to Langlet, there remains a great deal to be done to fully integrate environmental considerations into other policy areas, not least within agriculture and fisheries. He maintains that more work is needed to put in place functioning feed-back mechanisms among the different regulatory areas. The weakest link in the EU’s work on environmental protection and governance is inadequate implementation. Growing insight into society’s vulnerability can potentially increase support for the effective implementation of environmental legislation. To encourage this development, it needs to be made clear that governance which respects ecosystems offers many advantages beyond simply environmental protection. The recent COVID-19 pandemic offers the opportunity to Louise Bengtsson to examine the EU’s ability to manage and prevent public health crises. The chapter takes as point of departure the collapse of trust and freedom of movement that member states initially experienced and that then developed into one of the most serious crises the EU has ever faced. Bengtsson discusses the EU’s limited competences in the field of health, including the framework for cross-border public health threats and examines chronologically how the cooperation within the EU fared during the pandemic which in its final phases saw a shift away from the initial difficulties of coordination to the adoption of an extensive relief package and a narrative of solidarity. She looks at preventative measures in a broad sense, beyond the obvious problems with coordinating prevention, crisis management and countermeasures in order to assess the emerging discussions on how the EU’s framework and institutions will be better equipped to respond to and prevent similar crises in the future. To achieve this, Bengtsson proposes that attention be given to new perspectives, such as how other public health problems and inequality affect the resilience of public health systems both within and outside of Europe. To conclude, the author addresses the need for a better understanding of how the spread of contagious diseases is impacted by different kinds of environmental factors, climate change, and land exploitation. Resilience and sustainability in an ageing Europe is the theme of Titti Mattsson’s chapter. The point of departure is the acute challenges that the EU’s ageing population is posing regarding the future role of the welfare state and responsibility for older persons with declining abilities and in need of comprehensive care from society. The pandemic illustrated the importance of creating sustainable and resilient institutions in

10

A. BAKARDJIEVA ENGELBREKT ET AL.

society and shed light on complex questions, specifically concerning the health, needs, and living conditions of the ageing population. Mattsson paints a picture of the situation of public health in Europe during the pandemic and the problems that the crisis has brought to the surface, such as the increased health risks of older persons and the varying capacity of national health systems to provide care for the elderly. In conclusion, she makes three recommendations for action. First, establish commissions for the rights of the elderly at the regional, national, and European levels. These will be tasked with compiling evidence and producing concrete, knowledge-based action plans for a sustainable policy for senior citizens in the EU. Second, make preparations so that the EU can take a leading position in a future International Convention of the Rights of the Elderly, and thereby contribute to the ongoing process in European courts to institute universal rights for the elderly. Third, promote the implementation of the EU Charter of Fundamental Rights as a central element in the EU’s goal of creating a social market economy. The role of the Banking Union and how it can ensure resilience in the European banking sector is examined by Jens Forssbæck. This focus is, in part, motivated by the risk of new strains on the European banking sector in the wake of the pandemic and, in part, because the Banking Union remains an unfinished construct with outstanding components, still untested in a real crisis. The chapter begins with a short background to the inception of the Banking Union and presents the main components of the EU’s framework for banking regulation. Further, it outlines the Banking Union’s three pillars: the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and the yet-unfinished common European Deposit Insurance Scheme (EDIS). Against this background, the author paints a mixed picture of the crisis resilience in the banking sectors of the Eurozone countries. The banking systems of the countries struck by the sovereign debt crisis a decade ago continue to display vulnerabilities even if they have made general stability gains. This is a strong argument for further development of the Banking Union, not least to introduce the European Deposit Insurance Scheme. At the same time, the risks and vulnerabilities are unevenly distributed among the members of the Banking Union, which constitutes the main obstacle to political progress in implementing the Banking Union, as it involves increased risk-sharing among the countries. Forssbæck maintains that fears of sharing banking risks are not necessarily well founded, since it would not need to result in redistribution effects if the risk-sharing mechanisms

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

11

are priced correctly. However, progress is exasperated by Banking Union reforms being linked to reforms of the monetary union in other areas. Forssbæck concludes that the Banking Union remains unfinished in more ways than just lacking a common bank deposit guarantee. It is particularly important to create credibility for the “systemic shift” in crisis management from bail-out to bail-in, as the level of acceptance for such a shift on the national level remains in question. The chapter by Carl Fredrik Bergström examines the reform of the rulemaking process in the EU after the global economic and financial crisis. He starts by observing some modern patterns of rulemaking in the internal market and moves on to focus on the changes in the financial market. The changes examined include both the form and method of drafting legal acts in the EU: a shift from directives that require transposition by the member states to directly applicable regulations and a new role for independent EU agencies. Bergström sets out to explain how the EU legislature has gone about to reach its objective to strengthen resilience against a new financial crisis, conclude if it is unproblematic or not and discuss new needs for improvements. The main conclusion is that the EU legislature has made extensive use of its general competence to secure the functioning of the internal market. The result is a centralisation of rulemaking that leaves national parliaments and authorities little room to decide themselves on matters of implementation. But at the same time there is a new involvement of national authorities, which gives them much room for collective influence within the process for EU rulemaking: in EU agencies’ networks and management boards. Bergström shows that the development has required responsiveness from the EU Court of Justice and discusses the interplay between politics and law. According to Bergström, the process intended to strengthen resilience in the financial market is not without problems. Firstly, the shift to regulations means that national parliaments have lost the opportunity that directives gave them to control the way in which the EU legislature exercises the competences conferred upon it. Therefore, he argues, there is a new need for stronger judicial control, in particular in those member states that do not have a constitutional court. Secondly, there is a lack of clarity with respect to the position of agencies in the founding treaties and an obvious risk, therefore, that the development in the financial market will give them an influence that they are not fit to have. Pending a revision of the treaties, Bergström recommends that the EU legislature and

12

A. BAKARDJIEVA ENGELBREKT ET AL.

the EU Court of Justice continue to improve the structural transparency and the preconditions for political and judicial control of agencies’ legal acts. The conundrum of a sustainable integration policy and the EU’s immigration- and asylum policy is the theme of the chapter of Karin Borevi. The main argument of the author is that weaknesses in the EU’s ability to implement a common asylum policy have increased the recourse to integration policy as an (indirect) instrument for exercising migration controls. Austerity within the area of integration is used to send a signal, both to dissuade presumptive immigrants from coming to one’s own country and to give the country citizenry a sense that their government is taking decisive action to control migration flows. In the absence of a functioning migration policy at the EU level, a dynamic has been created in which countries compete with one another in offering the least generous conditions for immigrants as a way of avoiding “unwanted” immigration. Borevi argues that it is problematic from a sustainability perspective if integration policy continues to develop predominantly as a symbolic political tool. To reach long-term sustainable solutions, Borevi suggests redirecting focus towards the actual implications on the integration of austerity measures within an integration policy predominantly aimed at limiting immigration or making it more selective. The significance of the intra-EU labour migration for a resilient EU is discussed by Erik Sjödin and Eskil Wadensjö. The authors’ starting point is that the EU has a common labour market which has evolved gradually since the 1950 and deepened apace with treaty reforms and the successive accessions of new member states. In the general debate on migration, it is not always apparent that the two categories of migration, intra-EU and that from outside the EU, are separate matters in a legal sense. The authors contend that concerns for workers migrating within the EU can be understood in different ways—as an expression of protectionism or as part of usual concerns for vulnerable workers. The viewpoint adopted may depend on whether the country is predominantly a sender or recipient of labour migrants. The authors argue that the way in which regulation of intra-European labour migration addresses these contradictory interests and viewpoints is central for the EU and its survival. This is particularly true from a sustainability and resilience perspective with a focus on social tensions among different categories of workers and different types of employment contracts. To conclude, Sjödin and Wadensjö present two proposals for measures to achieve a resilient

1

THE EU AND THE PRECARIOUS ROUTES TO POLITICAL …

13

EU policy for intra-European labour migration. In their view, agreements must be reached to remove obstacles to labour mobility within the EU. Moreover, measures are needed to ensure good working conditions for workers taking up employment in EU member states other than their country of origin.

References Boin, A., Ekengren, M., & Rhinard, M. (2013). The European Union as crisis manager: Patterns and prospects. Cambridge University Press. Crutzen, P. J. (2006). The “Anthropocene”. In E. Ehlers & T. Krafft (Eds.), Earth system science in the anthropocene (pp. 13–18). Springer. Driessen, S., Quaas, M. F., & Baumgärtner, S. (2011). The relationship between resilience and sustainability of ecological-economic systems. Ecological Economics, 70, 1121–1128. European Commission and the EEAS. (2017, June 7). A strategic approach to resilience in the EU’s external action, JOIN(2017) 21 final, Brussels. https://eeas.europa.eu/sites/default/files/join_2017_21_f1_ communication_from_commission_to_inst_en_v7_p1_916039.pdf. Accessed 29 March 2021. European Union. (2016). Shared vision, common action: A stronger Europe. A global strategy for the European Union’s foreign and security policy. European Union. Juncos, A. E. (2017). Resilience as the new EU foreign policy paradigm: A pragmatist turn? European Security, 26(1), 1–18. Lebel, L., Anderies, J. M., Campbel, B., Folke, C., Hatfield-Dodds, S., Hughes, T. P., & Wilson, J. (2006). Governance and the capacity to manage resilience in regional social-ecological systems. Ecology and Society, 11(1), 19 (online: no page numbers). Monnet, J. (1976). Mémoires. Fayard. Moravscik, A. (2020). Why Europe wins. Foreign Policy, 238, 47–51. Oxelheim, L., & Randøy, T. (2021). The global logistic chain under siege in a postCovid era (IFN Working Paper, No. 1404). Stockholm: Research Institute of Industrial Economics. Paul, R., & Roos, C. (2019). Towards a new ontology of crisis? Resilience in EU migration governance. European Security, 28(4), 393–412. Rhinard, M. (2019). The crisisification of policy-making in the European Union. Journal of Common Market Studies, 57 (3), 616–633. Riddervold, M., Trondal, J., & Newsome, A. (2021). European Union crisis: An introduction. In M. Riddervold, J. Trondal, & A. Newsome (Eds.), The Palgrave handbook of EU crises (pp. 3–45). Palgrave Macmillan.

14

A. BAKARDJIEVA ENGELBREKT ET AL.

Sachs, J. D. (2015). The age of sustainable development. Columbia University Press. Sen, A. (2013). The ends and means of sustainability. Journal of HumanDevelopment and Capabilities, 14(1), 6–20. United Nations. (1987). Report of the World Commission on Environment and Development. United Nations.

CHAPTER 2

Improved Framework Conditions for a More Entrepreneurial, Innovative and Resilient EU Niklas Elert and Magnus Henrekson

Introduction A flagship initiative of the Union’s well-known 2020 strategy was the socalled “Innovation Union,” launched with a tone of urgency in 2010: “We need to do much better at turning our research into new and better services and products if we are to remain competitive in the global

Contribution written for the 2022 volume of the book series Interdisciplinary European Studies, edited by Antonina Bakardjieva Engelbrekt, Per Ekman, Anna Michalski, and Lars Oxelheim (Cham, CH: Palgrave Macmillan). N. Elert (B) · M. Henrekson Research Institute of Industrial Economics (IFN), Stockholm, Sweden e-mail: [email protected] M. Henrekson e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_2

15

16

N. ELERT AND M. HENREKSON

marketplace and improve the quality of life in Europe. We are facing a situation of ‘innovation emergency’” (European Commission, 2015).1 The European Commission concluded that the EU is suffering from an “innovation emergency” and must become better at creating goods and services that benefit its citizens. Although the Union has made progress since then, the year 2020 made it clear that we can by no means discount the bleak diagnosis as something of the past for the EU. In the wake of the Covid-19 pandemic, a drastically improved innovation climate in Europe may be the only way for the EU to recover and generate inclusive and sustainable growth once the pandemic is over. Economists often speak of innovations as new combinations of (new and old) knowledge, and there is a high level of consensus concerning their importance for economic growth (OECD, 2010). Simply put, innovations lead to higher levels of productivity, which means that more of the same inputs generate greater and more valuable output. As productivity increases, people create more goods and services, and the economy grows. The importance of this process for competitiveness was concluded in Bakardjieva Engelbrekt et al. (2021), last year’s volume in the series Interdisciplinary European Studies, on the theme of the European Union and the Technology Shift, and in Bakardjieva Engelbrekt et al. (2013), which focused specifically on the Union’s competitiveness. New technology and organization processes improve societies’ ability to handle digital and ecological shifts. In the case of the EU, for example, it can be said that the success of the EU’s green deal—discussed by Bäckstrand in this volume—greatly depends on how good the EU is at generating and exploiting innovations. According to the EU’s Innovation Scoreboard, innovations accounted for around two-thirds of Europe’s growth in recent decades, an assessment which is largely consistent with economist William Baumol’s estimate that innovations have been responsible for nine-tenths of growth in the world since the industrial revolution (Baumol, 2010). To be sure, it is somewhat absurd to even attempt to make any accurate estimates of such complex connections responsible for “the great enrichment and the creation of the modern world” (McCloskey, 2016). At the same time, leading economic historians such as Nathan Rosenberg and Joel Mokyr, who, like Baumol, have dedicated their lives to these questions, would

1 Bold in the original.

2

IMPROVED FRAMEWORK CONDITIONS …

17

doubtless agree that innovations have played, and continue to play a decisive role in our economic prosperity—and much else. The fact is that many of the innovations that, if put on the spot, we value most, hardly make an imprint on GDP or our income. Joel Mokyr put it succinctly in a 2013 Econtalk podcast interview (Econtalk, 2013), with the rhetorical question: How much would you demand to be paid if I took out your appendix without anesthetizing you, without putting you to sleep? … It is the small things that actually don’t amount to an awful large part of our income and product that actually have improved life a great deal and that we really wouldn’t want to do without anymore.

In the age of Covid-19, we place our hope and our despair at the altar of innovation, although we may not see it that way. Since the beginning of the pandemic, people have called for reliable Covid-19 tests and vaccines. When these medical innovations became available for large-scale distribution, they helped us return to something at least reminiscent of normal times. Finally, it seems possible to see the light at the end of the tunnel. The calls for tests and vaccines also highlight an important distinction between innovations and what is commonly referred to as an invention: an invention can only be defined as an innovation if it takes the form of a useful idea turned into a product on the market where people can benefit from it. The ultimately dependable Covid-19 test would not have any impact if technical, economic, or logistical problems made it inaccessible. Furthermore, while it is one thing to produce a vaccine, it is another matter to distribute it to billions of people worldwide.2 How long the present crisis will endure is difficult to predict; however, political decision-makers and individuals can help determine the characteristics of the post-pandemic world. This applies also to the European Union, in which some Member States have been hard hit by the pandemic. This tragedy threatens to become more prominent the longer the economic recovery takes. Of course, it is possible to imagine packages of measures and financial and monetary policy support that help kick-start this process (see, e.g., Forssbæck in this volume on the Banking Union).

2 The development of the steam engine nicely illustrates the difference between an invention and an innovation: The first prototype was invented as early as the first century BCE in Alexandria, Ptolemaic Egypt.

18

N. ELERT AND M. HENREKSON

However, recovery will largely be about the ability of the EU to generate innovations that improve the lives of its citizens and lay a foundation for inclusive and sustainable growth. The measures launched should make Europe’s economies more resilient and able to recover from future shocks. Ideally, the reforms should also make it possible for the Member States to become “antifragile,” meaning that they would actually grow stronger when exposed to stress (Taleb, 2012). However, antifragility or stability at the macro-level probably requires instability and turbulence at the microlevel. For the economy as a whole to prosper and adapt, it is therefore necessary that many companies are started, compete and close down, and that many ideas are tested, developed, and phased out if they do not prove viable. This process is probably necessary to enable new and better innovations to replace existing technologies—what the entrepreneurship researcher par excellence, Joseph Schumpeter, aptly called “creative destruction.” The necessary reform agenda covers a wide range of areas, on which both the EU and individual Member States must act. These are reforms that the EU has been in dire need of for a long time (as attested by the aforementioned self-diagnosis by the Commission) and the authors of this chapter have already in detail discussed this agenda and the bodies that can turn it into reality (Elert et al., 2017, 2019). In summary, the reforms aim to make the EU more innovative by providing all Member States with improved entrepreneurship conditions. Our perspective on entrepreneurship is a holistic one, which means that the reform agenda will also be of a comprehensive nature. For an invention or an idea to transform into an innovation, someone must apply the newly discovered or created knowledge in the form of new or improved goods and services. This “someone” is an entrepreneur, an agent who perceives and seizes economic opportunities, often by starting companies and making them expand (Knight, 1921; Schumpeter, 1934 [1911]). Although the independent entrepreneur has tended to be responsible for most fundamentally new innovations (Baumol, 2002), entrepreneurship can take many forms, not least by employees in large companies (“intrapreneurs”). As such, a favorable entrepreneurship climate that makes it possible for Europe’s citizens to experiment and be creative is a prerequisite for innovation, sustainable growth, and a better quality of life in the EU.

2

IMPROVED FRAMEWORK CONDITIONS …

19

This chapter will outline the main elements of a reform agenda that could create this kind of entrepreneurial climate in the European Union. The six areas of reform are: (i) The rule of law and protection of property rights (ii) Taxation (iii) Savings and finance (iv) Labor markets and social security (v) Contestable product markets (vi) Mobilizing human capital for entrepreneurship. Together, the reforms aim to even out the playing field between entrepreneurs and other economic actors. In no way do we wish to throw money at small companies or pamper entrepreneurship. Rather, it is a matter of ensuring that doors that should be open are not unnecessarily shut. While many of the proposals related to policy areas in which the Member States have substantial competencies, we believe that the EU has an important role in coordinating, encouraging, and highlighting good examples. Before discussing the reform agenda, we will first introduce the different indicators used for the degree of innovation in the EU compared with other countries. This is followed by a description of the analytical framework, the “collaborative innovation bloc,” that we use to identify which reforms are necessary for making the EU more innovative and entrepreneurial.

How Innovative Are the EU Member States? The ability to innovate and exploit innovations in the form of successful firms are crucial factors for long-term economic success. This insight was a guiding principle among the politicians and bureaucrats who formulated the European Union’s so-called Horizon 2020 strategy, the purpose of which was to stimulate long-term and inclusive economic growth. As a cure to the “innovation emergency,” the European Commission launched the idea of an Innovation Union, to make the European Union the most innovative region in the world (European Commission, 2015). However, the Union’s innovativeness has only risen marginally since the strategy’s launch (European Commission, 2016). Table 2.1 presents recent rankings of the top 20 countries according to the most commonly used measures for innovativeness. Switzerland is

20

N. ELERT AND M. HENREKSON

Table 2.1 Country ranking according to the five most commonly used measures of national innovativeness, top 20 countries for the latest available year Rank

IMD world competitiveness ranking 2021

WEF global competitiveness index 2019

Global innovation index 2018 (INSEAD, Cornell, WIPO)

No of triadic patent per capita 2018a

R&D spending as a share of GDP 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Switzerland Sweden Denmark Netherlands Singapore Norway Hong Kong Taiwan UAE USA Finland Luxembourg Ireland Canada Germany China Qatar UK Austria New Zealand

Singapore USA Hong Kong Netherlands Switzerland Japan Germany Sweden UK Denmark Finland Taiwan South Korea Canada France Australia Norway Luxembourg New Zealand Israel

Switzerland Sweden USA UK Netherlands Denmark Finland Singapore Germany South Korea Hong Kong France Israel China Ireland Japan Canada Luxembourg Austria Norway

Switzerland Japan Sweden Netherlands Israel Denmark Germany Finland Austria South Korea Luxembourg Belgium USA France UK Ireland Singapore Norway Canada Australia

Israel South Korea Switzerland‡ Sweden Japan Austria Germany Denmark USA Belgium Finland France China Netherlands Norway Iceland Singapore‡ Slovenia Czech Rep Australia‡

a Triadic patent families are a set of patents filed at three of the major patent offices: the European

Patent Office (EPO), the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO). Patents included in the triadic family are typically of higher economic value. ‡2017 Source IMD World Competitiveness Yearbook 2021; World Economic Forum, Global Competitiveness Report 2019; The Global Innovation Index 2020—Who Will Finance Innovation? (INSEAD, Cornell University and WIPO); Triadic patents: https://data.oecd.org/rd/triadic-patent-families.htm. R&D spending as a share of GDP: https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS? end=2016&start=2016.

ranked highly according to all five measures, and the Asian tigers Singapore and Hong Kong are at or near the top based on several of the measures. Nonetheless, half of the top 20 countries in all rankings are European Union members; in particular, Nordic and Western European countries continue to do well. By contrast, southern and eastern EU member states are absent in the rankings, hinting at Europe’s well-known

2

IMPROVED FRAMEWORK CONDITIONS …

21

core–periphery pattern. Thus, the EU’s alleged “innovation emergency” is far from uniform, and if this stark inequality is allowed to persist it is likely to result in increased tension between countries and regions within the Union. However, a lessening of these tensions and a strengthening of innovativeness in laggard countries and regions cannot be achieved without an improved understanding of what policies and framework conditions are conducive to innovation and commercialization. A common view is that innovations are primarily a result of research and development (R&D), with the conjecture that larger R&D efforts lead to more innovations. This perspective is far too mechanical. R&D can constitute an important innovative spark, but the ideas for innovations can come from several directions, and as we shall see, other agents are needed to realize them. A large part of the societal benefit of R&D arises through imitation and knowledge spillover, that is, when ideas and knowledge from yesterday’s successful innovations find new areas of application or flow to other parts of the economy (Klepper, 2016). Rather than focusing on quantitative expenditure targets for R&D or directing R&D support to companies or industries, European politicians should provide a regulatory framework that makes it easier for entrepreneurs to start businesses and make them grow. Almost without exception, successful enterprise clusters have emerged spontaneously. Rarely can they be implemented top-down. What politicians and reformers can do is to increase the likelihood that such clusters emerge.

Entrepreneurship and the Collaborative Innovation Bloc While entrepreneurship is a multifaceted concept,3 we place particular emphasis on what has come to be called Schumpeterian entrepreneurship: the kind of entrepreneurship that introduces new products and technologies and serves as a conduit of knowledge to generate innovation and growth (Schumpeter, 1934 [1911]).4 Thus, we adopt a definition 3 According to Hébert and Link (2006), there are at least twelve different definitions of entrepreneurship. 4 In Schumpeterian terms, innovation is the creation of new combinations, generally of (old and new) knowledge, resulting in a new product, a new method of production, the opening of a new market, the conquest of a new source of supply, or the carrying out of a new organization or industry (Schumpeter, 1934 [1911], p. 66).

22

N. ELERT AND M. HENREKSON

of entrepreneurship that makes it essential to innovation and economic growth. This is the so-called Schumpeterian view of the entrepreneur as an innovator (Schumpeter, 1934 [1911]). We define entrepreneurship as the ability and willingness of individuals, both independently and within organizations (Henrekson & Stenkula, 2016; Wennekers & Thurik, 1999), • to discover and create new economic opportunities; • to introduce their ideas into the market under uncertainty, making decisions regarding the location, product design, use of resources and reward systems; and • to create value, which often, though not always, means that the entrepreneur aims to expand the firm to its full potential.5 A myriad of people who are active in many contexts fall within this definition. Common to these individuals is that they do not live or work in a vacuum. It would be a mistake to believe that entrepreneurs alone can make innovation-based entrepreneurship flourish. On the contrary—to be able to realize their ideas, for example by establishing a company and making it grow, they must collect and mobilize talents and resources that other people possess. For this reason, it is apt to see the entrepreneur as the hub in an extensive cooperation network. Viewing entrepreneurship as collaboration has a long tradition in our native country, Sweden (Erixon, 2011). In our writings in this area (synthesized in Elert & Henrekson, 2021), these collaborations take place in what we call the collaborative innovation bloc, a kind of entrepreneurial ecosystem that harbors several pools of agents and skills. In addition to the entrepreneur, we identify at least five more categories needed for a new idea to transform into a growing firm that eventually reaches maturity: inventors, key personnel, demanding customers, and early-stage and laterstage financiers. The relationships between the agents and their different

5 This is not to deny that there are motives other than monetary gain to be an entrepreneur. Many entrepreneurs have an intrinsic desire to produce a valued good or service and to outcompete other entrepreneurs (Baumol, 2002). However, the pursuit of economic gain has a central function even in this case as the accumulation of net assets is a necessary means for an entrepreneur who wants to expand and attain a leading position in the marketplace. It also serves as the yardstick for comparing how successful one’s business is relative to others.

2

IMPROVED FRAMEWORK CONDITIONS …

23

skills are shown in Fig. 2.1. The need for these skills varies depending on the type of entrepreneurial project and over the phase of a project, but if one or several required skills are missing, the probability that the project will succeed falls sharply. That being said, most entrepreneurial projects go wrong; most companies and business ideas fail within a couple of years (Hall & Woodward, 2010). Although this fact is inevitable in an experimentally organized economy, well-functioning collaborative blocs curtail the presence of two types of (linked) errors: (i) that projects without real potential survive, and (ii) that projects with real potential fail. The institutional framework surrounding collaborative blocs is decisive to ensure that this error reduction works as well as possible. At the same time, this perspective gives a concrete way of thinking of the connection between entrepreneurship, innovation, and institutions. Suppose, for example, that an entrepreneur develops an idea together with an inventor but has difficulty finding early-stage financiers. Is this because the idea is too poor to attract these financiers and benefit Final beneficiaries

Portfolio managers Later-stage financiers

Early-stage financiers Founder(s) Family and friends Business angels Venture capital firms

Key personnel Experienced managers R&D specialists Sales and marketing

Wealthy individuals/families Closed-end investment funds Stock-market activists Buyout firms Competitor/trade sale Institutional investors Savers investing in stock-market portfolio

Inventor

Idea/innovation

Entrepreneur

New venture

Growing firm

Customers Demanding collaborators Venturesome consumers Final consumers

Time Value creation

Fig. 2.1 The collaborative innovation bloc—an overview

Large-scale firm

24

N. ELERT AND M. HENREKSON

from their capital and know-how? Or is there an institutional bottleneck resulting in too few early-stage financiers of the right kind or too few connections between them and the entrepreneur? In the first case, it is preferable that the project is discontinued to avoid a type-1 error. In the second case, it is preferable that the project endures to avoid a type-2 error. Political decision-makers who would like to see a more entrepreneurial and innovation-driven economy must take this distinction seriously. This approach also guides our reform agenda. The philosopher and mathematical statistician Nassim Nicholas Taleb introduced the term antifragility as the true opposite of fragility (Taleb, 2012). While something robust, such as a stone, is not affected if you throw it to the ground, an antifragile system thrives when exposed to shock. A classic example is the body’s immune system, which is strengthened when it successfully defeats a disease; this analogy illustrates that antifragility is also a desirable quality for an economic system. The better the collaborative innovation bloc is at addressing the two types of errors, the greater the probability that the bloc in question is robust or even antifragile. If there are many collaborative innovation blocs in the economy that are robust or even antifragile, then there is a high probability that the entire collaborative innovation bloc system is antifragile. Even if individual collaborative innovation blocs suffer or perish from a shock, the system as a whole will be strengthened. For a collaborative innovation bloc to become antifragile, all its actors must have “skin in the game,” so they can both receive part of the profit in success and carry the cost in failure. Ideally, incentives should be structured as options, that is, the upside of actions is unlimited, while the maximum downside is limited and known in advance. The institutional system surrounding the collaborative innovation bloc determines whether this sort of incentive structure is possible, which is why it is so crucial. We now present the main features of a reform agenda that can create a beneficial entrepreneurial climate based on strong collaborative innovation blocs in the European Union.

The Rule of Law and the Protection of Property Rights Despite the convergence stipulated in the EU treaties, the Member States differ greatly with regard to their most fundamental institutional frameworks. Member States such as Hungary and Poland have recently resorted

2

IMPROVED FRAMEWORK CONDITIONS …

25

to democratic backsliding and have seen a gradual dismantling of the rule of law. This troublesome tendency has been reinforced by the Covid19 outbreak, for example in Hungary, where Viktor Orbán has become increasingly authoritarian. While the EU must do its best to curb this worrying development for more than economic reasons, the rule of law and property rights are crucial for collaborative innovation blocs. They must be promoted by mutually reinforcing policy measures at the national, regional, and local level. Legal certainty and stable property rights are essential for economic activity of all kinds, not least productive entrepreneurship. The uncertainty that would otherwise exist hampers all forms of division of labor and specialization, which is disastrous for the ability of actors in collaborative innovation blocs to cooperate. In particular young businesses with limited financial resources may be seriously affected.6 It is hardly surprising that the dividing line in the EU is clear here: Northern and Western Europe have, on the whole, high legal certainty and well-functioning property rights, while the Eastern European and the Mediterranean countries perform less well on this front. By addressing these systemic shortcomings, the latter group would take a major step toward becoming more entrepreneurial. Such efforts toward reform will not happen overnight. Firstly, what happens in practice (de facto) is more important than the letter of the law (de jure) (Hodgson, 2016; Rodrik, 2007). Secondly, balance is essential: while weak property rights may nurture the shadow economy, excessive property rights could result in high entry barriers for new market entrants, which leads to the emergence of a class of economic favorites—a recipe for economic stagnation.7

6 To the extent that economic actors can compensate for weaknesses in these institu-

tions, they will do so by undertaking more activity off-the-books; as a result, member countries that perform poorly in these respects have larger underground economies (Schneider, 2015). In Bulgaria and Romania, the shadow economy is approximately 30 percent of official GDP, while in Northern European countries, the proportion is less than half of that. Shadow economy activity creates unfair competition for firms that adhere to rules and regulations. Because firms in the shadow economy do not benefit from the division of labor and specialization of collaborative innovation blocs to the same extent as formal firms, they are unlikely to grow large. 7 Intellectual property rights illustrate this tradeoff quite well: If protection is too weak, incentives to generate new knowledge are impaired, but if protection is too strong, this will hinder the knowledge flow necessary in a technologically advanced economy.

26

N. ELERT AND M. HENREKSON

For civilizations to flourish, the right balance is needed between, on the one hand, protecting people’s expectations and, on the other hand, permitting adaptation when conditions change (Kuran, 1988, p. 145). Member States that have found this balance (more or less) have an important role to play as models for those still striving for it. Although this is largely a task for local, regional, and national authorities, the EU could play an important role in promoting this development by requiring members to comply with their commitments in the various treaties. It is vital that this is more than just empty words, and that the representatives of the EU do not just monitor what is happening at the national level. To uphold the rule of law and secure property rights, regional and local authorities must join forces to reduce the risk of decisions that benefit local actors with a strong position.

Taxation The design of the tax system has a major impact on entrepreneurial activity—in terms of both the total volume of entrepreneurship and how it is channeled. Tax rules and tax rates affect the net return to potential entrepreneurs and other actors in the collaborative innovation bloc.8 Entrepreneurship combines a business idea, human capital, effort, and reinvested capital over the many years that are required for a firm to grow; it is thus part of an inseparable bundle of inputs that specific individuals supply. However, no tax exists that specifically pertains to income from entrepreneurship. Details in the tax code determine whether such income is taxed as labor income, business income, or capital income in the form of dividends and/or capital gains. Consideration of the other agents in the innovation bloc greatly complicates the analysis of tax effects, as taxes form and distort incentives for organizations as well as individuals. Although it would be valuable to analyze all relevant taxes and their potential effects, that is beyond the scope of this chapter. Instead, we will restrict ourselves to spell out the principles that ought to guide the design of a tax system that fosters innovation and entrepreneurship. In general, low taxes give strong incentives to the agents in the innovation bloc to productive collaboration. Still, aggregate tax income must be

8 See, e.g., Henrekson and Sanandaji (2016) for a survey of the evidence.

2

IMPROVED FRAMEWORK CONDITIONS …

27

sufficiently high to balance government budgets. Perhaps more important is to espouse the principle of neutrality and aim for as small a tax bias as possible across different owner categories, sources of finance, and economic activities. Since nobody knows where tomorrow’s pathbreaking innovations will emerge and who will make them, it is crucial to provide a level playing field for all types of prospective actors and constellations. Therefore, the tax system should not favor certain types of firms, sources of finance, or industries relative to others. An obvious example of a tax distortion hampering entrepreneurship is how debt financing is favored relative to equity financing in many member countries (Huizinga et al., 2008). This effect arises because interest payments on debt are taxdeductible while dividends to owners are subject to corporate taxation before being paid out and taxed at the owner level. Newly started firms are subject to a great deal of uncertainty and many founders lack excess private assets to use as collateral and a previous track record as successful entrepreneurs—factors that make it relatively more difficult for them to gain access to debt financing. One goal that goes hand in hand with neutrality is transparency. Capital gains taxation of shareholdings often suffer from a lack of transparency, which significantly affects the incentives for potential entrepreneurs and their (early- and later-stage) financiers (Cumming, 2005; Da Rin et al., 2006). Firstly, these taxes differ greatly across EU countries. Secondly, there may be substantial differences between the nominal and effective tax rates (Grant Thornton, 2016). An illustrative example is the large difference between Ireland and Sweden. While the Swedish capital gains tax can vary between 20 and 54 percent for natural persons, the Irish tax can be reduced from 33 to 0 percent if certain conditions are met. Legislative power over taxation is almost entirely in the hands of the Member States. However, the EU has several policy tools to steer developments in the right direction, such as recommendations, statements by the European Council, non-binding agreements between Member States, and the exchange of good examples. The EU has the right to take such coordinating action whenever tax reforms affect the internal market. This can be said to be the case for taxes that affect the efficient allocation of capital within the EU, such as corporate taxes, dividend and capital gains taxes, and the taxation of debt, equity, and employee stock options (Suse & Hachez, 2017).

28

N. ELERT AND M. HENREKSON

Savings and Finance Europe does not suffer from a shortage of savings (OECD, 2019). However, as we have already mentioned, some financing forms are more accessible for entrepreneurial business ventures than others; the problem is more about allocation than about volume. Despite being so extensive, most EU savings flow to banks and institutional investors who prefer large, low-risk debt-based assets and listed shares to small, risky investments—such as equity holdings in entrepreneurial companies (Westerhuis, 2016). This systematic problem has significant consequences for collaborative innovation blocs. One can only speculate about how many sound entrepreneurial projects were never realized because the financial game plan was not to their advantage. As in the field of taxation, neutrality is an important guiding principle for finance reforms. To make collaborative innovation blocs flourish, the institutions surrounding savings and financing should ensure that financial resources can benefit companies with entrepreneurial potential. Several measures are needed to realize this goal. First, less private savings should be channeled to institutional investors, as entrepreneurs find it difficult to obtain money from such actors (van Tilburg, 2009), in part because they rarely have the capital needed to signal that they believe in their own ideas. Being able to put down more of one’s own savings would alleviate this problem and enable more people to assume the role of business angels and other early financiers (Ho & Wong, 2007). Unfortunately, the trend continues toward an increased concentration of European savings among institutional actors (Pilbeam, 2018), a development that is difficult to stop (OECD, 2018). However, it is possible to envisage remedies that make a larger share of these institutionalized savings available to new entrepreneurial companies. One such measure would be to give individuals a greater say in how their savings should be invested, another to allow pension funds and other institutional investors to invest considerable sums in equity in general and in venture capital (equity in very young companies) in particular. Such reforms would strengthen early financiers and the flow of financial resources to new entrepreneurial companies in the collaborative innovation blocs. Giving major financial actors such opportunities would unlock a great deal of entrepreneurial creativity. The treaties jointly signed by the Member States only give the EU limited powers over financing and savings. Consequently, the Member

2

IMPROVED FRAMEWORK CONDITIONS …

29

States themselves must take most of these measures. However, we should note that the European Commission has considerable powers in the single market for financial services, as demonstrated in 2013 with the establishment of overarching rules for venture capital funds. The banking union and the capital markets union have also given the EU increased influence concerning coordination, monitoring, and legislation.

Labor Markets and Social Security A necessary condition for entrepreneurial business venturing is that the entrepreneur can recruit key personnel when needed (Elert & Henrekson, 2019; Eliasson, 1996). The design of employment protection legislation and social security systems plays a crucial role in ensuring that this recruitment can occur. By their very nature, such systems often benefit large, existing companies because it is easier for them to handle regulatory burdens and onerous employer responsibilities vis-à-vis employees. It gives large incumbents a competitive advantage in the competition for key personnel compared with new entrepreneurial firms. While there is unequivocal evidence that (excessively) strong job security reduces labor market mobility (Skedinger, 2010), citizens in most EU Member States undoubtedly value social security highly. Yet, the details in the design of the systems play an important role for collaborative innovation blocs. The situation is most advantageous when pension rights, health care insurance, and other benefits are portable, while social insurance is universal and independent of a person’s labor market status and employment history. When this is the case, individuals are not needlessly punished for leaving stable employment to become entrepreneurs or employees in a new entrepreneurial business. The differences between the Swedish model and the Danish flexicurity system are illustrative. Denmark combines general social protection and opportunities for retraining with weak employment protection (Andersen, 2005). Danish employees, therefore, have little to lose by switching employment or becoming self-employed, which in practice means that new entrepreneurial firms compete for key personnel on equal terms with incumbent firms (Bredgaard, 2013). In Sweden, on the other hand, an employee who voluntarily gives up a tenured position for self-employment may often end up having no more security than what is provided by (means-tested) social welfare, and this presupposes that the individual

30

N. ELERT AND M. HENREKSON

depletes all her assets. Thus, the opportunity cost for leaving stable employment is considerably higher in Sweden than in Denmark. National social insurance systems and national labor markets are the results of a long country-specific institutional co-evolution. Reforming them without throwing out the baby with the bathwater requires deep knowledge of national and local conditions. Therefore, it is not surprising that the EU’s scope for action in this area is limited. That being said, the treaties give the EU legislative capacity to ascertain free labor mobility across Member States. The fact that rights that are not portable from one employer to another are also seldom portable across countries could thus give the EU some influence.

Contestable Product Markets Collaborative innovation blocs improve if they allow better new ideas to displace existing ideas. This evolution presupposes the mitigation of type-1 and type-2 errors, i.e., limiting investment in bad projects while avoiding to unnecessarily hamper high-potential projects. Because the two error types are connected, rules for entry into and exit from markets must be jointly analyzed. Discarding bad projects to make it possible to channel resources into more promising projects does not mean that fear of failure should impede newcomers to markets from challenging the status quo. On the contrary: learning from failure is vital for individual agents, collaborative innovation blocs, and society at large. Since a complex regulatory burden is easier to handle for incumbent firms, an overly strict regulatory framework dissuades potential entrepreneurs and hinders the creative destruction necessary for collaborative blocs to become antifragile. Restrictive product market regulations related to information technology have, for example, held back the dissemination of new production technologies, in part by hindering customers from acting efficiently (Conway et al., 2006). Deregulation of many product markets has also increased high-impact entrepreneurship opportunities in many EU countries (Elert et al., 2017). The situation is different for social services that are strictly regulated or even public monopolies, e.g., education, health care, and care of children and the elderly (Andersen, 2008; Henrekson & Johansson, 2009). If the government controls production and/or financing, the scope is very limited for the collaborative innovation bloc’s actors to be innovative. Therefore, it is noteworthy that several welfare states have concluded

2

IMPROVED FRAMEWORK CONDITIONS …

31

that these services do not need to be produced exclusively by the public sector. The Netherlands even shows that it is possible to replace public financing. Dutch health insurance is privatized in the sense that all private suppliers must offer a standardized insurance policy at a competitive price, while all citizens are required to purchase health insurance (Schäfer et al., 2010). A Member State that adopts such a model increases its citizens’ opportunities to act as competent customers in areas where this ability may be most needed. Entry and exit go hand in hand. After all, failed projects provide valuable information to other agents in collaborative innovation blocs regarding whether a business model is viable. Too stringent bankruptcy legislation therefore curtails knowledge flows (Armour & Cumming, 2006; Holbrook et al., 2000). By contrast, research suggests that when lenient, such legislation leads to more business creation (Fan & White, 2003; Peng et al., 2009) and may even improve venture quality (Eberhart et al., 2017). Entrepreneurship will always be about risk-taking, but Member States that ensure that risks are not greater than necessary could change the calculus for promising would-be entrepreneurs, making their economies more entrepreneurial and innovative in the process. The EU has extensive competencies concerning the regulation of product markets and the single market’s mobility of capital, labor, goods, and services. These instruments should be used to ensure that challengers can compete on a level playing field with incumbents. EU competencies are also strong regarding competition regulation and supervision as well as state aid and public procurement, but the political backlash of the financial crisis suggests that it is wise to be more modest here. Member States themselves should thus be allowed to experiment with new governance models and allow for more contestability in public service provision. Once experimentation has provided the evidence base on which to formulate specific reforms, the EU should become involved in opening up public sector services for more competition.

Mobilizing Human Capital for Entrepreneurship The human brain’s creative potential has prompted researchers to call it the ultimate resource (Naam, 2013; Simon, 1996). Thus, it may seem obvious that people’s education, skills, and talents—their human capital—should be of crucial importance for countries’ economic growth, as demonstrated, e.g., by Hanushek and Woessmann (2015) and Barro

32

N. ELERT AND M. HENREKSON

(2001). They show a strong relationship between aggregate economic growth and a country’s level of human capital as measured in international assessments of students’ knowledge attainment. Since collaborative innovation blocs rely on a broad spectrum of skills and talents, institutions in society should facilitate and encourage the individual’s acquisition of human capital. This process begins in school and continues throughout working life, whether it takes place on the factory floor or in a research lab. However, the promotion of human capital is more than a matter of expenditure, as comparisons between Member States show. While Romania and Bulgaria spend little and do poorly, Polish and Estonian pupils do well despite low public expenditure on elementary and secondary schooling (Elert et al., 2019). Consequently, there is little to suggest that large education budgets per se will benefit collaborative innovation blocs. The important thing is how the resources are used. The objective of compulsory schooling must be to provide a solid and consistent knowledge base, notably in mathematics and the sciences (Dilli & Westerhuis, 2018; Shavinina, 2013). Simultaneously, pupils need to be incentivized to acquire knowledge at all stages of their education. This is easier said than done. As William Baumol (2005, p. 7) observed regarding entrepreneurship, “the educational approaches that are most effective in providing mastery of the already extant body of intellectual materials actually tend to handicap a student’s ability to ‘think outside the box’ and thus discourage unorthodox ideas and breakthrough approaches and results.” Nevertheless, Swedish evidence suggests that it is possible to educate and train successful entrepreneurs already at the compulsory school level, as long as the methods are pragmatic and focus on all stages of the entrepreneurial process (Elert et al., 2015). University students probably also benefit from including entrepreneurial aspects in the syllabus regardless of discipline; an experimental approach in which you learn from your mistakes, after all, is something that students can benefit from whether or not they choose an entrepreneurial career (Sanders et al., 2020). Member States, together with local and regional authorities, have the necessary powers in the educational area. Still, the Union can play an important role as an agenda setter. In its Horizon 2020 strategy, the EU highlights issues such as the need for a world-class academic education system to enable the development of new world-leading innovations. This ambitious agenda presupposes reforms that give universities and

2

IMPROVED FRAMEWORK CONDITIONS …

33

researchers incentives to aim for the top of the world league in academia while collaborating with the business community and adapting their curricula and research budgets to outside demand (without sacrificing their integrity).

Concluding Discussion: Reform Areas for a Resilient EU In this chapter, we have discussed which institutional areas the EU and its Member States should reform in order to stimulate innovation and entrepreneurship. Based on our research, we outlined the institutional prerequisites needed for prosperous collaborative innovation blocs to help create an antifragile macro environment capable of sustainable and inclusive growth. Generally, political measures that facilitate the emergence of such favorable circumstances are indirect by nature and target the institutional framework conditions rather than attempting to actively create collaborative innovation blocs or economic clusters. Extensive direct political involvement risks causing distortions that increase the vulnerability of the economy. We have highlighted six areas in which we believe that reforms are particularly important for increasing the EU’s innovative power and entrepreneurship: • Strengthen the rule of law and the protection of property rights. These are fundamental conditions for all kinds of economic activities, not least productive entrepreneurship. Here, Eastern and Southern Europe have considerable homework to do. • A simple and transparent tax system. Since no one knows where or how tomorrow’s major innovations will show up, the tax system must refrain from favoring specific owner categories, financing methods, and economic activities. • Adequate channeling of savings. The volume of savings is not the problem, but rather that pension funds and other institutional actors are too often only allowed to invest in safe assets. If they could invest more in entrepreneurial projects, they could unleash considerable creative potential. • Flexible social security benefits. The opportunity to act in an entrepreneurial way increases in a flexicurity system, in which social

34

N. ELERT AND M. HENREKSON

benefits accompany the individual who leaves a permanent job to found or join a startup. • Low entry and exit barriers. When it is easy to start, run, and shut down a firm, new ideas can be tried at a low cost. Such turbulence creates competitive pressure that keeps incumbent firms on their toes. • Entrepreneurial human capital. Education is central to innovation but can only flourish if the EU members’ educational systems put knowledge and creativity first, from first grade all the way to postgraduate education. Of course, it is important to remember that the EU has 27 Member States, each with its own unique character, history, and institutional setup. No “best” strategy will suit all countries. On the contrary: each country must shape its strategy based on its specific circumstances. Nor is there a single proposal or reform package that, like cutting the Gordian knot, removes all obstacles for the emergence of a well-functioning entrepreneurial ecosystem and inclusive and sustainable economic growth. Existing rules and new reform proposals can complement and reinforce each other, but they can also work at cross purposes. As each EU country has established its variety of capitalism, a particular policy measure does not necessarily have the same effect in all countries. However, that is not an argument for inaction in the area of reform. Increased innovativeness and more entrepreneurial venturing is a prerequisite for Europe to remain competitive in global markets and improve the quality of life of its citizens. These beneficial effects will not materialize unless the European Union and the individual Member States implement a broad palette of reform measures along the lines outlined in this essay. Acknowledgements We thank Glenn Nielsen for valuable comments and the Marianne and Marcus Wallenberg Foundation and the Jan Wallander and Tom Hedelius Foundation for financial support.

References Andersen, T. M. (2005). The Danish labor market—From excess to shortage. In M. Werding (Ed.), Structural unemployment in Western Europe: Reasons and remedies. MIT Press. https://doi.org/10.7551/mitpress/6506.001.0001

2

IMPROVED FRAMEWORK CONDITIONS …

35

Andersen, T. M. (2008). The Scandinavian model—Prospects and challenges. International Tax and Public Finance, 15(1), 45–66. Armour, J., & Cumming, S. (2006). The legislative road to Silicon Valley. Oxford Economic Papers, 58(4), 596–635. https://doi.org/10.1093/oep/gpl007 Bakardjieva Engelbrekt, A., Leijon, K., Michalski, A., & Oxelheim, L. (Eds.). (2021). The European Union and the technology shift. Springer Nature. Bakardjieva Engelbrekt, A., Michalski, A., Oxelheim, L., & Persson, T. (Eds.). (2013). Ett konkurrenskraftigt EU till rätt pris. Europaperspektiv 2013. Santérus Förlag. Barro, R. J. (2001). Human capital and growth. American Economic Review, 91(2), 12–17. https://doi.org/10.1257/aer.91.2.12 Baumol, W. J. (2002). The free-market innovation machine: Analyzing the growth miracle of capitalism. Princeton University Press. Baumol, W. J. (2005). Education for innovation: Entrepreneurial breakthroughs versus corporate incremental improvements. Innovation Policy and the Economy, 5, 33–56. https://doi.org/10.1086/ipe.5.25056170 Baumol, W. J. (2010). The microtheory of innovative entrepreneurship. Princeton University Press. https://doi.org/10.2307/j.ctt21668j9 Bredgaard, T. (2013). Flexibility and security in employment regulation: Learning from Denmark. In K. V. W. Stone & H. Arthurs (Eds.), Rethinking workplace regulation: Beyond the standard contract of employment (pp. 213– 233). Russell Sage Foundation. https://www.jstor.org/stable/10.7758/978 1610448031 Conway, P., de Rosa, D., Nicoletti, G., & Steiner, F. (2006). Regulation, competition and productivity convergence (OECD Working Paper No. 509). OECD Economics Department. OECD. https://doi.org/10.1787/431383770805 Cumming, D. (2005). Agency costs, institutions, learning, and taxation in venture capital contracting. Journal of Business Venturing, 20(5), 573–622. https://doi.org/10.1016/j.jbusvent.2003.07.001 Da Rin, M., Nicodano, G., & Sembenelli, A. (2006). Public policy and the creation of active venture capital markets. Journal of Public Economics, 90(8– 9), 1699–1723. https://doi.org/10.1016/j.jpubeco.2005.09.013 Dilli, S., & Westerhuis, G. (2018). How institutions and gender differences in education shape entrepreneurial activity: A cross-national perspective. Small Business Economics, 51(2), 371–392. https://doi.org/10.1007/s11187-0180004-x Eberhart, R. N., Eesley, C. E., & Eisenhardt, K. M. (2017). Failure is an option: Institutional change, entrepreneurial risk, and new firm growth. Organization Science, 28(1), 93–112. https://doi.org/10.1287/orsc.2017.1110 Econtalk. (2013). Joel Mokyr on growth, innovation, and stagnation. https:// www.econtalk.org/joel-mokyr-on-growth-innovation-and-stagnation/

36

N. ELERT AND M. HENREKSON

Elert, N., Andersson, F. W., & Wennberg, K. (2015). The impact of entrepreneurship education in high school on long-term entrepreneurial performance. Journal of Economic Behavior & Organization, 111(March), 209–223. https://doi.org/10.1016/j.jebo.2014.12.020 Elert, N., & Henrekson, M. (2019). The collaborative innovation bloc: A new mission for Austrian economics. Review of Austrian Economics, 32(4), 295– 320. https://doi.org/10.1007/s11138-019-00456-x Elert, N., & Henrekson, M. (2021). Innovative entrepreneurship as a collaborative effort: An institutional framework. Foundations and Trends in Entrepreneurship, 17 (4), 329–434. https://doi.org/10.1561/0300000098 Elert, N., Henrekson, M., & Sanders, M. (2019). The entrepreneurial society: A reform strategy for the European Union. Springer International Publishing. https://doi.org/10.1007/978-3-662-59586-2 Elert, N., Henrekson, M., & Stenkula, M. (2017). Institutional reform for innovation and entrepreneurship—An agenda for Europe. Springer International Publishing. https://doi.org/10.1007/978-3-319-55092-3 Eliasson, G. (1996). Firm objectives, controls and organization: The use of information and the transfer of knowledge within the firm. Kluwer Academic Publishers. Erixon, L. (2011). Development blocks, malinvestment and structural tensions— The Åkerman-Dahmén theory of the business cycle. Journal of Institutional Economics, 7 (1), 105–129. https://doi.org/10.1017/S1744137410000196 European Commission. (2015). Why do we need an innovation union? http:// ec.europa.eu/research/innovation-union/index_en.cfm?pg=why European Commission. (2016). European innovation scoreboard 2016: Internal market. Industry, entrepreneurship and SMEs. https://doi.org/10.2873/ 84537 Fan, W., & White, M. J. (2003). Personal bankruptcy and the level of entrepreneurial activity. Journal of Law & Economics, 46(2), 543–568. https://doi.org/10.1086/382602 Grant Thornton. (2016). Konkurrenskraften i svensk ägarbeskattning. Confederation of Swedish Enterprise. Hall, R. E., & Woodward, S. E. (2010). The burden of the nondiversifiable risk of entrepreneurship. American Economic Review, 100(3), 1163–1194. https://doi.org/10.1257/aer.100.3.1163 Hanushek, E. A., & Woessmann, L. (2015). The knowledge capital of nations: Education and the economics of growth. MIT Press. Hébert, R. F., & Link, A. N. (2006). Historical perspectives on the entrepreneur. Foundations and Trends in Entrepreneurship, 2(4), 261–408. https://doi. org/10.1561/0300000008

2

IMPROVED FRAMEWORK CONDITIONS …

37

Henrekson, M., & Johansson, D. (2009). Competencies and institutions fostering high-growth firms. Foundations and Trends in Entrepreneurship, 5(1), 1–80. https://doi.org/10.1561/0300000026 Henrekson, M., & Sanandaji, T. (2016). Owner-level taxes and business activity. Foundations and Trends in Entrepreneurship, 12(1), 1–101. https://doi.org/ 10.1561/0300000060 Henrekson, M., & Stenkula, M. (2016). Understanding entrepreneurship: Definition, function, and policy. Studentlitteratur. Ho, Y.-P., & Wong, P.-K. (2007). Financing, regulatory costs and entrepreneurial propensity. Small Business Economics, 28(2–3), 187–204. https://doi.org/10. 1007/s11187-006-90150 Hodgson, G. M. (2016). Conceptualizing capitalism: Institutions, evolution, future. University of Chicago Press. https://doi.org/10.4000/oeconomia. 2291 Holbrook, D., Cohen, W. M., Hounshell, D. A., & Klepper, S. (2000). The nature, sources, and consequences of firm differences in the early history of the semiconductor industry. Strategic Management Journal, 21(10– 11), 1017–1041. https://doi.org/10.1002/1097-0266(200010/11)21:10/ 11%3c1017::AID-SMJ131%3e3.0.CO;2-G Huizinga, H., Laeven, L., & Nicodeme, G. (2008). Capital structure and international debt shifting. Journal of Financial Economics, 88(1), 80–118. https://doi.org/10.1016/j.jfineco.2007.05.006 Klepper, S. (2016). Experimental capitalism: The nanoeconomics of American high-tech industries. Princeton University Press. https://doi.org/10.2307/j. ctt2166864 Knight, F. H. (1921). Risk, uncertainty, and profit. Houghton Mifflin. Kuran, T. (1988). The tenacious past: Theories of personal and collective conservatism. Journal of Economic Behavior and Organization, 10(2), 143–171. https://doi.org/10.1016/0167-2681(88)90043-1 McCloskey, D. N. (2016). How ideas, not capital or institutions, enriched the world. University of Chicago Press. Naam, R. (2013). The infinite resource: The power of ideas on a finite planet. University Press of New England. OECD. (2010). The OECD innovation strategy: Getting a head start on tomorrow. OECD. https://doi.org/10.1787/9789264083479-en OECD. (2018). Pension funds in figures. OECD. https://www.oecd.org/daf/ fin/ OECD. (2019). OECD data portal. OECD. https://data.oecd.org/natincome/ saving-rate.htm Peng, M. W., Yamakawa, Y., & Lee, S.-H. (2009). Bankruptcy laws and entrepreneur friendliness. Entrepreneurship Theory and Practice, 34(3), 517– 530. https://doi.org/10.1111%2Fj.1540-6520.2009.00350.x

38

N. ELERT AND M. HENREKSON

Pilbeam, K. (2018). Finance & financial markets. Macmillan International Higher Education. Rodrik, D. (2007). One economics, many recipes: Globalization, institutions, and economic growth. Princeton University Press. https://www.jstor.org/stable/j. ctvcm4jbh Sanders, M., Stenkula, M., Dunstan, J., Estrin, S., Herrman, A. M., Páger, B., Szerb, L., & Bogliaccini, E. T. (2020). A reform strategy for the UK. In M. Sanders, A. Marx, & M. Stenkula (Eds.), The entrepreneurial society—A reform strategy for Italy, Germany and the UK (pp. 203–246). Springer. Schäfer, W., Kroneman, M., Boerma, W., van den Berg, M., Westert, G. P., Devillé, W., & van Ginneken, E. (2010). The Netherlands: Health system review. Health Systems in Transition, 12(1), 1–229. Schneider, F. (2015). Size and development of the shadow economy of 31 European and 5 other OECD countries from 2003 to 2014: Different developments? Journal of Self-Governance and Management Economics, 3(4), 7–29. Schumpeter, J. A. (1934 [1911]). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Routledge. Shavinina, L. (2013). How to develop innovators? Innovation education for the gifted. Gifted Education International, 29(1), 54–68. https://doi.org/10. 1177/0261429412440651 Simon, J. L. (1996). The ultimate resource 2. Princeton University Press. https:// doi.org/10.1515/9780691214764 Skedinger, P. (2010). Employment protection legislation: Evolution, effects, winners and losers. Edward Elgar. https://doi.org/10.4337/9781849805599 Suse, A., & Hachez, N. (2017). Identification and assessment of the legal implications of an entrepreneurial reform agenda (Report 6.2). FIRES Financial and Institutional Reforms for an Entrepreneurial Society. http://www.projectfires. eu/wp-content/uploads/ Taleb, N. N. (2012). Antifragile: Things that gain from disorder. Allen Lane. van Tilburg, R. (2009). Finance for innovation: Policy options for improving the financial component of the Dutch innovation system. Advisory Council on Science and Technology Policy. Wennekers, S., & Thurik, A. R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 13(1), 27–56. https://doi.org/10.1023/ A:1008063200484 Westerhuis, G. (2016). Commercial banking: The changing interaction between banks, markets, industry and state. In Y. Cassis, C. Schenk, & R. Grossman (Eds.), Oxford handbook of banking and financial history. Oxford University Press. https://doi.org/10.1093/oxfordhb/9780199658626.013.7

CHAPTER 3

Towards a Climate-Neutral Union by 2050? The European Green Deal, Climate Law, and Green Recovery Karin Bäckstrand

2020 was designated the ‘super environmental year’ for EU climate policy as well as it was for global climate policy. The European Climate Law with the objective of making Europe a carbon–neutral continent by 2050 and the European Green Deal (EGD)—a climate-friendly growth strategy—were underway. Furthermore, Member States were negotiating a tightening of the EU’s greenhouse gas (GHG) emission reductions by 2030, together with revised directives on renewable energy and energy efficiency. For international climate diplomacy, 2020 was also a deadline for the countries to raise the ambition levels for GHG emission reduction in line with goals of the Paris Agreement. For the United Nations (UN) climate summit—Conference of Parties (COP26)—scheduled originally for Glasgow in 2020, countries were expected to submit

K. Bäckstrand (B) Department of Political Science, Stockholm University, Stockholm, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_3

39

40

K. BÄCKSTRAND

their updated national determined contributions (NDCs) in accordance with the review and stock-taking mechanism in the Paris Agreement. The newly appointed European Commission (2019) under the presidency of Ursula von der Leyen launched an ambitious program for the EGD in its first 100 days based on a vision of green industrialisation, systemic cross-sectoral and integrative transformation towards climate neutrality, digitalisation, and a just climate transition (European Commission, 2019; Rosamond & Dupont, 2021). This rosy picture soon changed, however. The UN Secretary-General António Guterres warned of the double threat of the global climate crisis and the Covid-19 pandemic. COP26 in Glasgow was postponed to November 2021. The European climate law and a tightening of energy and climate framework for 2030 got bogged down in protracted negotiations which took place in parallel to the worsening Covid-19 pandemic in 2020 and 2021 (Dupont et al., 2020). Moreover, the world witnessed an increasing frequency of extreme weather events, such as the disastrous floods in Germany and Belgium, draughts in Southern Europe and extreme heatwaves and forest fires in the US and Canada. Several countries in Europe declared climate urgency. Finally, the Russian invasion war of Ukraine in February 2022 causes a humanitarian and refugee crisis, threatens the European and global security order, increase oil and fuel prices and undermines the green recovery and global and national climate mitigation efforts. The 6th Assessment report of the Intergovernmental Panel on Climate Change (IPCC, 2021) published in September 2021 and February 2022 warned that if no immediate action is taken, global warming risks exceed pre-industrial levels by more than 2 degrees by 2060, or even 6 degrees by the end of the century. This was confirmed in the report by United Nations Environment Programme (UNEP) claiming that the world is on track towards a 3-degree world if countries did not ratchet up their level of ambition in the 2030 climate targets and NDCs submitted to United Nations Framework Convention on Climate Change (UNFCCC) in the run up COP26 in Glasgow (UNEP, 2021a). An increase in global temperature will have adverse consequences on many ecosystems leading to loss of biodiversity. Increasing temperatures and frequency of extreme weather events, such as droughts and floods jeopardises EU’s economy. Based on research on EU’s internal and external climate policy and leadership in UN climate diplomacy (Bäckstrand & Elgström, 2013;

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

41

Oberthür & Dupont,2021; Parker & Karlsson, 2010), this chapter examines—in the light of the ongoing pandemic and economic recession— EU’s effort to raise its climate policy ambitions by increasing climate and green investments for decarbonisation in the Covid-19 recovery package and in the long-term budget, 2021–2027. Many questions remain (Dupont et al., 2020; Jänicke & Wurzel, 2019; Kulovesi & Oberthür, 2020; Parker et al., 2017; Skjaerseth, 2021): Will the EU’s rescue and recovery plan, with its comprehensive economic stimulus, enable a climate-neutral and even fossil-free transformation of the EU? What does the Covid-19 pandemic mean for the EU’s role as global climate leader and the implementation of the Paris Agreement and the UN 2030 Agenda with its 17 Sustainable Development Goals (SDGs)? What are the prospects for the Paris Agreement’s climate goals of a rise in temperature not higher than 2 degrees, preferably 1.5 degrees given the European climate and energy legislation adopted in 2021? In the debate on the impacts of the pandemic on achieving climate ˇ and sustainability goals, two perspectives can be distinguished (Cavoški, 2020). From an optimistic perspective, the Covid-19 can be conceived as a window of opportunity for the EU to fulfil promises of ecological modernisation, decarbonisation, green industrialisation, the transition ˇ to renewable energy, and a competitive circular economy (Cavoški, 2020). The shutdown of the economy, reduced mobility, production, and consumption pattern as a result of the pandemic, initially led to an average 5.4 percent drop in global carbon dioxide emissions between 2019 and 2020 (UNEP, 2021a, p. xvii). From a pessimistic perspective, the economic recession following the pandemic will lead to a prioritisation of saving jobs and rescuing the economy at the expense of stringent climate policy, which may result in a carbon-lock in. There are also risks of rising unemployment as the carbon industry is phased out. In autumn 2021, as EU’s economies were opening up, the costs for energy and fuel rose dramatically, leading to fuel poverty and disruptions in food supply chains. Some EU leaders called for putting the EU climate legislation on hold to protect consumers and citizens from rising costs. At the same time, the 5.4 percent decrease in global carbon emissions in 2020 as a result of the pandemic was temporary (UNEP, 2021a). As the economies opened up and restriction and lockdown were lifted with increased vaccination rates, emissions were also increasing. Despite the argument that the Covid-19 crisis has opened a window of opportunity for the EU’s path to carbon neutrality, the jury is still

42

K. BÄCKSTRAND

out on whether the massive rescue and recovery package in response to the pandemic can be geared too low carbon transition pathways and a green recovery (UNEP, 2021a, 2021b). Notwithstanding initial fears that the Covid-19 crisis would lead to EU abandoning or postponing pending climate legislation, the European Council adopted the EGD, codifying the climate goals into a binding European climate law, and strengthened the 2030 climate and energy framework by committing to 55 percent reduction of GHGs compared to 1990 levels (Skjaerseth, 2021). A reason for a sustained commitment to mitigating climate change might be that compared with the financial crisis of 2008, the EU was better served under the leadership of the Ursula von der Leyen Commission, which promoted the EGD as an ambitious reform agenda for green growth, decarbonisation of Europe, and investments in renewable energy ˇ (Cavoški, 2020; Gheuens & Oberthür, 2021; Skjaerseth, 2021). In her keynote address on 16 September 2020, President von der Leyen highlighted the climate crisis and proposed that the EU should reduce its climate emissions by at least 55 percent by 2030. Further, the European climate law has become a cornerstone of the EGD. This law was voted in by the European Parliament ensuring that the EU becomes a climate-neutral continent by 2050. Moreover, the parliament called for a 65 percent reduction of GHG in the 2030 framework. This would enable the EU to meet the Paris Agreement’s goal of limiting global temperature increase to 1.5–2 degrees through a 55 percent emission reductions in the 2030 framework in line with the EU’s NDC submitted to COP26 in Glasgow in 2021. The chapter is structured into six sections. The first section provides a historical overview of the emergence of EU climate and energy policy from the Kyoto Protocol to the Paris Agreement. To understand the evolution of the EU’s internal and external climate policy, three interacting key factors are highlighted: (1) the global context with changing constellations of power and interest; (2) EU’s climate and energy legislation and the interaction between the EU institutions and the Member States; (3) EU’s shift from a normative idea-driven leadership to a more pragmatic entrepreneurial leadership as a ‘leadiator’. The second section focuses on the EU’s role as a global climate leader, and the third section analyses the European climate law, the 2030 climate framework with stricter climate and renewable energy targets, and EC’s proposal for the climate and energy legislation package Fit for 55 package (Gheuens & Oberthür, 2021). The fourth section focuses on how the Covid-19

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

43

pandemic has affected EU’s road to climate neutrality, and whether the Next Generation EU recovery package can enable the transformation to a climate-neutral economy and align with the EU’s climate and energy goals. The fifth section evaluates whether the Covid-19 pandemic created a ‘window of opportunity’ for the long-term societal transformation to carbon neutrality. The final section concludes with recommendations for how a green recovery may support the transition to a low-carbon development.

EU’s Climate Policy from Kyoto to Paris The EU is an indisputable pioneer in the adoption of the first supranational climate and energy policy (Jordan et al., 2010). Yet, historically, the EU is also the world’s third-largest carbon emitter after China and the United States, followed by India, Russia, and Japan. EU is one of the Parties to the Paris Agreement, which aims to limit global warming to below 2 degrees Celsius and strive to limit the increase to 1.5 degrees. In 2019, the EU Member States approved the goal of becoming climate neutral by 2050, in line with the goals of the Paris Agreement. Member states in the EU are still heavily dependent on fossil fuel energy and import of natural gas from Russia. In 2009, the European Council agreed on the goal to reduce GHG emissions by 80–95 percent until 2050 compared to 1990 levels in order to stabilise emissions at a level that prevents harmful human impact on the climate in line with the goal of the 1992 UNFCCC. More than 10 years later, the EU has one of the world’s most ambitious climate and energy legislation including the European Emission Trading System (EU ETS). The EGD with goals of a carbon–neutral economy and society was enshrined in the European climate law in 2021. The EU’s internal and external climate policy and role as global climate leader have been shaped for 30 years in a complex interplay of various factors and between different actors (Delbeke & Vis, 2015; Dupont & Oberthür, 2014; Oberthür & Groen, 2018). First, the international context of transformed global power and interest constellations has shaped the EU’s climate- and energy policy, including geopolitical shifts, such as the US and China’s growing economies and rising power, which in turn affect global GHG emissions (Oberthür, 2016; Oberthür & Dupont, 2021). In 2020, the United States and China combined account for almost 45 percent of global emissions, while the EU’s share is about 9

44

K. BÄCKSTRAND

percent. Energy security threats linked to the natural gas conflict between Russia and Ukraine in 2006 and 2009 have propelled the EU to address energy security (Dupont, 2016). The second factor that has influenced EU’s climate policy is the internal policy and institutional dynamics of the Union (Jänicke & Wurzel, 2019; Jordan et al., 2010). Denmark, the Netherlands, Sweden, and subsequently Germany and the United Kingdom, have been advocating stricter climate and energy legislation. When the EU was enlarged in 2004 with new members from fossil- and coal-dependent states in Central and Eastern Europe, opposition to ambitious EU targets and measures increased within the EU (Dupont & Oberthür, 2014). The EU decision-making processes and the different roles of the institutions affect climate and energy policy. While EU’s supranational institutions, such as the European Commission and the European Parliament have been pushing for strengthening climate and energy legislation, the intergovernmental institutions (the European Council and Council of Ministers) have historically blocked raised ambition levels (Rosamond & Dupont, 2021). The third factor that was formative of EU’s climate policy was the international climate negotiations, which the EU has influenced through shifting negotiation strategies. Parker and Karlsson (2010) argue that EU exercised a normative or idea-driven leadership adopting more stringent reduction levels unilaterally as illustrated at COP15 in Copenhagen in 2009. However, six years later at COP21 in Paris, the EU exercised entrepreneurial leadership and built coalitions between states in the Global North and South. Over time the EU has emerged as a geopolitical climate power and taken on a more pragmatic leadership role compatible with the structural conditions and shifts in global power distribution (Bäckstrand & Elgström, 2013; Oberthür, 2016; Oberthür & Groen, 2018). To sum up, structural factors such as increased multipolarity, the EU’s internal processes (the increased fragmentation between Member States and the growing importance of the intergovernmental institutions), and the EU’s negotiating tactics in UN climate diplomacy have shaped the EU’s energy and climate legislation. Two important phases in the development of EU climate policy can be identified since the UN climate convention was signed at the 1992 Earth Summit in Rio de Janeiro, Brazil. 1992–2008 from the climate convention to the Kyoto Protocol: Under the 1992 UNFCCC the EU adopted climate targets for 2020 and 2030.

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

45

In response to the 1997 Kyoto Protocol, the EU and its then 15 Member States adopted a commitment to reduce emissions by 8 percent between 2008 and 2012. When the Bush administration withdrew from the Kyoto Protocol in 2001, the EU joined forces to rally support for the Kyoto Protocol by securing Russia’s ratification in exchange for supporting the country’s application for membership in the World Trade Organization. The EU took on the role of guardian of the Kyoto Protocol and, through its normative leadership, contributed to its entry into force in 2005. During this period EU’s policy was largely driven by the international climate negotiations (Oberthür & Groen, 2018; Torney, 2015). It was not until the early 2000s that own legislation was adopted with EU directives on energy efficiency and renewable energy. One important milestone is the world’s first emission trading system—EU ETS—which was established in 2005 and has since then gone through a series of reforms. In the 2000s, there was a gradual tightening of the EU’s emission targets, but they were far from sufficient to achieve a fossil-free economy. 2008–2015 From the Copenhagen Agreement to the Paris Agreement: The financial crisis of 2008 set the scene for the negotiation of the Kyoto Protocol’s second commitment period from 2013 to 2020. In the meanwhile, a geopolitical power shift had occurred favouring the United States and the BASIC countries (Brazil, South Africa, India, and China). The implications of this shift became evident at COP 15 in Copenhagen in 2009 as the EU failed to gain support for its unilateral strategy to achieve a global, legally binding, climate agreement with set times and binding emission reductions for the industrialised countries modelled based on the Kyoto Protocol. Instead, a small group of 28 countries sidelined the multilateral negotiations and spearheaded by the US and China hammered out the infamous Copenhagen Accord, which meant that both industrialised and developing countries should submit national pledges for voluntary reductions in GHG emissions (Bäckstrand et al., 2017). At COP 17 in South Africa in 2011, the countries agreed to the Durban platform to start a process that by 2015 would lead to a new agreement. The Durban Platform made no difference between industrialised and developing countries, and all countries now had a responsibility to take on mitigation commitments. Unlike COP15 in Copenhagen, where the EU failed in its normative leadership by example, in Durban, the EU adopted a more realistic and pragmatic leadership by building coalitions between countries in Africa, the US, and Europe (Torney, 2015; Wurzel et al., 2017).

46

K. BÄCKSTRAND

At the COP21 in Paris in 2015, the states signed the Paris Agreement after many years of protracted negotiations. On 4 November 2016, the Paris Agreement entered into force committing countries to submit climate mitigation plans with the potential to limit the rise in global temperature to well below 2 degrees, aiming for 1.5 degrees. In contrast to the ‘top-down’ negotiated target and timetables approach of the Kyoto Protocol, the Paris Agreement has a bottom-up character based on national pledges, as states are henceforth obliged to submit voluntary climate commitments, so-called NDCs (Bäckstrand et al., 2017). These are reviewed every five years as part of the stock-taking process and transparency framework in the Paris Agreement. In contrast to the Kyoto Protocol, developing countries with large emissions such as China, Brazil, South Africa, and India have also to submit NDCs. The Trump administration formally announced its withdrawal from the Paris Agreement the day after the US presidential election in November 2016, a decision that Joe Biden reversed on the day that he assumed office in 2021. Nonetheless, for the EU, the Paris Agreement represented a success, as the Union regained its leadership in global climate diplomacy and had tightened domestic targets in the 2014 framework for climate and energy (Delbeke & Vis, 2019). The challenges for the EU before and after the Paris Agreement included disagreement among Member States on the ambition level, in terms of GHG emission reductions by 2030 and 2050.—The environmental pioneers—Denmark, the Netherlands, Sweden, Austria, Germany, and the UK—called for more stringent climate targets. However, they have been challenged by Poland and Hungary which are heavily dependent on fossil fuels energy and want to roll back ambitions (Delbeke & Vis, 2015; Jänicke & Wurzel, 2019). Brexit entailed a power shift in favour of Central and Eastern European countries when the UK left the EU in January 2020. Five years after the signature of the Paris Agreement, the climate crisis continues to compete with the migration crisis, the euro crisis, terrorist threats and Brexit. The Trump administration’s withdrawal from the Paris Agreement was a setback for the EU. The negotiation of the EU climate and energy legislation, as described below, has therefore been challenged both by internal divisions and by external triggering events. The EU has adopted three packages or frameworks for climate and energy policy between 2008 and 2021 (Gheuens & Oberthür, 2021;

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

47

Kulovesi & Oberthür, 2020; Oberthür, 2019). In 2008, the EU introduced its first climate and energy package with targets for emission reductions and directives for renewable energy and energy efficiency by 2020. To fulfil goals in the UNFCCC, the EU adopted climate targets for 2020 and 2030 with the aim to reduce emissions with 20 percent by 2020 and 40 percent by 2030 compared to 1990 levels. The European Council endorsed the goal of reducing GHG emissions by 80–95 percent by 2050. The package included EU legislation to incorporate aviation into the EU ETS, as well as large-scale technologies such as carbon capture and storage. These goals meant that the EU committed to reduce GHG emissions by 20 percent, increase the share of renewable energy to 20 percent, and improve energy efficiency by 20 percent. To achieve this, the EU has developed the EU ETS, which aims to reduce GHG emissions from energy-intensive industries and power plants. The EU ETS covers about 40 percent of EU’s total GHG emissions and around 11,000 power plants and manufacturing plants within the EU. The goal was to reduce emissions by 43 percent compared with 2005. In the construction, transport, and agriculture sectors, national emission targets for states have been set out in EU’s Effort Sharing Regulation. The EU overshot the 2020 target. Between 1990 and 2019 emissions in the EU were reduced with 24 percent while the economy grew by more than 61 percent (EEA, 2021). The emission reduction goals in the 2008 EU’s climate and energy package, was strengthened in 2014 with 2030 climate and energy framework, which included a reform of the EU ETS. The European Council agreed on tightening goals for the reduction of GHG to at least 40 percent by 2030 compared with 1990 levels. Furthermore, energy use should be reduced by 32.5 percent through improved energy efficiency, the share of renewable energy should be at least 32 percent of total energy use and the share of renewable energy in the transport sector should be 14 percent (Gheuens & Oberthür, 2021). However, targets in the EU 2030 framework was not sufficient to meet the Paris goals. According to the European Environment Agency (EEA), the goals from 2014 will not be achieved with current measures (EEA, 2020). Instead of 40 percent reduction of GHG, the emission decrease was expected to be only 30 percent by 2030. However, the enhanced ambition in EU’s 2030 climate and energy framework and the climate law adopted in 2021 is expected to ramp up emissions reductions. In July 2021, the Commission’s proposed the Fit for 55 package, which is a series

48

K. BÄCKSTRAND

of legislative acts intended to revise EU’s climate legislation, including the EU ETS, Effort Sharing Regulation, transport, energy and land-use legislation with the aim to achieve EU climate targets for 2030 and 2050 (Gheuens & Oberthür, 2021).

The EU’s Role as a Global Climate Leader The EU has been considered a global climate leader since the signing of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992. Almost 30 years later, world politics has changed dramatically, both in terms of new power constellations and shifts in the distribution of GHG emissions between industrialised and developing countries, where China currently accounts for 29 percent of world emissions, followed by the US that emits 15 percent of global emissions. The EU’s role has changed in the new multipolar order emerging after the Cold War. The EU was side-stepped as the world’s two largest GHG emitters—China and the US—hammered out the details of the Copenhagen Accord at COP15. The accord with its ‘bottom-up pledge and review approach’ became the foundation of the Paris Agreement six years later. Coalitions of major emitters from developing countries, such as the BASICs together with EU Member States in Central and Eastern Europe, resisted more ambitious climate and energy targets. Nonetheless, the EU’s internal and external climate and energy policies are closely linked. During the 2000s, the landscape of global climate governance has transformed from intergovernmental climate diplomacy to ‘hybrid multilateralism’ (Bäckstrand et al., 2017) including non-state, subnational, and sub-state actors. Climate policy is now characterised by multi-level and polycentric governance structures (Dreger, 2014; Jordan et al., 2018), spanning across different arenas, such as the G7 and the Major Economies Forum on Energy and Climate. The slogan ‘Kyoto is not the only game in town’ illustrates that global climate governance comprises a great diversity of actors, also beyond states. Cities, municipalities, regions, companies, civil society, and trade unions are all trying to influence global climate diplomacy. Following the failure in Copenhagen, the EU changed tack and started to pursue active climate diplomacy as a ‘leadiator’ (mediator cum leader) by building coalitions ahead of the Paris Agreement with environmentally progressive countries from the Global South and North in the so-called High Ambition Coalition (Bäckstrand & Elgström, 2013).

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

49

The EU is viewed as a climate leader by other countries but has also adopted a self-appointed leadership in climate policy (Parker et al., 2017). At the same time, paradoxically, the EU can also be considered ‘leaderless’ in the sense of a state of competing leadership on behalf of the EU institutions and among EU Member States (Jänicke & Wurzel, 2019). This makes it difficult for the EU to take a coherent position and speak with a united voice in climate policy. The European Council has strengthened its profile in climate issues and exercised a structural or power-based leadership on the back of the intensified intervention of the Heads of State and Government as climate change is increasingly regarded as ‘high politics’ (Rosamond & Dupont, 2021). The Council of Ministers, where environment and climate ministers are represented, exercises a more entrepreneurial leadership as mediators and coalition builders between Member States. The European Parliament and the European Commission have provided knowledge-based leadership by basing proposals on new climate legislation on the latest scientific findings of the IPCC and the EEA (2021; IPCC, 2021).

The European Green Deal, the European Climate Law, and the 2030 Climate and Energy Framework In the State of the Union on 16 September 2020, European Commission President von der Leyen articulated an ambitious vision of the EGD and the climate law that will turn Europe into the world’s first climateneutral continent by 2050. The EGD includes a new growth strategy to transform the EU into a decarbonised, resource-efficient, circular, and just economic area. The Commission’s reform agenda and its proposal for a European climate law meant a significant leap forward compared to the previous Juncker Commission (2014–2019), which prioritised jobs and economic growth before environmental legislation. The EGD seeks to balance economic prosperity with environmental protection and social justice by stimulating industry and promoting a green and circular economy through sustainable and recycled products. The overarching goal of the EGD is to achieve a systemic transformation of society towards carbon neutrality, renewable energy, and sustainable production and consumption patterns. While other planetary and ecological issues such as biodiversity, environmentally friendly agriculture, sustainable food system, and the restriction of chemicals are part of the EGD, the climate crisis is its centrepiece. In the light of run-away climate change, the

50

K. BÄCKSTRAND

European Parliament declared a climate emergency in November 2019 and demanded that climate legislation was aligned with the Paris goal of reducing global warming to below 1.5 degrees. In December 2019, the Commission presented its proposal for the EGD as a new growth strategy aimed at transforming the EU into a fair and prosperous society with a modern, resource-efficient, and competitive economy. By 2050 there should be net zero GHG emissions and economic growth should be decoupled from resource consumption. The Commission and Parliament backed the EGD, and in December 2019, the European Council endorsed the goal of achieving a climate neutral EU by 2050. In March 2020, EU environment and climate ministers adopted the European Commission’s proposal for a long-term climate strategy in accordance with the Paris Agreement. The strategy establishes the EU’s goal of climate neutrality by 2050 and is based on the European Council’s conclusions from December 2019. The Commission’s proposal for a European climate law aimed to bind the EU to become climate neutral with net zero emissions of GHG by 2050. Progress will be reviewed every five years, in line with the global stock take under the Paris Agreement. The Commission will review and, if necessary, propose new measures to achieve the 2050 target every five years. In September 2020, the European Commission proposed that the EU reduces GHG emissions to at least 55 percent by 2030 compared with 1990 levels. The Commission’s plan also entails stricter targets for renewable energy and energy efficiency, the extension of EU emissions trading system to include more sectors, such as shipping, transport, and construction, reducing emissions allowances also for aviation, and the introduction of a Carbon Border Adjustment Mechanism. The Covid-19 pandemic has changed the situation and the Commission now sees a need to install a floor for the price of carbon dioxide in response to declining fossil fuel prices. The European Parliament, which has long called for ramping up the EU’s climate ambitions, approved its position on the European Climate Law in October 2020. The Parliament demanded 60 percent reduction in emissions reductions by 2030. The Parliament also proposed adding a 2040 target, making the 2050 climate neutrality goal binding for the Member States and not just for the EU as a whole. In addition, it asked for the introduction of a binding carbon budget and an import tax on goods that contain climate emissions on a higher level than is allowed by European standards. The Commission also proposed that at least 30 percent of the Covid-19 recovery fund’s 750 billion euros should go to

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

51

climate action. The EGD also includes a renovation boost for energyefficient buildings, plans to enhance the circular economy (all products must be sustainable, reused, or recycled), biodiversity, the sustainability of agricultural policy, and a common forest strategy. In April 2021, the Council and the Parliament agreed on a European climate law affirming the long-term perspective by making the 2030 goal of 55 percent reduction and 2050 target of net-zero emissions legally binding (EU 2021). A comprehensive legislative package ‘Fit for 55’ was proposed by the Commission in July 2021 to put policies in place to achieve the 55 percent target. The package is currently negotiated and includes revisions of the EU ETS, the Effort Sharing Regulation (ESR), the regulation on Land-use, Land-use Change and Forestry (LULUCF), the Energy Efficiency Directive, the Renewable Energy Directive, and CO2 emission standards for passenger cars and light commercial vehicles, carbon border adjustment mechanism.

The Covid-19 Pandemic and the Green Recovery in the EU In March 2020, the Covid-19 pandemic struck the world with full force. What were the consequences of the pandemic for the implementation of the EGD and the European climate law? Before the outbreak of the pandemic, the Commission had placed climate and energy policy high on the political agenda and at the centre of EGD, with a proposal for a binding European climate law, a carbon neutrality goal of 2050, and strengthened 2030 framework. At the beginning of March 2020, the Czech Republic Prime Minister Andrej Babiš proposed that EU should postpone the EGD since the Covid-19 pandemic had thrown EU into economic recession. However, the European Commission continued to hold on to the EGD and the decarbonisation goal through a green recovery. In addition, there was support among the EU ministers who gathered in April 2020 at the 11th Petersburg Climate Dialogue. On the initiative of German Chancellor, Angela Merkel, the meeting endorsed the European Commission’s recovery plan, including the Just Transition Fund amounting to EUR 40 billion. This garnered support among fossil fuel-dependent Member States, such as Poland and Hungary that were initially sceptical to the EGD.

52

K. BÄCKSTRAND

Both France and Germany have placed the EGD at centre of the rescue and stimulus package and the long-term budget to accelerate the EU’s transformation to carbon neutrality. The Covid-19 pandemic was increasingly seen as a window of opportunity in a time of growing public support for policies tackling the global climate crisis. In April 2019, the Eurobarometer survey on public attitudes to climate change showed that 92 percent of the respondents—more than eight out of ten citizens in every Member State—believed that GHG emissions should be reduced so EU can achieve its 2030 and 2050 climate targets. The Commission thus enjoys broad public support for enhancing ambition in the EU’s climate and energy policies. A deep and prolonged recession in the EU as a result of the pandemic could jeopardise the green recovery as states will roll back environmental legislation and support carbon-intensive production and consumption (UNEP, 2021a). However, several factors explain why the EGD and the European climate legislation were not rolled back despite the severe health and economic effects of the Covid-19. First, the global climate crisis was on the top of the political agenda in the autumn of 2019, several months before the outbreak of the pandemic. The Friday’s for Future (FFFs) had mobilised youth and the public around the world. This culminated in Greta Thunberg’s participation at the UN climate action summit in New York in September 2019. Second, the European Parliament’s Committee on the Environment pushed for reducing emissions by at least 60 percent until 2030. Third, the European Commission had prioritised the climate crisis through the initiative Put the Green Deal at the centre of the recovery. Frans Timmermans, vice-president of the European Commission, was assigned the responsibility for the EGD. This is reinforced by the political commitment of national leaders in France and Germany. Emmanuel Macron and Angela Merkel presented a joint programme for a green European recovery. Fourth, GHG emissions in the EU have decreased as a result of shutdowns, and reduced transport, travel, consumption, and industrial production. Digitalisation, on the other hand, has accelerated and the pandemic has reinforced existing trends for changing consumption, mobility, and production patterns, as well as for new sustainable lifestyles, which together result in a reduced climate footprint. Fifth, a new coalition of environment ministers, environmental NGOs, trade unions, and industry leaders has called for speeding up the green recovery in the EU. Finally, the inauguration of Joe Biden as the US President meant a return of the country as a party to Paris Agreement and

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

53

the launch of the ambitious Biden-Harris climate plan ’ or the Build Back Better Act. The US goal is to be climate neutral by 2050 through massive investments of almost USD 2000 billion in green industrialisation, decarbonisation, and sustainable energy. At the Biden’s Leaders Summit on Climate in April 2021, the US committed to 55 percent reduction of GHG to 2030. The Build Back Better Act was passed in the House of Representatives in November 2021 after being watered down. The green deals on both sides of the Atlantic have been central to the green recovery (Bloomfield and Steward, 2020). What does the recovery package (Next Generation EU) mean for the prospects for the EU to meet its long-term goal of climate neutrality by 2050? The recovery package is the largest stimulus package ever, with the goal to help rebuild Europe in the post-pandemic phase. The pandemic initially had an inward-looking effect, focusing on Member States’ rescue and stimulus packages, while climate work requires an international perspective. Between 2019 and 2020, CO2 emissions were reduced by 5.4 percent (UNEP, 2021a). On 21 July 2020, after lengthy negotiations, the European Council decided on the recovery package and the EU’s long-term budget 2021–2027. The recovery package landed at EUR 806.9 billion, of which 390 billion consisted of grants and the remaining loans. The majority of funding is in the Recovery and Resilience Facility. Following pressure from Poland and Hungary, a binding national netzero emission goal by 2020 was not mandatory for receiving funds. The loans will be repaid jointly by the EU until 2058. The long-term budget for the period 2021–2027 is in total EUR 1074, 4 billion. The bulk of the funding is directed to regional aid and agricultural policy, each of which receives about a third of the funds. In the original proposal, 25 percent of the funding was reserved for climate and clean energy investments. However, in the adopted package, the share was raised to 30 percent earmarked for climate measures. Globally, the Covid-19 fiscal spending and recovery packages to save lives and business and stimulate the economy have been a missed opportunity to accelerate a low-carbon development and green recovery. Rescue and recovery packages in most G20 countries have primarily been directed to high-carbon economic production (UNEP, 2021a). However, EU is a global leader in green recovery alongside Norway and the Republic of Korea. Some Member States such as Finland, France, Germany, and Denmark devote up to 40 percent of recovery measures to decarbonisation of transport, energy, and industrial sectors (UNEP, 2021b). While

54

K. BÄCKSTRAND

the jury is still out on whether the EU will continue to lead the green recovery, it is clear that the EGD, the European climate law and the strengthened 2030 framework, put EU in a better position to accelerate low-carbon development. In two recent reports from the UN, it is clear that the countries’ climate pledges, or NDCs, submitted ahead of COP26 in Glasgow are insufficient to reach the Paris goals of 2 or 1.5 degrees. If emission reductions are not ramped up, the world is heading to a temperature of at least 2.6 degrees (UNDP, 2021a; UNFCCC, 2021). The emissions will only decrease by 7.5 percent by 2030 with current pledges while 45 percent is needed to reach the 1.5-degree target. However, in a global comparative perspective, the EU is singled out as a region on track to reach the 2030 target and it did reach its 2020 target (UNEP, 2021a). This reflects the importance of enforcing stringent climate and energy legislation under the framework of the EGD as a long-term reform program to achieve the society-wide systemic transformation to carbon neutrality across all sectors. Environmental NGOs such as the Climate Action Network argue that investments in fossil fuel energy can jeopardise and cancel out decarbonisation efforts and renewable energy investments in the economic stimulus packages if there are no accountability mechanisms to control that funds are allocated to decarbonisation and not to continued subsidies of fossil fuels. The Just Transition Fund supports regions, sectors, and Member States that are heavily dependent on coal and fossil fuels. However, it has been reduced from EUR 30 billion to EUR 10 billion. The EU recovery plan also included resources for the EU research program Horizon 2020, which is central for research and innovation on green transition (this was cut from EUR 13.5 billion to EUR 5 billion). In the run-up to the EU summit in July 2020, several countries blocked proposals in the recovery packages. Austria, Sweden, Denmark, and the Netherlands— named the ‘frugal four’—adopted a more budget-restrictive stance. They called for budget cuts, which in the end reduced funds for climate investments and sustainable energy. The EU made an allocation of funds to Member States conditional on committing to EU values, such as the rule of the law and to mitigate climate change, yet Hungary and Poland were strongly opposed to such conditional funding. Most EU Member States have welcomed the EGD, but the ministers of agriculture have expressed scepticism towards, e.g. ban on pesticides. A contested question concerns

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

55

EU’s forestry strategy and the EU taxonomy aimed at promoting sustainable forestry and biodiversity. Member states with a large forest industry have argued that forests are within national competence. EU’s Member States display varying responses and degrees of success in accelerating the green recovery and rebuilding the economy while simultaneously tackling the Covid-19 pandemic and climate change. Larger Member States such as Germany and France devoted more resources to the green recovery, while Member States in Central and Southern Europe, heavily hit by the pandemic, had less funds devoted to climate investments. This partly reflects a historical development as the EU enlargement in 2004 included the new Member States in Central and Eastern Europe with lower ambitions in the field of environment and climate (Jänicke & Wurzel, 2019). The European Council and the Council of Ministers have increasingly addressed the climate crisis. The EU’s intergovernmental processes have gained importance vis-a-vis the European Parliament (Gheuens & Oberthür, 2021; Rosamond & Dupont, 2021). One controversial issue among the Member States is the proposed taxes at the EU level. The European Commission is pushing for the recovery package to be financed with joint EU funds, derived from tax revenues such as carbon taxes. In the ‘Fit for 55’ legislation the Commission has proposed a carbon border adjustments mechanism (CBAM), which is a fee imposed on imported high carbon-emitting goods, for instance, steel, aluminium, and cement. The rationale for CBAM is that non-EU countries have a competitive advantage as it is expensive for European companies to comply with EU’s strict climate and environmental standards. There are three primary factors that will impact EU’s road to netzero emission by 2045. Firstly, there is strong support in public opinion for climate action amplified by a mobilisation of the climate movement such as the FFF. In addition, extreme weather events that are linked to climate change are leading to lost lives and threats to the economy around the world. The green recovery has broad support among business and politicians, e.g. from 17 of the EU environment ministers. Secondly, the energy sector has undergone a rapid transformation in the last decade scaling up investments in renewable energy, while the oil and coal market is struggling with profitability. In line with the principles in EGD, the EU has begun the difficult work to phase out of fossil fuels in transport, energy, industry, and the agricultural sectors. Thirdly, securing public

56

K. BÄCKSTRAND

legitimacy of large-scale decarbonisation is crucial, not least for countries, regions, and sectors that are reliant on fossil fuels. Without the acceptance and legitimacy for climate transition among the public and domestic constituencies, the EU will face great obstacles when pushing stringent climate legislation to fulfil the Union’s carbon neutrality goal for 2050.

Conclusions EU’s transformation to carbon neutrality is increasingly viewed as an opportunity to strengthen EU’s global competitiveness, job growth, and digitalisation and ‘build back better’ after the Covid-19 pandemic hit the world. 2020 was designated as the ‘super environmental year’ for the EU that had comprehensive climate legislation as part of the EGD proposed in 2019 by the incoming European Commission. However, the Covid-19 pandemic caused a health crisis coupled with an economic crisis compared with the recession in the 1930s. Despite initial pressures from some EU Member States to abandon the EGD to prioritise saving jobs, EU remained committed to goals of a just and sustainable transition towards carbon neutrality in 2050. During the pandemic, EU adopted the European climate law and updated its 2030 energy and climate framework, calling for a 55 percent emission reduction by 2030. This chapter has analysed opportunities and challenges for the EU to implement its grand ambition that could strengthen its resilience and make it the world’s first climate-neutral continent by 2050. While the EU’s 2020 emission reduction target was achieved, it remains to be answered if the Union’s existing climate and energy policies are sufficient to reach the 2030 and 2050 goals. Despite the EU’s success with unique supranational climate legislation, tightened climate and energy goals for 2030, a reformed and strengthened EU ETS, more stringent measures are needed to transform the economy, industry and energy systems towards climate neutrality, according to the IPCC. EU’s climate legislation has for the past 15 years gradually moved from being myopic and incremental to become long term and transformative (Gheuens & Oberthür, 2021; Skjaerseth, 2021). While the jury is still out, the EGD, the climate law and the ‘Fit for 55’ package together provides a long-term, systemic, cross-sectoral approach to reaching net-zero target by 2050. At the onset of the Covid-19 pandemic in March 2020, there was concern that environmental protection and climate change would be

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

57

subordinated to economic growth, recovery, and job rescue in high carbon-emitting sectors. However, strong signals came from both the European Parliament and the Council of Ministers to place the EGD at the centre of the EU’s recovery package to accelerate the transformation to carbon–neutral union. In contrast to earlier environmental policy, the EPG takes a systemic, integrative, and cross-sectoral approach to societal transformation. Health policies, ecological modernisation, competitiveness, green finance, decarbonisation, fiscal policies, and job growth are increasingly considered as linked. The Commission President von der Leyen and Vice President and Climate Commissioner Timmermans have demonstrated leadership in being committed to an ambitious reform agenda throughout the Covid19 pandemic. The political leadership of the Commission has been facilitated by strong support of climate action among the public and citizens, with an unprecedented mobilisation of the climate movement FFF. Furthermore, political leaders in key Member States—Germany with Angela Merkel and France with Emmanuel Macron—have remained committed to the EGD. However, in light of the 2021 IPCC’s 6th assessment report, the policy measures in place may not be sufficient to reach the climate and energy goals in the 2030 framework, and the 2-degree and preferably 1.5-degree goal in the Paris Agreement. The current climate pledges submitted to COP26 in Glasgow will bring the world to 2.7-degree temperature. While EU’s NDC of 55 percent reduction to 2030 is ambitious from a global perspective, it is likely to be sufficient to be in line with Paris goals as stressed by the European Parliament and environmental NGOs. The Commission’s proposal - the ‘Fit for 55’ package which is currently negotiated, contains 13 legislative proposals to ramp up emission reduction, which is a crucial step to achieve carbon neutrality by 2050. In order for the EU as a whole to meet the climate goals of 2030 and 2050, Member States should secure long-term investments in climate and renewable energy, phase out subsidies on fossil fuels, increase green taxation and tighten the EU ETS. One important factor in achieving Europe’s net-zero emission goal by 2050 is that green recovery principles were codified in EU’s comprehensive economic stimulus package, as well as in the long-term budget through scaled-up climate investments. The rescue and recovery packages by Member States far exceed the size of EU’s Next Generation recovery fund. Furthermore, when state aid rules are relaxed such as during the pandemic, there is a risk that

58

K. BÄCKSTRAND

investments in fossil fuel energy are increased. Nevertheless, EU is a global leader in the green recovery as key Member States devote up to 40 percent of the recovery to investment in climate and clean energy systems. The Next Generation package and EU’s long-term budget require at least 30 percent of the recovery to be allocated to climate and renewable energy measures. While France and Austria had environmental conditions for receiving funding, such as demanding that aviation phase-out short-distance flight while the other Member States did not impose climate requirements in its national rescue packages for the aviation industry. The Next Generation EU is directed to the most fossil fuel dependent regions where jobs are at stake in the high emission carbon industry. To reduce the risk of conflict and polarisation, the Just Transition Fund is set up to compensate for rising unemployment as fossil fuels are phased out. The election of Joe Biden as US president in 2020 has brought the US to multilateral negotiations on climate, environment and sustainable development. Biden’s climate plan to make US climate neutral by 2050 has energised global climate diplomacy and strengthened transatlantic cooperation and foreign policy on the environment, climate, and renewable energy. How can the green recovery strengthen decarbonisation and the climate transition and vice versa? The chapter ends with some recommendations.

How Can EU Accelerate Its Green Recovery Towards a Climate-Neutral Union 2050? What should the EU—both its institutions and Member States—do to accelerate the transformation to a resilient, climate-neutral Union and to promote a green recovery? • Use the coronavirus pandemic as a window of opportunity to accelerate the green transition to climate-neutral society: The global reduction CO2 emissions of 5–6 percent as a result of the pandemic will not be permanent. The EU and its Member States should support a climate-friendly recovery with measures such as phasing out fossil fuels, investing in renewable energy, investing in railways, fossil-free transports, reforming the agricultural sector, and stimulating green jobs.

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

59

• Strengthen the transition to carbon neutrality by systemic, integrative, cross-sectoral policies for a societal transformation to sustainability: EU policies should cut across multiple policy areas and sectors (agriculture, energy, industry, and transport) and integrate ecological, economic, and social sustainability to achieve the system-wide societal transformation to a decarbonisation, circular economy and green industrialisation. • Use the green recovery to support decarbonisation: Direct climate investments to support economic recovery and job creation; ensure that the stimulus packages do not lead to ‘carbon-lock-in’ increasing climate risks; strengthen incentives to reduce emissions through carbon taxation; strengthen justice and fairness as criteria to allocate funds to the most affected regions. • Increase accountability and transparency of the Covid-19 stimulus packages: Monitor, evaluate, and verify whether EU and the Member States’ recovery packages deliver in terms of climate and energy goals, for example by increasing the share of renewable energy. EU’s citizens should have insight into compliance with EU’s rules that 30 percent of total funds are directed to climate and clean energy investment. • Reduce the negative distributional consequences of the COVID-19 crisis and the climate transition: A key prerequisite for handling conflicts related to increased unemployment in Europe as a result of the Covid-19 pandemic is to combine budget stimulus with efforts for decarbonisation that promote social justice and green jobs. Government regulation and efforts to get the economy going and save jobs should be combined with long-term climate investments. • Secure public support and legitimacy: Build broad coalitions for sustainability transformation to carbon neutrality with companies, trade unions, and civil society in line with the ideas of the European Climate Pact, in which EU citizens are invited as stakeholders. • Ensure just transition to a carbon–neutral EU : Strengthen support for the regions, sectors, and Member States in the EU that depend on fossil fuels and compensate the groups that suffer losses from the phasing out of fossil fuels. Pan-European solidarity and the collective goal of a carbon–neutral Europe are more important than individual negotiating positions and national budgets. If combined, these measures can promote EU’s decarbonisation and green recovery, as well as the achievement of the SDGs in the 2030 Agenda.

60

K. BÄCKSTRAND

References Bäckstrand, K., & Elgström, O. (2013). The EU’s role in climate change negotiations: From leader to leadiator. Journal of European Public Policy, 20(10), 1369–1386. Bäckstrand, K., Kuyper, J. W., Linnér, B.-O., & Lövbrand, E. (2017). Non-state actors in global climate governance: From Copenhagen to Paris and beyond. Environmental Politics, 26(4), 561–579. Bloomfield, J., & Steward, F. (2020). The politics of the green new deal. Political Quarterly, 9(84), 770–779. ˇ Cavoški, A. (2020). An ambitious and climate-focused Commission agenda for post COVID-19. Environmental Politics, 29(6), 1112–1117. Delbeke, J., & Vis, P. (2015). EU climate policy explained. Routledge. Delbeke, J., & Vis, P. (2019). Towards a climate-neutral Europe: Curbing the trend. Routledge. Dreger, J. (2014). The European Commission’s energy and climate policy: A climate for expertise? Palgrave Macmillan. Dupont, C. (2016). Climate policy integration into EU energy policy: Progress and prospects. Routledge. Dupont, C., & Oberthür, S. (2014). Decarbonization in the European Union: Internal policies and external strategies. Palgrave Macmillan. Dupont, C., Oberthür, S., & von Homeyer, I. (2020). The Covid-19 crisis: A critical juncture for EU climate policy development? Journal of European Integration, 42(8), 1095–1110. EEA. (2020). Trends and projections in Europe 2020: Tracking progress towards Europe’s climate and energy targets (EEA Report No. 13/2020). European Environment Agency. EEA. (2021). Trends and projections in Europe. EEA Report 2031. Copenhagen: EEA EU. (2021). European climate law ((EU) 2021/1119). European Commission. (2019). The European Green Deal. COM(2019) 640. Gheuens, J., & Oberthür, S. (2021). EU climate and energy policy: How myopic is it? Politics and Governance, 9(3), 337–347. IPCC. (2021). Climate change 2021: The physical science basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Jänicke, M., & Wurzel, R. (2019). Leadership and lesson-drawing in the European Union’s multilevel climate governance system. Environmental Politics, 28(1), 22–42. Jordan, A., Huitema, D., van Asselt, H., & Forster, J. (Eds.). (2018). Governing climate change: Polycentricity in action? Cambridge University Press. Jordan, A., Huitema, D., van Asselt, H., Rayner, T., & Berkhout, F. (2010). Climate change policy in the European Union. Cambridge University Press.

3

TOWARDS A CLIMATE-NEUTRAL UNION BY 2050? …

61

Kulovesi, K., & Oberthür, S. (2020). Assessing the EU’s 2030 climate and energy policy framework: Incremental change toward radical transformation? Review of European, Comparative and International Environmental Law, 29(2), 151–166. Oberthür, S. (2016). Where to go from Paris? The European Union in climate geopolitics. Global Affairs, 2(2), 199–130. Oberthür, S. (2019). Hard or soft governance? The EU’s climate and energy policy framework for 2030. Politics and Governance, 7 (1), 17–27. Oberthür, S., & Dupont, C. (2021) The European Union’s international climate leadership: Towards a grand climate strategy?, Journal of European Public Policy, 28(7), 1095–1114. https://doi.org/10.1080/13501763.2021. 1918218 Oberthür, S., & Groen, L. (2018). Explaining goal achievement in international negotiations: The EU and the Paris Agreement on climate change. Journal of European Public Policy, 25(5), 708–727. Parker, C., & Karlsson, C. (2010). Climate change and the European Union’s leadership moment: An inconvenient truth? Journal of Common Market Studies, 48(4), 923–943. Parker, C., Karlsson, C., & Hjerpe, M. (2017). Assessing the European Union’s global climate change leadership: From Copenhagen to the Paris agreement. Journal of European Integration, 39(2), 239–252. Rosamond, J., & Dupont, C. (2021). The European Council, the Council and the European Green Deal. Politics and Governance, 9(3), 348–359. Skjaerseth, J. B. (2021). Towards a European Green Deal: The evolution of EU climate and energy mixes. International Environmental Agreement, 21, 25–41. Torney, D. (2015). European climate leadership in question. MIT Press. UNEP. (2021a). Emission Gap Report 2021: The heat is still on—A world of climate promises not yet delivered. UNEP. UNEP. (2021b). Are we building back better? Evidence from 2020 and pathways to inclusive green recovery spending. UNEP. UNFCCC. (2021). Nationally Determined Contributions Under the Paris Agreement. Revised Synthesis Report by the Secretariat. Advance version. FCCC/PA/CMA/2021/8.Rev 1. UNFCCC. Wurzel, R., Connelly, J., & Liefferink, D. (2017). The European Union in international climate change politics: Still taking lead? Routledge.

CHAPTER 4

Legal Preconditions for an Environmentally Sustainable European Union David Langlet

It is almost a truism to say that the state of the environment is one of the greatest challenges facing the European Union and humanity at large in the twenty-first century. Admittedly, there have been some positive developments since environmental issues gained prominence in the public debate in the 1960s and 1970s. The emissions of certain harmful substances have decreased, and the populations of some threatened species have recovered. At the same time, we have realized that humans impact the climate on such a scale that we may soon have altered the conditions for ourselves and other species in profound ways and for the foreseeable future. We are also in the midst of a mass extinction of species, the rate of which is only comparable to the consequences of large meteorite impacts.

The original version of this chapter was previously published non-open access. A Correction to this chapter is available at https://doi.org/10.1007/978-3-03093165-0_12 D. Langlet (B) Department of Law, Uppsala University, Uppsala, Sweden e-mail: [email protected] © The Author(s) 2022, corrected publication 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_4

63

64

D. LANGLET

The concept of the ‘Anthropocene’ (from Greek antropo, approximately ‘that has to do with humans’) is being established as a term for the current geological age, reminding us that we are living in a time when a single species, i.e. Homo sapiens, is transforming the planet’s fundamental physical processes in unprecedented ways. Change as such is neither new nor avoidable; all natural systems change with time. But the speed at which change is currently happening is dramatic. Some of the processes unfolding today may rapidly transform large ecosystems, other natural systems or the planet as a whole into new states which may be significantly less conducive to human society than the fairly stable conditions that have prevailed for the last 10 millennia. As biological beings, we are inescapably dependent on the planet’s physical conditions and our societies can be viewed as parts of complex social-ecological systems that both form and are formed by the physical environment in which we live. Although there are still people who experience few consequences of environmental change in their daily lives, there are clear signs that the apparent stability is illusory. Among these signs are dramatically declining numbers of pollinating insects in many regions, increasingly intensive heatwaves and floods, and a gradual shift of the habitats of many species as a consequence of a changing climate. One might reasonably assume that the European Union—a project comprised of far-reaching political and legal cooperation and involving influential actors in the form of rich and technologically advanced States over a considerable geographical area—would be well placed to contribute to the handling of environmental challenges. Compared to individual States, the EU has obvious advantages in this regard. One advantage has to do with the typically transboundary nature of environmental problems; taking measures within one country alone is usually not sufficient to protect even that country from negative impacts. Politically and legally coordinated measures within the EU can also reduce costs for individual countries, e.g. by reducing the threat of industries relocating to avoid meeting higher environmental requirements. Compared to other forms of international cooperation, the EU is also well equipped in terms of institutions and processes for joint decision-making to agree on and implement common environmental policies. The EU has a long history of environmental policymaking, reflected not least in the environmental action programmes adopted since 1973. Even before the EU obtained formal competence to legislate on environmental matters in 1987, several legal acts were adopted that can be described as environmental law, in particular ones focusing on hazardous substances. Since the end of the 1980s, there has been a virtual avalanche

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

65

of environmental legislation. Among the most well-known products of this development is Natura 2000, a network of protected habitats; the so-called water framework directive (2000/60/EC), which has led to farreaching reforms of how water is managed in several Member States; and the cap and trade system for emission rights, the EU ETS. Despite these developments, the European Environmental Agency (2019) has concluded that Europe at the beginning of the 2020s is facing greater and more pressing environmental challenges than ever before. In its 2019 communication on ‘The European Green Deal’, the European Commission (‘the Commission’) identifies tackling climate and environmental-related challenges as the current generation’s ‘defining task’ (Commission, 2019; On the ‘Green Deal’, see also the chapter by Bäckstrand). A recurring theme in the green deal is resilience, in particular resilience to climate and environmental risks. Such resilience is seen as a way to prevent climate and environmental challenges from becoming sources of conflict, food insecurity, and forced migration. Environmental resilience is thus a precondition for an ecologically, socially and economically sustainable Europe. Against this background it is pertinent to ask how EU law has responded to the growing recognition of the profound effects that human society, including the EU, has on natural systems and processes, as well as how dependent we are on such systems. More specifically, this chapter aims to shed some light on the potential of EU legal instruments and processes to achieve and maintain environmental sustainability, and thereby sustainability in a wider sense too, amid such rapid change and major challenges. As instruments of analysis will be used some factors that are often identified as key to sustainable management of complex social-ecological systems: • knowledge about the state of the environment and how it is affected by human activities; • relevant objectives and targets linked to specific measures; • ensuring that measures relate to ecologically and socially relevant scales, including ecosystems; • and adaptivity in light of changing circumstances and new knowledge (Engler, 2015; Grumbine, 1994; Long et al., 2015).

66

D. LANGLET

Such big questions can obviously be addressed in different ways and seldom have clear-cut answers. Here a legal systems perspective is applied. The aim is not to assess the adequacy or effectiveness of specific rules or pieces of law. What is discussed is rather the extent to which relevant EU legal structures have certain features that are deemed important for sustainable environmental management. Examples are also provided of strengths and weaknesses relating to the ability to manage new circumstances, new knowledge, or new challenges. That said, the actual implementation of environmental policy objectives requires many other features from legal and administrative systems, not least legitimacy and public acceptance, as well as financial and human resources, which are not discussed here. It is also important to note that an analysis of the resilience of the legal system as a whole is not intended (cf. Ruhl et al., 2021). In the following, a short introduction is given to the EU as a legal entity followed by a discussion of some core features of theories on ecosystem-based management and so-called resilience theory, which provide the basis for the analysis that follows. The development of EU environmental legislation is then briefly outlined, with a focus on the increasing complexity of both the challenges that EU law tries to address and the regulatory instruments employed. Thereafter follows a discussion of the legal instruments used by the EU in light of the theories introduced. This includes looking at examples of how EU law deals with the need for knowledge, objectives, relevant scales, and adaptivity.

Briefly on the EU as a Legal Structure What makes the EU so unique, compared to most other forms of cooperation between States, is that EU Member States, through the so-called basic treaties, transfer decision-making power to the EU to be exercised jointly through the Union’s institutions. More specifically, the Council of the European Union (‘the Council’) and the European Parliament adopts, based on proposals from the Commission, legal acts within the policy areas where the Member States have transferred decision-making power. Over the years, the EU has been granted competence to legislate in numerous areas. It is also significant that in many areas, including the environment and the functioning of the EU’s internal market, legal acts can normally be adopted by a qualified majority of Member States,

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

67

meaning that no single State can block new legislation due to a specific national interest. The EU legislator primarily has two kinds of legal instruments at its disposal: regulations and directives. While regulations are to be directly applied as they are by courts and public authorities in the Member States, directives describe results to be achieved by legal means. The detail as to how that is to be done is for each Member State to decide. The Court of Justice of the European Union (‘the CJEU’) has, however, developed a set of criteria for the correct implementation of directives within the Member States’ legal orders. Among these is that the national law must enable physical and legal persons to be aware of and enforce any rights that they enjoy through a directive (Langlet & Mahmoudi, 2016). Despite these criteria, the requirements of directives can be implemented in national legal orders in a way that is more sensitive to national conditions, whereas regulations establish a more uniform state of law. Also with regulations, however, different legal traditions, administrative systems, etc. bring inevitable variation in how the law is construed and applied. The EU can be partly seen as a mechanism for producing common legislation, promoting consistent interpretation and ensuring that the law is implemented and made effective in the Member States. The concrete operationalization of legal rules and the control of how private parties comply with them are, however, essentially left to the individual Member States. The same largely applies for the funding of the legal and administrative structures necessary to make the law operational. In practice, there are quite significant differences across and sometimes even within Member States in terms of how common EU law provisions are construed, implemented, and complied with. Nonetheless, compared to other forms of international cooperation, the EU is unique in its intensity of legal harmonization, not least within areas such as agriculture and fisheries, trade and environmental protection.

Social-Ecological Systems One crucial realization, which has become increasingly influential in recent decades, is that individual ecosystems as well as the planet as a whole are far more complex and unpredictable than previously assumed. Ecosystems are affected by many variables which can interact with or counteract each other. There are numerous processes that connect

68

D. LANGLET

different parts of the planet, including the oceans and the atmosphere, land and sea, or a river and the surrounding landscape. The systems also tend to have the potential to shift between different semi-stable states, sometimes quickly and dramatically, and sometimes over vast timescales that make the change hard to discern. Another important recognition is that human societies and the natural environment are intimately interconnected and can seldom be meaningfully separated (Berkes et al., 1998). The ‘natural’ environment is affected by human activities all over the planet. And human societies are inevitably affected by major changes in ecosystems and natural processes. This has led to the recognition that there is not an environment ‘out there’ that humans can degrade or preserve. Rather, environmental and social systems are interlinked in so many ways that managing the environment and natural resources requires us to define what state of the environment we want (Murawski, 2007). Clearly, such a view is open to criticism from the perspective that the environment has an intrinsic value that should be respected. In practical terms, however, it is hard to escape the fact that humans have to define the environmental state through which this intrinsic value is best realized. The analysis undertaken in this chapter builds on principles from socalled ecosystem-based management (EBM) and resilience theory. Both originate from the natural sciences, primarily biology, but have developed to comprise principles for how human society can relate to a complex, sensitive, and changing environment that we are both part of and dependent on. EBM can take many forms but has been described as ‘a strategy for the integrated management of land, water and living resources that promotes conservation and sustainable use in an equitable way’ (CBD, 2000). Resilience theory is essentially concerned with an ecological or social-ecological system’s capacity to deal with disturbance without switching to a fundamentally different state (Carpenter et al., 2001), such as a forest landscape that turns into savannah due to logging, grazing, reduced precipitation, soil erosion, or similar factors. Both EBM and resilience theory tend to stress that human interaction with the environment is a continuous process and that there are seldom obvious or simple solutions to complex governance challenges. It is rather a matter of balancing interests and testing out different ways to protect, manage and use the environment, although without transgressing boundaries that would shift the social-ecological system into new and significantly less beneficial states. As will be shown, many of these

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

69

ideas are reflected in EU environmental policy, particularly over the last two decades. It is important to note, though, that the aim here is not to assess relevant EU law against the full concepts of EBM or resilience theory but only in relation to the specific factors discussed above.

The Development of Common Environmental Legislation As mentioned above, a first environmental action programme was adopted by (what is now) the EU in 1979. It set out basic principles for a common environmental policy. These principles included: that the environmental impacts of planned projects must be assessed; that the costs of preventing and repairing environmental damage shall be included in consumer prices; and that environmental information should be publicly available. Today, some 50 years later, these principles are well-established in the form of environmental impact assessment requirements, the polluter pays principle, and the rights to access environmental information (Langlet & Mahmoudi, 2016). Beyond the principles, the programme’s main focus was on reducing emissions of known pollutants. New action programmes were adopted regularly. The third programme, from 1983, raised the need to integrate environmental considerations into other policy areas, something that from 1987 was required by the revised Treaty of Rome. The fourth programme, from 1987, adopted a more trans-sectoral approach highlighting the need to ensure that pollution is not merely transferred from one environmental sector (e.g. air) to another (e.g. water) in response to regulatory measures. Through the fifth programme from 1993, entitled ‘Towards Sustainability’, environmental sustainability in a broader sense came to the fore of the EU’s environmental policy. To the previous focus on particular activities and substances were added calls for more sustainable consumption and production, decreased waste generation and more efficient use of natural resources. The programme emphasized the need for behavioural change across society and introduced market-based instruments and financial support schemes as important additions to traditional regulatory approaches. The sixth action programme, covering the years 2002 to 2012, aimed to decouple economic growth from resource use and waste generation so that the economy should be able to grow without increasing use of natural resources and energy from unsustainable sources. Both the fifth and sixth programmes had better

70

D. LANGLET

implementation and monitoring of environmental policy measures as core themes. The action programme covering 2013–2020 is called ‘Living well, within the limits of our planet’ thereby emphasizing the need for sustainability in a broad sense. All of society must adapt for us not to cause changes to the climate and other natural processes that undermine the preconditions for society itself. That the EU must keep its use of natural resources within sustainable planetary boundaries is also a basis for the Circular Economy Action Plan adopted in 2020 (Commission, 2020a) as a core element of the European Green Deal. The eighth programme, which was still being negotiated in the fall of 2021, should be an instrument for implementing the environmental objectives of the European Green Deal and accelerate the EU’s transition into a climate-neutral circular economy. The action programmes have tended to be fairly responsive to new scientific knowledge and progressive environmental ideas. However, developing legislation and other measures matching the insights and objectives formulated in the programmes has often been a slower process. Although the need to tackle trans-sectoral environmental problems and prevent emissions from being transferred from one environmental sector to another was acknowledged in the mid-80s, it was only in 1996 that a directive (96/61/EC) on integrated pollution prevention and control was adopted and only in 2000 was there a coordinated legal approach to protecting inland and coastal waters (directive 2000/60/EC). It took eight more years for a correspondingly integrated approach for the protection of marine waters to be adopted (directive 2008/56/EC). Unsurprisingly, it is often easier to put in place relatively simpler forms of regulation, such as restricting the use of substances with known risks, compared to tackling more complex challenges that require reform of existing management structures. Yet, it is not true to say that there would have been a linear regulatory development, with ‘simple’ end of pipe measures being replaced by more sophisticated, integrated and transsectoral measures. The need to formulate environmental quality targets and not just focus on specific emission sources was recognized already in the first action programmes and also clearly influenced the air quality legislation adopted in the 1980s, even though it took longer for such an approach to be applied more widely. The advent of integrated regulatory measures and quality standards has also not meant that technical requirements and emission limits for specific activities are no longer important

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

71

regulatory instruments (Lee, 2014). However, it is clear that the overall regulatory approach has moved from focusing on specific substances towards trying to address more complex phenomena and using a broader set of policy instruments.

Knowledge as a Precondition Knowledge about the state of the environment, the functioning of important natural processes and how these are affected by human activities is decisive for the ability to make relevant decisions contributing to long-term sustainability. EU law has several mechanisms for generating knowledge and making it available to public agencies and the general public. For instance, the obligation to carry out an environmental impact assessment (EIA) before the commencement of larger projects, set out in the EIA directive (now 2011/92/EU), is an important source of knowledge of the expected effects of planned activities. Projects likely to have significant effects on the environment must be subject to a requirement for development consent and an EIA must be performed before such consent is granted. The EIA must cover direct and indirect effects on human beings, fauna and flora, soil, water, air, climate and the landscape, material assets, and cultural heritage, as well as the interaction between these factors. Since 2001, there is also a directive (2001/42/EC) requiring an environmental assessment to be carried out before the adoption of many plans and programmes with expected impacts on the environment. Something that is indispensable for integrated management of ecosystems and natural processes that EIAs do not generate is a comprehensive view of the state of the environment over larger geographical areas or longer time periods. To achieve that, systematic environmental monitoring is needed. The extent to which such monitoring is prescribed or specified in EU law varies between policy areas. An area with a strong focus on generating and reporting environmental data is water management. The EU’s water framework directive (2000/60/EC), WFD, requires Member States to establish monitoring programmes that enable a coherent and comprehensive overview of water status within each river basin district. For surface waters, the programmes must cover the ecological and chemical status and ecological potential of the waters. Monitoring and analysis are to be carried out in accordance with standardized technical criteria (directive 2009/90/EC). In a similar

72

D. LANGLET

fashion, the Marine Strategy Framework Directive (2008/56/EC), MSFD, requires Member States to have monitoring programmes for ongoing assessment of the status of their marine waters. Consistency of methods and standards must also be pursued here to facilitate comparability of monitoring results. In practice, however, it is a challenge to achieve uniformity for sea areas that are shared by several States, all of which implement the directive in slightly different ways. Although there is always room for improvement, the WFD and the MSFD are advanced in terms of their structures for monitoring and integration of new knowledge (Soininen & Platjouw, 2018). The rules on this have also been developed and tightened since the directives were adopted. As for species and habitats, it has been required by the habitats directive (92/43/EEC) since the early 1990s that Member States undertake surveillance of the conservation status of the natural habitats and species covered. This surveillance generates important data, but the level of standardization is low, and the monitoring programmes diverge between Member States. While some have established specific programmes for the directive, others rely on data from various pre-existing programmes. The Commission has identified the lack of a comprehensive governance framework to steer the implementation of biodiversity commitments as a significant problem and plans to develop such a framework, comprising monitoring and review mechanisms with a clear set of agreed indicators (Commission, 2020b). EU chemicals law and particularly the so-called Reach regulation (EC 1907/2006) has the generation of new knowledge as a core element. When adopted in 2006, after years of heated debate, the main purpose of Reach was to overcome the major lack of knowledge about environmental and health effects of thousands of chemical substances, especially those put on the market before the 1980s. Whether the demands placed on the chemicals industry and the pace of their implementation have been sufficient are open to debate, but from an international perspective the EU can be seen as a model for how to deal with these problems (Biedenkopf, 2015). By making the continued presence of chemical substances on the EU market contingent on manufacturers and importers gathering knowledge, carrying out tests and publicizing the results, Reach has prompted both the extensive compilation of existing knowledge and the generation of new data. A remaining challenge is the limited knowledge about the effects of being exposed to multiple chemicals.

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

73

While the safety of chemicals is usually assessed through the evaluation of single substances, in reality many different chemicals tend to be present at the same time, for example in water bodies or in human bodies. There is mounting evidence of significant combination effects meaning that exposure to several substances can have negative effects even when the individual substances occur in quantities that are deemed safe. Generating knowledge about such combination effects presents large practical and methodological challenges but is seen by the Commission as something that must be better integrated into EU chemicals legislation (Commission, 2020c). Once environmental data has been generated, EU law has rules on how it should be technically ‘packaged’ and on how the public should be given access. Technical requirements are found in the so-called INSPIRE directive (2007/2/EC) on infrastructure for spatial information. It aims to ensure that various forms of spatial data, including environmental data, become easier to find and use. This should be achieved, for example, through increased standardization and generation of meta data, i.e. information that describes large data sets, and data services to facilitate the use and combination of data from different sources. The general public also has a right to access environmental information that is held by or for public authorities. According to the directive on public access to environmental information (2003/4/EC), such information should be made available to the public on request. Environmental information is defined broadly. Although access can be refused on various grounds, several such grounds, including confidentiality of commercial or industrial information, do not apply if the request relates to information on emissions into the environment. Ultimately, access to relevant and qualitative environmental data is largely dependent on the knowledge and resources available ‘in the field’ in each Member State and geographical area. A suitable number of measuring points and sufficiently long time series are often the only things that can provide a good knowledge basis for environmental regulation and management. At the same time, it is important to recognize that knowledge about complex ecosystems and social-ecological systems will never be complete and that it is necessary to be pragmatic and make best use of the knowledge available at any given time. Environmental management must have the capacity to integrate new knowledge and translate new data into new or revised measures. Successful management also requires an inclusive approach to what data and what knowledge

74

D. LANGLET

are relevant. A strict focus on natural science and quantitative data will seldom lead to measures that are sustainable in the long term. Economic and social dimensions as well as people’s expectations and beliefs must be considered (Link et al., 2017). Different kinds of data, such as measurement data from the environment, data on human activities that affect the environment and human preferences, must be able to be integrated and considered together.

Targets Linked to Measures Objectives and targets can be seen as providing direction and as helping to navigate and prioritize between alternative courses of action. When realistic and sufficiently specific, they can also be used to assess whether what was intended has been achieved. They can differ in nature and have various, more specific functions. Here, it suffices to distinguish between more general, broad or visionary objectives and more specific and concrete targets. Within the EU, the first category tends to have the primary function of raising an issue or problem and stressing its significance compared to other issues and competing priorities. Such objectives also justify or motivate the elaboration of more specific, measurable targets in relation to which legislative or other measures can be developed and evaluated. According to what is now Article 192 of the Treaty on the Functioning of the European Union (TFEU), EU policy on the environment, and hence its environmental legislation, should contribute to conserving, protecting and improving the quality of the environment, contributing towards protecting human health, to prudent and rational utilization of natural resources and to promoting international measures to deal with regional or worldwide environmental problems. Environmental policy measures shall aim at a high level of protection and be based on certain principles, including the precautionary principle, and the principles that preventive action should be taken and that the polluter should pay. Unsurprisingly, the CJEU has found the relevant article to be ‘confined to defining the general environmental objectives’ of the EU, while leaving the Council and the European Parliament to decide what action is to be taken in pursuit of these objectives (Court of Justice of the European Union, 2010, para. 45). Since 1987 the Commission is required to take as a base for its legislative proposals relating to the establishment and functioning of the internal

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

75

market a high level of protection of the environment when relevant (now TFEU, Art. 114). Various kinds of products standards, such as allowable emissions from vehicles, are normally adopted on the legal basis for the internal market. There is, however, no guarantee that the proposals tabled by the Commission will not be revised in the legislative process in a way that lowers the level of environmental protection. A high level of protection and improvement of the quality of the environment is also part of the sustainable development of Europe that the EU is to work for (Treaty on European Union, Art. 3). It is, however, hard to see that this very general statement would have much steering effect. Somewhat more specific objectives can be found in the seventh environmental action programme, ‘Living well, within the limits of our planet’. This programme lays down a number of priority objectives, including to protect, conserve and enhance the Union’s natural capital; to safeguard its citizens from environment-related pressures and risks to health and well-being, and to secure investment for environment and climate policy. Interestingly, it is also the first programme to contain a long-term vision: In 2050, we live well, within the planet’s ecological limits. Our prosperity and healthy environment stem from an innovative, circular economy where nothing is wasted and where natural resources are managed sustainably, and biodiversity is protected, valued and restored in ways that enhance our society’s resilience. Our low-carbon growth has long been decoupled from resource use, setting the pace for a safe and sustainable global society. (Decision No. 1386/2013/EU, Annex, para. 1)

Although still rather abstract, this vision clearly links and gives weight to important ideas and principles elaborated in discourses on socialecological sustainability. Particularly significant is the use of the concept of planetary boundaries or limits, developed by Rockström and others (2009), as a way to illustrate how society has to adjust in order to keep within safe ecological and hence social boundaries. Obviously, long-term visions like this must be linked to specific targets and concrete measures for various sub-objectives. Climate policy is one area where the EU has long had relatively clear targets. Since just before the turn of the millennium there has been both the general objective to reduce overall emissions of greenhouse gases from the EU, and specific

76

D. LANGLET

commitments for each Member State. In 2019 the Council and the European Parliament agreed on a target of net climate neutrality by 2050 at the latest. In 2021 this was signed into law as part of the ‘European Climate Law’ which requires the EU to reduce emissions to net zero by 2050 and aim to achieve negative emissions thereafter (Regulation (EU) 2021/1119). Starting in 2023, and every five years thereafter, the Commission is to assess the collective progress made by all Member States towards achieving climate neutrality. The law also strengthened previously adopted targets for 2030 to require at least a 55 percent reduction of greenhouse gas emissions by 2030 compared to 1990, including emissions and removals. Detailed emission reduction targets have been set for specific sectors. The so-called trading sector, i.e. around 10,000 installations in the power sector and manufacturing industry, as well as airlines operating between the members of the European Economic Area, that are covered by the EU ETS are to decrease their total emissions of greenhouse gases by 43 percent by 2030 compared to 2005 levels. However, the Commission has subsequently proposed to increase this target to 61 percent in light of the agreed economy-wide target of 55 percent reduction (Commission, 2021). There are also targets for renewable energy. How the targets are to be achieved differs between policy areas. The general emissions targets for each Member State, which correspond to the total emissions from all sectors, are to be achieved partly through joint EU measures like the EU ETS, and partly through measures adopted by each State individually but within common legislative or policy frameworks. Waste is an area with many numerical targets, often even more detailed than in the case of climate policy. Among other things, there are specific targets for recovery and recycling of different kinds of packaging waste, batteries, and electrical and electronic equipment (Langlet & Mahmoudi, 2016). Several waste-related targets are also being reviewed as part of the European Green Deal. Increased resource efficiency and generally decreasing use of natural resources across the economy are issues that have been discussed for some time but it has been hard to agree on specific targets. The 2020 Action Plan for the Circular Economy is also rather short on concrete targets specifying what should characterize a ‘regenerative growth model that gives back to the planet more than it takes’ (Commission, 2020a, sec. 1). The plan is, however, clear about the need for such a transition if the EU is to keep its resource use within planetary boundaries.

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

77

As regards biodiversity, many targets have been adopted in recent decades, but regrettably, few have been met. The EU has had targets for the reduction of biodiversity loss, both for the year 2010 and then for 2020. That the targets have been linked for three decades to comprehensive legal frameworks in the form of the birds and habitats directives, and more recently other EU legislation too, has not sufficed to reverse the negative trend for many species and habitats in the Union. The new EU Biodiversity Strategy for 2030, adopted in 2020, sets out as ‘key commitments’ that at least 30 percent of the EU’s land area and an equal share of its sea area are to be legally protected with integrated ecological corridors. At least a third of the protected areas, including all remaining EU primary and old-growth forests, are to be strictly protected (Commission, 2020b). The strategy also contains some specific targets, including the planting of at least 3 billion additional trees by 2030 and to bring back, by the same year, 10 percent of the agricultural area under socalled high-diversity landscape features, including, inter alia, buffer strips, hedges, non-productive trees, and ponds. The Commission will also put forward a proposal for legally binding EU nature restoration targets to restore degraded ecosystems. Two closely related areas with ambitious but more complex targets are freshwater and marine environmental protection. The WFD has as its overarching objectives to protect and enhance the status of aquatic ecosystems and to promote sustainable water use. A more specific target is that ‘good surface water status’ is to be achieved or preserved in all bodies of surface water, with some exceptions (Art. 4). A similar target applies to groundwater. A body of surface water is deemed to have good status if both its ecological and chemical status are found to be at least ‘good’. What constitutes good ecological status is determined with the use of type-specific reference conditions representing the values of specific quality elements at high ecological status. Good status requires that the biological quality elements for the surface water body type deviate only slightly from those normally associated with the surface water body type under undisturbed conditions (Annex V). The chemical status is subject to a less complicated definition and is considered good if concentrations of pollutants do not exceed environmental quality standards (‘EQS’) established in relevant legislation. The MSFD has a similar system for assessing the state of the environment and establishing environmental targets, in this case with the overall

78

D. LANGLET

objective of achieving ‘good environmental status’ in marine waters (Art. 1). The directive has a broad definition of good environmental status entailing, inter alia, that marine waters ‘provide ecologically diverse and dynamic oceans and seas which are clean, healthy and productive within their intrinsic conditions’, and that the use of the marine environment is ‘at a level that is sustainable, thus safeguarding the potential for uses and activities by current and future generations’ (Art. 3). This objective is to be specified for different marine areas. Using 11 qualitative descriptors, the Member States concerned must establish a number of conditions that characterize good environmental status for each marine region. Given the size of these regions, however, this occurs at a high level of aggregation. There is generally no shortage of environmental objectives and targets in the EU, and many of them are also reasonably clear and linked to different kinds of indicators and timed. In some cases, the complexity of the objectives makes it challenging to achieve comparability across regions and the Member States or clearly determine if they have been met. Some objectives and targets have been criticized as being unrealistic, not least the WFD’s requirement to achieve good surface water status by 2015, or 2027 at the very latest, despite the enormous scale of the measures this would require and the time lags that are often involved when dealing with natural systems (Voulvoulis et al., 2017). The main reasons for failure to fulfil many targets are probably more linked to insufficient legal mechanisms or lack of resources than to the targets themselves. Such deficiencies often reflect limited political support for environmental objectives. But even Member States with high environmental ambitions fail to meet targets, inter alia because other parts of the legal system counteract an effective implementation of environmental policy measures. In the field of biodiversity, a consistent system for monitoring and assessment has long been lacking, but that will hopefully change in accordance with the Commission’s plans. When it comes to resource efficiency and prudent use of natural resources, however, the EU seems to have some way to go before it can agree on clear targets.

Relevant Scales Scale is a broad concept, potentially encompassing many different things. Here it is used to capture the challenge of responding adequately to environmental issues whose causes and effects can be specific to certain places

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

79

or regions but which may also concern countries, continents or even the whole planet. A political and legal entity comprising 27 countries and stretching from the polar regions to the Mediterranean will inevitably find it challenging to devise rules and mechanisms that consider relevant local conditions. Even though there are examples of EU legislation that only applies to specific areas or has different obligations for different parts of the Union, these are exceptions. There are, however, both general legal mechanisms that create room for local variation, and specific legal acts and governance models based on targets and measures being tailored to local conditions. Among the more general mechanisms is the principle of subsidiarity, i.e. that a measure should be taken at the EU level only if its objectives can be better achieved at that level than by the Member States individually (TEU Art. 5.3). In the field of environmental policy, subsidiarity generally has little restraining effect on EU action since the benefits of such action are mostly easily demonstrable. Such benefits either follow from the transboundary causes or effects of environmental problems or from the need to coordinate measures to prevent negative impacts on free movement and competition within the Union. Subsidiarity does, however, serve as a reminder that EU measures must not limit the room for national or local solutions any more than is necessary to achieve the purpose of those measures. In this regard, the use of directives as legislative instruments is important. They enable Member States to achieve common objectives in ways that are considerate of the nature of national legal and administrative structures. This is particularly true for the so-called framework directives that have been used e.g. for water management. An important dimension of scale is how EU law can integrate the management of ecologically and socially linked areas. When the WFD was adopted, it was criticized for drawing an artificial line one nautical mile seaward of the coast—or from the so-called baseline, where that had been drawn further out, e.g. around an archipelago—and not sufficiently considering the sea beyond that line. Through the subsequent adoption of the MSFD, this problem was addressed even though it also gave rise to some coordination issues. Overall, the WFD is characterized by the intention to tailor water management to ecological units and scales, like water bodies and river basins, rather than using pre-existing governance structures. In practice, however, even such ‘natural’ units are defined through an interplay between science and policy (Langlet, 2018).

80

D. LANGLET

The directive on maritime spatial planning (2014/89/EU) is, however, a clear example of how political considerations and resistance towards common rules can trump the interest of social-ecologically sound management. An original proposal for a directive on ocean and coastal planning was turned into legislation that excludes coastal waters—i.e. out to one nautical mile from the baseline—from its remit when those waters fall under a Member State’s town and country planning. This may seem rational, but it comes at great risk of cementing separate and poorly integrated management structures for land and coast on the one hand, and the rest of the sea on the other, despite these being strongly interconnected both ecologically and economically (Langlet & Westholm, 2021). The legal protection of Natura 2000 sites applies to activities outside such sites when an activity can have a significant impact on a site. With time, however, it has become evident that focusing on the protection of designated sites is insufficient. The whole landscape must be compatible with the needs of many species. Not least in a time of climate change, it is crucial that both animals and plants are able to move their habitats as previously suitable areas become inhospitable to them. This requires ecological ‘corridors’, something that can be hard to reconcile with the intense urbanization of large areas or infrastructure carving up the landscape (Wessely et al., 2017). As mentioned above, the Commission has proposed measures aimed at addressing this challenge, at least in part. At a more principal level, there can be conflicts between effectively protecting specific areas and the ability to protect the environment more broadly. In the so-called Weser case (Court of Justice of the European Union, 2015), the CJEU found that the WFD requirements of non-deterioration and of achieving a good surface water status apply in individual permit assessments. This strengthens the effect of these requirements compared to the programmes of measures that are otherwise the main instrument of the WFD. Yet, at the same time, it makes it harder to weigh up different environmental objectives or allow a certain local deterioration caused by an activity that leads to overall decreased environmental pressure. Examples could include a new water treatment plant or a new industry with better environmental performance than existing industries. An obvious scale issue is how the EU can address environmental problems in situations where the Union does not have control over (all of) the activities causing the problem. Climate change is the obvious example,

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

81

but the management of biodiversity is also pertinent. Simply put, the EU has acted in two main ways to try to influence developments beyond its territorial or legal control. One way is to actively participate in the development of international environmental policy, not least international agreements. The EU is party to most relevant international agreements concerning the protection of the environment and management of natural resources and is often seen as a progressive force for stricter commitments and better implementation (Delreux, 2018). Another approach is the EU’s attempts to extend the reach of its own legislation to activities undertaken outside the Union and by non-EU citizens. This has often met with considerable opposition, not least in the field of climate policy (Dobson, 2021). A potentially effective mechanism is to make access to the EU’s large market contingent on compliance with EU environmental standards. It can be a matter of assessing the risks of chemical substances in order to export them to the EU, as required by the Reach regulation, or of sustainability criteria for biofuels that also apply if the fuels were produced outside the EU (Langlet & Mahmoudi, 2016). Another, and controversial, example is regulation 1026/2012 on measures relating to non-sustainable fishing, which allows for import restrictions and the closing of EU harbours to ships from countries considered to allow nonsustainable fishing, also when the fishing occurs in international waters or in such countries’ own waters. The measure in this category that has attracted the most attention is probably the EU’s so far failed attempt to include flights to and from the EU in the EU ETS. When the EU decided that such flights would require emission allowances under the EU ETS, it sparked such strong protests, not least from the US and China, that this measure was effectively mothballed. This category also includes the much-debated proposal to set up a ‘carbon border adjustment mechanism’ to impose a carbon price on imported goods that have not been subject to such pricing in the country of production and which thus may have a competitive advantage over goods produced in the EU. Such a proposal is now part of the European Green Deal (Commission, 2019). Ultimately, it is clear that the EU has limited ability to deal with issues like climate change through unilateral measures. However, one should not underestimate the impacts of a big market or the potential of driving technological development or demonstrating that a transition to more sustainable solutions is economically and socially possible or even preferable. At least in the field of climate policy, the EU outperforms most other regions in this regard, although much remains to be done.

82

D. LANGLET

Adaptivity: A Necessity in a Changing World Adaptivity here means the ability to adjust legislative and other measures in the light of new circumstances or new knowledge. An important feature of EU law in this regard is that legal acts are usually subject to a review or ‘fitness check’ some years after their adoption. For example, the WFD instructs the Commission to review it no more than 19 years after its entry into force and propose any necessary amendments. Such a review, which also comprised some related legal acts, was concluded in 2019. While not resulting in any formal amendments to the directive, it identified deficiencies in the coordination with other legal acts. A similar review of the birds and habitats directives was concluded in 2016. In that case, the review was not required by the directives themselves but was part of the Commission’s so-called ‘better regulation agenda’. Such reviews involve analysis of the legal acts’ effectiveness, relevance and coherence with other relevant legislation. Improved and strengthened legislation can sometimes result from a dramatic event that highlights deficiencies in the existing law. The socalled Seveso directive (now 2012/18/EU), which aims to prevent major accidents involving dangerous substances, was drafted as a reaction to a serious accident in the Italian city of Seveso in 1976 and has since been strengthened after similar accidents on a number of occasions. Even when legislation is subject to review, in practice there is a certain inertia in the system since it can be politically challenging to significantly revise existing rules. When an EU legal act is opened for revision, it is also hard for the Commission as well as for individual Member States to foresee the outcome. There is a risk that political priorities may deliver a result that is worse for the environment, at least in certain respects. In terms of adaptivity of existing legislation, water management is probably the area in which this is most developed. Water management under the WFD is built on recurring, six-yearly cycles of environmental assessment, adoption of quality standards and establishment of programmes of measures. When monitoring data indicate that environmental objectives for a body of water are unlikely to be met, the Member State must investigate the causes, examine relevant permits, and take additional measures as necessary. The MSFD applies a similar management model although with less clearly stated requirements (Soininen & Platjouw, 2018).

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

83

Even when the legislation is designed to enable flexible and knowledgebased management that respects ecological conditions, the actual decision-making may be strongly influenced by other considerations. Under the common fisheries policy (‘CFP’), the Council each year establishes the total allowable catch (‘TAC’) for commercially fished stocks. When making these decisions, it has access to advice from the International Council for the Exploration of the Sea (ICES) as well as the EU’s own Scientific, Technical and Economic Committee for Fisheries. Despite the law (regulation 1380/2013) making clear that fishing activities shall be environmentally sustainable in the long term and that populations of harvested species shall be restored and maintained above levels that can produce the maximum sustainable yield, the Council has a history of setting many TACs well above the recommended levels (Borges, 2018). This is usually due to a desire to protect the employment and profitability of the fishing sector. It is, however, a short-sighted strategy since it tends to lead to stocks yielding much less fish in the long run than would have been possible, or even to stock collapse. Hence, room for adaptivity can be used for other purposes than making decisions based on the best available knowledge. For such a complicated system as EU law to be effective, adaptivity must be combined with coordination and feedback across relevant legal acts and mechanisms. Otherwise, inefficiencies will occur and legislative acts may even counteract each other. There are a number of such feedback mechanisms, e.g. between the WFD and the industrial emissions directive (2010/75/EU). As an example, the latter holds that if an EQS cannot be achieved by using the best available technology, additional measures shall be included in the permit. This links permitting individual installations to acts establishing EQSs. There are, however, also clear deficiencies in the linking of legal acts. As an example, chemicals legislation contains few links to other relevant laws despite clear functional connections. One such link, however, is that the regulation on plant protection products (EC 1107/2009) requires Member States to review authorizations when relevant EQSs of the WFD may not be achieved. Coordination between the CFP and nature conservation legislation has a history of being challenging. For example, even if a Member State finds that it must restrict fishing within or in the vicinity of a marine Natura 2000 site in order to comply with obligations under EU law, it is not competent to take such measures. Any measure that can affect other Member States’ fishing fleets must be taken at EU level (regulation

84

D. LANGLET

1380/2013, Art. 11). This can result in important protective measures being delayed or blocked. Another form of adaptivity becomes important in relation to the use of market mechanisms for environmental purposes, with the EU ETS as the prime example. The idea here is to combine the flexibility of a price, which is essentially a function of supply and demand, with stability in the form of legally determined yearly reductions in the number of emission allowances added to the market. The price signal should ensure that emission reductions happen where they are least costly. For several reasons—not least excessive initial allocation of emission rights and a drop in economic activity following the 2008 financial crisis—the EU ETS has long put a much lower price on emissions than what was foreseen when the system was designed and one that is lower than needed to influence many industries’ investment decisions. To a certain extent, the EU legislator has been forced to allow flexibility, in the form of amendments to the system, to take priority over the legal stability that should characterize a market-based instrument. Despite certain resistance, the EU ETS has been amended repeatedly to protect the system’s functionality. Emission rights have been removed from the market and will only return if demand, and hence price, exceeds a certain level (Verbruggen et al., 2019). In conclusion, there is a range of mechanisms in EU law that facilitate adaptivity. The effect of those mechanisms, however, is often dependent on political will to give priority to ecological sustainability. The number of relevant linkages between different pieces of EU law has grown over time, but there are still challenges in getting legal acts relating to the same issue to work together.

From Legal Preconditions to Actual Sustainability EU environmental law has developed and expanded enormously since the 1970s. Today, the EU subscribes to the idea of ecological boundaries to which society must adjust. Not necessarily because such boundaries are ‘natural’ but because exceeding them entails serious risk of undermining the preconditions for a prosperous and sustainable society. There are many mechanisms in place to generate knowledge and to translate objectives, of varying specificity and clarity, into action. However, in terms of both knowledge and actual measures, the EU is highly dependent on the financial, human and institutional resources available at the national and local level in the Member States.

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

85

In some areas, such as consumption and resource use, there is a clear need for more specific targets and concrete measures. In the case of biodiversity, both targets and monitoring have tended to be too general or blunt, but this could improve if the Commission’s plans are realized. It is also important that room for adaptivity is not used in a way that counteracts effective environmental protection by habitually prioritizing other objectives. A recurring theme and legal requirement in EU environmental policy is that environmental considerations must be integrated into other policy areas. Much remains to be done, however, in terms of ensuring coherence and relevant linkages between different pieces of law. It is particularly important that environmental considerations are effectively integrated into agriculture and fisheries policy. It is, for example, unrealistic to protect biodiversity merely by protecting specific species or habitats. Also, ‘ordinary’ forests and agricultural areas, as well as green areas in cities, must be able to function as habitats for many species, not least now with the natural range of many species shifting. Policy integration must also go far beyond the areas that have traditionally been seen as relevant for environmental protection and comprise inter alia taxes, spatial planning, and the rules on competition and financial markets. Fully integrating social dimensions into environmental law also remains a challenge (Langlet & Westholm, 2021) but is inevitable if the idea of governing social-ecological systems is to be realized. As the Commission points out in its Green Deal, society must change profoundly if it is to be resilient in the face of the great challenges of the twenty-first century (Commission, 2019). The weakest point in the EU’s attempts to protect and sustainably manage the environment lies probably not in the rules as such but rather in their implementation. To some extent, complicated rules which allow for many interpretations, or which are not well adapted to local conditions, can contribute to the problem, but a lack of political support, ignorance, and insufficient resources are more significant. Sometimes, demands for stability and rules on the protection of investments and ownership can counteract necessary adjustments. At the same time, excessive flexibility must not be allowed to harm trust in the regulatory system by making it seem unpredictable and impossible to adjust to in a rational manner. The need for better compliance has been raised by the Commission many times. One would hope that growing recognition of society’s

86

D. LANGLET

vulnerability will prompt better implementation of environmental law. To that end, it is vital to identify and build on positive synergies, such as the fact that nature management that protects biodiversity often also results in higher sequestration of carbon dioxide, thus counteracting climate change. Or that more ecosystem-based management can generate jobs for people without extensive education, thus linking ecological and social sustainability.

References Berkes, F., Folke, C., & Colding, J. (1998). Linking social and ecological systems: Management practices and social mechanisms for building resilience. Cambridge University Press. Biedenkopf, K. (2015). EU chemicals regulation: Extending its experimentalist REACH. In J. Zeitlin (Ed.), Extending experimentalist governance? The European Union and transnational regulation (pp. 107–136). Oxford University Press. Borges, L. (2018). Setting of total allowable catches in the 2013 EU common fisheries policy reform: Possible impacts. Marine Policy, 91, 97–103. Carpenter, S., Walker, B., Anderies, J. M., & Abel, N. (2001). From metaphor to measurement: Resilience of what to what? Ecosystems, 4, 765–781. CBD Conference of the Parties. (2000, May 26). Decision V/6 “ecosystem approach”. Nairobi. Court of Justice of the European Union. (2010). Case C-378/08, Raffinerie Mediterranee. ECLI:EU:C:2010:126. Court of Justice of the European Union. (2015). Case C-461/13, Bund für Umwelt und Naturschutz Deutschland. ECLI:EU:C:2015:433. Delreux, T. (2018). Multilateral environmental agreements: A key instrument of global environmental governance. In C. Adelle, K. Biedenkopf, & D. Torney (Eds.), European Union external environmental policy: Rules, regulation and governance beyond borders (pp. 19–38). Palgrave Macmillan. Dobson, N. L. (2021). Extraterritoriality and climate change jurisdiction: Exploring EU climate protection under international law. Hart Publishing. Engler, C. (2015). Beyond rhetoric: Navigating the conceptual tangle towards effective implementation of the ecosystem approach to oceans management. Environmental Reviews, 23(3), 288–320. European Commission. (2019, December 11). Communication from the Commission: The European Green Deal. COM (2019) 640 final. European Commission. (2020a, March 11). Communication from the Commission: A new Circular Economy Action Plan for a cleaner and more competitive Europe. COM (2020) 98 final.

4

LEGAL PRECONDITIONS FOR AN ENVIRONMENTALLY SUSTAINABLE …

87

European Commission. (2020b, May 20). Communication from the Commission: EU Biodiversity Strategy for 2030 Bringing nature back into our lives. COM (2020) 380 final. European Commission. (2020c, October 14). Communication from the Commission: Chemicals Strategy for Sustainability Towards a Toxic-Free Environment. COM (2020) 667 final. European Commission. (2021, July 14). ‘Fit for 55’: Delivering the EU’s 2030 Climate Target on the way to climate neutrality. COM (2021) 550 final. European Environment Agency. (2019). The European environment—State and outlook 2020. Publications Office of the European Union. Grumbine, R. E. (1994). What is ecosystem management? Conservation Biology, 8(1), 27–38. Langlet, D. (2018). Scale, space and delimitation in marine legal governance— Perspectives from the Baltic Sea. Marine Policy, 98, 278–285. Langlet, D., & Mahmoudi, S. (2016). EU environmental law and policy. Oxford University Press. Langlet, D., & Westholm, A. (2021). Realizing the social dimension of EU coastal water management. Sustainability, 13(4), 2261. Lee, M. (2014). EU environmental law, governance and decision-making (2nd ed.). Hart Publishing. Link, J. S., Thébaud, O., Smith, D. C., Smith, A. D. M., Schmidt, J., Rice, J., Poos, J. J., Pita, C., Lipton, D., Kraan, M., & Frusher, S. (2017). Keeping humans in the ecosystem. ICES Journal of Marine Science, 74(7), 1947–1956. Long, R. D., Charles, A., & Stephenson, R. L. (2015). Key principles of marine ecosystem-based management. Marine Policy, 57 , 53–60. Murawski, S. A. (2007). Ten myths concerning ecosystem approaches to marine resource management. Marine Policy, 31(6), 681–690. Rockström, J., Steffen, W., Noone, K., Persson, A., Chapin III, F. S., Lambin, E., Lenton, T. M., Scheffer, M., Folke, C., Schellnhuber, H. J., & Nykvist, B. (2009). Planetary boundaries: Exploring the safe operating space for humanity. Ecology and Society, 14(2). http://www.ecologyandsociety.org/ vol14/iss2/art32/ Ruhl, J. B., Cosens, B., & Soininen, N. (2021). Resilience of legal systems— Toward adaptive governance. In M. Ungar (Ed.), Multisystemic resilience (pp. 509–529). Oxford University Press. Soininen, N., & Platjouw, F. (2018). Resilience and adaptive capacity of aquatic environmental law in the EU: An evaluation and comparison of the WFD, MSFD, and MSPD. In D. Langlet & R. Rayfuse (Eds.), The ecosystem approach in ocean planning and governance. Brill. Verbruggen, A., Laes, E., & Woerdman, E. (2019). Anatomy of emissions trading systems: What is the EU ETS? Environmental Science & Policy, 98, 11–19.

88

D. LANGLET

Voulvoulis, N., Arpon, C. D., & Giakoumis, T. (2017). The EU Water Framework Directive: From great expectations to problems with implementation. Science of the Total Environment, 575, 358–366. Wessely, J., Hülber, K., Gattringer, A., Kuttner, M., Dietmar, M., Rabitsch, W., Schindler, S., Dullinger, S., & Essl, F. (2017). Habitat-based conservation strategies cannot compensate for climate-change-induced range loss. Nature Climate Change, 7 , 823–827.

Open Access This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made. The images or other third party material in this chapter are included in the chapter’s Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter’s Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

CHAPTER 5

COVID-19 and the EU’s Ability to Manage and Prevent Health Crises Louise Bengtsson

Introduction Beyond the tragic consequences of COVID-19 in terms of human suffering, the pandemic also triggered a crisis for European Union (EU) cooperation. The erosion of trust in the single market, open borders and solidarity between member states further heightened existing tensions during spring 2020. In addition, the pandemic has given rise to more long-term societal challenges beyond the immediate implications of the crisis. These include the need to consider broader factors such as resilience of health systems, sustainable socio-economic recovery and interlinkages between public health and environmental problems as well as climate change in and outside of Europe to reduce society’s vulnerability in future health crises. Ultimately, this sparks questions about the EU’s ability to both manage and prevent pandemics and their consequences for European societies.

L. Bengtsson (B) SIEPS, Stockholm, Sweden

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_5

89

90

L. BENGTSSON

This chapter focuses on COVID-19 as a health crisis at the EU level and how different conditions affected the initial response. The questions examined in this chapter are empiric: Which factors determined the EU’s ability to manage the crisis in a sustainable way and what measures would allow the EU to address, prevent and manage future health crises? After a short discussion of how to assess the EU’s early response to the pandemic, the chapter explores the Union’s competence within public health, including the legal framework for cross-border health threats. The subsequent analysis looks at the EU response to the pandemic during three phases ranging from January 2020 to early autumn 2020. The chapter focuses primarily on the health field, but also touches upon other policy areas in the wake of the crisis. At the end of the analysis, attention is turned from preparedness and crisis management to preventive measures in the broader sense, which may contribute to a more holistic approach to preventing the occurrence and effects of future health crises.

A Failure for EU Cooperation This chapter primarily covers the first six months of the pandemic, until the beginning of autumn 2020. As regards the early phase, in particular, the general view has been that the response was a serious failure for EU cooperation. The collapse of trust and freedom of movement that the Member States initially experienced, developed into one of the most serious crises for the EU so far in history. The collective response was slow, national measures were not coordinated, the single market collapsed and divisions about financial support packages soon became severe. The temporary border restrictions and related implications for the single market, the cornerstone of EU cooperation, have likely resulted in damage that will be difficult to repair. Discrepancies in national strategies to limit the spread of the virus also led to heated debates where prejudice and cultural stereotypes thrived. In the heat of the crisis, in other words, the Member States looked after their interests despite the theoretical advantages of cooperation. Notwithstanding a bumpy and in many ways tragic start, this chapter aims to add some nuance to the EU’s presumed failure to manage and prevent the pandemic in a sustained way. Such a discussion has to take place against a background of other factors beyond the responsibility to the EU institutions, such as their actual legal mandate and resources in the health field. Moreover, a range of measures for coordination and

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

91

common response did subsequently take place and a discussion on institutional and policy reform has started to take shape. Important steps forward included initiatives for maintaining the single market and flow of medical supplies and staff, options and strategies for procuring vaccines and protective equipment, financial support, stronger coordination of public health measures and documentation for testing and vaccination. In a comparative perspective, Gian Luca Gardini (2020) highlights that the EU is the only regional organisation that has had any role in the constructive management of the pandemic, both internally and externally. This chapter discusses a few factors that determined the EU’s ability to manage the pandemic in a sustained way, as well as examples of preventive measures that could reduce vulnerabilities to future health crises. The analysis is structured chronologically in three phases, followed by a concluding discussion. Before addressing these, however, an understanding of the EU’s response to the health crisis requires an insight into the legal framework that determines EU capacities in this field.

The EU’s Limited Competence in Public Health Health policy is a field where the Member States have largely resisted a supranational role for the EU (Bengtsson et al., 2018, 2019; Hervey & McHale, 2004). As such, primary responsibility for public health and healthcare related questions remains at the national level. This logic is often justified by the argument that each Member State has specific cultural, administrative and demographic characteristics. According to Johan Giesecke (2020), advisor to the World Health Organization (WHO) and former research director at the European Centre for Disease Prevention and Control (ECDC), the situation tends to become particularly sensitive as soon as potential EU initiatives impinge on the provision of health services. Nonetheless, the EU has gradually developed a certain role in public health, even if it is limited to supporting and coordinating national policies. In a broader sense, the EU’s role in public health first developed as a result of free movement, not least through decisions by the European Court of Justice, which then gradually led to rights to medical care in other countries and, above all, rules related to health standards for consumer products and other goods. In this sense, regulation at EU level came to include common regulation of food products, environmental standards, chemicals as well as animal and plant health as part

92

L. BENGTSSON

of an expanding single market. In terms of public health policies in the more narrow sense, an explicit legal basis was added in 1992 thanks to the Maastricht Treaty. Thus, the EU gained formal, if still limited, authority to adopt legal acts and regulations within the field. This role was then clarified and strengthened somewhat through the 1997 Treaty of Amsterdam. The 2009 Treaty of Lisbon added additional aspects under its public health article (Article 168 in the Treaty on Functioning of the European Union), including the mentioning of serious cross-border threats to public health like pandemics. The Treaty of Lisbon also codified the right to health care in the Charter of Fundamental Rights. While Article 168 of the Treaty affirms that a ‘high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities’, the EU is merely to complement and support national health and medical policies by promoting cooperation and coordination between Member States. Moreover, it is explicitly stated that this is to be done in full respect of the Member States’ responsibilities for these questions. In a broader interpretation, some public health aspects can still be framed as falling within the scope of Article 114, known as ‘the single market article’, for harmonisation of rules related to product safety and Article 153 for social policy. The EU’s research policy also opens up opportunities to fund research and innovation related to public health challenges. As can be seen in the EU Health Programme, the multi-year funding instrument for health-related issues, the focus of health policies in recent years has been on specific priority areas where the EU can clearly add value for existing Member State policies. In accordance with the principle of subsidiarity, the focus is on issues with cross-border implications related to the single market or where cooperation can offer additional advantages. Today, EU legislation exists primarily within patient rights to cross-border care, the regulation of pharmaceuticals, medical devices, tobacco products, the rules for circulation of organs, blood and tissues and the fight against serious cross-border threats to health. Apart from regulation covering the above areas, ‘soft’ policy tools, particularly recommendations and coordination, otherwise dominate this policy area (Södersten, 2020a). In addition to funding through the Health Programme, there are also opportunities with the framework for the European Semester to promote coordination of how Member States organise their national health sectors and handle common challenges to health systems. In practice, this means that there is an opportunity for

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

93

the Council (after a proposal from the Commission) to make recommendations for each Member State. Strategic priorities that have dominated coordination in recent years include the protection of public health when formulating proposals in all policy areas (‘health in all policies’), prevention of chronic diseases and challenges like cancer and child obesity, digitalisation (e-health), and initiatives and strategies for reducing the use of drugs, alcohol and smoking. The institutional framework for managing these different areas has developed over time and now includes, in addition to the Commission’s Directorate-General for Health and Food Safety (DG SANTE), several authorities: the European Medicines Agency (EMA), the European Food Safety Authority (EFSA), European Centre for Disease Prevention and Control (ECDC), and the European Agency for Health and Consumers (EAHC), which are implementing the Health Programme.

Health Policy: A Weak Area for the EU As Bengtsson and Rhinard (2019) have shown, several health crises have contributed to institutional reform and a growing role for the EU in public health. The political crises caused by the outbreak of mad cow disease in 1996 (Bovine spongiform encephalopathy, BSE) resulted in the Commission separating questions related to public health protection and food safety from interests perceived as dominating within agriculture and industrial policy. A new DG, which came to be called SANCO, together with the European Food Safety Authority (EFSA) were established to assure EU citizens that their health was of the highest priority. In spite of this development, which continued through a series of subsequent outbreaks and crises such as SARS and the so-called swine flu, DG SANCO (and later SANTE) remains one of the weaker DGs. For example, under new Commission presidents and reorganisations, this DG has tended to lose responsibilities to other parts of the Commission. The portfolio of the Commissioner for Health and Food Safety is rarely seen as a powerful appointment. In recent years, the position has primarily been held by smaller countries like Cyprus, Lithuania and Malta. In practice, public health protection was not considered a salient policy area under the Juncker Commission, 2014–2019 as the motto of a Union that is ‘big on the big things, small on small things’ tended to be interpreted to SANTE’s disadvantage. Above all, however, the policy area is defined by

94

L. BENGTSSON

the EU’s weak legal mandate within public health, which the Commission and related EU agencies have very limited possibilities of changing on their own. Compared to areas such as animal health and food safety regulation (which are also covered by SANTE), there is no considerable body of ‘hard law’ superseding Member State national jurisdictions. A few exceptions have already been noted above, primarily in areas intersecting with free movement and the single market. The 2013 decision 1082/2013/EU on serious cross-border threats to health is a major exception since it is not based on the internal market article but the ‘health article’ 168 of the Treaty. In accordance with the Treaty, the Union is thus to complement national policies in this particular field. This includes monitoring, early warning and response to serious cross-border threats to human health. It also requires the Member States, in collaboration with the Commission, to coordinate with each other. Together with earlier legislation establishing the EU’s own agency for the prevention and control of infectious disease, the ECDC (Regulation No. 851/2004), and the European network for the epidemiological surveillance and control of communicable diseases (2119/98/EG), serious cross-border threats to human health thus constitutes one of the most important areas for EU health policy.

Health Security: A Priority for the EU Despite Its Weak Mandate The added value of working together to combat transnational threats like bioterrorism and pandemics is often used as a way of justifying the EU’s role in public health (Bengtsson et al., 2019). As Sonja Kittelsen (2009) argues in her research, this priority also mirrors global developments of the last 20 years. After the events of 11 September 2001 and, above all, the discovery of anthrax spores in Washington DC in the following days, the United States quickly established a foreign policy focus on health security. Initially, its narrative bunched bioterrorism and pandemic influenza together as a category of new, similar types of health threats. This agenda was linked, as Nicholas B. King (2002) and others have described, to a pre-existing fear of so-called emerging infectious diseases in developing countries, which were highlighted as a new type of security problem. These priorities led to the Global Health Security Initiative by

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

95

the US, inviting the G7 countries, Mexico and the EU Health Commissioner David Byrne to its first meeting in 2001 (European Commission, 2002). After the anthrax attacks in 2001, steps were also quickly taken at the EU level to promote health security. Initially, this primarily meant formalising and continuing to develop existing European networks for surveillance of infectious diseases and establishing what became known as the Health Security Committee. This committee connected national authorities in order to coordinate measures in the event of serious crossborder threats to health, but it does not have binding authority. A focus within the World Health Organisation (WHO) to promote surveillance, preparedness and reporting for quickly evolving outbreaks of infectious diseases (primarily through the 2005 International Health Regulations instrument) have since continued to drive cooperation within health security at the EU level. In a way similar to how DG SANTE was established, the EU’s own infectious diseases control authority, the ECDC, was created at record speed in 2004 after the SARS outbreak in Asia. The regulation (No. 851/2004) that established the agency defined its mission as to ‘identify, assess and communicate current and emerging threats to human health from communicable diseases’. Experience from the 2009 swine flu then led to the current overarching legal framework (1082/2013/EU), which enabled a facility for a common procurement of vaccines and a more formalised status for the Health Security Committee. The framework was also expanded to include not just largescale outbreaks of infectious diseases, but all incidents that could turn into serious cross-border threats to human health and thereby affect society more broadly. The new expanded legal scope thus included chemical, biological, radiological and nuclear (CBRN) incidents, environmental disasters and effects due to climate change. The EU has subsequently also developed specific digital tools to collect data on emerging pathogens online and to map the spread of ongoing outbreaks. The Early Warning and Response System (EWRS) is operated by the ECDC and DG SANTE and links contact points at the expert level at the national infectious disease control authorities through a constant flow of information. Despite this development of capacities for coordination and tools over the past two decades, the de facto role of EU institutions and decisions is characterised by a limited legal mandate. There is a stark contrast between the ECDC’s marginalised activities and its sister authorities EFSA and EMA, where food safety and pharmaceutical legislation (based on the

96

L. BENGTSSON

single market Article 114) allow another role as regulatory agencies in harmonised policy areas. The ECDC also interestingly seems to have a weak de facto political mandate and low visibility compared to the WHO (Bengtsson, 2020a). This may seem odd, as EU governance, in general, emanates from a community of Member States that is characterised by a much higher level of regional integration. The WHO on the other hand needs to adapt its recommendations to the situation worldwide, including to developing countries with very different conditions (Giesecke, 2020). Another aspect affecting the role of the EU is that priorities related to health security have been shaped by what can be described as securitisation processes (Bengtsson et al., 2018, 2019). This means, among other things, that a new vocabulary and new priorities have come to the fore which link the protection of public health to matters associated with societal security and a broadening of security agendas. Health security is thus partly disconnected from traditional public health policy, for instance through links to crisis management, broader early warning systems and sharing of intelligence. This has also meant a shift of focus from known major infectious disease burdens such as tuberculosis, HIV and measles, to potential new emerging crises regardless of their source. Within the EU, this is captured by the concept ‘serious cross-border threats to health’, which was enshrined by the 2013 framework. Since the actual decision-making occurs mainly at the national level, the main role of the ECDC is to contribute to scientific advice and recommendations, which can at times lead to frustration among its experts. During the 2013–2014 Ebola crisis, for example, the ECDC and the Commission were critical of the body temperature controls at airports that were introduced unilaterally by some Member States, since they felt the method was not evidence-based. The same happened during the COVID19 pandemic, where the EU institutions witnessed diverging national response measures, not always in line with the latest evidence. It can also be noted that the focus on health security that has developed globally and at the EU level in the last two decades is based on the idea that outbreaks of infectious diseases are a matter of crisis management, rather than characterised by creeping crises that require prevention and reduction of vulnerabilities. As shown by Bengtsson et al. (2019), this leads to a short-sighted focus on discovering and identifying new outbreaks instead of preventive efforts and reduction of risk factors. As an example, the ECDC previously worked more on how social and environmental factors determine vulnerabilities, caused by for instance climate

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

97

changes, socio-economic disadvantage and weak health systems. Today, this work has been curtailed. Rather, the organisation’s leadership highlights rapid risk assessments on new potential outbreaks as its ‘best selling product’ (Bengtsson, 2019). In other words, the ECDC’s work revolves around surveillance of new outbreaks and rapid advice on how the spread of infectious diseases can be stopped once they occur. Of course, the Centre also produces recommendations and data on the existing burden of disease such as tuberculosis, HIV and antibiotic resistance, but the main focus is primarily on new, rapidly emerging pathogens, often assumed to emerge in countries outside of the EU. This is amplified by the limited mandate, within which a focus on cross-border health threats has turned into a legally convenient way of expanding and justifying a role for the EU.

Analyses of COVID-19 as an EU Crisis After the discussion above on the EU’s competence within public health, the framework for cross-border health threats and reflections on securitisation within the limited mandates of the institutions, we can now return to the chapter’s main question: what determined the EU’s ability to respond to the pandemic in a sustainable way and what determines its capacity to prevent similar health crises in the future? The analysis below focuses primarily on the spring and summer of 2020 and is divided chronologically into three parts. According to the Commission’s website, the response to the crisis has been coordinated at different levels through video conferences at the Heads of State or Government level, between health ministers, and through the Health Security Committee with national authorities from each member state (European Commission, 2020). According to the Commission, this enabled cooperation, the sharing of information and coordination of preparedness and response measures. The system for early warning (EWRS) was used throughout the pandemic to issue warnings, and the Commission provided coordination and mobilised joint funding. The ECDC and a special expert committee in Brussels also provided objective scientific advice (European Commission, 2020). In reality, the chain of events was naturally much more complex.

98

L. BENGTSSON

A Slow Start in January and February A general criticism of EU cooperation in the wake of the pandemic was the slow initial response, mainly during the phase before the pandemic reached Europe with full force. As the online magazine Politico noted, it was only after mid-March that the pandemic overshadowed all other questions on the EU’s agenda (Herszenhorn & Wheaton, 2020). In many ways, this analysis of the EU’s initial role corresponds to a general sense of the Union being invisible during the crisis. Even experts with good insight into global and national responses such as Johan Giesecke (2020) apparently have difficulty identifying what the EU brought to the table in the early phase. In later phases of the response, the charge of being invisible can partly be attributed to communication problems (Gardini, 2020). The difficulties to reach national media outlets and the monolithic view of the Union that characterises news journalism is a well-known problem and an obstacle to a well-informed public debate. If the ECDC and the Commission have previously been accused of being alarmist, as was the case during the 2009 swine flu pandemic, the opposite was thus true for the early response to the new coronavirus. According to Politico, which interviewed several key officials and political leaders, the Commission had grasped the situation in January after the ECDC’s risk assessment (Herszenhorn & Wheaton, 2020). On 9 January, the Centre noted in a report that there was a cluster of pneumonia cases in China, possibility related to a new coronavirus. On 26 January the ECDC stated in its risk assessment that there was a high risk of global spread, but that the risk of an outbreak within the EU was less likely. On the other hand, the virus could result in serious consequences if this actually happened, so Member States were advised by the ECDC to review the capacity of their national healthcare systems (ECDC, 2020). Interviews with the Director of the ECDC, Andrea Ammon, show that it was only after the skiing and carnival holidays at the end of February that the seriousness of the situation really became apparent (Wheaton, 2020). Ammon points to three challenges for the early coordination efforts: uncertainty about how the infection was spreading, an inability to imagine a worst-case scenario in a situation where data was scarce, and finally that early analysis did not consider capacity issues in the Member States. The latter applied to both intensive care units and testing material, for which neither the EU nor Member States had an overview. This slow awakening at the beginning of the crisis exacerbated coordination

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

99

problems once the seriousness of the situation finally became clear. Naturally, the weak mandate of the EU institutions was also hardly helpful for a coordinated start. Preconceived ideas about cultural differences and a mindset of ‘this cannot happen here’ may also have contributed to the slow awakening, particularly in relation to China but also an evident north–south division within the EU itself (Wheaton, 2020). In other words, the lack of urgency that characterised the initial response cannot completely be attributed to aspects related to the EU’s mandate, even if these played a certain role. As I have previously argued, the difficulty in making balanced decisions in a situation of uncertainty is a constant concern for both politicians and infectious disease experts (Bengtsson, 2020a, b). In the case of the outbreak of the new coronavirus, the general belief in January and early February 2020, not just among the EU’s institutions but also at the national level, was that the threat was unlikely to affect Europe. Certain observers, however, including Gardini (2020), argue that the Commission in a relative perspective was hardly late to get started compared to the Member States and other countries such as the United States. This position is also echoed by representatives of the Commission, who point to their press conferences in late January and early February (Herszenhorn & Wheaton, 2020). On 29 January, the Commissioner for Crisis Management Janez Lenarˇciˇc and the Commissioner for Health and Food Safety Stella Kyriakides announced that efforts to coordinate the response to the pandemic were well underway and involved all parts of the machinery, including the External Action Service (EEAS) (Kyriakides & Lenarcic, 2020). In public health, coordination was ongoing through the Health Security Committee, where the Member States reported ‘good levels of preparedness’. Sharing information about the virus and the spread of infection was also ongoing through the EWRS, and the ECDC was sharing regular risk assessments, daily updates on the number of cases and (non-binding) guidance documents on clinical diagnosis, advice to the public health sector, as well as advice on treatments and contact tracing (Kyriakides & Lenarcic, 2020). The Commission also announced that France had activated the EU civil protection mechanism for repatriating citizens from China and noted that this facility could also be used for protective equipment and medical supplies (Herszenhorn & Wheaton, 2020). The Commission later pointed out, however, that the press conference on 29 January received very little attention (Herszenhorn & Wheaton, 2020).

100

L. BENGTSSON

When the health ministers met in an extraordinary meeting on 13 February, Commissioner Kyriakides (2020) emphasised that the Member States must strengthen their capacities. According to the commissioner, border controls had to be proportional, coordinated and science-based and the single market had to be maintained. Kyriakides also announced that the Commission stood ready for joint procurements and had mobilised the EMA to review the availability of medicinal products. The Commissioner concluded that a successful response required active coordination by the Member States and that a fragmented scenario risked exacerbating their vulnerabilities. Afterwards, EU officials interviewed by Politico claim that the Commission was not given relevant information about the lack of preparedness at the national level, despite encouraging the sharing of information about the number of intensive care beds and protective equipment (Herszenhorn & Wheaton, 2020). It is clear moreover that another ongoing crisis occupied the minds of both the Commission and the Member States, namely the incidents at the Turkish-Greek border. According to Politico, these events were, at the time, seen as more pressing since officials feared a new migration crisis like the one in 2015. The Commission and its border agency FRONTEX also have stronger legal competence and thus a more obvious role for incidents at the external borders of the EU (Herszenhorn & Wheaton, 2020). As for the Council of Minister’s role at the beginning of the pandemic, there was a clear discrepancy between rhetoric and the actual willingness to act jointly by the Member States. On 28 January, the Croatian Presidency activated the EU integrated political crisis response in information sharing mode (Herszenhorn & Wheaton, 2020). This mechanism, which falls under the General Secretariat of the Council, supports coordinated political decision-making and includes platforms for information sharing and a system of contact points and reporting (Council of the European Union, 2021). After the first COVID-19 related meeting with the health ministers on 13 February, extensive Council conclusions were adopted that emphasised the importance of cooperation and a coordinated response (Council of the European Union, 2020). Even so, sources interviewed by Politico state that the Member States at this point were in fact still unwilling to coordinate (Herszenhorn & Wheaton, 2020). This tendency was also reflected in the Health Security Committee, according to Johan Giesecke (2020). On 2 March, the crisis response mechanism was upgraded to its highest level, which

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

101

in practice would facilitate management in areas requiring emergency cooperation through roundtable discussions with representatives from the Council, the Commission and the Member States (Council of the European Union, 2021). With regard to the early response at the beginning of the crisis, it can thus be concluded that EU institutions pointed to the risks at an early stage, even if they did not signal an impending emergency. Member State interest however was limited, and information about national preparedness was inadequate. The weak mandate for health policy at the EU level certainly played a role in this respect. There was also a lack of oversight when it came to national preparedness plans, required by the WHO International Health Regulations (Speakman et al., 2017). The Commission responded to these early problems by establishing a coordinating facility for medical equipment, aimed at matching supply and demand and ensuring delivery.

The Collapse of Cooperation, Followed by Repairing of Damage in March and April The most prominent criticism of the EU’s response to the new coronavirus is related to the collapse of collaboration in March and April 2020. The emerging pandemic clearly proved to be a far greater challenge for the EU than previous coronaviruses like SARS and the Middle East Respiratory Syndrome (MERS), or influenza outbreaks that had primarily remained in Asia or turned out milder than expected. Andrea Ammon (2020) argues that the situation was the opposite compared to the swine flu in 2009, as the new coronavirus proved to be more contagious and serious than both experts and leaders first suspected. This realisation and the resulting panic further reduced the ability of the institutions to lead the way. The silence following Italy’s plea for help on 28 February through the civil protection mechanism at the European Response Coordination Centre (ERCC), when the country requested face masks, is often noted as the first serious sign of crumbling cooperation. That the French state, within a few days, subsequently nationalised production of protective equipment also sent a worrying signal. Soon thereafter Germany issued national export bans. Other countries then stopped deliveries of masks to Italy, which, ironically, had to turn to China. This development was worsened by unilateral entry bans (Herszenhorn & Wheaton, 2020). The rules

102

L. BENGTSSON

of the single market allow Member States certain leeway, e.g. to make exceptions from the free movement of goods and people based on health concerns. These unilateral measures, with huge spill-over effects for the rest of the EU, also revealed a clear tension as pressures mounted between the political leadership at the national level and the expert community. These events and resulting serious consequences for the single market and trust between Member States led President of the European Council, Charles Michel, to call an extraordinary video conference in mid-March (Herszenhorn & Wheaton, 2020). There, Heads of State and Government were explicitly asked to give the EU a stronger mandate to use ‘all means’ for coordinating the response to the crisis. Shortly thereafter, the Commission tasked its officials with a series of measures (Herszenhorn & Wheaton, 2020). Above all, this implied emergency measures to try to maintain the collapsing single market. The Commission basically engaged in damage control and for instance established ‘green lanes’ to ensure that supplies like food and medical equipment were not blocked at internal border crossings (Ammon, 2020). Guidelines were also developed for how internal borders were to be handled and a joint entry ban, in the hope that this would convince the Member States to maintain free movement within the Union. The Commission also issued a joint export ban in mid-March for essential medical equipment to countries outside of the EU, so these deliveries required the Member States’ approval (European Commission, 2020). Moreover, the EU suspended customs duties and VAT on incoming deliveries of similar products from third countries (Herszenhorn & Wheaton, 2020). Regarding the economy, the Commission eased EU restrictions on state aid and rules for budgetary discipline, which was an unusual move (Gardini, 2020). The Commission also began early initiatives to coordinate distribution of material, including through the so-called rescEU reserve (an upgrade of the civil protection mechanism established in 2019). The latter was now activated to support stockpiling of medical supplies among other things and to mobilise support structures, such as field hospitals (European Commission, 2020). Measures were also taken by the Commission for joint procurement of masks, ventilators and other protective material, while standards and legislation for medical devices were relaxed to facilitate production. Through the joint procurement agreement from 2013, which was now signed by remaining countries who had originally chosen not to join the agreement, the Commission

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

103

could now enter negotiations with pharmaceutical companies (European Commission, 2020). In some areas, the Commission’s initiatives were met with resistance. For example, major efforts were made later during spring of 2020 to coordinate travel restrictions. The Commission presented a proposal on 15 April for a road map for a coordinated and science-based approach to lifting restrictions. According to Politico, pressure from the Member States forced the Commission to delay the proposal, which gave many Member States more time to take unilateral measures (Herszenhorn & Wheaton, 2020). As regards the ECDC’s role, Director Andrea Ammon (2020) has argued that awareness of the Centre’s work increased significantly, with large numbers of visitors to its website and greater impact through social media. The ECDC was also called upon more often to coordinate with other actors, such as the WHO and public authorities for border control and airline travel. At the same time, the Centre’s relative lack of presence in major national media outlets during the pandemic, can be seen as a reflection of its weak mandate. Compared to the daily press conferences from national centres for disease control and even the WHO’s relatively frequent comments in the press, the ECDC made few public appearances during the spring. Andrea Ammon explains that the Centre’s mandate forces her to decline all interview requests that deal with particular Member State response strategies. After some degree of visibility in the media in January and February 2020, the ECDC’s external communication seems to become even more restrictive. In one of the few media interviews Ammon gave in the spring with Politico, she states that she chose to significantly limit her interaction with media in March 2020 (Wheaton, 2020). A reasonable interpretation of this is that the Centre reached the outer limits of its mandate when the public debate turned from the early outbreak in Asia to a focus on how EU Member States were handling the pandemic. Instead, the ECDC spent the spring focusing on its core mission, namely issuing regular risk assessments, daily updates on cases, scientific advice on surveillance, preparedness and response planning as well as guidelines for testing and health service providers. Regarding recommendations, however, the Centre has a very weak normative role and formulates its messaging accordingly. The degree to which the Member States consider these recommendations is also unclear, not least considering the tense debate about national strategies that unfolded during

104

L. BENGTSSON

the spring. For example, the Member States continued to use such different statistical methods, standards for testing equipment and testing strategies that national data was basically not comparable, despite recommendations from the Centre. It is also interesting to note that the Commission appointed a panel of virologists and epidemiologists for advice, independent of the ECDC. The panel, which is explicitly noted on the Commission’s website as established ‘thorough the mandate of the Member States’, carried out its work partly based on input from the Stockholm-based ECDC. Even so, the experts at the Centre were thus sidestepped by a new formation established by Brussels. As is clear from the analysis above, EU cooperation failed at many points during the pandemic’s most critical phase in Europe, while the Commission and the ECDC made efforts to repair the damage within their respective mandates. Considering the clear focus on health security in EU health policy, developed against the background of earlier crises in order to strengthen the EU’s legitimacy, a more unified response could perhaps have been expected. This conclusion, however, does not consider the question of competences. As Anna Södersten (2020b) emphasised, aspects related to the EU’s legal mandate can explain why COVID-19 could shake EU cooperation at its core. The EU’s role was undermined by legal mandates that differed significantly between, for example, health policy and crisis management on the one hand and management of external borders, state aid and competition rules on the other. On several occasions, the situation forced the Commission to request ad hoc mandates. Sometimes initiatives were resisted, as exemplified by the Commission’s decision to delay a road map for easing national travel restrictions. Moreover, even though the Member States said they wanted cooperation on several occasions, they failed to live up to this promise during the peak of the crisis. It is clear however that many measures were still taken at the EU level even during the beginning of the spring, which may not have always been evident from media coverage.

The Union Comes Together: A Display of Solidarity? After the initial chaotic period of the emerging crisis, the President of the European Commission Ursula von der Leyen (2020a) expressed criticism of the Member States in her speech to the European Parliament on 26 March. At the same time, she emphasised that the Member States quickly

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

105

felt the consequences of not cooperating and swiftly begun to ‘help each other – to help themselves’. As Anna Södersten’s (2020b) analysis shows, the narrative of EU institutions during the late spring turned into one of early chaos replaced by solidarity. This message was also passed by the Commission’s website during the summer months: During these times of crisis, countries, regions and cities across the European Union are stretching out a helping hand to fellow EU citizens, and assistance is being given to those most in need. They are sending masks and other protective equipment, offering hospital beds and bringing stranded citizens home. This is European solidarity at its best. (The European Commission, 2020)

Concrete examples that are often noted by the Commission include initiatives such as the one of Germany sharing ventilators, or Romania and Poland sending healthcare workers to the other Member States. The Commission often highlights its efforts to facilitate such transfers of materials and personnel through new joint guidelines and the rescEU reserve for stockpiling and distribution. The rescEU reserve was also used, for example, to deliver face masks to Italy from Romania in April. Similar deliveries have also occurred through the civil protection mechanism and bilaterally. In line with a more coordinated and supportive response, a 6-billion-euro ‘solidarity initiative’ was also approved by the Council in April. Half of the financing for this initiative came from the EU budget and the rest from Member States to directly support the national healthcare systems when purchasing equipment, support for transports and transfer of patients as well as recruitment of healthcare staff. Another measure often mentioned is the coordinated initiative to repatriate the 600,000 EU citizens stranded abroad. When the majority of countries later gave up their export bans and border controls against other Member States, this was also seen as clear evidence of growing solidarity within the EU family. Along the same lines, the Commission, together with Germany and France, has initiated several global initiatives, particularly related to the sharing of vaccines and support to third countries through development cooperation and humanitarian aid. For example, the Commission organised the Coronavirus Global Response Initiative, which included something as unusual as a concert with Shakira, Justin Bieber and Miley Cyrus. This was done to raise funds for just access to vaccines, testing and

106

L. BENGTSSON

treatment in low- and middle-income countries outside of the EU. By the time of von der Leyen’s State of the Union speech on 16 September 2020, the EU, together with the G20 countries and the WHO, had raised over 16 billion euros to fund vaccines, tests and treatments for the rest of the world. A Team Europe initiative, which aimed at reallocating funds to support developing countries affected more broadly by the pandemic, can also be mentioned in this context. Through this initiative, the Commission, Member States, the European Investment Bank and European Bank for Reconstruction and Development together raised 36 billion euros for health-related, sanitary and socio-economic consequences of the crisis. Even though the EU as collective actor could certainly have done more to share its surplus of vaccines later during the pandemic, these early initiatives aimed towards global solidarity are worth noting, according to Gardini (2020). No other regional or comparable actor took similar lead. But as Södersten (2020b) points out, the narrative of divisions that were later replaced with solidarity can also be viewed from another perspective. First of all, there is no legal obligation for Member States to provide support by contributing materials and healthcare staff or accepting patients from other countries. The same also applies to financial aspects, where the EU, apart from possible reallocations within its existing budget, is dependent on additional commitments from Member States or the European financial institutions to make an impact. Södersten also argues that what appeared to be ‘acts of solidarity’ depended not only on a Member State’s assessment about whether it was morally right to act, but also the pragmatic need to showcase a unified response to citizens, other Member States and the international community. Somewhat better EU cooperation at the end of spring 2020 could thus be attributed to the Member States coming to the realisation that a certain degree of cooperation and at least showing solidarity through symbolic measures was in their best interest. In a global context where the WHO and multilateralism in general were severely undermined and the United States no longer playing a constructive role, displaying a divided Europe in economic disarray and with high infection rates was not an attractive scenario. Similar pragmatic arguments related to the mutual interest in economic recovery throughout Europe were also used in support for the substantial recovery fund that was agreed later during the summer. After the initial infighting, an agreement on this fund was at least a partial success. It once again became evident that, without legal competence

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

107

or enforceable measures, the precondition for a joint response highly depended on the Member States’ will to cooperate. According to journalist Sara Wheaton (2020) at Politico, particular awareness of the advantages of cooperation may have been triggered by an announcement by President Donald Trump that he was going to negotiate exclusive rights to a potential vaccine from a German producer. This may have been a wake-up call for the Member States. The advantages of joint procurement of vaccines were obvious, since the EU countries had much greater purchasing power jointly than separately on the international market. The Member States that were still not signatories to the joint procurement agreement from 2013 consequently joined and a vaccine strategy was presented by the Commission in June. This enabled the Commission to negotiate with pharmaceutical companies on both medical counter measures and possible vaccines. During the summer and early autumn of 2020, the Commission also continued its determined work to facilitate travel within the Union. This was a practical concern for several Member States with local economies dependent on incoming tourism. The list of countries with entry bans to the Union was updated regularly, and in mid-June the Commission launched the website Re-open Europe. This page provided information on Member State border and travel restrictions, national restrictions to prevent the spread of infection and other practical information. In October 2020, the Commission also proposed coordinated criteria for travel restrictions, with a colour-code system indicating risk levels (Commission, 2020). To summarise the three sections of the above analysis, the degree of the EU’s ‘failure’ during the different phases between the beginning of the year and early autumn 2020 needs to be assessed against the backdrop of various factors, including the uncertainty about the nature of the virus, the EU’s mandate and the Member States’ initial unwillingness to act jointly and, finally, the subsequent pragmatic desire to demonstrate unity. Overall, the initial setbacks also reflect tendencies affecting EU cooperation already present before the pandemic, such as the lack of a European demos, the division between North and South, the distrust between net contributors and the others, and the tensions that arise from the EU being neither a completely intergovernmental nor supranational organisation. At the same time, it is worth mentioning that important measures were taken that may not always have gained media attention in the Member States.

108

L. BENGTSSON

This was the case in particular when it came to measures relating to crossborder movement and the single market as well as in the field of global leadership.

Reflections for a Sustainable Response Over Time What can then be said about the possibilities for a sustainable EU response over time when it comes to the management and prevention of future health crises? First and foremost, the pandemic has clearly exposed a range of weaknesses in existing frameworks and institutional mandates governing EU response capacity in the field of cross-border health threats. That the Member States would want to significantly strengthen the EU’s overall role in public health is relatively unlikely, but it is worth noting that previous health crises have often led to expanded institutions and policy frameworks. Not least due to the severe consequences for freedom of movement and trade within the EU, a growing debate about lessons learned and institutional reform started to take shape in early autumn 2020. In a clear departure from the priorities of the Juncker Commission, von der Leyen’s (2020b) State of the Union speech in September 2020 argued explicitly for ‘a stronger Health Union’. The speech proposed reforms that would have been impossible for the Commission’s president to voice prior to the pandemic, such as the need to revisit the competence issue and the mandate of the ECDC. Additionally, von der Leyen proposed a new EU agency for biomedical research and development covering potential health threats regardless of origin, including natural disasters and bioterrorism. A growing acceptance for joint action was also evident in several Council formations and in the European Council by autumn 2020, particularly related to the coordination of restrictive measures, vaccination passports and common standards for testing and cross-border contact tracing. Andrea Ammon (2020) also revealed that, during earlier health crises, individual members of the European Parliament had argued for a stronger role for the ECDC. It was not until this pandemic however, that such discussions took place among the Member States. For example, an ECDC task force was considered, which could be deployed upon invitation by a Member State. A stronger position for the ECDC’s recommendations was also discussed, as was strengthening its global presence and additional financing.

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

109

Most of these adjustments above require no treaty changes. Such reforms however would need a thorough discussion about their added value, for instance in reducing Member States vulnerabilities and preventing unintended spill-over effects due to uncoordinated action. Most importantly, a sustainable EU-level response requires an understanding of pandemics as a public good and ‘weakest link’ problem, in which vulnerabilities in one country ultimately risk undermining public health in the rest of the Union (Rhinard, 2009). To begin with, additional work is needed to map and coordinate preparedness and response capacity at all levels. A discussion is also necessary regarding the interpretation of the Member States’ obligation to coordinate with each other under the direction of the Commission, which is stipulated in the Treaty’s Article 168 on public health. As an example, a forum that could be developed is the Health Security Committee’s subcommittee for risk communication. Such coordination among Member States could streamline messages and prevent pressure on leaders to take measures not supported by science. Procurements and distribution of vaccines and protective equipment, research funding, scientific advice, crisis communication and global leadership are examples of existing areas that add value without requiring cumbersome revision of legislation. Another aspect is the improvement of digital scanning tools that the ECDC and the Commission use to identify trends in the spread of pathogens. When it comes to COVID-19, the reporting of cases and deaths often lagged and were based on data that was not comparable between Member States. For this reason, the Director of the ECDC Andrea Ammon has suggested initiatives in artificial intelligence, e-health and digitalisation (Ammon, 2020). Beyond coordination of response measures and immediate crisis management, there are other important aspects that affect the resilience of European societies in the event of a pandemic. First and foremost, the damage by a major outbreak of infectious disease such as COVID-19 depends on the robustness of our national healthcare systems. Underinvestment in health services but also preventive measures to reduce risk factors for severe illness in COVID-19 is an area that has not received sufficient attention, considering that socio-economic factors and health inequalities play an important role. Other broader trends such as an ageing European population and threats posed by antibiotic resistance are also areas that determine the future ability of healthcare providers to withstand shocks. Meanwhile, creeping crises, such as the spread of

110

L. BENGTSSON

other serious infectious diseases like tuberculosis and measles, continue to weigh heavily on health systems in Europe. Scepticism against public health authorities and vaccines is another problem. Even in wealthy European societies, it is relevant to keep this bigger picture in mind while rebuilding back for a better and more robust health sector. It should be noted in this context that some degree of coordination regarding resilient health systems already exists within the policy coordination of the so-called European Semester. DG SANTE, in turn, has dedicated an entire unit to this topic. In other words, the Commission is actively working in this area, but it could certainly benefit from clearer mandates from the Member States to scale up. As an example, there is no EU agency currently in charge of such overarching matters, and nor so for chronic diseases. According to EU officials, however, the Commission is currently working on more holistic approaches under the banner of ‘foresight’ (EU Civil Servant, 2020). The idea is that broader analysis about future systemic challenges needs to be better included at an early stage in all policy processes (2020). Global leadership should also be part of the discussion, particularly considering a weakened WHO. The early EU initiatives to pool funds and subsequent national donations to COVAX are likely to be insufficient. Continued global coordination with the WHO remains important, not least as its International Health Regulations provide the framework for the preparedness and response capacity enshrined in EU legislation. Better division of responsibilities could be of relevance, especially when it comes to communicating respective recommendations. Another way to expand the focus from only short-term response to sustained prevention is to consider how human impact on ecosystems and the atmosphere exacerbates the risk posed by future health crises. The effects of climate change, biodiversity loss, destruction of habitats, intensive animal farming and the trade in wild animals affects the likelihood of new emerging infectious diseases spreading and turning into severe health crises. The new coronavirus is, just like SARS, H1N1 (Swine flu), MERS coronavirus, H7N9 (bird flu), and Ebola, a zoonotic disease, i.e. an infection that can jump from animals to humans. Along these lines, Tedros Adhanom Ghebreyesus, the head of the WHO, emphasised efforts to reduce the risk of future epidemics, which include a better understanding of how similar viruses emerge and spread because of changing conditions in the natural environment (WHO, 2020). Similarly, a report by the United Nation Environment Program (UNEP) found that as much as 25

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

111

percent of the world’s disease burden is now due to environment-related risks, including diseases that emerge from increasing proximity to wildlife, toxic waste and pollution (UNEP, 2021). Even if the exact causal patterns between environmental factors and the spread of infectious diseases is a subject for further study, it is clear that the human footprint on the planet continues to play an increasingly worrying role for human health in a range of ways. Considering its strong legal competence in the areas of animal health, food safety, climate change, trade agreements, environmental policy and development aid, the EU is well placed to take the lead on a sustainable and holistic approach to pandemic prevention. In this way, the focus can be expanded from immediate preparedness and response, to reform preventing both the emergence of pandemics and factors that determine vulnerabilities and ability to withstand shocks. The focus on ‘rebuilding back better’ and ‘green recovery’ may ultimately also contribute to preventing epidemics turning into future health crises. To conclude, follow-up efforts at the EU level in the wake of the pandemic require a reassessment of where the EU can add value and how its institutions, legal frameworks and processes should be adapted for this purpose. A framework clarifying the roles of different actors in EU governance may also help to reduce tensions when the next crisis hits. Ultimately, reforms should focus not only on preparedness and response capacity but also on sustainable and resilient health systems, global leadership and improved knowledge about the human impact on ecosystems and earth systems that contribute to future health risks.

References Ammon, A. (2020, September 10). L. Bengtsson, Interviewer. Bengtsson, L. (2019). Health security in the European Union: Agents, practices and materialities of securitization. Stockholm University. Bengtsson, L. (2020a). Svår balansgång för EU:s smittskyddsexperter. Utrikesmagasinet. Retrieved September 27, 2021, from https://www.ui.se/utrikesma gasinet/analyser/2020/april/svar-balansgang-for-eus-smittskyddsexperter/ Bengtsson, L. (2020b). Which crisis? The promise of standardized risk ranking in the field of EU infectious disease control. In O. E. Olsen, K. Juhl, P. H. Lindøe, & O. A. Engen (Eds.), Standardization and risk governance: A multi-disciplinary approach (pp. 97–115). Routledge.

112

L. BENGTSSON

Bengtsson, L., & Rhinard, M. (2019). Securitisation across borders: The case of ‘health security’ cooperation in the European Union. West European Politics, 42(2), 346–368. Bengtsson, L., Borg, S., & Rhinard, M. (2018). European security and early warning systems: From risks to threats. European Security, 27 (1), 20–40. Bengtsson, L., Borg, S., & Rhinard, M. (2019). Assembling European health security: Epidemic intelligence and the hunt for cross-border health threats. Security Dialogue, 50(2), 115–130. Council of the European Union. (2020, February 13). Council conclusions on COVID-19. https://data.consilium.europa.eu/doc/document/ST-60382020-INIT/en/pdf Council of the European Union. (2021). How does the Integrated Political Crisis Response (IPCR) mechanism work? https://www.consilium.europa.eu/ en/documents-publications/publications/ipcr/ ECDC. (2020). Risk assessment: Outbreak of acute respiratory syndrome associated with a novel coronavirus, China; First cases imported in the EU/EEA; second update. https://www.ecdc.europa.eu/en/publications-data/risk-assess ment-outbreak-acute-respiratory-syndrome-associated-novel-0 EU Civil Servant. (2020, August 25). L. Bengtsson, Interviewer. European Commission. (2002). Communication from the commission: Progress made in implementing the programme for preparedness for possible emergencies. https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX: 52003DC0320&from=EN European Commission. (2020). Coronavirus response. Retrieved September 28, 2021, from https://ec.europa.eu/info/index_en: https://ec.europa.eu/ info/live-work-travel-eu/coronavirus-response_en Gardini, G. L. (2020). The world before and after Covid-19—Intellectual reflections on politics, diplomacy and international relations. EIIS. Giesecke, J. (2020, August 27). L. Bengtsson, Interviewer. Herszenhorn, D. M., & Wheaton, S. (2020, April 7). How Europe failed the coronavirus test. Politico. Retrieved September 27, 2021, from https://www. politico.eu/article/coronavirus-europe-failed-the-test/ Hervey, T. K., & McHale, J. V. (2004). Health law and the European Union. Cambridge University Press. King, N. B. (2002). Security, disease, commerce: Ideologies of postcolonial global health. Social Studies of Science, 32(5–6), 763–789. Kittelsen, S. (2009). Conceptualizing biorisk: Dread risk and the threat of bioterrorism in Europe. Security Dialogue, 40(1), 51–71. Kyriakides, S. (2020). Opening remarks at extraordinary EPSCO council on COVID-19. https://ec.europa.eu: https://ec.europa.eu/commission/com missioners/2019-2024/kyriakides/announcements/opening-remarks-extrao rdinary-epsco-council-covid-19_en

5

COVID-19 AND THE EU’S ABILITY TO MANAGE …

113

Kyriakides, S., & Lenarcic, J. (2020). Remarks by commissioners Kyriakides and Lenarˇciˇc on the EU’s response to the developments relating to the Coronavirus. www.ec.europa.eu. https://ec.europa.eu/commission/presscorner/ detail/en/speech_20_152 Rhinard, M. (2009). European cooperation on future crises: Toward a public good? Review of Policy Research, 26, 439–455. Södersten, A. (2020a). Coronakrisen: vad EU kan göra på området folkhälsa. SIEPS. Södersten, A. (2020b). Solidaritet i coronatider. SIEPS. Speakman, E. M., Burris, S., & Coker, R. (2017). Pandemic legislation in the European Union: Fit for purpose? The need for a systematic comparison of national laws. Health Policy, 121, 1021–1024. United Nations Environment Programme. (2021). Making peace with nature: A scientific blueprint to tackle the climate, biodiversity and pollution emergencies. Nairobi. Retrieved October 10, 2021 from https://www.unep.org/res ources/making-peace-nature von der Leyen, U. (2020a, March 26). Speech by President von der Leyen at the European Parliament Plenary on the European coordinated response to the COVID-19 outbreak. Retrieved September 28, 2021, from https:// ec.europa.eu: https://ec.europa.eu/commission/presscorner/detail/en/spe ech_20_532 von der Leyen, U. (2020b, September 2020). State of the Union Address by President von der Leyen. Retrieved September 28, 2021, from https://ec. europa.eu/: https://ec.europa.eu/commission/presscorner/detail/en/SPE ECH_20_1655 Wheaton, S. (2020, April 8). ‘Nothing would have prevented’ virus spread, says health agency chief . Politico. Retrieved September 27, 2021, from https://www.politico.eu/article/ecdc-chief-nothing-would-have-preven ted-coronavirus-spread/ WHO. (2020, June 30). WHO speaks at the European Parliament on the COVID-19 response. Retrieved September 28, 2021, from www. who.int: https://www.who.int/news/item/30-06-2020-who-speaks-at-theeuropean-parliament-on-the-covid-19-response

CHAPTER 6

The Demographic Challenge Facing the EU: Roads to Sustainability in an Ageing Europe Titti Mattsson

The EU can be described in many ways as an ageing society. For many years now, in fact, this has been identified as a major challenge for the Union’s future. Increasing life expectancy in conjunction with declining birth rates is causing concern—concern about the future costs of providing for the elderly, and about who is to provide care for them. Another issue within the EU is that a number of member states are seeing a large outflow of young workers, which can mean difficulties for the care of older persons when they are left without younger family members within their own country. Various solutions for this problem have been discussed in the EU over the last couple of decades. In a series of reports, for example, the European Commission has analysed the expected effects of Europe’s ageing population, with a particular focus on the long-term economic and fiscal consequences to be expected in terms of taxes and the economy (European Commission, 2021).

T. Mattsson (B) Faculty of Law, Lund University, Lund, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_6

115

116

T. MATTSSON

Moreover, the risk that older persons will become too heavy a burden for the able-bodied population to bear poses a challenge to social sustainability and solidarity between the generations in the Union. In this context, the concept of ‘active ageing’ has figured centrally. It refers to a situation where good health care, active policies of social care, and improved conditions on the labour market and in social-insurance systems make it possible for older people to stay active longer than before. This in turn may reduce the need for onerous public expenditures on social care and economic support. The trend towards an ageing Union has also raised questions about the future role and responsibility of welfare states within the EU. One of several recurring questions in this connection has concerned the quality of life for the elderly. The age span in question is sometimes divided into two stages: the ‘third age’ and the ‘fourth age’. The former is characterized by good health and an active and independent lifestyle; the latter by illness, disability, and a need for far-reaching assistance in daily life. In this chapter, the concept of ‘the elderly’ is used above all in connection with the latter phase: i.e., in reference to older people whose capacities are declining significantly and who require far-reaching assistance from society. The corona crisis has put the spotlight on many difficult issues relating to the health, needs, and living conditions of the elderly population, as well as on the question of how we can create a resilient Union and ensure decent living conditions for all EU citizens, irrespective of age or other status. The appallingly high death rates among people 70 years old and above during the pandemic, like the special dependence of these persons on the measures taken by other age groups to deal with the infection, have repeatedly drawn attention to the living conditions of the elderly, while attracting critical scrutiny from researchers, politicians, and the media. In particular, the extremely high death toll among the elderly during the early stages of the pandemic has led to sharp criticism and repeated questioning of whether the member states had done enough to protect the lives and health of people in these age groups (Mattsson et al., 2021). Doubts have also been expressed as to whether the EU’s central principle of solidarity—that resources should be invested in areas and on behalf of individuals where the needs are greatest—is really being observed within the Union. The cooperation and interdependence between member states which the EU has held so high has also been severely tested by nationalist forces during the crisis. This test was

6

THE DEMOGRAPHIC CHALLENGE …

117

already evident before the corona crisis struck, in the emergence of ever stronger voices emphasizing the interests of the nation-state (Bakardjieva Engelbrekt et al., 2020). Then, due to the severe impact of the pandemic on many groups and individuals, the Union’s fundamental values of democracy, human rights, and freedom of movement have been eroded further. Thus, the spotlight has shone with particular intensity during this crisis on the situation of older persons within the EU. The pandemic has raised questions about what the living conditions of the elderly within the Union are actually like. In itself this issue is not new. Research has long shown that the legal position of older persons in the welfare states of twenty-first century Europe is generally weak (Lopes, 2017; NumhauserHenning, 2017; Tinios, 2017). The question of how countries can take care of their elderly in an acceptable way—in terms of housing, health services, and social care—has been raised by many researchers in different fields. A new legal area—elder law—has even emerged in the last decade, devoted to addressing such issues from the standpoint of jurisprudence (Mattsson & Numhauser-Henning, 2017; Numhauser-Henning, 2017). The field attracted much academic attention and in a short time generated interesting findings. In 2020, only in Sweden two dissertations were completed in the area, which are of direct relevance for this chapter, one concerning the prospects for cross-border care for older persons within the EU (Axmin, 2020) and the other analyzing the trend towards increased privatization of welfare services in elder care (Katzin, 2020). Elder issues are also drawing greater attention from practitioners, civilsociety actors, and government agencies. The corona crisis has simply prompted us as researchers to turn our attention once again—and now more openly and together with large sections of the EU population—to an important issue for the future: how living conditions for older people in the Union can be maintained and improved within the constraints imposed by sharply limited resources in coming years. Furthermore, aside from the immediate problems which the pandemic has highlighted, other major challenges for the Union in years to come are evident in connection with the elderly population. One such challenge, of course, is that posed by demographic change. The size of the older age group is rapidly increasing relative to that of other age groups (European Commission, 2020). The import of this trend is all the clearer, moreover, due to the intensified focus on rights in society generally. The rights claims made by the elderly are thus part of a larger movement demanding such

118

T. MATTSSON

things as security, due process, and the protection of personal integrity for vulnerable groups within the Union. It can be said, in sum, that the pandemic has focused our attention on problems of which we have already been aware for some time—problems of a structural, legal, and organizational kind, with considerable significance for EU politics and EU law. We have also known already that older persons who need help from society are a particularly vulnerable group, whose interests are often neglected in favour of those of other groups in society. Older persons are a group that finds it hard to make its voice heard. Rights claims made by groups that can represent their interests more prominently have been given priority—during the pandemic, for instance. Sweden has drawn attention as an example to avoid of how a society can fail to protect its older members (Mattsson et al., 2021). This is all the more striking given that, earlier in history, this country had been a pioneer in several social-welfare areas, including that of elder care. Sweden is thus an example of a country that has proved to be vulnerable in a time of crisis, and which like the EU has needed to find resilience and new roads to recovery in a time of great change. The country serves, accordingly, as an illustrative example in this chapter. The pandemic can be said, then, to have raised important questions about the position of older people in Europe once again, and to have underlined the issue of what rights seniors should be able to claim as Union citizens. In particular, it has focused our attention on whether, and if so how, society could have been better equipped to protect and to care for the weakest among its older members: i.e., those struck by illness, disability, or infirmities of age; and those living under difficult socio-economic conditions. I will not delve further into those issues in this chapter, but they can be expected to draw attention from various national and international actors in coming years. The theme of this chapter instead concerns the Union’s future policies for its large elderly population, and what considerations will need to be heeded in coming years. The purpose is to analyse some of the challenges we will be facing, and to consider how these can be met. My main point is that the EU has a structural problem in connection with living conditions for older persons. In my view, this should be the starting point for discussions about possible action programmes. Efforts must be made to enhance living conditions for older persons and to ensure that people of all ages are treated as equals—both in crisis situations and under ordinary conditions.

6

THE DEMOGRAPHIC CHALLENGE …

119

The theoretical framework for this chapter is the so-called vulnerability theory developed by Martha Albertson Fineman, Professor of Law at Emory University. Vulnerability theory is regarded internationally as one of the leading critical approaches within welfare law. Fineman applies vulnerability theory to the elderly (Fineman, 2004a). This theory critiques the prevalent social-liberal discourse, with its focus on individualism, autonomy, and independence. The main idea here is that individuals, states, and societal institutions are in fact fundamentally vulnerable entities (Fineman, 2004a). We ought not, therefore, to structure society on the basis of independence as the norm—whether for the state, the Union, or the citizen. We need instead to take a holistic view, and to create sustainable institutions and arrangements for cooperation that can better deal with the many vulnerabilities common to a union and its citizens (Mattsson & Katzin, 2017). Doing so will enable us to achieve both durability and resilience—in the sense of an ability to recover—and thus create good prospects for achieving fair and decent living conditions for the population of each country, including its elderly members. The vulnerability versus resilience of a country, or of a union, can serve as a focal point for understanding various changes in society, and on that basis to find reasonable ways to respond. Such changes can be slow and structural, such as the ageing of the population; or rapid and unexpected, like Covid-19—the pandemic that took the world by surprise in 2020 with tremendous force, and which influenced virtually all areas of the Union and all parts of its population (Nordberg & Mattsson, 2020). This introduction has briefly addressed the general public-health situation in Europe during the pandemic, as well as some problems that had already been evident earlier, such as the high health risks faced by the elderly and the deficiencies of the various national systems for providing health and social care to seniors in the EU. A brief description now follows of key regulations in international and EU law concerning the legal position of older people in the areas of health and social care, and of how these relate to regulations at the national level. I present an analysis thereupon of the requirements to which the EU must live up if it is to strengthen the legal position of older people and to create conditions for a durable and resilient Union. Finally, I offer some recommendations as to what legal regulations at the international and EU levels should guide further developments.

120

T. MATTSSON

Challenges Facing Society Beyond the Pandemic Other common challenges, furthermore, loom beyond the pandemic when it comes to meeting the needs of older persons in the EU. One such challenge relates to the ageism within the Union and in many parts of the world, to which many researchers in the field have called attention. This problem was especially visible during the pandemic, but it was also quite evident before that. Ageism is a term sometimes used in research on the social, legal, and occupational standing of the elderly. Coined by the American gerontologist Robert Neil Butler in the 1960s, it refers to prejudice and discrimination on grounds of (usually advanced) age (Achenbaum, 2013). Since then, scholars in various disciplines—both within the EU and without—have shown repeatedly that older people are at risk of suffering discrimination and treatment on the basis of stereotypes. The Court of Justice of the European Union (CJEU) has stated that ageism can constitute a basis for discrimination and has identified the principle of non-discrimination on grounds of age as a general principle in EU law (Court of Justice of the European Union C-144/04 Mangold). Various solutions have been proposed in different research fields to address this problem. Jurists, a group to which I myself belong, are inclined on the one hand to propose legislation to raise the standard of public measures in this area, and on the other to suggest various methods for ensuring that such legislation is in fact followed. Another current challenge for society’s planning is to find sustainable and high-quality forms for elder care within the EU. Criticism has grown among researchers on the storage-like institutional arrangements that many countries still furnish for their elderly, and to which the EU contributes by providing some of the funding. In today’s mobile and urban Europe, it is no longer the case that members of the younger generation (who had usually been women) take care of their older relatives at home. New forms and structures are needed instead. In some parts of Europe, such structures were established already decades ago, and other problems have arisen since then. Scandinavia, for instance, saw growing criticism of institutions in this area during the second half of the twentieth century. In place of such large institutions, therefore, more homey forms of housing for the elderly have been developed, often integrated with other buildings and forms of housing. From the 1980s

6

THE DEMOGRAPHIC CHALLENGE …

121

on, moreover, new legislation has put respect for the integrity and selfdetermination of the individual at centre in Nordic elder care (Giertz et al., 2021). Over the course of some decades, therefore, Sweden and the other Nordic countries have established extensive arrangements to make it possible for people to ‘age in place’ (i.e., at home), and only on the basis of the individual’s consent. Living arrangements of this kind have been expanded both for seniors and for people with cognitive disabilities, including people with dementia. The opportunity to age at home is in line with the UN Convention on the Rights of Persons with Disabilities, which encourages states to provide independent forms of housing for people in need of assistance, and in a manner consistent with the individual’s right to integrity and consent. However, these far-reaching changes in elder care in many parts of the EU pose new challenges for national programmes in this area, including a shortage of places in retirement homes for those who are unable or unwilling to stay home. In addition, the trend towards home care for seniors has given rise to new problems from the standpoint of their needs and interests. This is especially true for older persons who cannot manage daily life at home even with extensive assistance. Since consent is needed daily for each intervention into the individual’s life at home—in order to safeguard integrity and self-determination irrespective of the person’s need for assistance—the effects of care are not always the intended ones when consent to a given intervention is lacking. In cases of this kind, the person’s need for support, care, and protection risks going unmet. Moreover, the greatly increased number of persons in our society who suffer from dementia in particular makes it difficult to ensure ageing-inplace arrangements for everyone. In Norway, where elder-care provisions are similar to those in Sweden, the difficulty of meeting the care needs of older persons at home has led in some cases to claims for damages against municipalities when seniors living at home have suffered injury or death there, due to a lack of consent for more extensive interventions than those to which the individual had consented (see for example Aasen, 2018). During the pandemic, Swedish elder care has also come in for particularly harsh international criticism (see for example Grothe-Hammer & Roth, 2020; compare Mattsson et al., 2021). Attention has not just focused on the lack of protection from infection in retirement homes or in connection with home-care services; it has also concerned the health care provided to the elderly, and in some cases a lack thereof. Similar problems have been noted in several other European countries as well. Many would

122

T. MATTSSON

argue that the difficult situation which has arisen for older persons during the pandemic is in part a consequence and reflection of the weak social and legal positions that the elderly still have in Europe.

The Great Public-Health Crisis in a Vulnerable Europe The pandemic has put the spotlight on society’s vulnerability, as seen in the heightened risk of ill health and premature death in the Union. The initial challenge for member states was to try to minimize mortality and morbidity in the population. In time, however, many other negative consequences of the pandemic—both for the older persons and for the rest of society—have drawn attention in the EU. In the rearview mirror, we see a rather chaotic course of events reflecting a vulnerable and unprepared EU (for a detailed account of these events and of efforts at the EU level to manage them, see Louise Bengtsson’s chapter in this book). The rescue work took place initially under very great pressure, without time for mobilization, with unevenly distributed national resources and equipment, and on the basis of significantly different legal strategies in the different member states. Many countries imposed restrictions of various kinds: e.g., curfews, surveillance measures, and bans on meetings; others implemented less intrusive policies, such as recommendations for social distancing and restrictions on travel. The preparedness to deal with a pandemic proved to be low throughout the Union. The short-term effects are perceptible; the long-term consequences are still shrouded in mist— whether regarding the economy, the labour market, social conditions, security matters, or public health. Regarding the last-mentioned matter, public health, both Europe and much of the rest of the world were struck by dramatically worsened mortality and morbidity, as well as by many other unwelcome effects besides the direct impact of the coronavirus. The pandemic has resulted, for example, in thousands of missed or delayed operations. Medical measures of many kinds have had to make way during acute periods for emergency efforts requiring a high proportion of the health-care staff and resources in all countries. This has led in turn to increased morbidity and premature death among those who have not received a diagnosis or treatment in time. Furthermore, an increased reluctance in the population to seek out medical treatment during the pandemic has probably led to a

6

THE DEMOGRAPHIC CHALLENGE …

123

general deterioration in health. We shall learn more about the consequences of Covid-19 for public health in coming years. Already now, however, it is clear that many individuals and groups have suffered—and many are likely to continue to do so—from long-term impairments to their health after the acute period of the disease has passed. The pandemic is also having a number of indirect negative effects on health about which we are not likely to gain sufficient understanding for some years. The rising unemployment and worsening social exclusion to which the EU’s economic weakness has given rise has led to further deterioration in public health within the Union. Times of crisis may very well result in higher rates of suicide, mental illness, and domestic violence. The current crisis is no different in these respects. Of course, member states must contend with many of these health risks in any case—even in the absence of a global pandemic—but not at the same explosive pace as at present; and above all not with such uncertainty about their future prospects for being able to handle them. As we have seen, the elderly population in the Union has been struck with particular severity by the pandemic in terms of their health and exposure to danger. Sweden has been a particularly clear example in this regard, given the high death toll among the elderly in that country. According to statistics from the Swedish National Board of Health and Welfare in May (2020) around 90 percent of deceased persons with Covid-19 in 2020 were 70 years of age and older. Of these about half, some 50 percent, were living in special housing of the kind that Swedish municipalities are enjoined by the Social Services Act to provide. Another quarter of the deceased were receiving home care (also a municipal responsibility). Within the older among the elderly the mortality rate among those depending on care services was even higher. These fatal direct consequences for older persons are in themselves a social disaster. Major efforts will be needed during the remainder of the crisis to trust and legitimacy. In addition, the extra vulnerability of older persons during the crisis reflects a structural problem of public health in the EU. The harsh conditions faced by the elderly in many European countries in this period can be seen as a possible indicator of unfavourable living conditions among older persons as a social group (Mattsson et al., 2021). This also applies in a Nordic welfare state such as Sweden, where health and prosperity have perhaps been taken for granted to embrace all groups irrespective of age. The high death and disease rates among seniors point to their

124

T. MATTSSON

being a particularly vulnerable group in European society. Nor is this vulnerability just a question of advanced age or higher risk for illness. Factors of that kind, of course, necessarily affect people during the later stages of the lifecycle. Other circumstances, however—circumstances that can be influenced—contribute as well to the vulnerability of this group. These circumstances have to do with living conditions—in connection with housing, nursing, and health care—which have proved insufficient for protecting the older population. As I see it, the inadequate protection and security afforded to older persons during this crisis reflects the weak position of this group in society. The pandemic may thus be said, like Pandora’s Box, to have opened up a source of underlying structural problems in connection with the living conditions of older persons in European society. It has also highlighted problems which had not previously been stressed, discussed, or remedied to any great extent. One such problem is the particularly high health risks faced by older persons. The severe consequences of the crisis for the elderly also point up the Union’s past shortcomings in attending to the living conditions of many older people. This can be said particularly to apply in the case of seniors with the most urgent needs for nursing and care. There is thus reason to focus in the future on the situation faced by such older persons. Their ability to influence their situation is often very limited, and society’s responsibility to provide for their care— to furnish good housing, nursing, and other services—is explicitly set out in applicable legislation.

Housing and Daily Life for the Elderly in the EU In many European countries, elder care has shifted from being seen primarily as a private family issue to being regarded more and more as a question for all of society. Increased urbanization, altered working conditions, and changes in other living patterns have gradually led in recent decades to the development and expansion of publicly organized elder care. At the same time, moreover, that the public sector has assumed greater responsibility for older persons in need of care, the legal responsibility for older persons within the family has disappeared or at least diminished. There have also been changes of a conceptual kind. In the Nordic countries, for example, terms like ‘poor relief’ and ‘public assistance’ have been dropped in favour of concepts such as ‘social welfare’ and ‘public care’ (Numhauser-Henning, 2017).

6

THE DEMOGRAPHIC CHALLENGE …

125

In several countries, moreover, the trend in recent decades has been towards individually adapted ageing in the home environment. This is in line with the UN Convention on the Rights of Persons with Disabilities (CRPD), which is permeated by a strong stress on the centrality of the person. Ageing-in-place arrangements enable older persons to live and age in their own home for as long as possible. This usually means providing home help, health care, and other necessary support for such persons in their home. Certain needs, however—as for more advanced medical treatment—must be provided at special facilities devoted to the purpose. Since it is up to the member states themselves to organize their health and social care, the differences between the countries are naturally substantial. The Nordic welfare model, for instance, has moved in the direction of ‘defamilization’—i.e., towards making the individual independent of his or her family. This in turn has led to the creation of national systems where society’s resources and support have become important elements for ensuring the welfare of the elderly. In other ways too, the distribution of responsibilities for the care of older family members in different parts of Europe has changed. In some countries, however, helping older relatives in need of care is still seen as a family affair. Thus, the means whereby older persons are furnished with care and housing vary considerably within the Union. The living patterns of older persons and of cognitively impaired persons thus differ as between countries, as do the societal measures taken on their behalf. In many European countries, long-term financing in this area is concentrated on separate housing arrangements for the people in question. The use of institutional care has changed over time, with an increased reliance in some member states on nursing homes for the elderly, and at the same time a general de-institutionalization of housing services for people with disabilities in Europe, and a corresponding shift to a heavier emphasis on services provided in the person’s home. Such homebased health and social care includes both short-term and long-term care. The services offered may include home help (cleaning, meals, exercise, etc.), personal care, technical assistance, and where needed medical treatment. Home-based care can be preventive, acute, rehabilitative, or palliative. In a European perspective, Sweden stands out as a country which has focused in a very high degree on providing health and social care to older persons in their home. The country thus embodies a trend which other member states will likely need to follow in coming decades, not least in

126

T. MATTSSON

view of the requirements set out in the above-mentioned UN Convention regarding housing for people with special care needs. Home-based care is now by far the most common way in Sweden to assist older and cognitively impaired persons. Among people aged 65–79 in Sweden, fewer than 2 percent live in special forms of housing (so-called institutions). Among those older than 80, only about 13 percent of men and 20 percent of women live in such special housing. The vast majority of older persons thus continue to live in their own home. One reason for this is that many people with special needs prefer to remain at home for as long as possible. Another reason is that the number of available places in special forms of housing for older persons has gradually fallen in Sweden over a long period. This is partly a result of improved health among the elderly, and partly a result of greater opportunities to stay at home with the help of home-based services despite reduced functional ability. These changes are due as well, however, to a national policy of encouraging older people to remain at home for as long as possible, and of offering opportunities to adapt to the home environment and to obtain the needed care and nursing. Among those 65–79 years of age, 5 percent receive home-based care in Sweden. The variation between countries in how health and care services for older persons are arranged and financed has both historical and economic causes. Viewed internationally, Sweden spends relatively large amounts on elder care. The costs are mainly covered by municipal taxes and state subsidies. In 2014, the total spent on elder care in Sweden came to 109.2 billion SEK (EUR 11.7 billion). Only a very small part of these costs— 4 percent—were covered by fees paid by the client. The level of such fees is not fixed. A maximum level, however, is set by each municipality. In 2005, 90 percent of all home care for the elderly was provided by the municipalities themselves (Swedish Care International, 2020). Since then, however, a large number of municipalities have contracted out such services. The national costs of elder care vary widely within the EU, as might be expected. The varying histories and welfare models among member states have set their stamp on the different national systems, and they will continue to influence the kind of housing, care, and other services which the different countries can provide to their older citizens.

6

THE DEMOGRAPHIC CHALLENGE …

127

The Health and Care Needs of Older Persons Where the needs of older persons for health care are concerned, most member states are now faced with a far-reaching challenge. The changing age structure in Europe is well-known, as is the associated rapid increase in the life expectancy of the population. The share of each nation’s total care services which is consumed by the elderly is very high as a rule. While the general health situation is likely to continue to improve for Europe’s population as a whole, the trend within the elderly population is somewhat less positive. The population of Sweden and of other European countries in the future is expected to suffer at much higher rates than at present from such ailments as dementia and diseases of the musculoskeletal system. We know too that persons with such conditions have far-reaching needs for health and social care. According to the European Commission’s report on the situation of the elderly from 2018, the EU population is expected to have a very large number of disabled people in the future with conditions like dementia and muscular diseases (European Commission, 2018). In Sweden today, approximately 160,000 people have dementia. According to forecasts by the National Board of Health and Welfare, this number is furthermore expected to double by 2050. The prognosis for the number of people with this condition in the world as a whole is also worrying. According to the World Alzheimer Report (2015), approximately 47 million people in the world currently live with dementia, and some 10 million fall victim to it each year. That corresponds to one person every three seconds. According to forecasts, 75 million people will be afflicted with this illness in the world by 2030; by 2050, 131 million are expected to be living with it. The challenges of providing health and social care for these persons would appear to be insurmountable for many nations. For EU member states too, the difficulties involved are likely to be great in coming years. To meet them, a range of different solutions will be needed. The EU’s strategy for growth and employment has put a strong emphasis for some years now on a so-called active ageing policy, the aim of which is to make it possible for seniors to stay healthy and active—and to continue as workers, consumers, carers, and citizens—for as long as possible. Such hopes presuppose, however, the presence and operation of strong national health-care organizations that can step in when ill health appears. Another catch is that, while we can now cure a greater number of diseases than ever

128

T. MATTSSON

before, age-related illnesses in general are inexorably increasing as society ages. EU membership also affects efforts to provide health care for the elderly, in a variety of ways. For example, many older people opt to travel to—or indeed to reside in—another EU country in the autumn of their years. EU regulations must therefore work together with national legislation, at times in a quite complicated way. Similarly, EU membership means each nation must have a health-care system that is able to compete on equal terms within the Union. This makes among other things for a greater number of foreign players in national health-care markets. The growing use of various e-services in this sector also contributes to a more international health-care market, in which a mixture of public and private actors is to be found. Here we are probably only at the start of a trend that will affect the content and character of national health-care systems throughout the Union. Another wave of structural change affecting many member states in recent years has been the shift to a greater role for the private provision of health and care services, and the introduction of various systems offering freedom of choice. Sweden has actually been at the forefront in introducing private market players into elder and health care. In the case of elder care in particular, regulatory changes have paved the way for the emergence of municipal systems that offer customer choice. These have enabled a large number of older persons to choose the type of care they receive. Using public vouchers, seniors can act as customers, selecting among services in a care-services market monitored by the municipalities. Given the cognitive impairments associated with age, however, many of the most vulnerable among the elderly are unable to utilize such arrangements to their advantage. In certain European countries, finally, overarching public systems for elder care are less developed, and other service forms have emerged. In Portugal and Greece, for example, civil-society actors play a large part in the development and running of retirement homes. The trend towards greater opportunities for free choice is also evident in health care. Publicly funded health care is universal in Europe generally, and it is still the case in most of these countries that private voluntary health insurance defrays only a small proportion of healthcare costs overall. Yet private health insurance is becoming more and more common, often as a supplement to public health insurance. In a

6

THE DEMOGRAPHIC CHALLENGE …

129

number of countries, moreover—France and Germany among them— private health insurance has been part of the health-care system for a long time. Nearly 660,000 Swedes, out of a population of some 10 million, had private health insurance in 2018. That was six times more than in 2000, indicating a rapid change in behavior (Swedish Agency for Health and Care Services Analysis, 2020). The number of Swedes who seek care in another member state has also increased in recent years. Similar patterns can be seen in other European countries as well. These changes in national systems of health care, and the consequences to which they give rise, were the subject of heated discussion in the media in 2020, until the corona crisis drew attention to other and more acute problems. According to a report for the government from the Swedish Agency for Health and Care Services Analysis (2020), people with private health insurance receive care more quickly on average than do people who only use the publicly funded system—and without having more urgent medical needs. In the case of specialized care, patients with private health insurance are usually offered a first visit within 3–7 days, and treatment within 14–21. Patients in publicly funded care, on the other hand, often have to wait more than 30 days for their first visit. Moreover, access to private health insurance is limited for many people. An inability to work poses a serious obstacle to taking out such insurance, as does advanced age (the cutoff age being 63–70, depending on the insurance company). The cost and terms of the insurance also vary greatly according to such factors as the applicant’s age and health. In other words, even elderly people with ample purchasing power may find it difficult to obtain private health insurance. In August 2020, therefore, a special investigator was appointed to review the Swedish system and to propose measures to counteract a continuation of this trend, whereby patients with private health insurance have better care and quicker access to treatment than those do who lack such insurance and depend solely on publicly funded health care. In most European countries, private health insurance serves mainly as a complement to publicly funded health care. That is, privately insured persons are offered essentially the same care as in the public system. The main advantage of having a private insurance plan is that it affords faster access to care and offers a wider selection of providers than the publicly funded system otherwise provides. In Norway, Sweden, and the United Kingdom, for instance, private insurance functions primarily as a supplement to public health care, and it offers similar provisions as the publicly

130

T. MATTSSON

funded system (Swedish Agency for Health and Care Services Analysis, 2020). In certain member states, however, private insurance serves more as a substitute and replacement for care that the public system typically does not provide or pay for. In Denmark and Finland, for example, such private insurance is common (Swedish Agency for Health and Care Services Analysis, 2020). Thus, insurance plans of this kind often make services available which are not on offer in the publicly financed system. For example, the private insurance may reimburse fees that the patient otherwise would have to pay him or herself. Furthermore, Europe’s health-care systems are nationally organized and regulated, so health-care costs for EU citizens vary considerably between member states (Swedish Agency for Health and Care Services Analysis, 2020). In some countries, for example, the national system affords no protection for persons who incur unusually high health-care costs. High patient fees and deductibles in a country’s public insurance system can generate incentives for some households to purchase private health insurance as a protection against such expenses. Naturally, the question of whether private health insurance is to be offered is in large part an ideological or political choice for each nation, and as such the answer to it is allowed to vary between member states. It is only when national law must be applied in a cross-border situation that there are common EU rules that must be heeded. Besides which, EU Regulation 883/2004 only applies to public health care (and social insurance). When it comes to the relationship between public and private arrangements for health care and elder services, each national system must take applicable national regulations into account. Swedish healthcare legislation, for instance, requires that all members of society be given treatment on equal terms, and that those whose needs are greatest be given top priority. The given question for Sweden, of course, is whether this is possible in a system where the same health-care facilities offer both public and private services. The Swedish government has had cause to concern itself with this question, particularly in view of the pandemic. Where the elderly population is concerned, the trend towards a heavier reliance on private health insurance leads to greater vulnerability. Two apparently incompatible principles confront each other here: on the one hand, the principle that care must be provided to all on equal terms and in accordance with need; on the other, the idea that its provision should reflect freedom of choice and be offered in accordance with preference. These opposed positions also reflect polarized views on the advantages

6

THE DEMOGRAPHIC CHALLENGE …

131

and dangers of new health-care systems, and on the long-term consequences for society as a whole of having a divided welfare state (Katzin, 2020). Few seniors or ill or disabled people wield sufficient purchasing power on such a market. They must rely instead on the capacity of the national service to meet their need for care, and on the continued willingness of taxpayers to pay the costs involved. Of course, there are risks connected with the continued development of parallel systems to which certain groups lack access. One is that excluded groups, such as seniors suffering from illness, will receive poorer care. Another is that the system’s legitimacy will come under threat, and that taxpayers will not be willing to pay for public provisions which they do not use themselves. There is reason, in other words, to keep our eye on how the parallel welfare systems develop which are spreading across the Union (Katzin, 2020). Several of these social trends raise questions about what concrete opportunities older persons actually have to defend their rights, and in that case what claims they can effectively press. The issue is complex, of course, and many rights claims are nationally bound, as well as limited in some cases by the demands of the private sector. They vary individually and geographically, in a high degree. However, certain overarching provisions of international and EU law are relevant in this context; I describe their main features below.

Protecting the Rights of Older Persons at Different Levels Protection for the rights of older persons as a group is weak internationally. The UN Convention on the Rights of Persons with Disabilities, CRPD, is the international convention which otherwise is the closest thing, since the elderly suffer from mental and physical disabilities in a high degree. There is no international convention, however, that forbids discrimination against older persons specifically. Thus, unlike many other groups in society (e.g., children, women, disabled persons), seniors have no international convention to protect their rights. At times this issue has been quite controversial. In particular, it has been claimed that pointing out the elderly as a group may be stigmatizing. A general international catalogue of rights for the elderly has been under discussion for a number of years, and a degree of progress has been made towards the future realization of such a document. That which has been achieved at the international level so far is a number of principles for older people adopted

132

T. MATTSSON

by the UN, setting out guidelines for the world’s states. There is also a regionally binding convention for the protection of the rights of older persons, adopted by the Organization of American States (OAS) in 2015. There is much to suggest, particularly in the wake of the Covid-19 crisis, that we will see an international convention for the protection of seniors’ rights within the coming decade. At the UN, for example, investigative work is already under way in that direction. The OpenEnded Working Group on Ageing (OEWG) was set up in 2010. It seeks to strengthen protection for the rights of older people by reviewing how existing instruments deal with seniors’ rights, by identifying gaps in protection, and by examining the feasibility of new instruments. Since 2014, moreover, an independent expert has been charged with actively monitoring the situation regarding the rights of older persons, and with submitting recurrent reports on the subject. At the European level, a number of key rights documents deal in one way or another with the elderly as a group. Animating principles in these documents include accessibility, proportionality, due process, and nondiscrimination. According to the Treaty on European Union (TEU), the EU is a social market economy, and as such it must combat social exclusion and discrimination. The Treaty also proclaims the need to promote solidarity between generations (Article 3(3) TEU). Special rights for the elderly are also set out in the EU Charter of Fundamental Rights, which now has the same legal value as the Treaties (Article 6.1 TEU). Article 25 of the Charter emphasizes ‘the rights of the elderly to lead a life of dignity and independence and to participate in social and cultural life’. This article has attracted attention as an innovative provision with a potential for reinforcing the rights of the elderly to good health and social care. Article 34 of the Charter proclaims the right to social security and social assistance in connection with among other things old age; while Article 35 sets out the right to preventive health care and to medical treatment in accordance with national laws. Of particular importance for European cooperation is Article 21 of the Charter, which lays down a general prohibition against discrimination, including on grounds of age. In this context, the role of the CJEU in developing the general legal principle of non-discrimination also bears mentioning. The Court’s ruling in the Mangold case (2005) established a prohibition against age discrimination as a general principle of Community law within areas regulated by the EU. This principle has been further developed and enhanced in subsequent case law. The national provisions

6

THE DEMOGRAPHIC CHALLENGE …

133

in this case concerned measures to implement EU Directive 1999/70 on fixed-term work, and Directive 2000/78 on equal treatment. The issue of age-based discrimination has also been addressed by the European Court of Human Rights (ECtHR). In the case of Carvalho Pinto de Sousa Morais v. Portugal (2017), the said court ruled that national courts had countenanced age discrimination. This ruling did not, however, equate discrimination on grounds of age with other kinds of discrimination. A subsequent Union document of relevance is the European Pillar of Social Rights, adopted in 2017. Although not a legally binding instrument, it is nonetheless central to the ongoing and future work of the Union on social rights. It is based on 20 key principles, one category of which concerns social security and social inclusion. The call to realize these rights is aimed both at the Union and at the member states. At the national level within the EU, the picture regarding the rights of older persons is a somewhat scattered one. Certain countries have incorporated special rights for the elderly into their regulatory framework, in some cases even at a constitutional level. Of particular interest here is the introduction of protection against age-based discrimination into the procedures of various social organs. Finland, for example, has introduced rights legislation for the elderly in the form of a ban on age discrimination in its constitution. In Swedish law, the legislator has added a far-reaching prohibition of discrimination against older persons in the form of the Discrimination Act (2008: 567), which forbids discrimination on grounds of age in a number of societal areas, including health care and social services, of which elder care too forms a part (Chapter 2, Sect. 13). Where the Union as a whole is concerned, the ECtHR has pushed in the same direction. Discrimination on grounds of age, it avers, is prohibited by the European Convention on Human Rights. The relevant provisions are Article 14 (protection from discrimination) and Article 8 (the right to respect for private and family life). Still, regional progress within the Union towards greater rights for the elderly is slow. Here too, however, we can expect a continuing trend in coming years towards stronger international and regional protection for the rights of older persons. Such provisions match expectations raised by the Treaty on European Union, so we should be able to expect them. They are also likely to put greater demands on the member states to work for the health and security of older persons within the Union.

134

T. MATTSSON

Let the Pandemic Be a Teacher and a Spur to a More Durable and Resilient EU Since the outbreak of the pandemic in early 2020, the EU has faced many tough questions about how best to allocate scarce care resources. Questions like: Who will have access to aid, and when? Who will have to wait, or even to do without? Each country was forced to consider carefully what kind of care to give priority over which other. It was not always possible to uphold national rules enjoining equal access to care for all, or to live up to ethical guidelines regarding the equal worth of everyone regardless of age, position, geographical location, or functional capacity. The preparedness for crisis was in general too low, at least in the initial stages of the pandemic, for it to be possible in all situations to live up to basic legal and ethical values in providing care. Protocols for who would first be given care quickly became everyday routine in large parts of the healthcare system in each member state. Older persons with poor prospects for handling tough treatment risked ending up far down the list, and in some cases were left without any medical attention or treatment. Nor were member states always inclined to aid each other in a situation where panic prevailed, where time margins for saving lives were lacking, and where scarce resources of various kinds were needed in very large quantities in many countries. Vulnerability was evident in a great many areas, both individually and nationally. It was also clear at the Union level, as was an inability to furnish adequate assistance in the crisis. Here too, the adage that no chain is stronger than its weakest link applied. Even before the Covid-19 outbreak, however, the question of who would receive what kind of health and social care, and under what conditions, had been the subject of much discussion at both the national and the Union level. Admittedly, the question then did not primarily concern care needs in a crisis situation, but rather the necessary structural changes and prioritizations that will need to be made in coming years due to an altering population structure and a fast-changing society. Already before Covid-19, the Union and its member states had been faced with a rapidly ageing population, with difficult economic challenges in many countries, and at the same time with greater prospects for offering advanced—but expensive and limited—health care for a few. How then are care resources to suffice in years to come? How ought we to allocate them? Furthermore, the EU needs to consider the risk of generational conflicts in the future.

6

THE DEMOGRAPHIC CHALLENGE …

135

Conflicts may break out between generations with different rights claims when limited societal resources are to be distributed. These discussions have not issued, however, in many concrete results as yet. Indeed, with the economic problems that have followed as a result of the pandemic, the matter has grown more acute and (perhaps also) harder to address. It is clear we are living today in a Europe that is highly vulnerable, and which is likely to remain so for many years to come. ‘Vulnerability’ is a term that tends to have negative connotations. It may suggest weakness and a tendency to yield to external influences (Fineman, 2004a, b). The term is also used in reference to dependence, and to a corresponding need to cooperate with others and to rely on them. The origins of the EU lay in European vulnerability. The purpose behind the Union was to increase cooperation and to encourage us to trust one another, in the hope of increasing our durability and resilience in the face of our common vulnerability. The corona crisis has supplied a fresh example of the vulnerability of the Union and its member states. In the course of the pandemic, the member states have shown themselves to be strongly influenced by external forces, and to have great need of various forms of cooperation within the Union. Older people are often categorized as a particularly vulnerable group in society. To be sure, the elderly need extensive health and care services, which in turn require significant resources from society. The corona crisis has underlined this vulnerability; society’s efforts have proven manifestly insufficient in relation to older people’s need for care and protection. Vulnerability theory calls the liberal state’s belief in individualism, autonomy, and independence sharply into question (Fineman, 2004a). Its starting point is instead that both social institutions and private individuals are basically vulnerable. This applies as well to countries and to combinations thereof, such as the EU. Instead of taking independent individuals and free-standing social institutions as the benchmark and norm for a country or a union, we should look for concrete ways to achieve greater durability and resilience. This will enable us to achieve fair and decent living conditions for the population of a country and of a union, including its elderly members. How, in that case, can we best safeguard the future living conditions of older people in the EU? This chapter concludes with a couple of general recommendations for the coming period. All reflect the call for action in

136

T. MATTSSON

the title of this section: let the pandemic be a teacher and a spur to a more durable and resilient EU! A first recommendation is to use the evidence-based knowledge that already exists about the elderly to improve their living conditions. This includes both the knowledge gained during the pandemic and all the knowledge which had already been gathered regarding the challenges the Union is faced with, and the possible paths among which it can choose. As noted earlier, the pandemic has focused our attention on a problem area about which we already know much. We have a great advantage in enjoying such a starting point, upon which we can base future progress. The knowledge should be collected and systematized—regionally, nationally, and at the level of the Union—and policies based upon it must be implemented. One concrete way to do this would be to appoint elderlaw commissions—regional, national, and European—to compile relevant evidence and to devise concrete plans for action. Let this knowledge be combined with the fruits of previous research and experience on the various ways we can best promote the well-being of older persons within the Union. This will enable us to create conditions for a more resilient Union in years to come, as the age structure of our societies gradually changes. A second recommendation is to push Europe to become a leader in preparations for the proposed International Convention on the Rights of Older Persons. Much as Sweden was a pioneering country and a driving force when the CRPD was being drawn up, the EU and its member states should support and actively work for an international convention for the elderly. A convention of this kind will have positive repercussions for many years to come for the development of a more equal, cohesive, and integrated Union. There is much to indicate that international human rights agreements have a major global impact over both the short and the long term. Trends within the EU reflect a developing map of rights for different groups in different institutional contexts. This applies to the legal status of older persons as well, although the trend here is still in its infancy. Both the ECtHR and the CJEU, for example, have shown a tendency in recent years to champion rights of particular relevance for the elderly. This incipient case law is extremely important, because it points out a possible future trend. The CJEU’s rulings can compel national action by every member state. Its case law, accordingly, has great

6

THE DEMOGRAPHIC CHALLENGE …

137

importance for the future development of human rights in the Union. This should lead to an international effort to create universal rights for the elderly, both in the EU and in the rest of the world. By actively promoting a convention for the elderly, the Union can help focus attention on a particularly vulnerable group in society, ensuring that its needs and claims are acknowledged as no less urgent or justified than those of other groups in need of special care. A particular challenge for the Union relates to the role to be played by the EU Charter of Fundamental Rights in the future. This document has not had any great importance as yet, especially for cross-border health care. In Case C-444/05 Stamatelaki, for example, the Advocate General argued that, in view of Article 35 of the Charter, a right to cross-border care was obtained (Court of Justice of the European Union, ECLI:EU:C:2007:24). The Court, however, did not cite the Charter, but chose instead to apply the Treaty and the right to freedom of movement (Court of Justice of the European Union, ECLI:EU:C:2007:231). We should see the Charter as an important part of the effort to ensure that the EU lives up to its vocation as a social market economy. There is also an ongoing discussion within the Union as to what it means to say that the EU is a social market economy. In her dissertation in jurisprudence Martina Axmin (2020) shows that the economic perspective still takes precedence over the social one, and that the EU thereby fails to live up fully to its vocation as a social market economy. This reflects the EU’s limited competence on matters of health and social care, among other things. There does not appear to be any political support at present within the Union to expand the EU’s competence in this area. The ongoing pandemic, moreover, puts additional spokes in the wheel of any such attempt. The question is whether, due to the difficult situation in many countries, member states will shut themselves off and deny care to incoming Union citizens. The question then is what this would mean for the EU’s goal of being a social market economy. The far-reaching differences between the social provisions of different member states should not be underestimated. It is mainly residents of the ‘richer’ member states who can make use of the right to cross-border care, for example. The country from which Union citizens come is thus critical for whether or not they can take their social rights with them in a cross-border situation. This issue is altogether key for the elderly, who depend on their pensions and other accrued benefits when they move across borders within the Union. In sum, we should see the Charter as important for ensuring that

138

T. MATTSSON

the EU lives up to its vocation as a social market economy, and that it helps create durable and resilient institutions both within and outside the Union.

References Aasen, H. S. (2018). Forsvarlig eldreomsorg? Et kritisk blikk på dom avsagt av Oslo tingrett In Adolphsen, C, Henning Østenstad, B, Naur, E, Sinding Aasen, H, Selvbestemmelse og tvang i helse- og omsorgstjenesten. Fagbogsforlaget. Achenbaum, W. A. (2013). Robert N. Butler, MD. Visionary of healthy aging. Columbia University Press. Axmin, M (2020). Access to crossborder healthcare for older persons in the European Union. The interplay between EU Law and Swedish Law (Dissertation). Media Print: Lund University. Bakardjieva Engelbrekt, A., Leijon, K., Michalski, A., & Oxelheim, L. (2020). The European Union and the return of the nation state. Palgrave Macmillan. Court of Justice of the European Union. (2005). Judgement in Case C-144/04 Werner Mangold v Rüdiger Helm. ECLI:EU:C:2005:709. Court of Justice of the European Union. (2007). Judgement in Case C-444/05 Stamatelaki. ECLI:EU:C:2007:231. Court of Justice of the European Union. (2007). Opinion of Advocate General in Case C-444/05 Stamatelaki. ECLI:EU:C:2007:24. European Commission. (2018). The 2018 ageing report: Economic and budgetary projections for the EU Member States (2016–2070) (Institutional Paper 79). European Commission. (2021). The 2021 ageing report, underlying assumptions and projection methodologies (Institutional Paper 142). European Court of Human Rights. (2017). Case of Carvalho Pinto de Sousa Morais v. Portugal. Application no. 17484/15. Fineman, M. A. (2004a). “Elderly” as vulnerable: rethinking the nature of individual and social responsibility. Elder Law Journal 20( 102). https://doi.org/ 10.2139/ssrn.2088159 Fineman, M. A. (2004b). The autonomy myth: A theory of dependency. The New Press. Giertz, L., Mattsson, T., & Thelin, A. (2021). Nedsatt beslutsförmåga: rätt, riktlinjer och praktik. Studentlitteratur. Grothe-Hammer, M., & Roth, S. (2020). Dying is normal, dying with the coronavirus is not: A sociological analysis of the implicit norms behind the criticism of Swedish ‘Exceptionalism’, European Societies, 23, 332–347. Katzin, M. (2020). Taking care of business. a study of the governing of care choice systems in Swedish home care (Dissertation). Media Print, Lund University.

6

THE DEMOGRAPHIC CHALLENGE …

139

Lopes, A. (2017). Long-term care in Portugal. Quasi-privatization of a dual system of care. In B. Greve (Ed.), Long-term care for the elderly in Europe: Development and prospects (pp. 59–74). Routledge. Mattsson, T., & Katzin, M. (2017). Vulnerability and ageing. In A. NumhauserHenning (Ed.), Elder law: Evolving European perspectives (pp. 113–131). Edward Elgar Publishing. Mattsson, T., Nordberg, A., & Axmin, M. (2021). Sweden: Legal response to Covid-19. In J. King & O. L. M. Ferraz et al. (Eds.), The Oxford compendium of national legal responses to Covid-19. OUP. Mattsson, T., & Numhauser-Henning, A (Eds.). (2017). Äldrerätt. Ett nytt rättsområde. Wolters Kluwer. Nordberg, A., & Mattsson, T. (2020). COVID-19 pandemic in Sweden: Measures, policy approach and legal and ethical debates. BioLaw Journal— Rivista di BioDiritto, 1, 731–739. Numhauser-Henning, A. (2017). Elder law. Evolving European perspectives. Edward Elgar Publishing. Swedish Agency for Health and Care Services Analysis (Myndigheten för vård- och omsorgsanalys). (2020). Privata sjukvårdsförsäkringar. Ett kunskapsunderlag om möjliga konsekvenser för patienter och medborgare. Report 2020:3, available at https://www.vardanalys.se/rapporter/privata-sjukvards forsakringar/ Swedish Care International. (2020). Available at www.sci.se Tinios, P. (2017). Greece: Forced transformation in a deep crisis. In B. Greve (Ed.) Long-term care for the elderly in Europe: Development and prospects (pp. 93–106). Routledge. The World Alzheimer Report. (2015). Available at https://www.alzint.org/res ource/world-alzheimer-report-2015/

CHAPTER 7

How Can a Banking Union Make the EU More Resilient to Crises? Jens Forssbæck

Introduction In early 2020, the Covid-19 pandemic made one country after another in Europe and the rest of the world go into lockdown, resulting in economic declines of a magnitude unprecedented during the post-war period. Decisive policy responses at the national and EU levels appear to have been successful in containing the consequences of the pandemic, but its full economic impact remains uncertain. Possible consequences of setbacks in the recovery include increased bankruptcies in some sectors and rising unemployment, which may in turn result in increased loan losses in a partly already weak and unprofitable European banking sector. The pandemic struck exactly one decade after the sovereign debt crisis spread from Greece to several of the Eurozone’s periphery countries. Together

J. Forssbæck (B) Department of Economics, Lund University School of Economics and Management, Lund, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_7

141

142

J. FORSSBÆCK

with the preceding global financial crisis, the debt crisis exposed weaknesses in the regulation of the EU’s banking sector, the bloc’s resilience to crises, its crisis management capabilities, and in the very construction of the monetary union. The policy measures taken in response to the crisis therefore gradually turned into a comprehensive reform agenda. For European banks, these reforms have dramatically changed the regulatory and institutional environment in which they operate. Existing regulation has been updated, tightened, and harmonised, but the regulatory framework has also extended into new areas, and new regulatory mechanisms and agencies have been instituted. For countries within the Eurozone, a central part of these changes is the creation of the European Banking Union. The Banking Union is operative since 2016, but parts of the intended construct remain unfinished, and progress towards completion has stalled due to political disagreement. Other parts, notably the union’s crisis management framework, are untested in an actual crisis. Yet other elements typically thought of as important components of a financial safety net do not form part of the Banking Union. The Covid-19 crisis is of a very different type, with different causes, than the financial and debt crises a decade ago. Nonetheless, strains on European banks may follow in its wake that come to constitute a first test of the EU’s new bank regulatory framework. The main question asked in this chapter is whether the yet-unfinished Banking Union is up to the test. Can the Banking Union make the EU more resilient to crises, and if so, how? Which reforms have been implemented, and are they likely to fulfil their purpose? Why have reforms to complete the Banking Union ground to a halt, and what is still missing for a more sustainable and crisis-resilient European banking sector? The chapter is structured as follows. The first section summarises key experiences from the financial and sovereign debt crises that led to the creation of the Banking Union and sketches a long-term vision of how the Banking Union can contribute to a more resilient monetary union. Subsequently, the bank regulatory reforms undertaken over the last decade and the components of the Banking Union are summarised. The following two sections discuss how these institutional changes have affected and may come to affect, the crisis resilience of European banks. Finally, some of the most important stumbling blocks that have so far impeded the completion of the Banking Union are reviewed, before the chapter is

7

HOW CAN A BANKING UNION MAKE THE EU …

143

concluded with a number of recommendations of which reforms to prioritise and a discussion of the prospects for progress with the completion of the Banking Union.

Why Banking Union? Three Lessons and a Vision Lessons drawn from the experiences both of the financial crisis 2008– 2009 and the subsequent sovereign debt crisis gave rise to the creation of the Banking Union. This section summarises the most important of these lessons and outlines how the Banking Union is envisioned to play a supporting role for a more resilient monetary union. A first lesson was that crisis management at the national level, focussed on domestic financial stability, gives rise to coordination failures and unintended negative consequences (externalities) for other countries, particularly within the Eurozone. Banks play a critical role for the functioning of a country’s financial and payment systems but are vulnerable to liquidity disruptions and often tightly interconnected, causing problems in one bank to easily spread and escalate into a full-blown banking crisis. When that happens, the government rarely has any alternative but to step in and support banks to maintain financial stability. In 2008, 17 EU countries were simultaneously hit by systemic banking crises (of which 13 Eurozone countries), resulting in comprehensive support measures. All 17 countries extended government guarantees on bank liabilities, 16 used taxpayer funds to recapitalise banks, more than half of the countries nationalised at least one bank, and in one fourth the government purchased non-performing assets from banks (Laeven & Valencia, 2018). Because financial crisis management at the time was a national responsibility, these measures were mostly unilateral and uncoordinated, but they had substantial spill-over effects on other countries. In several cases, measures in one country were introduced explicitly to counter negative domestic effects of other countries’ actions. For instance, extended guarantees in one country triggered deposit outflows in other countries with less comprehensive guarantees (Engineer et al., 2013). The home country focus also made policy measures systematically benefit domestic stakeholders at the expense of foreign ones. For example, regulators hindered multinational banks from freely allocating funds between parent bank and foreign subsidiaries to prevent losses domestically (a practice known as ringfencing ), and the absence of mechanisms to resolve failed cross-border banks often resulted in bailouts of their domestic operations

144

J. FORSSBÆCK

while foreign parts were neglected (Beck et al., 2013). These externalities were particularly pronounced within the Eurozone, both because of more extensive cross-border ties between banks in these countries, and because the absence of currency risk facilitates deposit flows. Countries with weaker government finances were more exposed to destabilising outflows due to the lower credibility of the guarantees they issued to back-up domestic banks. A second lesson was that banking crisis management at the national level within a monetary union gives rise to a dangerous co-dependence between banks and government finances that can spiral out of control. Securing financial stability can quickly become very costly for a government, particularly if the banking sector is large relative to the rest of the economy. Bailout measures require taking on more debt, causing borrowing costs to increase. As finances deteriorate the government’s credibility as guarantor of the domestic banking sector declines, causing deposit outflows and funding problems for banks. The effect is reinforced if banks hold large amounts of government bonds, whose value decreases as the government’s credit standing worsens. Funding problems force banks to cut lending, causing a slowdown in economic activity and reduced tax revenues. Weak finances make the government unable to provide fiscal stimulus, which aggravates the slowdown and increases banks’ loan losses, putting further pressure on government finances, and so on. Countries in a monetary union are particularly vulnerable to this downward spiral of escalating and mutually reinforcing solvency problems in the banking sector and in government finances, usually referred to as the bank-sovereign doom loop (Acharya et al., 2014; Farhi & Tirole, 2018), because a country that does not control its own currency cannot guarantee the availability of government funding or the supply of liquidity to banks (see, e.g., De Grauwe, 2016). A third key lesson was that in the presence of large capital flows within the Eurozone, national banking supervision is too weak and fragmented. In all the countries hit by the sovereign debt crisis, the debt build up before the crisis was mainly a result of net borrowing from banks in core Eurozone countries. The over-indebtedness that triggered the crisis was thus in large part due to a welcome reallocation of capital from core to periphery. The problem was that these capital flows were allowed to finance private and public consumption and real estate rather than productive investment, leading to overheating and house price bubbles. The shift from desirable financial integration to unsustainable imbalances

7

HOW CAN A BANKING UNION MAKE THE EU …

145

was therefore largely a result of regulatory failure, particularly a failure of (micro-prudential) bank supervision (Baldwin & Giavazzi, 2015). In the core countries, regulators failed to realise what banks’ lending to the periphery was financing, in the periphery they failed to prevent an uncontrolled lending boom. There was also a lack of overall responsibility to prevent the build up of imbalances and excessive exposures to individual sectors (macro-prudential supervision). The lessons drawn from the experiences of the financial and sovereign debt crises, as outlined above, constitute the most direct impetus for the creation of the Banking Union. But the Banking Union should also be viewed as part of a more long-term vision of how the construction flaws of the monetary union more broadly—particularly the absence of common fiscal policy tools—can be remedied. The reasoning is as follows. The risk of substantial asymmetric shocks within the Eurozone remains. With a common monetary policy, and very limited capacity for fiscal transfers between the member states, a heavy burden falls on national fiscal policy to absorb such shocks—a burden which is reinforced with domestically oriented banking sectors. Transferring the cost of financial crisis management to the common level breaks the direct link between government finances and banks and creates a measure of formal risk-sharing. But there is also a role to be played by more private risk-sharing. In a “pan-European” banking sector, bank liabilities would be geographically more widely distributed so that the burden of losses is not concentrated within countries. Banks’ operations would also be more diversified and less dependent on the economic development of individual countries, making them more resilient to crises. Increased integration would also result in a more stable credit supply and more diversified savings, creating additional cushions against local shocks. An example is the United States, where bank market integration and consolidation since deregulation in the 1970s and 1980s have made households and small businesses considerably less sensitive to state-level economic cycles (Demyanyk et al., 2007). Within the Eurozone, by contrast, the banking sector has so far played a very limited similar role (Cimadomo et al., 2020). The most general objective of the Banking Union is thus to stimulate financial integration by removing the informal barriers to banks’ free movement brought about by a multitude of national financial safety nets. Increased financial integration is not a new objective for the EU, and the Banking Union is not the only means to that end (another one is the

146

J. FORSSBÆCK

Capital Market Union launched in 2014), but given the heavy reliance on banks within Europe’s financial systems, the Banking Union is the centrepiece.

The Single Rulebook The Banking Union was initially conceived as part of a broader reform agenda for the Eurozone. In terms of legislation, however, it builds entirely on the new bank regulatory framework that has been introduced in parallel with euro area reforms, which is common to all EU countries. Parts of this framework are not unique to the EU but reflect changes in the global standards for banking regulation (known as the Basel Accords), which were tightened and extended after the financial crisis. Other parts are completely new. This “single rulebook” for the banking sector consists of three directives and one regulation, introduced in 2013–2014. The Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV) incorporate the latest Basel standards into European legislation and make up the core part of the regulation applied in bank supervision. Besides specifying the capital and liquidity requirements banks have to meet, this part of the rulebook contains rules on, among other things, risk management, transparency, and corporate governance, and it also regulates the freedom of establishment for banks within the EU. The Deposit Guarantee Schemes Directive (DGSD) harmonises deposit protection in the EU. EU legislation on deposit insurance appeared already in the mid-1990s, but before the financial crisis only established minimum standards, leaving room for considerable variation between member states in the design, coverage, and financing of deposit guarantee schemes. DGSD standardises the maximum coverage limit to 100,000 euros, establishes which categories of claims/claimants are eligible for coverage, and regulates the burden sharing between home and host countries of insuring deposits in cross-border banks. It also harmonises the financing of the insurance. Each guarantee scheme is required to build up an insurance fund of at least 0.8 percent of the value of covered deposits. The fund is financed by contributions from the banks, which are adjusted according to each bank’s individual risk in line with the general principle that the price of insurance should depend on expected losses from each insurance taker.

7

HOW CAN A BANKING UNION MAKE THE EU …

147

The Bank Recovery and Resolution Directive (BRRD) lays out the EU’s bank resolution and crisis management framework. Resolution in this context is a special procedure to reconstruct or wind down a failing bank in an orderly manner, which allows for critical operations to be preserved or temporarily sustained, and is to be applied when a failing bank cannot be allowed to go into regular bankruptcy without causing significant disruptions to financial stability. This generally only applies to large, systemically important banks, whereas other banks should typically undergo liquidation according to the normal insolvency procedures in their country of origin. Resolution is not a uniform procedure, instead several different resolution tools can be used to ensure that the procedure is carried out as efficiently as possible. The main tools are to write down the bank’s debts or convert them into equity (so-called bail-in), purchase and assumption (the failing banks is taken over by an acquiror, e.g., another bank), and the establishment of a bridge bank (a temporary company is set up which acquires and manages the failing bank until it can be sold or closed down). The methods can be used one by one or in combination, but all of them require that the bank’s equity be written down and that shareholders incur losses. To ensure the possibility to use the bail-in tool, the regulation specifies minimum levels of “bail-in-able” liabilities (known as MREL requirements). The BRRD also requires member states to establish government functions responsible for resolution planning and execution and to build up a resolution fund corresponding to at least 1 percent of the value of guaranteed deposits, financed by risk-adjusted contributions from banks in the same way as deposit insurance premia. The primary purpose of resolution funds is that costs associated with the resolution of large banks should not fall upon taxpayers. A framework for the reconstruction or controlled closure of insolvent, systemically important banks has previously not existed in the EU. But the need to preserve critical operations of large banks and prevent bank failures from causing severe financial instability has always been the same, which is precisely why publicly funded bailouts have been common in times of crises. For this reason, the BRRD can be regarded as the most important new piece of legislation compared to the regulation in place before the financial crisis. Finally, a new institutional structure has been created, the European System of Financial Supervision (ESFS), which like the single rulebook

148

J. FORSSBÆCK

is common to all EU countries. It consists of three micro-prudential supervision agencies, of which the European Banking Authority (EBA) oversees the banking sector, one macro-prudential supervision agency (the European Systemic Risk Board, ESRB), and national supervisors within each area of responsibility. The ESFS was introduced in 2011, and the common EU agencies are tasked with ensuring uniform supervisory practices within member states but do not themselves have any actual supervisory power.

The Pillars of the Banking Union For the Eurozone countries, regulatory integration has progressed even further than described above by the establishment of the European Banking Union. An important starting signal was a 2012 report by then Council chairman Herman Van Rompuy, which identifies an “integrated financial framework”—consisting of common supervision, a common resolution mechanism, and common deposit insurance—as one of the four essential building blocks to achieve “genuine” economic and monetary union (Van Rompuy, 2012). The components of the framework have come to be regarded as the three “pillars” of the Banking Union (see, e.g., European Commission, 2015a), but so far only the first two are implemented. Because the single rulebook applies to all EU countries, the Banking Union is not a separate regulatory framework. It simply transfers the application of the rulebook to the common level via two regulations which only specify how the common application is to work in practice. The first pillar to become operative is the Single Supervisory Mechanism (SSM), introduced in 2014. It transfers ultimate responsibility for micro-prudential supervision of all banks within the Banking Union to the European Central Bank (ECB). The ECB is thereby tasked with, e.g., issuing and withdrawing banking licenses and ensuring that banks comply with capital and liquidity requirements. However, the ECB directly supervises only banks considered systemically important (“significant”) in any of the countries of the Banking Union. A bank’s significance is determined on the basis of a number of size criteria or the extent of its cross-border activities. Exactly which banks are directly supervised by the ECB therefore varies over time. In mid-2021 it applied to 114 banks, corresponding to about 80 percent of the balance sheet total of the Banking Union’s more than 4000 banks. For the vast majority of banks, the ECB’s supervisory powers are thus delegated to the national level.

7

HOW CAN A BANKING UNION MAKE THE EU …

149

In practice, national supervisors also play an important role in the supervision of significant banks, as it is performed in joint supervisory teams consisting of officials both from the ECB and the supervisor of the bank’s home country. The ECB also has powers to apply minimum requirements for some macro-prudential supervision instruments, but the main responsibility for macro-level supervision remains at the national level. The second pillar of the Banking Union, the Single Resolution Mechanism (SRM) is operative since 2016. It establishes a new body tasked with applying the BRRD at the common level, the Single Resolution Board (SRB). The SRB is responsible for resolution planning and execution for banks under the ECB’s direct supervision, and a few additional banks with significant cross-border activities (121 banks in total in mid-2021). Resolution decisions are made in what is known as an executive session, consisting of representatives of the SRB and of resolution authorities in countries where the bank in question has operations. A decision to take resolution action requires that the relevant supervisor (typically the ECB) has declared a bank failing or likely to fail (FOLTF), that all alternative measures to prevent insolvency have been exhausted, and that a resolution procedure is in the “public interest”. The public interest assessment is made as a comparison of likely effects on the resolution goals—financial stability and minimisation of deposit losses and use of public funds—of a resolution procedure and a liquidation according to national insolvency procedures, respectively. The public interest is deemed to be met only if this comparison favours resolution. The other main component of the SRM (besides the SRB) is the Single Resolution Fund (SRF)—the Banking Union equivalent of the national resolution funds of other EU countries. The SRF is being built up until 2024, when the target level of 1 percent of guaranteed deposits should be reached. Until then, contributions from banks are placed in national “compartments”, which are gradually mutualised until the end of the transition period, at which point the SRF will be fully mutualised, and the national compartments abolished. While not formally part of the Banking Union, one additional element constitutes an important building block: the European Stability Mechanism (ESM). The ESM is the remaining part of the rescue funds set up during the Eurozone crisis and since 2012 is a permanent mechanism to provide emergency loans to Eurozone countries in financial difficulties, with financing jointly guaranteed by all Eurozone countries. After many years of negotiations, the finance ministers of the Eurogroup finally

150

J. FORSSBÆCK

agreed in November 2020 to establish the ESM as fiscal backstop to the SRF as of 2022 (two years earlier than originally planned). The fiscal backing guarantees the availability of resolution funding should the SRF become depleted, which is of critical importance to the credibility of the common resolution framework. The third—not yet implemented—pillar of the Banking Union is the European Deposit Insurance Scheme (EDIS). The main proposal for a common deposit insurance was presented in 2015 (European Commission, 2015b), and like the existing pillars builds entirely on the single rulebook (the DGSD in this case). The main difference to the present situation is that the insurance scheme (including the insurance fund) is transferred to the common level so that the same insurance applies throughout the Banking Union. The transition to a common deposit insurance is proposed to occur in three stages. From a reinsurance stage, where the common level works essentially as a backstop to the national insurance funds, over a coinsurance stage, where any insurance payments are shared between the national and the common levels, to a fully mutualised insurance in the final stage. EDIS has proved to be the politically most controversial component of the Banking Union (for reasons that are discussed more in detail later in the chapter but boil down to its potential to turn the Banking Union into a transfer union). The political process and debate that followed after the Commission’s proposal generated several counterproposals, whose common denominator is that they are less far-reaching when it comes to the extent of mutualisation. In 2017, the Commission itself presented an alternative proposal which opens for more conditionality and is vague on the issue of full mutualisation in the final stage (European Commission, 2017). However, this attempt to sweeten the EDIS bid did not achieve the intended effect, and since then progress in the political negotiations has been slow or absent.

Mixed Recovery in the Banking Sectors of the Eurozone What are the effects of the above-described institutional changes on the banking sectors of the Eurozone, and how do they influence the resilience to crises going forward? The first part of this question is discussed in the current section through a brief overview of how key indicators of banks’

7

HOW CAN A BANKING UNION MAKE THE EU …

151

health have developed since the last crisis. The second part is discussed in the following section. The main indicator of banks’ health is their capitalisation, i.e., the share of assets financed by equity. Higher capitalisation provides a larger buffer against losses and reduces banks’ risk incentives (see, e.g., Admati & Hellwig, 2013). In addition, it has been shown that the capitalisation of the banking sector is critical for how quickly an economy recovers after a crisis (Jordà et al., 2020). For the purposes of banking regulation, capital is not measured directly against total assets but against risk-weighted assets. The general idea is that riskier assets require a larger buffer against losses (see, e.g., Barth et al., 2015 for a critical discussion). Assets that are considered risk-free from a regulatory point of view—these include government bonds, regardless of their actual risk— are assigned zero weight. For other assets, weights vary according to risk, and some very risky assets are assigned weights of more than 100 percent. Figure 7.1 shows that capital as a share of risk-weighted assets

Fig. 7.1 Banks’ regulatory capital as a share of risk-weighted assets, Euro-19 countries (Source IMF Financial Soundness Indicators)

152

J. FORSSBÆCK

has increased substantially in the Eurozone countries since the beginning of the financial crisis—a direct effect of more stringent capital requirements. The increase in the former crisis countries is close to the average, but capitalisation levels in these countries (with the exception of Ireland) remain below average. An increase in capitalisation can result from actual capital injections, a reduction in assets, or because the composition of assets changes so that risk weights decrease. A closer analysis reveals that the Eurozone countries differ in this respect. In the crisis countries, a reduction in the size of banking sectors by 20 percent on average explains half the increase in capitalisation (in remaining Eurozone countries banking sectors have grown). This is partly the result of reduced over-indebtedness, bank failures, and changes in market structure. But lending to domestic households and companies has decreased much more than total assets in the crisis countries, on average by about 50 percent (while in the other Eurozone countries lending has remained relatively constant). Figure 7.2 shows the share of non-performing loans (non-serviced loans that are unlikely to be repaid in full), a main indicator of asset quality. The share of problem loans increased dramatically from the start of the financial crisis until 2014 in most Eurozone countries but has since declined. However, variation across countries remains very large, with more than 25 percent of loans in Greek banks classified as non-performing, compared to a fraction of a percent in Estonia. Regardless of how non-performing loans are handled (e.g., by being sold or written off), they impose losses on the bank and therefore consume capital. Consequently, very high shares of problem loans relative to capital must be handled gradually not to trigger insolvency. But non-performing loans are high-risk assets, with high-risk weights, making them capital-intensive also when kept on the balance sheet. To compensate for this, banks may be forced or tempted to increase their holdings of low-risk assets, such as government bonds, to keep overall risk weights and capital requirements roughly unchanged. This crowds out new lending and reduces profitability, which—absent new capital injections—further delays dealing with the problem loans since low profitability reduces capital growth. This way, non-performing loans can be a substantial drag on banks’ profitability and recovery. Figure 7.3 shows that during the last decade, banks in the crisis countries have been profitable only between 2016 and 2019, and even in those years their return

7

HOW CAN A BANKING UNION MAKE THE EU …

153

Fig. 7.2 Banks’ non-performing loans as a share of gross loans, Euro-19 countries (Source IMF Financial Soundness Indicators)

on equity was about half that of other Eurozone countries and far below pre-crisis levels. Overall, the impression of Eurozone banks’ crisis resilience at the end of 2020 (about halfway into the pandemic) is mixed. On the one hand, they consistently have higher buffers than before the financial crisis. On the other hand, substantial problems remain on the asset side. But these problems are very unevenly distributed, and the legacy of the sovereign debt crisis is apparent. The remaining problem loans in the crisis countries have been a major political obstacle to the completion of the Banking Union, but—partly because of this—have also been subject to various initiatives at the European level. For instance, in 2017, the Council launched an action plan to tackle non-performing loans, another action plan considering the effects of the Covid crisis was published by the Commission in 2020, and both the EBA and the ECB monitor and regularly report on developments (see, e.g., EBA, 2019).

154

J. FORSSBÆCK

Fig. 7.3 Banks’ return on equity in crisis countries and other Euro-19 countries (simple averages). GIIPS + CY countries are Greece, Ireland, Italy, Portugal, Spain, and Cyprus (Source IMF Financial Soundness Indicators, author’s calculations)

The Banking Union and Banks’ Crisis Resilience From the point of view of the areas covered by the single rulebook, there is a logic to the Banking Union’s focus on supervision, resolution, and deposit insurance. From a strictly economic perspective, however, it is not clear what elements would constitute a “complete” banking union. A reasonable point of departure is the components typically thought of as making up the financial safety net: banking regulation, micro- and macro-prudential supervision, lender of last resort, resolution, and deposit insurance. Of these components, the lender of last resort (LOLR) and, to some extent, macro-prudential supervision are not part of the Banking Union. In both cases, this appears odd at first glance. Particularly the LOLR function is critical in crisis management (Goodhart & Schoenmaker, 1995; Kahn & Santos, 2005). Typically performed by the central bank,

7

HOW CAN A BANKING UNION MAKE THE EU …

155

it ensures that solvent banks are able to raise funding even in severe market turmoil and are not driven to failure by a liquidity shortage. The main argument in favour of tasking the central bank with banking supervision is precisely that it facilitates the LOLR role: as supervisor, the central bank has the best possible information about banks’ health and can distinguish solvent from insolvent banks. But in the Eurozone, the ECB has no formal role as LOLR. Instead, the unusual situation is that the ECB is the common central bank and main supervisor, whereas responsibility for liquidity assistance falls on each national central bank. A possible motive in favour of this arrangement is that most banks are still supervised nationally; hence information production primarily takes place at the national level. As a source of bank-sovereign co-dependence, national responsibility for the LOLR function is likely of limited importance. Liquidity assistance is only provided against high-quality collateral to solvent banks and for short periods of time. Moreover, the distinction between the LOLR function and general liquidity operations is vague and there is a widespread perception that the ECB acts as de facto LOLR for banks in the Eurozone (e.g., Garcia-de-Andoain et al., 2016). Finally, access to the Banking Union for non-Eurozone countries would have been substantially more difficult had the LOLR function been formally included. Macro-prudential supervision within the Banking Union is fragmented, the ECB having some powers, national authorities assuming main responsibility, and the ESRB taking on a monitoring and coordinating role. Placing the main responsibility for macro-level supervision at the national level appears particularly paradoxical, though it can be argued that as long as banks are mostly domestically oriented, systemic risks emerge primarily within each country. The fragmentation is unlikely to undermine financial stability, as the ECB is able to specify minimum requirements, and with multiple parties involved systemic risks are unlikely to pass unnoticed. Among elements of the safety net that are included in the Banking Union, micro-prudential supervision has the most immediate effect on banks’ resilience to crises. Resolution and deposit insurance kick in only when a bank has already failed, at which point it is, as it were, too late for crisis resilience and cold comfort to the failed bank that crisis management tools have been improved. Nevertheless, resolution and deposit insurance have an indirect effect by giving rise to expectations and incentives. Centralisation of supervision can be expected to strengthen

156

J. FORSSBÆCK

banks’ resilience, primarily because it increases the probability of strict and competent supervision. National supervisors may have incentives to apply less stringent standards to increase the competitive advantage of domestic banks, due to regulatory capture, or out of career motives. There are also economies of scale in supervision and better opportunities for specialisation and competence building at the common level. In addition, given that elements of common risk-sharing are in place, an argument in favour of centralised supervision is a principle known as alignment of liability and control: when (some) costs are borne at the common level, any decision that triggers a cost (such as a FOLTF decision) should also be made at the common level to avoid conflicts of interest. The effects of common resolution on banks’ crisis resilience are more uncertain. In the current framework, resolution procedures are reserved for large, systemically important banks. Resolution should therefore be regarded primarily as an alternative to previous implicit too-big-to-fail guarantees. Implicit guarantees increase (large) banks’ risk incentives and are costly to taxpayers (Forssbæck, 2011). The purpose of the resolution framework is to bring about a “regime shift”. The policy to wind down insolvent banks and make owners and uninsured creditors incur losses is the right one to minimise taxpayers’ costs and to strengthen banks’ resilience by reducing their risk incentives. But regulators always want to commit to a strict policy. The problem is that the commitment is only credible if the ex ante announced policy is also the optimal policy ex post —in this case if bail-in better serves financial stability than bailout in an actual crisis. Otherwise, the policy is time-inconsistent. An explicit legal framework, resolution planning, and funding all add to the credibility of the regime. But several factors also make the credibility of a strict resolution policy questionable, particularly during severe systemic crises. Bail-in can trigger contagion by causing losses or funding difficulties for other banks, making it counterproductive from a financial stability point of view. The sale of a bank (or of part of its operations) at a reasonable price during a systemic crisis, when other banks are also distressed, can be difficult or impossible, leading to large losses or an extended and expensive resolution process. Both problems increase with the size of the failing bank. In a crisis, regulators may also be forced to handle a large number of bank failures simultaneously, making orderly resolutions practically difficult. For these reasons, exemptions from the intended procedures are possible, but exemptions contradict a

7

HOW CAN A BANKING UNION MAKE THE EU …

157

strict application of the resolution regime and may therefore undermine its credibility (Mailath & Mester, 1994). Credibility problems arise whether resolution is applied at the national or the common level but are likely to be reduced at the common level for at least two reasons. First, common resolution increases the probability that cross-border banks can be resolved efficiently and without externalities. Second, it provides scale. Resolution frameworks contain elements of risk-sharing, but risk-sharing mechanisms require scale to be efficient. Many of the Banking Union countries are too small to achieve reasonably efficient risk-sharing domestically, which reduces the probability that the resolution framework can be applied without resorting to the use of taxpayer funds. The risk of contagion or other side effects of bail-in is also higher in small countries, and the market for distressed bank assets is more limited. The scale of common resolution thus reduces general credibility problems in several ways. But the common resolution regime also raises questions. One is if a resolution fund of 1 percent of guaranteed deposits is sufficient even with the scale economies and diversification achieved at the common level. Available research suggests that it is (Benczur et al., 2017). More worrisome is that political support for the regime appears to vary considerably between member countries. Experiences so far of the SRM are limited—a handful of resolution decisions have been made and only one actual resolution has been completed. Assessments in favour of national liquidation over common resolution are unproblematic as such. But some Italian cases have stirred up debate because national authorities were granted exemptions in favour of special solutions involving taxfunded compensation of uninsured creditors and even shareholders (i.e., bailouts). This draws attention to two weaknesses of the current framework. First, the threshold effects that arise because resolution is reserved for the largest banks. For instance, a bank can be too small to qualify for resolution under SRM but still sufficiently large to be “systemically important” at the regional level in a member country, which may make liquidation inappropriate and require alternative solutions. Second, the SRB’s public interest assessment can turn out differently for otherwise identical banks, depending only on differences in national insolvency law, implying that the resolution framework cannot be uniformly applied within the Banking Union. There may also be other reasons for opposition to the regime in some countries, but regardless of the motives, too many cases where

158

J. FORSSBÆCK

exemptions are made and the intentions of the framework are sidestepped may undermine the credibility of the regime and ultimately its anticipated stability gains. Credibility of resolution regimes is won by acting in line with their intentions (Schäfer et al., 2016). Finally, it is relevant to ask how common deposit insurance would affect banks’ crisis resilience if it were introduced, or—conversely—how banks’ vulnerability to crises is affected by its absence. It is clear that as long as deposit insurance, including the fiscal backstop, remains at the national level, bank-sovereign co-dependence also remains. By providing the backstop, each government has a latent liability that can be triggered by a crisis, implying exposure to the solvency risk of domestic banks. The exposure of banks to sovereign risk, in turn, runs via two main channels: banks’ holdings of domestic government bonds, and the credibility of the fiscal backstop (banks become increasingly exposed to deposit outflows as the government’s credibility as a back-up to deposit protection declines). Figure 7.4 gives an indication of how credibility varies between Eurozone governments by relating the value of guaranteed deposits (the size of the latent liability) to fiscal capacity. Credibility decreases from the bottomleft to the top-right of the graph. A comparison with Fig. 7.2 makes clear that the countries with the riskiest banks are also the least credible backers of domestic deposit insurance. National deposit insurance thus remains a source of vulnerability. Nonetheless, bank-sovereign co-dependence has undoubtedly weakened within the Banking Union. For individual countries, it is primarily guarantees for large, systemically important banks that are costly, but in the new regime, these banks are to undergo jointly funded resolution. This does not preclude losses for national deposit insurance funds, but it does reduce the burden of very large losses. Additionally, the presence of ESM as a permanent “lender of last resort” for Eurozone governments should at the very least prevent credibility crises on a similar scale as in 2010–2012, thereby also reducing banks’ exposure to sovereign risk. Besides weakening bank-sovereign co-dependence even further, there are other arguments in favour of EDIS. Perhaps the most important one is the gain in risk-sharing efficiency. Insurance schemes require pooling risks and contributions from a large number of insurance takers to be robust and, again, several Banking Union countries are too small to efficiently share risks domestically. Without scale, an insurance fund of 0.8 percent of covered deposits can easily be depleted even by a single bank failure (the failure of Latvia’s sixth largest bank in 2019 is a case in point).

7

HOW CAN A BANKING UNION MAKE THE EU …

159

Fig. 7.4 General government debt as a share of GDP and insured deposits as a share of GDP in the Euro-19 countries, 2020 (Sources Eurostat [government debt/GDP], EBA [insured deposits], and World Development Indicators [GDP for insured deposits])

The guarantee schemes of the smaller countries are thus permanently less robust than those in larger countries not because banks are riskier, or government finances are weaker, but precisely because they are small and have a non-diversified exposure to a small number of banks. Another argument is that national deposit insurance constitutes a barrier to the free movement of banks within the Banking Union. For instance, variation in home country deposit insurance credibility results in differences in banks’ ability to compete via branches in other countries, and when losses are borne domestically national supervisors’ incentives for ringfencing remain. However, the importance of EDIS for financial integration is debatable. Several factors affect banks’ incentives for internationalisation, and information and administrative barriers in many other areas would persist even with common deposit insurance.

160

J. FORSSBÆCK

A third argument is that within the Banking Union, supervision and resolution decisions are made at the common level but can trigger losses for national deposit guarantee schemes (and, by extension, for national governments). In other words, the current situation does not conform to the principle of alignment of liability and control, giving rise to potential conflicts of interest, inefficient decision processes, and outcomes that may be sub-optimal from a financial stability point of view.

Obstacles to Completing the Banking Union The Banking Union in its current form is incomplete in several ways. In particular, its existing components may have to be modified to work as intended (issues under debate include the SRB’s decision procedure and whether eligibility for resolution under SRM should be extended), and the new framework may uncover the need for reforms in related areas (e.g., harmonisation of national insolvency procedures). The debate about “completing” the Banking Union is therefore somewhat misleading, but the main missing piece is of course the third pillar. Political disagreement on common deposit insurance runs along predictable lines and largely reflects disagreement on euro area reform more broadly. Southern Eurozone countries (France included) generally take a favourable view on increased risk-sharing at the common level, while northern countries like Germany and the Netherlands resist. Partly, the deadlock on EDIS is due to opposing views on other issues. Below, I discuss three of the most important obstacles to the introduction of the third pillar. The first obstacle is the concern that common deposit insurance may result in systematic redistribution between countries. The advantages of any insurance always come with the potential downside that low-risk insurance takers may end up cross-subsidising high-risk insurance takers. The problem arises if riskier insurance takers contribute too little to the insurance scheme relative to their risk, and vice versa for the safer ones. The consequence in the present setting is that subsidised banks may be insufficiently disciplined to reduce their risk (or are incentivised to increase risk) and/or that national supervisors, who still supervise most banks, are insufficiently incentivised to apply stringent supervision standards because the cost of any bank failures is borne jointly, not at the national level. Given that the source of the problem is that riskier banks do not fully compensate the insurance collective for their higher risk, the solution lies in correctly pricing the insurance. The model proposed

7

HOW CAN A BANKING UNION MAKE THE EU …

161

for determining banks’ contributions (insurance premia) within EDIS is essentially the same as the one currently applied at the national level, and it does have a number of theoretical shortcomings (see Pennacchi, 2000 for a general discussion). However, these shortcomings may be of limited importance in practice. A recent, widely cited simulation study makes a comprehensive examination the potential for cross-subsidisation within a fully mutualised EDIS (Carmassi et al., 2020). The findings suggest that for EDIS to systematically benefit any one particular country, larger asymmetric shocks than during the most recent crisis are required. As the study points out it is exactly under such circumstances that individual countries should “benefit”—that is the main point of risk-sharing. By contrast, under normal circumstances, there is no systematic cross-subsidisation. The second obstacle is closely related to the first one, and concerns what has come to be known as risk reduction, i.e., the process of tackling the very unevenly distributed risk levels in the banking systems of the Eurozone countries. While there appears to be some consensus that the introduction of EDIS requires progress on risk reduction, there is little agreement on whether these processes should run in parallel or sequentially, or whether access to EDIS should be made conditional on fulfilling certain entry criteria, such as maximum levels of non-performing loans at bank or country level. Strictly from the point of view of insurance economics, there is little support for conditioning risk-sharing on prior risk reduction, provided that the risk-sharing mechanism is correctly priced. By analogy with auto insurance: for the insurer, the solution to the problem that young, male drivers are more accident-prone than other categories of drivers is not to try to make young men drive more carefully before they are allowed to buy the insurance policy, but to charge a premium commensurate with their risk. Mispricing of the insurance is really the only potential economic motivation for requiring risk reduction prior to the launch of EDIS. But if the insurance is incorrectly priced, then ex ante risk reduction is still not a sustainable long-term solution, because the unsound incentives caused by mispricing would persist. The priority should therefore be to design EDIS as a system in which the costs of risk-taking to the greatest extent possible are internalised by banks through the contributions they make, rather than attempting to equalise risks before the insurance is introduced. Risk reduction is important but it is in essence a separate issue (this view, however, is likely to be a hard sell politically).

162

J. FORSSBÆCK

The third obstacle is the issue of banks’ large holdings of their own governments’ bonds. Together with national deposit insurance, these holdings are the main source of remaining bank-sovereign co-dependence within the Eurozone, but they are also a source of potential concern with common deposit insurance. The problem is the following: since these bond holdings expose banks to their own countries’ sovereign risk, a mutualised insurance system would constitute a channel for spreading this risk to other countries. The reason is the zero regulatory risk-weighting of government bonds, which also implies that banks’ exposure to sovereign risk would not be adequately reflected in the contributions they pay to EDIS. But the problem does not end there. There has also been a concern that in some heavily indebted countries, domestic banks may be leaned on by their governments to increase their bond holdings to support demand and thus reduce government borrowing costs. The opportunity to do so increases if banks have access to cheap, collectively insured deposit financing, and EDIS could thereby become a mechanism that undermines fiscal discipline. It is well-documented that banks in the crisis countries increased their holdings of domestic government bonds during the Eurozone debt crisis, although there are alternative explanations for why that was the case (e.g., Battistini et al., 2014). Figure 7.5 shows that since the onset of the financial crisis, there is on average a positive association (not necessarily a causal relationship) between governments’ fiscal deficits and banks’ holdings of domestic government bonds in the Eurozone countries. A solution to the problem of banks’ domestic bond holdings should be found before EDIS is introduced, both to avoid subsidisation effects of mispriced sovereign risk exposure and to eliminate any possibility that the insurance is abused to evade fiscal discipline. Several different solutions have been proposed in the debate, e.g., non-zero regulatory risk-weighting of government bonds to make banks’ insurance contributions reflect their actual exposure to sovereign credit risk or surcharges for excessively concentrated bond holdings. Southern Eurozone countries oppose such solutions due to concerns that their borrowing costs would increase. A more ambitious idea is for the Eurozone countries to jointly issue bonds that would replace domestic government bonds as a risk-free asset for banks. That would break the link between banks and sovereign but would in itself imply far-reaching risk-sharing between the countries and would aggravate, not solve, the problem of reduced incentives for fiscal discipline. Various technical solutions for synthetic

7

HOW CAN A BANKING UNION MAKE THE EU …

163

Fig. 7.5 Fiscal balance as a share of GDP and banks’ holdings of domestic government bonds as a share of capital and provisions in the Euro-19 countries, averages over 2008–2020 (Sources ECB [bond holdings/capital] and Eurostat [fiscal balance/GDP])

Eurobonds without joint guarantee have therefore also been proposed, but these have so far generally encountered firm opposition from northern Eurozone countries.

The Way Forward: A Credible Regime Shift and the Right Type of Conditionality A stable, well-functioning financial system is critical for a resilient and sustainable European Union. The experiences from the financial and sovereign debt crises a decade ago demonstrate that weaknesses and imbalances within the banking sector can both trigger and amplify a crisis that threatens the very existence of the monetary union. Based on the analysis in this chapter, my conclusion is that the Banking Union has the potential

164

J. FORSSBÆCK

to make the European banking sector more resilient to crises. So far, however, it has only come part of the way. Further progress requires not just the addition of new elements but consolidation of the elements already in place. That applies particularly to the new bank resolution framework, which needs to build credibility for the intended regime shift from bailout to bail-in. A main problem is the apparent lack of political support for the regime shift in some countries. One step on the way towards greater support, and thus higher credibility, would be to diminish the threshold effects that arise because resolution under SRM is reserved for the largest banks by extending the scope of the resolution framework. Taking a longer-term view, the SRB’s powers may also have to be extended and the opportunities for national exemptions further limited. From a financial stability point of view, the case for common deposit insurance is strong, and it should be introduced as soon as possible. Deposit insurance at the national level results in de facto differences in depositor protection between countries and constitutes a remaining source of bank-sovereign co-dependence. While this co-dependence has weakened the re-emergence of doom loop patterns in some of the more vulnerable Eurozone countries cannot be ruled out, particularly in light of the deterioration in countries’ fiscal strength in the wake of the pandemic. A fully mutualised EDIS would make the most of the advantages of common insurance, notably a substantial increase in risk-sharing efficiency. The introduction of common deposit insurance should be combined with a solution to the issue of banks’ holdings of domestic government bonds. First, because it is the other main source of bank-sovereign codependence. Second, because the regulatory treatment of all government bonds as risk-free assets turns common deposit insurance into a potential channel for sharing non-priced risk within the Banking Union. By contrast, the introduction of EDIS should not be strictly conditioned on the process of risk reduction, i.e., ongoing efforts to reduce the levels of non-performing loans in the banking sectors of former crisis countries. Instead, focus should be on designing the common insurance such that risks are correctly priced, which reduces the need for risk convergence. Due to the Covid-19 crisis, progress on risk reduction is likely to slow down, and conditionality on this process would then delay progress on EDIS even further. That would be counterproductive from a crisis resilience point of view.

7

HOW CAN A BANKING UNION MAKE THE EU …

165

The yet-unfinished Banking Union and euro area reform more generally are subject to extensive discussion and debate among economists (see, e.g., Pisani-Ferry & Zettelmeyer, 2019). The above conclusions reflect, broadly speaking, widespread assessments of how the Banking Union should be developed to make the EU, and particularly the Eurozone, more resilient to crises. The debate has also inspired a large number of proposals for solutions to specific problems and for the technical design of everything from EDIS itself to synthetic Eurobonds. The problem is not absence of insight or ideas, but political disagreement between the Eurozone countries. Or at least that has been the problem until recently. Within a year over the course of 2019–2020, a number of things happened that may be interpreted as a shift in political positions. At the end of 2019, Germany—until then firmly in the opposition camp— announced that it was willing to consider common deposit insurance. Half a year later, EU leaders agreed to finance the pandemic stimulus package by issuing collectively guaranteed debt—a possible sign of softening opposition to more risk-sharing within the union. Finally, the agreement in late 2020 to establish the ESM as fiscal backstop to the SRF marks the end of long-standing political differences on securing the funding of the common resolution mechanism. The German announcement was met with mixed reactions, negotiations about the stimulus package initially stalled due to disagreement on the terms and may yet turn out to be a one-off response to an exceptional situation. The real extent of the shift in positions thus remains to be seen, but it would be welcome if these events signal an impending breakthrough in the efforts to complete the Banking Union.

References Acharya, V., Drechsler, I., & Schnabl, P. (2014). A pyrrhic victory? Bank bailouts and sovereign credit risk. Journal of Finance, 69(6), 2689–2739. Admati, A., & Hellwig, M. (2013). The bankers’ new clothes—What’s wrong with banking and what to do about it. Princeton University Press. Baldwin, R., & Giavazzi, F. (Eds.). (2015). The eurozone crisis: A consensus view of the causes. CEPR Press. Barth, J., Prabha, A., & Wihlborg, C. (2015). Transparency of financial regulation. In J. Forssbæck & L. Oxelheim (Eds.), Oxford handbook of economic and institutional transparency. Oxford University Press. Battistini, N., Pagano, M., & Simonelli, S. (2014). Systemic risk, sovereign yields and bank exposures in the euro crisis. Economic Policy, 29(78), 203–251.

166

J. FORSSBÆCK

Beck, T., Todorov, R., & Wagner, W. (2013). Supervising cross-border banks: Theory, evidence and policy. Economic Policy, 28(73), 5–44. Benczur, P., Cannas, G., Cariboni, J., Di Girolamo, F., Maccaferri, S., & Petracco Giudici, M. (2017). Evaluating the effectiveness of the new EU bank regulatory framework: A farewell to bailout? Journal of Financial Stability, 33, 207–223. Carmassi, J., Dobkowitz, S., Evrard, J., Parisi, L., Silva, A. F., & Wedow, M. (2020). Completing the banking union with a European deposit insurance scheme: Who is afraid of cross-subsidization? Economic Policy, 35(101), 41– 95. Cimadomo, J., Ciminelli, G., Furtuna, O., & Giuliodori, M. (2020). Private and public risk sharing in the euro area. European Economic Review, 121, 1–20. De Grauwe, P. (2016). The legacy of the eurozone crisis and how to overcome it. Journal of Empirical Finance, 39(B), 147–155. Demyanyk, Y., Ostergaard, C., & Sørensen, B. E. (2007). U.S. banking deregulation, small businesses, and interstate insurance of personal income. Journal of Finance, 62(6), 2763–2801. Engineer, M. H., Schure, P., & Gillis, M. (2013). A positive analysis of deposit insurance provision: Regulatory competition among European Union countries. Journal of Financial Stability, 9, 530–544. European Banking Authority. (2019). EBA report on NPLs (2019). Progress made and challenges ahead. Retrieved from https://eba.europa.eu/risk-ana lysis-and-data/npls European Commission. (2015a, June 22). Completing Europe’s economic and monetary union. Report by J.-C. Juncker in close cooperation with D. Tusk, J. Dijsselbloem, M. Draghi, & M. Schulz (the “Five Presidents’ Report”). European Commission. (2015b, November 24). Proposal for a Regulation of the European Parliament and of the Council Amending Regulation (EU) 806/2014 in order to Establish a European Deposit Insurance Scheme. COM(2015) 586 final. European Commission. (2017, October 11). Communication to the European Parliament, the Council, the ECB, the EESC and the Committee of the Regions on Completing the Banking Union. COM(2017) 592 final. Farhi, E., & Tirole, J. (2018). Deadly embrace: Sovereign and financial balance sheet doom loops. Review of Economic Studies, 85(3), 1781–1823. Forssbæck, J. (2011). Ownership structure, market discipline, and banks’ risktaking incentives under deposit insurance. Journal of Banking and Finance, 35(10), 2666–2678. Garcia-de-Andoain, C., Heider, F., Hoerova, M., & Manganelli, S. (2016). Lending-of-last-resort is as lending-of-last-resort does: Central Bank liquidity provision and interbank market functioning in the Euro area. Journal of Financial Intermediation, 28(C), 32–47.

7

HOW CAN A BANKING UNION MAKE THE EU …

167

Goodhart, C., & Schoenmaker, D. (1995). Should the functions of monetary policy and banking supervision be separated? Oxford Economic Papers, 47 (4), 539–560. Jordà, Ò., Richter, B., Schularick, M., & Taylor, A. M. (2020). Bank capital redux: Solvency, liquidity, and crisis. Review of Economic Studies, 88(1), 260– 286. Kahn, C., & Santos, J. (2005). Allocating bank regulatory powers. European Economic Review, 49(8), 2107–2136. Laeven, L., & Valencia, F. (2018). Systemic banking crises revisited (IMF Working Paper WP/18/206). International Monetary Fund. Mailath, G., & Mester, L. (1994). A positive analysis of bank closure. Journal of Financial Intermediation, 3(3), 272–299. Pennacchi, G. G. (2000). The effects of setting deposit insurance premiums to target insurance fund reserves. Journal of Financial Services Research, 17 (1), 153–180. Pisani-Ferry, J., & Zettelmeyer, J. (Eds.). (2019). Risk sharing plus market discipline: A new paradigm for Euro area reform? A debate. CEPR Press. Schäfer, A., Schnabel, I., & Weder di Mauro, B. (2016). Bail-in expectations for European banks: Actions speak louder than words (CEPR Discussion Paper DP11061). Centre for Economic Policy Research. Van Rompuy, H. (2012, June 26). Towards a genuine economic and monetary union. Report by the President of the European Council, EUCO 120/12.

CHAPTER 8

EU Resilience in the Internal Market After Financial Crisis: Political Resolve and Legal Responsiveness Carl Fredrik Bergström

Introduction This chapter builds on research from an interdisciplinary project that has studied the EU rulemaking reform after the economic and financial crisis (hereafter the financial crisis). The reform was based on the overall submission that governments across the world had taken measures to try to improve the situation on their own and that there had only been limited success. Therefore, the need was stressed for the EU to work together with its international partners to converge towards high global standards (De Larosière Group, 2009, p. 3). But the implementation and enforcement of those standards required a strong system of regulation and supervision. The solution was to agree on an ambitious agenda for centralisation of rulemaking, an extensive set of EU legal acts

C. F. Bergström (B) Uppsala University, Uppsala, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_8

169

170

C. F. BERGSTRÖM

that should improve risk management and introduce a new structure for control of member states’ compliance with these legal acts. The research project has studied the nature of the centralisation of rulemaking that was brought about, what it looks like and why and its consequences for the legal and political system of the EU, in particular the preconditions for accountability. This chapter takes its starting point in parts of my own research within that larger project. It summarises previous findings but presents them in a new way, to project a big picture on a small space. This, in turn, makes it possible to introduce and test some new ideas. More specifically, this chapter focuses on some changes of rulemaking within the internal market and shows that they are the result of a process intended to strengthen resilience against a new financial crisis. No attempt is made to evaluate if the changes are an effective means to strengthen resilience. There are several reasons for this. The expression resilience is used differently in more or less political contexts and it lacks legal meaning. Empirically, it seems to appear increasingly more frequently in preparatory documents within the EU rulemaking process and sometimes also in the final legal acts. A few of those legal acts have come before the EU Court of Justice but there are no rulings where it interprets the expression resilience and that way gives it legal contours. Something that has, instead, a legal meaning is the process underlying the changes. The changes have been possible to introduce because the EU legislature; the member states’ governments in the Council and the European Parliament, have managed to stretch the limits of EU competences. Therefore, this chapter examines the way in which the EU legislature has gone about to fulfil its objective to strengthen resilience against a new financial crisis, explains the process, concludes if it is unproblematic or not—in a legal sense—and discusses new needs for improvement. Today the development that has taken place since the financial crisis constitutes a large and important field of research in legal science (Bergström & Strand, 2021; Marjosola, 2022; Moloney, 2018; Weismann, 2016). The field is particularly interesting because it involves the most classic disciplines of law—private, public, criminal, procedural and international—and, at the same time, it entails methodological considerations that require cooperation beyond legal science. In other words, it is a modern field of research. This chapter combines a doctrinal method based on analysis of legal provisions, case law and literature with a historical method that uses preparatory documents to identify the objectives of

8

EU RESILIENCE IN THE INTERNAL MARKET …

171

legal provisions and an empirical method for quantitative study of legal acts based on information from the database EUR-Lex. The text is divided into six parts. First some legal concepts that are central to the topic will be explained. Thereafter the modern patterns of rulemaking in the internal market will be introduced and, then, examined closer in the context of the financial market. The responsibility for rulemaking and supervision that has been conferred on EU agencies will be given special attention. Then an overall assessment will be presented of the process that has enabled the EU legislature to make extensive use of its rulemaking competences and of the interaction between law and politics. Finally, conclusions and new needs for improvements will be discussed.

EU Legal Acts and the Internal Market The legal and political system of the EU is built on two founding treaties: the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). They have been negotiated by the member states’ governments and approved by their parliaments. Like the constitutions of the member states, the founding treaties of the EU set up legal rules for the exercise of public power: what the EU may do and how that may be done. But in contrast to those constitutions, the treaties’ notion of power is not premised on any principle of sovereignty. Instead, it is based on a principle of conferral of competences. Under that principle, the EU ‘shall act only within the limits of the competences conferred upon it by the member states in the treaties to attain the objectives set out therein’ (Article 5.2 TEU). The exercise of the competences leads the EU—its institutions and bodies—to adopt ‘legal acts’ that correspond to laws and other instruments within the member states. Since the start of the cooperation in the EU (and before that the EC), major amendments have been made to the founding treaties. Through the most recent reform, brought about by the Lisbon Treaty (2009), a series of provisions were introduced that clarify the modern meaning of legal acts (Articles 288–299 TFEU). This was the result of a long process intended to bring about a simplification of the system for rulemaking. An important point of departure is found in the final report of a working group with representatives of member states’ governments and parliaments (2002). Here the need is stressed for a separation of powers based on the idea that ‘acts which have the same nature and the same

172

C. F. BERGSTRÖM

legal effect must be produced by the same democratic procedure’ (European Convention, 2002a, p. 2). In line with that, the new provisions sought to establish a hierarchy of legal acts that should guarantee that acts which contain ‘the essential elements and the fundamental policy choices in a certain field’ will always come from the institutions that enjoy the highest democratic legitimacy: the Council and the European Parliament (European Convention, 2002a, pp. 2 and 10). Today, the most central feature of the new provisions on legal acts can be found in the conceptual distinction between ‘legislative’ and ‘nonlegislative’ acts. It is not the form of legal acts which is decisive for that distinction—if they are called, for example, directives—but the nature of the procedure subject to which they have been adopted. For that reason, there are some directives which are classified as legislative acts and other directives which are classified as non-legislative acts (and this is true also for legal acts in another form). The important difference is that non-legislative acts can be adopted by institutions and bodies other than the Council and the European Parliament, subject to procedures that do not require the same democratic legitimacy and, therefore, enable them to respond ‘rapidly and effectively to the challenges and demands of the real world’ (European Convention, 2002a, p. 8). In consequence with this, the EU Court of Justice has explained that: [a] systemic approach of that kind provides the requisite legal certainty in procedures for adopting EU acts, in that it makes it possible to identify with certainty the legal bases empowering the institutions of the EU to adopt legislative acts and to distinguish those bases from bases which can serve only as a foundation for the adoption of non-legislative acts. (EU Court of Justice, 2015, para. 63)

Looking at the way in which legal acts are being used, in practice, it has been clear, for a long time, that there is a much higher number of non-legislative acts and that most of them are adopted by the European Commission, subject to procedures established in legislative acts. It means that the EU legislature delegate some of its powers. A comparison may be made with the rulemaking powers that member states’ parliaments delegate to governments (to enable that laws are supported by detailed regulations).

8

EU RESILIENCE IN THE INTERNAL MARKET …

173

It has also been clear that, traditionally, legislative acts adopted in the context of the ‘internal market’ have had the form of directives. These require transposition through national rulemaking and leave member states’ parliaments and authorities a ‘choice of form and methods’ (Article 288 TFEU). For this reason, directives give room for diversity and take time. The concept of the internal market was introduced through a reform of the treaties in 1987 and is said to comprise ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the treaties’ (Article 26 TFEU). None of all provisions connected to the internal market has been more central than Article 114 TFEU. It gives the EU legislature a general competence to adopt ‘measures for approximation’ of national law which have as their object ‘the establishment and functioning of the internal market.’ The inclusion of Article 114 TFEU created more generous preconditions for rulemaking relating to the free movement of goods, persons, services and capital. This, indeed, was the centrepiece of the reform. For the first time, legislative acts could be pushed through by qualified majority voting in the Council (thus unblocking some governments’ insistence on veto) and, importantly, take the form of other ‘measures’ than directives. Put into historical context, the internal market reform of the founding treaties marks a watershed in the integration process. Before 1987 progress with respect to the free movement of goods, persons, services and capital had been difficult to secure. A limited success was due, not to rulemaking but to judicial rulings based on treaty provisions. But after 1987 the situation changed. The initial step was taken by the European Commission through its launch of the so-called internal market programme, presenting 297 proposals for legislative acts to be adopted over an intense period expiring 1993. Most of these acts had the form of directives and they made full use of the possibility to delegate rulemaking powers to the European Commission and that way ‘off-load technical matters’ from the legislative process (European Commission, 1985, p. 19). The internal market programme became a success and the subsequent reliance on directives as the principal instrument for rulemaking in the internal market is a crucial factor to consider for everyone who wants to understand how EU law has developed and why: focussing on legal principles and procedures that shall ensure effective implementation in all member states.

174

C. F. BERGSTRÖM

Modern Patterns of Rulemaking Against the above background, it is highly interesting to observe some recent changes in the way in which the competence in Article 114 TFEU is being used for rulemaking. Most obviously there has been a shift of form of legislative acts from directives to regulations that are ‘directly applicable’ across all member states (Article 288 TFEU). During the first five-year-period after the entry into force of the internal market reform (1988–1992), the EU legislature adopted 108 directives and 25 regulations with a legal basis in Article 114 TFEU. Little more than a decade later (2001–2005), the corresponding numbers were 83 directives and 22 regulations. But since then the relationship has been radically reversed. During the most recent five-year-period (2016– 2020), the EU legislature adopted 24 directives and 75 regulations with a legal basis in Article 114 TFEU. The tipping point—when regulations became the principal instrument—coincides with the entry into force of the Lisbon Treaty. A majority of the regulations adopted by the EU legislature introduce new regimes or amend regimes in pre-existing regulations. But some of them also amend regimes in pre-existing directives and repeal them. Examples are European Parliament and Council Regulation 2019/6 on veterinary medicinal products and European Parliament and Council Regulation 2017/1129 on the prospectus to be published when securities are offered to the public. The recent changes in the way in which Article 114 TFEU is being used relate also to a long-standing practice of the EU legislature to delegate rulemaking powers. Today this is done—typically—in compliance with a model of regulatory frameworks that has been conceptualised within the lawmaking process but also in judicial rulings. The expression ‘regulatory frameworks’ (French cadre réglementaire and German Regelungsrahmen) indicates that the model builds on the old idea that legislative acts shall establish legal and political frameworks for nonlegislative acts adopted subject to simplified procedures. Already in 1970, the EU Court of Justice concluded that a distinction must be made—in accordance with the legal concepts recognised in all member states—between the legal acts directly based on the treaties which lay down ‘the basic elements of the matter to be dealt with’ and the derived legal acts ‘intended to ensure their implementation’ (EU Court of Justice, 1970, para. 6).

8

EU RESILIENCE IN THE INTERNAL MARKET …

175

Since then, this distinction has been extensively explored in practice and gained political importance. This in particular so because it has enabled the member states’ governments within the Council ‘to distinguish between major and minor issues so as to make it possible to distribute the burden to others’ (Three Wise Men, 1979, pp. 46–47). Traditionally, the responsibility for such additional rulemaking has been reserved for the European Commission: to formulate common provisions on implementation and secure support from national authorities. The so-called comitology system has enabled the authorities to control the Commission and simultaneously enabled the Commission to influence their work and integrate them (Bergström, 2016, pp. 4–9). But the new model of regulatory frameworks is more sophisticated. Today legislative acts often form part of a series of acts, both regulations and directives, which establish the basic or essential elements and reserve much room for continuous rulemaking in non-legislative acts, most often regulations but also directives and other legal acts. The nonlegislative acts are designed in a functional manner, to achieve different objectives within the same regulatory frameworks, and circumscribed by streamlined conditions (Articles 290 and 291 TFEU). Parallel to this development a considerable case law has emerged where the EU Court of Justice clarifies various implications of the new model of regulatory frameworks. Examples relate to the essential elements of legislative acts (EU Court of Justice, 2018, para. 89) and the distinction between different non-legislative acts (EU Court of Justice, 2012b, paras. 38–40). Like before non-legislative acts are, typically, adopted by the European Commission within the comitology system. The rulemaking powers of the Commission and the procedures it shall follow are fixed in the legislative acts that constitute the regulatory frameworks. Examples of such non-legislative acts are Commission Regulation 2018/151 laying down rules for application of European Parliament and Council Directive 2016/1148 concerning measures for a high common level of security of network and information systems and Commission Regulation 2019/819 supplementing European Parliament and Council Regulation 2013/34 on social entrepreneurship funds. The research underlying this chapter studies new patterns of rulemaking in the internal market after the financial crisis. Focus is set on the financial market. There is no formal definition of ‘financial market’ and the expression may be used more or less strictly to include action in a number of sectors of the internal market and sometimes even beyond. For

176

C. F. BERGSTRÖM

this chapter, the starting point has been taken in a total of 62 legislative acts adopted 2010–2020 that all relate to the free movement of financial institutions and their services. Some of these acts cut across all sectors of the financial market but most of them concern specific sectors, setting up 21 new regulatory frameworks and amending some old ones. Examples are the framework on market abuse (European Parliament and Council Directive 2014/65 and Regulation 2014/600) and the framework on the prospectus to be published when securities are offered to the public (European Parliament and Council Directive 2010/73 and Regulation 2017/1129). The total number of non-legislative acts adopted by the European Commission within these 21 regulatory frameworks are 273 regulations and 1 directive (plus an uncertain number of decisions). Even if the proportions vary the overall pattern seems to be the same in many other fields of the internal market. Examples can be found in European Parliament and Council Regulation 2012/528 on the use of biocidal products, which has provided the basis for 148 non-legislative acts (all regulations plus an uncertain number of decisions) and European Parliament and Council Directive 2014/40 on the manufacture, presentation and sale of tobacco, which has provided the basis for 4 non-legislative acts (3 regulations and 1 directive plus an uncertain number of decisions). Importantly, the new model of regulatory frameworks is not confined to non-legislative acts adopted by the European Commission but entails also non-legislative acts adopted by EU agencies. These are specialised authorities established in legislative acts. There is no provision in the treaties that describe their tasks and the nature of their powers. For this reason, there is a lack of clarity with respect to agencies’ place in the EU constitutional structure. At the same time adjustments have been made to secure that agencies are not immune from judicial review (Articles 263 and 267 TFEU). The resulting case law is relatively rich and, indeed, growing. Perhaps most obviously, the EU Court of Justice has confirmed that it is permitted for the EU legislature to create agencies and delegate powers that enable them to issue legal acts. But it has also stressed the significance of ‘the bounds of the regulatory frameworks’ and a need for the EU legislature to circumscribe agencies’ powers by ‘criteria and conditions’ (EU Court of Justice, 2012a, paras. 44–45). Looking at the relevant legislative acts a number of general observations can be made with respect to EU agencies’ activities. Typically, the agencies interact with national authorities and the European Commission within a permanent network. The European Medicines Agency (EMA) in

8

EU RESILIENCE IN THE INTERNAL MARKET …

177

Amsterdam offers an illustration. EMA was established in 2004 and has tasks that relate to the evaluation and supervision of medicines (European Parliament and Council Regulation 2004/726). It operates at the heart of the European Medicines Regulatory Network. The network comprises the national authorities responsible for rulemaking on medicines (and the same authorities are also represented in EMA’s management board). It gives EMA access to experts from across the EU and provides a joint base for interaction with stakeholders such as research groups and pharmaceutical companies (European Medicines Agency, 2016). But most importantly the network enables EMA to coordinate the national authorities’ implementation and enforcement of EU law. The extent to which EU agencies adopt legal acts vary, and so does the nature of their acts. For EMA this typically means acts that are not binding and therefore have the character of soft law: scientific opinions for the European Commission or national authorities and guidelines for research groups and pharmaceutical companies. For some other agencies, it means acts that are binding, mostly acts of individual application but sometimes also acts of general application that qualify as ‘regulatory acts’ (Article 263 TFEU). A prominent example of such agencies is the European Securities and Markets Authority (ESMA) in Paris. ESMA was established in 2010 and has tasks relating to rulemaking and supervision in the financial market (European Parliament and Council Regulation 2010/1095). Like EMA also ESMA has a central role within a network for national authorities intended to ensure consistent implementation and enforcement of EU law: the European System of Financial Supervision (ESFS). But in addition to soft law ESMA also adopts binding acts, such as (individual) decisions on fines for investments firms and (general) decisions on prohibitions of financial instruments. Before 1987, there were only three EU bodies with the basic characteristics of modern agencies and two of them had been in place since 1975. Following the internal market reform, a string of new agencies were created. In 2003, there were altogether 16 agencies. Only one of them had their legal basis in Article 114 TFEU. Today there are 33 agencies of which 20 have been established or re-established since 2009. Most of the modern agencies—but far from all—are assigned with tasks relating to the internal market and 8 of them, like EMA and ESMA, have their legal basis in Article 114 TFEU. Among them are the agencies with strongest powers.

178

C. F. BERGSTRÖM

It has already been observed that Article 114 TFEU gives the EU legislature a general competence to adopt ‘measures for approximation’ of national law which have as their object ‘the establishment and functioning of the internal market.’ In the light of the changes discussed above, a shift to legislative acts in the form of regulations combined with extensive reliance on non-legislative acts, it would seem that this competence is now being used to achieve a result which gives parliaments and authorities from individual member states little room to decide themselves on matters of implementation. But at the same time, non-legislative acts emerge from regulatory frameworks that provide authorities from all member states much room to influence collectively through the comitology system and agencies’ networks and management boards. In order to better understand the development, the project underlying this chapter has focussed on the regulatory frameworks relating to the financial market—most obviously financial services—that were introduced in response to the financial crisis.

EU Reform After the Financial Crisis The integration of the financial market was one of the objectives encompassed by the original EEC Treaty (TEEC). Most obviously this meant that it should become possible for financial institutions such as banks and investments firms to establish themselves and provide their services in all member states. But for a long time, it was impossible to make any significant progress. The legal preconditions for free movement varied widely between the member states and the existing competences for EU rulemaking—approximation of national law—required full agreement between all governments in the Council (primarily Article 100 TEEC now Article 115 TFEU). Also this situation changed after the reform of the treaties in 1987 and the inclusion of Article 114 TFEU. In the internal market programme, the need was stressed for swift action to open up the market for financial services. Therefore, several proposals were made for legislative acts designed to coordinate the conditions for authorisation and supervision of financial institutions and their products but permit individual member states to set higher standards (so-called minimum harmonisation). Most of them were adopted within a few years and in the form of directives. Less than ten years after formal establishment of the internal market, the conclusion was drawn by the ad hoc Lamfalussy Group that progress

8

EU RESILIENCE IN THE INTERNAL MARKET …

179

had been made in some sectors of the financial market but that other sectors were still suffering from ‘unnecessary bureaucracy, lack of trust, and sometimes downright protectionism’ (Lamfalussy Group, 2001, p. 9). The major problem, they said, was that the system for EU rulemaking did not function: it was too slow and produced too much ambiguity. Essentially, this was a critique of the extensive reliance on directives. According to the report, the transposition of directives into national law was time consuming and uneven, which, in turn, put pressure on the European Commission to monitor and enforce them. But the Commission was given insufficient staff to tackle ‘the complex task of building an integrated financial market’ and ‘barely a handful’ was focussing on infringement procedures (Lamfalussy Group, 2001, p. 18). The result of the assessment presented in the report of the Lamfalussy Group was a new approach to rulemaking in the financial market. Perhaps most obviously, it meant that the possibility permitted in Article 114 TFEU to use regulations instead of directives should be exploited to ‘speed up the implementation process’ (Lamfalussy Group, 2001, p. 26). Then a four-level strategy was launched, which should be applied in future rulemaking. First, it was said that the Council and the European Parliament should adopt legislative acts for different sectors of the financial market but focus solely on ‘the overarching principles’ and confer powers on the European Commission to establish ‘the modalities of how to implement the principles’ in non-legislative acts (Lamfalussy Group, 2001, pp. 22 and 94). This was level one and two. Then, the need was stressed to improve the consistency of national authorities’ implementation of legislative and non-legislative acts. Therefore, the comitology system should be supported by a new type of regulators’ committees that would bring together senior representatives from the same national authorities within a permanent network (Lamfalussy Group, 2001, pp. 37 and 94). This was level three. Finally, the need was emphasised to secure enforcement of legislative and non-legislative acts with more vigorous action than before. This was level four. Essentially, it meant that the Commission should be given resources that would enable it to make full use of existing infringement procedures and bring actions against member states to the EU Court of Justice (Lamfalussy Group, 2001, p. 40). The report of the Lamfalussy Group was well received and created apolitical momentum. The governments were quick to commit themselves to the proposed strategy, which they said should make the process for rulemaking in the EU financial market more effective and transparent

180

C. F. BERGSTRÖM

(European Council, 2001). The first of the three regulators’ committees, the Committee of European Securities Regulators (CESR), was set up within a few months, in a non-legislative act adopted by the European Commission. Here it was explained that CESR ‘should serve as an independent body for reflection, debate and advice for the Commission’ and ‘contribute to the consistent and timely implementation’ of EU law (European Commission, 2001, preamble 8 and 9). The rulemaking strategy launched by the Lamfalussy Group was first applied to a package of legislative acts on financial instruments and later extended to banking and insurance. But like before—and against the advice of the Lamfalussy Group—most legislative acts were given the form of directives. The most likely reason was that some governments in the Council continued to oppose a use of Article 114 TFEU that would thwart the influence that directives gave individual member states (Lamfalussy Group, 2001, p. 14 and Declaration on Article 100a TEEC). In its review of the process for integration in the financial market, the European Commission observed that the new strategy had been ‘a pioneer in introducing and strictly applying sound regulatory principles’ but not significantly improved member states’ performance with regard to the implementation of legislative and non-legislative acts. Therefore, the Commission clarified its intention to ‘propose regulations whenever appropriate and to the greatest extent possible for implementing measures’ (European Commission, 2007, pp. 5–6). This required a more expansive use than before of Article 114 TFEU. Not much later the financial crisis broke out and the rulemaking strategy came to be built on by others. None was more influential than the ad hoc De Larosière Group. Like the Lamfalussy Group also this was a group of high-level economic experts. In their report an important analytical distinction was made between regulation; the rules that govern financial institutions, and supervision; the process designed to oversee that these rules are properly applied (De Larosière Group, 2009, p. 13). Looking first at regulation, the submission was made that there was a global need for repair but that there was also a specific problem in the EU: the lack of a consistent set of rules. The main cause of this problem, it was said, stemmed from the options provided in the implementation of directives since it ‘lead to a wide diversity of national transpositions related to local traditions, legislations and practices’ (De Larosière Group, 2009,

8

EU RESILIENCE IN THE INTERNAL MARKET …

181

p. 27). According to the report, the rulemaking strategy launched by the Lamfalussy Group had led to good result on levels one and two, where the solution, now, was to introduce new regulatory frameworks in more sectors and amend old. Like the Lamfalussy Group, also De Larosière Group stressed the need to make use of legislative acts in the form of regulations (De Larosière Group, 2009, pp. 27–29 and 50). Parallel to this, an arrangement for resolution should be established that could limit the distress of the financial system as a whole in the event of a new financial crisis. Then, looking at supervision, the conclusion was drawn that there was a lack of trust between national authorities that the new regulators’ committees had been unable to manage. This meant that the rulemaking strategy launched by the Lamfalussy Group had failed on level three. According to the report of the De Larosière Group the regulators’ committees had ‘clearly reached their limits in terms of informal cooperation methods’ (De Larosière Group, 2009, p. 77). Therefore, the recommendation was made to strengthen the integrity of national authorities and transform the committees into EU agencies or ‘authorities’ with their own powers. This should be done within a new network, the European System of Financial Supervisors: The European System of Financial Supervisors must be independent from possible political and industry influences, at both EU and national level. This means that supervisors should have clear mandates and tasks as well as sufficient resources and powers. In order to strengthen legitimacy and as a counterpart for independence, proper accountability to the political authorities at the EU and national levels should be ensured. In short, supervisory work must be independent from the political authorities, but fully accountable to them. (De Larosière Group, 2009, p. 47)

In concrete terms new agencies would continue to exercise the tasks of the regulators’ committees but also assume responsibility for new tasks: establish technical standards for national authorities’ rulemaking and issue decisions on sanctions, initiate procedures against national authorities for infringement of EU law and, in emergency situations, intervene against national authorities and temporarily take over some of their powers. Only a few months after the De Larosière Group had presented their response to the financial crisis, member states’ governments agreed to set the process in motion: to introduce a complete set of regulatory

182

C. F. BERGSTRÖM

frameworks for the financial market that were all built on the European System of Financial Supervisors (Council, 2009, p. 5). The new agencies were established already in 2010: the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). For each of them, a more or less identical regulation was adopted on the basis of Article 114 TFEU. At the same time, an autonomous unit for oversight of the financial system was set up within the European Central Bank: the European Systematic Risk Board (ESRB), also this in a regulation adopted on the basis of Article 114 TFEU. In the following, an overview will be presented of the tasks and legal acts of ESMA. Of the three agencies, ESMA is more frequently involved than ESB or EIOPA and central for 13 of the 21 new regulatory frameworks identified above (EBA is central for 5 of them and EOPA for 3). Examples are, again, the framework on market abuse (European Parliament and Council Directive 2014/65 and Regulation 2014/600) and the framework on the prospectus to be published when securities are offered to the public (European Parliament and Council Directive 2010/73 and Regulation 2017/1129).

Tasks and Legal Acts of ESMA As previously noted ESMA has tasks relating to both rulemaking and supervision. The distinction reflects that used in the report of De Larosière Group. The range of powers given to ESMA to complete these tasks are described in European Parliament and Council Regulation 2010/1095 establishing a European Securities and Markets Authority. From the initial provision follows that the precise scope of action is laid down in a number of other legislative acts ‘including all directives, regulations, and decisions based on those acts, and of any further legally binding Union act which confers tasks on the Authority.’ This does not only mean that ESMA can operate within several existing regulatory frameworks but also within new or updated frameworks, making more or less use of the powers given to it in Regulation 2010/1095. Since the setting up of ESMA numerous amendments have been made to Regulation 2010/1095, most recently in 2020. This way the original list of specific tasks and legal acts has been extended (Article 8). But the

8

EU RESILIENCE IN THE INTERNAL MARKET …

183

overall orientation of its tasks is still the same: that ESMA shall ensure national authorities’ consistent application of those legislative acts that constitute the regulatory frameworks. The range of measures that ESMA is enabled to take under Regulation 2010/1095 are today: Non-Binding Legal Acts (a) drafts for technical standards that shall ensure ‘consistent harmonisation’ in the areas set out by the legislative acts that constitute regulatory frameworks or determine the conditions of their application (Articles 10 and 15); (b) guidelines or recommendations that shall establish efficient and effective practices for supervision within the financial network and ensure national authorities’ consistent application of EU law (Articles 16 and 17); (c) common methodologies for assessments of financial market resilience to adverse developments (Article 32); (d) opinions ‘on all issues’ relating to the areas set out by the legislative acts that constitute regulatory frameworks (Article 16a); (e) answers to questions relating to ‘the practical application or implementation’ of the legislative acts that constitute regulatory frameworks (Article 16b); (f) warnings that a certain financial activity poses a serious threat to the public interest (Article 9); and (g) no action letters that give detailed accounts for assessments that the application of specific provisions in the legislative acts that constitute regulatory frameworks is ‘liable to raise significant issues’ (Article 9a). Binding Legal Acts (h) individual decisions that require national authorities to take action in emergency situations or to settle disagreements (Articles 18 and 19); (i) individual decisions that surpass national authorities if they fail to ensure that firms and other private actors comply with ‘directly applicable’ obligations under the legislative acts that constitute regulatory frameworks (Articles 17, 18 and 19); and

184

C. F. BERGSTRÖM

(j) general decisions that temporarily prohibit or restrict the marketing, distribution or sale of certain financial products, instruments or activities (Article 9). A brief observation is that most non-binding legal acts have a function connected to rulemaking: how to improve or clarify the substance of the legislative acts that constitute regulatory frameworks. Then, in contrast, all binding legal acts have a function connected to supervision. The supervision is aiming, primarily, at national authorities, which in turn have a general responsibility for market operation within each member state. But if it would prove to be needed, ESMA may assume a specific responsibility, permitting it to substitute national authorities and take direct action against firms and other private actors. Even without any deeper assessment of the legal acts of ESMA, it is obvious that they—whether they relate to rulemaking or supervision—serve to complete some tasks that either national authorities or the European Commission used to have a responsibility for. But they also serve to complete some tasks that are genuinely new or, at least, more consciously identified than before. Typically, these tasks relate to the network and the collective involvement of national authorities in the process for integration of the financial market. The consequences of ESMA taking over responsibility—or assuming new responsibility—are manifold and require extensive study. But while we deepen our understanding of those forms of legal acts that seem most important, such as drafts for technical standards or individual decisions, we realise that other forms of legal acts are becoming increasingly more characteristic, such as general decisions, and that new forms of legal acts are still being invented (most recently answers to questions and no action letters).

Expansion of Competences? The patterns of rulemaking that have been observed in this chapter are reflections of the need for swift reaction in an ongoing crisis. But they are also expressions of an intention to make a permanent reform of the legal and political system of the EU—albeit within limited fields—that can prevent a similar crisis in the future. Therefore, the development is not easy to reconcile with EU law, which envisages that a reform of the legal and political system is brought about through a formal revision of the

8

EU RESILIENCE IN THE INTERNAL MARKET …

185

founding treaties. The process follows from the treaties themselves and rests on the idea that they ‘constitute the basic constitutional charter’ of the EU (EU Court of Justice, 2018, para. 44). It has already been explained, in the start of this chapter, that the notion of power in EU law is based on a principle of conferral of competences (Article 5.2 TEU). The principle means that the EU may act only within the limits of the competences conferred upon it in the provisions of the treaties. Together, these provisions constitute a complete compilation of competences and a list of all matters that may come within the remit of the institutions and bodies of the EU. But clear as the principle may seem, experience shows that there will be much room for a development where the EU makes use of its competences to a lot more than anyone had imagined. This is often referred to as ‘creeping’ competences: when the content of legal acts goes beyond the perceived limits of the treaties, resulting in an expansion of competences in comparison with the situation before (Pollack, 1994; Weatherill, 2004). There are many examples to choose from. Historically, no provision has been more significant than Article 352 TFEU. For a long time, this so-called flexibility clause was used by the EU legislature to extend rulemaking into new areas and to introduce institutional innovations such as agencies. But Article 352 TFEU is also restrained by a requirement for unanimous voting in the Council (and a more modern requirement for consent of the European Parliament). Since the inclusion of Article 114 TFEU and the concept of the internal market, Article 352 TFEU has become less significant (European Convention, 2002b, p. 3). The importance of Article 114 TFEU for the EU legislature relates of course to the fact that the competence therein is relatively broadly—or vaguely—defined and still open for qualified majority voting in the Council. The exploitation of Article 114 TFEU has often been challenged before the EU Court of Justice. Typically, by one or a few governments that failed to block the Council’s approval of a specific legal act. The role of the court has been similar to that of a constitutional court: to examine the claim that there was a lack of competence and declare the legal act void (Articles 263 and 264 TFEU). But the court has demonstrated a striking indulgence with the EU legislature, allowing it to interpret itself the terms of the competence. A first general expression of this can be found in a case where the court was required to clarify the meaning of the expressions ‘measures for approximation’ in Article 114 TFEU, and concluded that the authors of the treaties had intended to grant the EU

186

C. F. BERGSTRÖM

legislature ‘a discretion, depending on the general context and the specific circumstances of the matter to be harmonised, as regards the harmonisation technique most appropriate for achieving the desired result’ (EU Court of Justice 2004a, para. 45). In the context of the financial crisis, this responsiveness from the EU Court of Justice has enabled the EU legislature to make extensive use of Article 114 TFEU, turning it into a mechanism for resilience. It has been central for the shift of form of legislative acts and for the emergence of a new model of regulatory frameworks. Examples of crucial rulings can be taken from some of the cases that relate to the gradual empowerment of ESMA. For a long time, the competence in Article 114 TFEU was not considered sufficient for the EU legislature to adopt ‘measures for approximation’ that gave agencies powers to issue their own legal acts. But a few years before the financial crisis, the EU Court of Justice had approved the use of Article 114 TFEU for the establishment of the European Network and Information Security Agency (ENISA), in a different field of the internal market. The judgement (see below) became instrumental for the establishment of ESMA and the other agencies. The significance of the judgement was confirmed in the preamble to European Parliament and Council Regulation 2010/1095 and explained in the underlying proposal. Essentially it said that it was now ‘in line with the court’s case law’ to use Article 114 TFEU for the empowerment of ESMA (European Commission, 2009, p. 3). In the judgement, the EU Court of Justice had repeated its finding that the EU legislature had a discretion as regards the choice of harmonisation technique and added that nothing in the wording of Article 114 TFEU implies that the addressees of the measures adopted by the EU legislature can only be member states. Therefore—if the EU legislature would ‘deem it necessary’—it was also possible to use Article 114 TFEU for the establishment of ‘a body responsible for contributing to the implementation of a process of harmonisation in situations where … the adoption of non-binding supporting and framework measures seems appropriate’ (EU Court of Justice, 2004b, para. 44). Even if the judgement had made it clear that Article 114 TFEU could, indeed, be used for the establishment of agencies, it did not lend support for an arrangement where agencies—like ESMA—were entrusted with tasks that required them to issue, not only non-binding but also binding legal acts. Unsurprisingly, therefore, it did not take long before

8

EU RESILIENCE IN THE INTERNAL MARKET …

187

the legality of such an arrangement was challenged before the EU Court of Justice. The central case concerned the question if Article 114 TFEU allows the EU legislature to delegate so-called intervention powers to ESMA that enable it to issue (general) decisions that are binding within member states, on national authorities and also natural and legal persons. Basing itself on the previous case law, the EU Court of Justice affirmed that the EU legislature may delegate powers ‘for the implementation of the harmonisation sought’ to agencies (EU Court of Justice, 2012a, para. 105). Then, the court focussed its assessment on the manner in which the EU legislature had exercised its discretion under Article 114 TFEU. Essentially, this led the court to the finding that the EU legislature had sought to provide ‘an appropriate mechanism’ for situations of crisis (when it was faced with ‘serious threats to the orderly functioning and integrity of the financial markets or the stability of the financial system in the EU’ and national authorities have not taken adequate action) and also deemed it necessary to use a legal act in the form of a regulation—not a directive—to confer the relevant powers on ESMA (EU Court of Justice, 2012a, paras. 108–110). The overall result was that the EU Court of Justice allowed the EU legislature to take a new step in its gradual empowerment of ESMA. But importantly, the court also took the opportunity to clarify the legal implications. In particular, it emphasised the significance of ‘the bounds of the regulatory framework’—that the powers available to ESMA had been ‘precisely delineated’ by conditions and criteria—and that the exercise of those powers was amenable to judicial review in the light of the objectives formulated by the EU legislature (EU Court of Justice, 2012a, paras. 44, 46 and 53). Since then the EU legislature has continued to exploit the competence in Article 114 TFEU, in new legal acts introducing—or amending—a variety of regulatory frameworks in the financial market. The EU Court of Justice, in turn, has continued to confirm its responsiveness to the development but also to improve the legal preconditions for the rulemaking that takes place within regulatory frameworks.

188

C. F. BERGSTRÖM

New Vulnerability in the Legal and Political System This chapter has focussed on rulemaking in the internal market after the financial crisis and the way in which the EU legislature has used the competence in Article 114 TFEU. Some important changes have been described and discussed. These are: • a shift of form of legislative acts from directives that leave national parliaments and authorities much room for implementation to regulations that are directly applicable across all member states; • a coherent design of legislative acts in accordance with a new model of regulatory frameworks for continuous rulemaking in nonlegislative acts intended to secure uniform implementation and enforcement in all member states; and • a gradual extension of the model of regulatory frameworks that supplements rulemaking in non-legislative acts adopted by the European Commission with rulemaking in non-legislative acts adopted by EU agencies. Against the background of those changes, the general conclusion can be drawn that the EU legislature has used the competence in Article 114 TFEU to achieve a centralisation of rulemaking that leaves national parliaments and authorities little room to decide themselves on matters of implementation. At the same time, the rulemaking that takes place within the regulatory frameworks established by the EU legislature involves national authorities and gives them much room for collective influence, through the comitology system but now also through agencies’ networks (and their management boards). This chapter has sought to demonstrate that the centralisation of rulemaking is the result of a process intended to strengthen resilience against a new financial crisis. The changes have been brought about without any formal revision of the founding treaties. It has been possible because the EU legislature has agreed to push the limits for its competence in Article 114 TFEU. But such political resolve has not been sufficient. The changes have also required responsiveness from the EU Court of Justice. Through interaction between law and politics, Article 114 TFEU has come to function as a mechanism for resilience. Perhaps we will see a similar use of

8

EU RESILIENCE IN THE INTERNAL MARKET …

189

Article 114 TFEU after the pandemic crisis? To introduce new regulatory frameworks in an area where EU competence—hitherto—has been perceived as weak and, at the same time, it has been obvious that there is a need for better resilience. Finally, it must be concluded that the process intended to strengthen resilience against a financial crisis is far from unproblematic and that the changes described create new needs for improvements of the legal and political system of the EU. The shift of form of legislative acts—from directives to regulations—has not received much attention in law, but it has not been dealt with in rulings or discussed in legal science. But it has been observed by national parliaments in the context of their subsidiary checks of proposals for EU legislative acts. An unambiguous example can be taken from Sweden where the Riksdag has objected, repeatedly, that ‘this development decreases national parliaments’ room for action to adapt EU legislative acts to the varying constitutional preconditions in each individual member state’ (Committee on the Constitution, 2014, pp. 65–66). Importantly, a shift from directives to regulations also affects the preconditions for accountability. Again, an example can be taken from Sweden where it is often stressed that the process for transposition of directives provides the Riksdag with a crucial opportunity for control of the way in which the EU exercises the competences conferred upon it in. Against this background, a shift to regulations means that there is a new or stronger need for another form of control. For most member states, it is normal with a judicial control where a special—constitutional—court is entrusted with the task of securing compliance with their constitution. Therefore, it would seem that Sweden and other member states with a tradition of weak judicial control of their constitution are now forced to move closer to the position of those member states that have a constitutional court. It has been observed that the development with respect to the legal acts is not only characterised by a shift from directives to regulations but also of the introduction of the legal acts adopted by ESMA and the other agencies, both binding and non-binding. These agencies have been designed to strengthen resilience. Therefore, the speed with which their legal acts have become crucial for the running of the financial market may be seen as a reaction against a classic understanding of the internal market and its structures for implementation and enforcement. This, indeed, is reflected in the critique of directives after the financial crisis and that they

190

C. F. BERGSTRÖM

had been too slow to keep up with the development on the financial market and produced too much diversity (something which the European Commission, in turn, had been expected but not managed to keep after). In such a context, ESMA and the other agencies offer a new model. This is intended to secure that national authorities make uniform interpretation and application of the legal acts that constitute the relevant regulatory frameworks. If the model works well, there will be new resilience against a crisis—in the sense the expression resilience has been used in the context of the reform—but at the same time there will also be new vulnerability in the legal and political system. Since it will be more difficult than before to say who is responsible for rulemaking or decisions and how to hold someone accountable. For this reason, it is highly unsatisfactory that there is a fundamental lack of clarity with respect to the position of agencies in the legal and political system of the EU. The ambiguities can only be sufficiently dealt with through amendments of the founding treaties. But that would require a formal revision of the treaties, and that is something which the member states typically want to avoid. For as long as the necessary provisions are missing from the treaties, there is an obvious risk that the ongoing development will give ESMA and the other agencies—but also the national authorities within them—an influence that they are neither intended nor fit to have. The problem is not less but worse when it comes to their non-binding legal acts. Since these acts are not subject to legal constraints and controls to the same extent as binding legal acts. Pending a process for revision of the treaties, it is necessary that the powers available to ESMA and the other agencies are dealt with by those who are responsible for the creation, the EU legislature but also the EU Court of Justice, through political and judicial control of agencies’ binding and non-binding legal acts.

References Bergström, C. F. (2016). Introduction. In C. F. Bergström & D. Ritleng (Eds.), Rule-making by the European Commission: The new system for delegation of powers. Oxford University Press. Bergström, C. F., & Strand, M. (Eds.). (2021). Legal accountability in EU markets for financial instruments: The dual role of investment firms. Oxford University Press.

8

EU RESILIENCE IN THE INTERNAL MARKET …

191

Committee on the Constitution. (2014). Konstitutionsutskottets betänkande. Uppföljning av riksdagens tillämpning av subsidiaritetsprincipen, 2014/15:KU5. Council. (2009). Council Conclusions. Strengthening EU Financial Supervision, Doc 10862/09 ECOFIN. De Larosière Group. (2009, February 25). Report of the High-Level Group on Financial Supervision in the EU, Brussels. EU Court of Justice. (1970). Case 25/70 Einfuhr- und Vorratsstelle für Getreide und Futtermittel v Köster and Berodt & Co, EU:C:1970:115. EU Court of Justice. (2004a). Case C-66/04 United Kingdom v European Parliament and Council, EU:C:2005:743. EU Court of Justice. (2004b). Case C-217/04 United Kingdom v European Parliament and Council, EU:C:2006:279. EU Court of Justice. (2012a). Case C-270/12 United Kingdom v European Parliament and Council, EU:C:2014:18. EU Court of Justice. (2012b). Case C-427/12 Commission v European Parliament and Council, EU:C:2014:170. EU Court of Justice. (2015). Joined Cases C-643/15 and C-647/15, Slovak Republic and Hungary v Council, EU:C:2017:631. EU Court of Justice. (2018). Case C-471/18 P Federal Republic of Germany v Esso Raffinage, EU:C:2021:48. European Council. (2001). Resolution of the European Council of 23 March 2001 on more effective securities market regulation in the European Union, OJ 2001 C 138/1. European Commission. (1992). White Paper from the Commission to the European Council. Completing the Internal Market, COM (1985) 310 final. European Commission. (2001). Commission Decision (EC) 2001/527 of 6 June 2001 establishing the Committee of European Securities Regulators (CESR), OJ 2001 L 191/43. European Commission. (2007). Communication from the Commission. Review of the Lamfalussy process—Strengthening supervisory convergence, COM (2007) 727 final. European Commission. (2009). Proposal for a Regulation of the European Parliament and of the Council establishing a European Securities and Markets Authority, COM (2009) 503 final. European Commission. (2018). Commission Implementing Regulation (EU) 2018/151 of 30 January 2018 laying down rules for application of Directive (EU) 2016/1148 of the European Parliament and of the Council as regards further specification of the elements to be taken into account by digital service providers for managing the risks posed to the security of network and information systems and of the parameters for determining whether an incident has a substantial impact, OJ 2018 L 26/48.

192

C. F. BERGSTRÖM

European Commission. (2019). Commission Delegated Regulation (EU) 2019/819 of 1 February 2019 supplementing Regulation (EU) 2013/346 of the European Parliament and of the Council with regard to conflicts of interest, social impact measurement and information to investors in the area of European social entrepreneurship funds, OJ 2019 L 134/1. European Convention. (2002a). Final Report of European Convention Working Group IX on Simplification, CONV 424/02. European Convention. (2002b, September 3). Working Document 19 of European Convention Working Group V on Complementary Competences Simplification, The Residual Competence: Basic Statistics on Legislation with a Legal Basis in Article 308 EC, s. European Medicines Agency. (2016). The European Regulatory System for Medicines—A Consistent Approach to Medicines Regulation across the European Union, EMA/716925/2016. European Parliament and Council. (2004). Regulation (EC) 2004/726 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency, OJ 2004 L 136/1. European Parliament and Council. (2010a). Directive (EU) 2010/73 of the European Parliament and of the Council of 24 November 2010 amending Directives (EC) 2003/71 on the prospectus to be published when securities are offered to the public or admitted to trading and (EC) 2004/109 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, OJ 2010 L 327/1. European Parliament and Council. (2010b). Regulation (EU) 2010/1095 of the European Parliament and of the Council of 24 November 2010 establishing a European Securities and Markets Authority, OJ 2010 L 331/84. European Parliament and Council. (2012). Regulation (EU) 2012/528 of the European Parliament and of the Council of 22 May 2012 concerning the making available on the market and use of biocidal products, OJ 2012 L 167/1. European Parliament and Council. (2014a). Directive (EU) 2014/40 of the European Parliament and of the Council of 3 April 2014 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products and repealing Directive (EC) 2001/37, OJ 2014 L 127/1. European Parliament and Council. (2014b). Directive (EU) 2014/65 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, OJ 2014 L 173/349.

8

EU RESILIENCE IN THE INTERNAL MARKET …

193

European Parliament and Council. (2014c). Regulation (EU) 2014/600 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, OJ 2014 L 173/84. European Parliament and Council. (2017). Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive (EC) 2003/71, OJ 2017 L 168/12. European Parliament and Council. (2019). Regulation (EU) 2019/6 of the European Parliament and of the Council of 11 December 2018 on veterinary medicinal products and repealing Directive (EC) 2001/82, OJ 2019 L 4/43. Intergovernmental Conference. (1987). Declaration on Article 100a attached to the Singe European Act, OJ 1987 L 169/1. Lamfalussy Group. (2001, February 15). Committee of Wise Men. Final Report on the Regulation of European Securities Markets. Marjosola, H. (2022). Shadow rulemaking: Governing regulatory innovation in the EU financial markets. German Law Journal. Moloney, N. (2018). The age of ESMA—Governing EU financial markets. Hart Publishing. Pollack, M. A. (1994). Creeping competence: The expanding agenda of the European Community. Journal of Public Policy, 14(2), 95–145. Three Wise Men. (1979, November 8). Committee of Three Wise Men. Report on European Institutions to the European Council. Weatherill, S. (2004). Competence creep and competence control. Yearbook of European Law, 23(1), 1–55. Weismann, P. (2016). European agencies and risk governance in EU financial market law. Routledge.

CHAPTER 9

Immigration and Asylum in the EU: A Resilient Policy for Integration? Karin Borevi

Immigration tops the political agenda in most of the EU’s member states, and it is a core issue for the entire project of European integration. It highlights an intrinsic tension between national and supranational bodies and legislation. States have the right to control their borders—to decide ‘who should be let in’—but they must also live up to EU laws and international conventions. The Union has long had great difficulty achieving common policies on immigration, but the large inflow of asylum-seekers in 2015 represented a crisis for the Common Asylum System (CEAS)—a system which had, notwithstanding everything, been commonly agreed upon. The subsequent failure to respond adequately to the increasing influx of refugees resulted in a tendency to re-nationalize policies and regulations on migration and asylum. One expression for this was the decision by member states, via adoption of a crisis clause in the Schengen acquis, to reintroduce internal border controls. This entailed a crisis not

K. Borevi (B) Södertörn University, Stockholm, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_9

195

196

K. BOREVI

just for the Schengen system but for the entire principle of free movement within the Union as well. The most recent attempt to settle on a common EU approach towards immigration is the proposal for a new migration and asylum pact which the European Commission presented in September 2020. When it comes to policies for the integration of immigrants, by contrast, attempts at involvement by the Union in how member states formulate their policies are much more limited and take other forms. Policies in that area revolve around issues of membership; they concern questions about how the integration of new arrivals into a society is best achieved. These matters are core elements of nation-state sovereignty and identity. From the perspective of the theme of this book—resilience—it is easy to identify problems with current immigration policies, both at the EU level and at that of the member states. For instance, the strategy of handing over the task of preventing the entry of asylum-seekers into the Union to non-EU countries—known as externalized border control —must be deemed an extremely fragile one. This is exemplified in the EU–Turkey agreement of 2016, which made the Union’s asylum policies dependent on negotiations with a government of dubious democratic credentials (Fassi & Lucarelli, 2022; Kaya, 2022). Another obvious problem—among other things from the standpoint of sustainability—is that the dominant focus in EU immigration policy is on strengthening the external borders. This creates a vicious circle that feeds smuggling networks and prompts people to undertake life-threatening journeys (Andersson, 2014). One crucial reason, however, why there has been such a strong emphasis on defending the Union’s external borders is precisely that this is one of the few areas where the member states have managed to reach agreement. This chapter reviews attempts to achieve a common asylum policy at the EU level and suggests that the failure to do so impels member states to take compensatory measures to control immigration and asylum-seeking. When the Union’s system is unable to handle immigration, a shift from European to national solutions takes place—as became evident in the ‘refugee crisis’ of 2015 (Brekke & Staver, 2018; cf. Henrekson et al., 2019). The lack of a collective and unified EU response to the arrival of large numbers of asylum-seekers sparked a ‘race to the bottom’ in the national policies pursued by member states on matters of asylum. Similar dynamics, it is worth stressing, are in play when it comes to policies for the integration of immigrants. As states strive to control immigration—within the constraints imposed by EU laws and international

9

IMMIGRATION AND ASYLUM IN THE EU …

197

conventions—national policies on integration provide a tool to do so. From a resilience perspective, this must be seen as a potential problem, due to the risk it presents for goal conflicts. Efforts to control immigration indirectly—e.g., through measures aimed at discouraging or deterring certain categories of migrants from coming—run the risk of jeopardizing the overarching goal of integration policies: i.e., to improve the social and economic integration of migrants. This chapter is structured as follows. In the next section, I present some distinctions between different types of immigrants and between different policy areas connected with the Union and immigration. An overview then follows of the different phases that have marked efforts to develop a common migration and asylum policy at the EU level. I conclude the overview with a brief description of the most recent proposal for a new migration and asylum pact, which the Commission presented in September 2020. The focus then shifts to policies for the integration of immigrants and to developments that have taken place mainly at the national level across the member states. Here I briefly describe the ‘civic turn’ in integration policy which has taken place across European states since the early 2000s—a turn which has involved a stronger connection between integration policy and immigration control. The chapter concludes with a section summarizing my argument that, from the perspective of resilience, the tendency to use integration policy as a means to control immigration is problematic. Policy developments in Sweden after 2015 are cited as an illustrative case.

The EU and Migration Policy---Which Migrants Are We Talking About? One fundamental distinction to be made when talking about immigration and the EU concerns different categories of migration. This term may be used in reference to EU citizens who move from one member state to another, for example, to work or to study (see the chapter by Sjödin and Wadensjö in this book); or it can refer to the movement of people from countries outside the EU—commonly referred to as Third-Country Nationals (TCNs). The establishment of common external border controls can be understood as a ‘logical response’ to the removal of internal borders. In exchange for freedom of movement within the Union, member states have agreed to relinquish some of their control over the first type of migration. By contrast, control over the migration of

198

K. BOREVI

TCNs remains at the national level (Brekke & Staver, 2018; Noll, 2016; Zaiotti, 2011). Citizens of EU member states thus enjoy a legal status as ‘insiders’ within the Union’s free-movement framework, whereas citizens of non-EU countries are correspondingly ‘outsiders’ in this regard (Borevi, 2021). Moreover, this relationship is arguably reflected in the terminology used regarding immigration in an EU context. While TCNs are most commonly referred to as immigrants, the migratory movements of EU citizens are instead discussed in terms of mobility. Furthermore, when EU citizens are referred to as immigrants, it is often in contexts where the principle of free movement within the Union is being criticized (as in the Brexit debate), or where a specific aspect of free movement that is considered problematic is being addressed (as when marginalized citizens from Hungary or Romania use their right to free movement to enter other member states in order to seek income through begging). At the level of the Union, attempts have long been made to institute a common and coordinated policy on so-called irregular migration from non-EU countries. As we have seen, however, member states are careful to safeguard their sovereignty regarding TCNs. At the same time, significant steps towards supranationalism have been taken in this area. In the 1990s, EU policy on migration was characterized by intergovernmental cooperation. The 2000s, however, saw a trend towards increased powers for supranational EU institutions in this area—the 1999 Treaty of Amsterdam and the 2009 Treaty of Lisbon being important milestones in this regard (Luedtke, 2018). For example, common EU legislation has been introduced to set minimum requirements that member states must observe regarding the reception of asylum-seekers. Member states must also, as noted earlier, take international conventions (e.g., the 1951 Refugee Convention) into consideration when instituting measures to control migration by TCNs. A person’s reason for immigrating is often decisive for which specific legal provisions apply. Different regulations apply to economic migration, to family reunification, and to the efforts of refugees to gain protection from war, oppression, and persecution. The 1951 Refugee Convention, for example, requires states to examine applications for asylum submitted by persons entering their territory. For individuals, therefore, the principle of non-refoulement entails absolute protection against being sent back to face torture or other inhuman treatment. For states, meanwhile, it imposes an absolute obligation to furnish such persons with protection.

9

IMMIGRATION AND ASYLUM IN THE EU …

199

Attempts to Create a Common Migration and Asylum Policy in the EU As explained above, EU citizens and TCNs are covered by completely different regulations. At the same time, the two groups are interdependent in terms of their status. The Schengen arrangement first began in 1985 as an accord between Belgium, France, Germany, Luxembourg, and the Netherlands. Then, in 1990, the Schengen Agreement was introduced with the removal of internal border controls and the establishment of free movement within the Schengen area. The area was subsequently expanded to include 22 EU member states, together with Iceland, Liechtenstein, Norway, and Switzerland. One implication of the introduction of free movement within Schengen was the institutionalization of the Union’s external borders (Luedtke, 2018). The Schengen Agreement also triggered the development of other border-control measures, such as the Schengen Information System (SIS), the first supranational technological tool for gathering information on TCNs within the EU (Kasparek, 2016). Another crucial and much-debated part of the Union’s immigration system is the Dublin Convention, which was signed in 1990 and which entered into force in 1997. The Dublin Convention enunciated several principles, the most well-known of which is ‘the member state of first entry’ rule, which means that the first member state to which an asylumseeker from a non-EU country arrives is responsible for receiving and processing that person’s application. This principle was justified as a way to prevent ‘asylum shopping’ (Davis, 2020, p. 268), a rather peculiar term ascribing self-interested rationality to asylum-seekers, who were presumed to be intent on heading for a destination country they perceived as offering the best prospects for gaining protection and leading a good life. The member state of first entry rule reflected experience from the large-scale refugee immigration which resulted from the war in the former Yugoslavia in the early 1990s. It was justified as a way of preventing certain countries from being overburdened and of promoting a more even sharing of responsibility between member states. In practice, however, the result was to shift responsibility, since member states in the EU’s southern and eastern border regions—countries whose borders are the hardest to monitor—were the ones upon which the heaviest responsibility was laid (see, e.g., Thieleman & Dewan, 2006).The Dublin Convention, sometimes referred to as the Dublin II Regulation, was incorporated into EU law in 2003 (Davis, 2020).

200

K. BOREVI

The question of immigration gradually shifted from being an area not covered by any common EU rules at all (it was not among the issues mentioned in the Treaty of Rome in 1957) to being an object of cooperation at the Union level, although for a long time only on an intergovernmental basis. An early argument seeking to explain why member states chose to conclude agreements on migration policy at the EU level was the ‘venue-shopping thesis’ launched by Virginie Guiraudon (2000). According to this argument (also referred to as ‘the flight to Europe’), shifting policies on immigration control to the supranational level was a strategy for policymakers to introduce restrictive measures that would not have been possible on the national level, given domestic constraints such as those posed by policy agents (e.g., NGOs and activists) that favour a more liberal immigration policy. Subsequent studies have confirmed the venue-shopping thesis (e.g., Lavenex, 2006). But it has also been challenged, especially in view of the greater supranationalism of immigration policies since the Treaty of Amsterdam (1997), which has led to an increased involvement on the part of various immigration-policy agents at the EU level too (see Bonjour & Vink, 2013; Geddes & Scholten, 2016). The Amsterdam Treaty (1999) defined the EU as an ‘Area of Freedom, Security and Justice’, and it featured a new heading (IV) on questions of free movement, immigration, and asylum. The Council of Ministers was now made responsible for promoting the free movement of persons within the EU and for ensuring that measures would be taken to coordinate policies relating to asylum, immigration, and external border control. At a Council of Ministers meeting in Tampere in 1999, a process was established to create a common asylum system within the EU and labelled the Common European Asylum System (CEAS). Then, with the Treaty of Lisbon, immigration was ‘normalized’ as an area of EU competence. Qualified majority voting in the Council of Ministers was introduced for such questions; a joint legislative procedure was established between the Council of Ministers and the European Parliament; and full jurisdiction in the area was granted to the Court of Justice of the European Union (CJEU) (Davis, 2020; Geddes & Scholten, 2016).

The Common European Asylum System The first phase of work on a common asylum system lasted from 1999 to 2004. Apart from the above-mentioned incorporation of the Dublin regulations into EU legislation, this period saw the adoption of a

9

IMMIGRATION AND ASYLUM IN THE EU …

201

number of directives aimed at strengthening the right of asylum-seekers to be received in humanitarian fashion and to be treated in accordance with due process. Member states now had to comply with certain minimum requirements regarding the processing, reception, and protection of asylum-seekers. Examples of such directives include the Temporary Protection Directive (2001), the Qualifications Directive (2003), and the Reception Directive (2004). In 2003, the EU authority for external borders, Frontex, was set up; in 2004, the Eurodac Regulation was adopted. The latter established a European fingerprint database and required member states to register the fingerprints of all asylum-seekers or irregular migrants crossing their borders. Eurodac is a key tool in the Dublin system. Before a member state initiates an asylum investigation, a search is first done in Eurodac to ascertain whether the applicant is already registered in another member state. If that is the case, a Dublin transfer may be relevant, whereby the person is sent back to the country where he or she was registered, and responsibility for carrying out the asylum examination is assigned to the country in question (Kasparek, 2016). The results from this first phase of the CEAS drew criticism on several points. Among other things, the directives were said to be too vague— too open to contrasting interpretations. As a result, the member states could continue much as before. It was further pointed out that, in some cases, the directives even resulted in a deterioration in the quality of asylum reception afforded by member states. In response to this criticism, the Commission launched a second phase of the CEAS, one of the main aims being to revise the directives in order to impose stricter requirements regarding the protection of asylum-seekers. This second phase also saw the revision of both the Dublin rules and the Eurodac Regulation (Geddes & Scholten, 2016). The Dublin system was a recurring subject of major disagreement and tension between member states. Those member states located in the external border regions (Cyprus, Greece, Italy, and Malta), which thus were the countries of first arrival for the majority of migrants, argued that all member states should assist in asylum reception, thereby ensuring a fair distribution of responsibility. However, the majority of member states wished instead to concentrate resources on strengthening the Union’s external borders. The reformed Dublin system adopted in 2013, also known as Dublin III, did not entail any change in the ‘state of first entry’ rule, but it did mean that resources would be channelled to the countries of first arrival on the EU’s external borders (Davis, 2020). A new agency, the European Asylum Support

202

K. BOREVI

Office (EASO), was set up to send staff to member states that needed help. In various ways, the revised directives imposed stricter requirements on the member states. For instance, a right to free legal advice for asylum-seekers was introduced, as were stricter rules on how long an asylum-seeker could be detained in a refugee camp (Geddes & Scholten, 2016). 2014 saw a marked increase in immigration to the EU, and the number more than doubled in the following year. In total, more than 1.2 million asylum-seekers arrived in the Union in 2015, which has come to be called the year of the ‘refugee crisis’. However, given that it soon became clear that the Common European Asylum System had failed the test, a ‘crisis of the CEAS’ might be a more appropriate term (as suggested by Niemann & Zaun, 2018, 1). In May 2015, the Commission presented the European Agenda for Migration, the object being to formulate a comprehensive EU approach to the crisis (European Commission, 2015). One key part of this proposal involved mandatory relocation plans, whereby 160,000 asylum seekers would be moved from hotspots in Greece and Italy to other member states. The aim was to relieve some of the burdens on those key destinations, as well as to promote solidarity and shared responsibility within the EU and to counteract the imbalance whereby the majority of asylum-seekers headed for Germany and Sweden as their destination countries (Geddes & Scholten, 2016). Mandatory relocation was agreed on by the Council in September 2015. However, several member states—notably the Visegrad countries (Czechia, Hungary, Poland, and Slovakia)—were fiercely opposed to the proposal, so qualified majority voting was used to make the decision. Some member states were thereby overridden, making for considerable tension and friction. Enthusiasm was also notably lacking when it came to implementing the decision. As of January 2016, only 272 persons out of the planned 160,000 had actually been redistributed from Greece and Italy to other member states (Geddes & Scholten, 2016). In 2016, the Commission presented a comprehensive reform package on asylum policy, including a proposal to introduce a mandatory redistribution mechanism into the Dublin Regulation (European Commission, 2016a, 2016b, 2016c, 2016d). Again, the Visegrad countries were particularly outspoken in their criticism of the proposal (Parusel, 2020, p. 27).

9

IMMIGRATION AND ASYLUM IN THE EU …

203

The 2020 Proposal for a New Pact In September 2020, the Commission launched a proposal for a new migration and asylum pact. The explicit aim was to formulate a policy that all member states would find acceptable. The proposal was based on the above-mentioned one from 2016, but with the parts removed over which the member states had not managed to agree (European Commission, 2020). A major focus of the proposal was on externalizing migration control, through increased cooperation with countries of origin and transit. The object was mainly not only to facilitate return migration but also to prevent or hinder people from coming to the EU. The focus of the 2016 proposal had been on ensuring that responsibility would be shared between member states when it came to receiving asylumseekers and processing their applications. The new proposal too suggested that responsibility be shared. Now, however, the stress was on the need for member states to cooperate effectively in ensuring the swift return migration of applicants whose petition for asylum had been denied. A key part of the new pact was a proposal for a new ‘solidarity mechanism’, whereby member states could choose among three options regarding what type of support to provide. In the first option, a member state would agree to take over the reception and processing of asylumseekers from a state of first entry, such as Greece. This recalled the relocation schemes previously proposed, but with the important difference that the support would now be given on a voluntary basis. The second option was termed ‘return sponsorship’, meaning that a member state would assume responsibility for enforcing a decision to expel a TCN taken by another member state. The idea was that the assisting state would first try to enforce the decision on the territory of the other member state; however, if that approach did not succeed within eight months, the person in question would be transferred to the territory of the assisting state for further attempts to ensure his or her return. Finally, a third option involved providing operational support in connection with reception facilities, capacity-building, or so-called return programmes. Changes in the handling of asylum-seekers at the border were another key aspect of the proposal. These included a mandatory ‘pre-screening’ of asylum-seekers at the external borders, with identification, health, and safety checks, and the registration of fingerprints in the Eurodac database. By means of this screening process, asylum applications would be divided into two categories. The first applied to applicants with a

204

K. BOREVI

low chance of acceptance, where it was thought reasonable to carry out a rapid check of the application directly at the border, followed by immediate implementation of a return decision in the (presumed) event the application was denied. This fast-track procedure at the border, the Commission explained, would be applied to “to claims presented by applicants misleading the authorities, originating from countries with low recognition rates likely not to be in need of protection, or posing a threat to national security” (European Commission, 2020). By contrast, normal procedures would be applied in the case of persons arriving from countries with a high proportion of approved applications (whose chances of gaining admittance were therefore high), as well as in the case of applicants belonging to particularly vulnerable groups, such as unaccompanied children or families with children under 12 years of age. As for the Dublin Regulation, the Commission proposed its abolition. The state of first entry rule, on the other hand, would be retained, but moved to a proposed new body of regulations on asylum and migration. In a report published by CEPS, a European think tank in Brussels, the Commission’s proposal for a new pact on migration and asylum was criticized for representing a return to intergovernmental decision-making, and thus a breach with the European Treaties. The report charged as well that the proposal risked contributing not just to legitimizing the controversial policies pursued by certain member states but also to elevating them into the approach of the entire EU (Carrera, 2020). In sum, the EU has yet not succeeded in formulating a common policy on migration and asylum. The Commission’s proposal for a new migration and asylum pact represents an effort to reach a compromise, but it also suggests that prospects for a solidaristic sharing of responsibilities between member states remain rather small.

Trends in European Policy for the Integration of Immigrants We turn now to the implications which the above-discussed weaknesses and failures in the development of a common asylum policy in the EU have for policy trends at the nation-state level. In the vacuum created by a weak asylum and migration policy in the Union, member states are trying in various ways to take control of migration. In response to the 2015 crisis, several member states adopted various national measures to reduce the inflow of asylum-seekers—e.g., introducing restrictions in

9

IMMIGRATION AND ASYLUM IN THE EU …

205

the right to family reunification, introducing, or expanding ‘safe country of origin’ policies, switching from permanent to temporary protection, or shortening the duration of residence permits (European Migration Network, 2017). The reintroduction of internal border controls is also an example of this trend. The breakdown of the Dublin system and diminished trust in the EU’s management of external border controls led to the reintroduction in many countries of internal border controls, notwithstanding the challenge this posed to the entire Schengen system. In addition to territorial border controls, moreover, borders of other kinds are involved in this trend, namely regulations that have a gatekeeper function regarding migrants’ access to various rights and benefits. Crucially, therefore, the political dynamics referred to as ‘a race to the bottom’ or ‘regulatory competition’ (cf. Brekke & Staver, 2018; Hernes, 2018)— whereby states seek to remove some of the ‘pull factors’ assumed to make one country a more attractive destination than another—involve policies for immigrant integration as well. Policies for the integration of immigrants differ from those on asylum and migration in that, in the former area, the EU has no formal responsibility and no means for exerting pressure on member states from above. While the EU has acquired legislative powers over migration and asylum, as discussed above, the Lisbon Treaty (2009) still rules out the harmonization of national legislation on the integration of immigrants. Union institutions are allowed, however, to encourage and support actions for migrant integration which are undertaken by member states (Adam & Caponio, 2018). Europeanization in this field is characterized by soft governance and horizontal policy-learning, whereby the EU is sometimes used as a forum for the dissemination of ‘best practice’ and the exchange of knowledge and recommendations. Traditionally, immigrant integration has been understood to involve ‘national models’; in recent decades, however, a policy convergence towards similar rules and policies has been noted. Thus, while there is no evidence of Europeanization understood as a shift of decision-making power to the EU level in this area, changes in national policies across member states have been attributed to some degree to European integration or to the ‘impact’ of EU policies on member states (e.g., Block & Bonjour, 2013; Faist & Ette, 2007; Kaunert & Léonard, 2012). In what follows, I review the ‘civic turn’ seen across Europe in this policy area since the early 2000s.

206

K. BOREVI

The Civic Turn in Policies for Immigrant Integration The civic turn in immigrant integration reflects a renewed interest among states in actively strengthening and defending their own national identity, through measures aimed at newly arrived immigrants. The idea is to shape immigrants—through socialization and the use of incentives—into ‘good’ citizens (Borevi et al., 2017). In 2004, the European Council defined civic integration as comprising policies aimed at the full integration of immigrants into the mainstream of their host society. The Council emphasized employment as a key part of integration; it declared as well, however, that ‘respect for liberal democratic values’ and ‘a basic knowledge of the host society’s language, history and institutions’ were indispensable to successful integration. The Council also pointed to a fourth critical element: the enactment and enforcement of anti-discrimination laws and policies (Joppke, 2007). One of the most characteristic features of this policy trend is the introduction of requirements that new arrivals must meet in order to gain access to various rights. This entails the reversal of an integration paradigm according to which access to citizenship rights is no longer a prerequisite of integration, but rather the end result of a completed integration process (Joppke, 2007). Hence, whereas the general idea earlier was that access to basic rights conduces to integration, the dominant view now is that individuals should ‘earn their rights’. Rights are to function as a spur and an incentive—a prize that individuals will be awarded upon fulfilling integration requirements. This policy trend is heavily informed by a larger activation and workfare paradigm, entailing stricter demands for gaining access to social allowances (Ferrera & Rhodes, 2001; cf. Joppke, 2007). Two important features, however, distinguish requirements for the integration of immigrants from policies aimed at natives and permanent residents. First, the former programmes typically demand not just that new arrivals become economically self-sufficient and adhere to a prescribed work ethic, but they also require them to acquire a certain degree of acculturation: to learn the host country’s language; to gain knowledge of its history and societal institutions; and to adapt to—indeed, swear loyalty to— certain norms and values perceived as fundamental to the nation’s identity (e.g., Goodman, 2010; Orgad, 2010). Second, the sanctions entailed in the integration of immigrants are typically more far-reaching than those connected with activation programmes aimed at natives. In the former

9

IMMIGRATION AND ASYLUM IN THE EU …

207

case, namely, fulfilling the requirements is often needed not only to gain access to social benefits but also to enjoy the right to stay within the country or to become eligible for national citizenship. Hence, an immigrant who fails to comply with such demands runs the risk not only of suffering material loss or hardship, but of being denied three basic rights as well: to enter the country, to secure residential status, and to acquire national citizenship. The core requirement of civic integration is to embrace liberal democratic values, rather than to assimilate in an old-school ethnocultural way. However, the formulation of goals and requirements in a ‘liberal language’ does not necessarily exclude ethnocultural assimilation—or exclusion—in practice. In some cases, citizenship tests have sought to scrutinize the inner beliefs of particular groups of people or to assess individual behaviour in specific social interactions. A citizenship test issued in the German state of Baden-Württemberg in 2005 was an infamous example hereof. It asked applicants questions about parental authority, religion, homosexuality, gender equality, and other issues. These questions were later found to violate constitutional rights, particularly those of free expression and of conscience (Joppke, 2010). Furthermore, civic integration may involve ‘illiberal liberalism’, whereby requirements are formulated in such a manner as to expect everyone to conform to liberalism understood as an identity or a way of life (Tebble, 2006). Hence, values which in themselves appear to be impeccably liberal may be used with exclusionary intent—against liberalism’s presumed ‘Others’, notably Muslims (Joppke, 2010). Denmark, a member state that has gone very far in introducing strict civic integration demands, has been highlighted as a case in point (Mouritsen, 2006). The Danish national values to which newcomers are required to assimilate are predominantly formulated in universal or ‘civic’ (hence not ‘ethnic’) terms; yet, such universalist framings notwithstanding these values are crucially thought to express a settled and pre-existing idea of Danishness. As Christian Rostbøll puts it, ‘liberal values are presented as so entangled in Danish culture that in order to understand and accept them, one must understand Danish history and assimilate into Danish culture’ (Rostbøll, 2010, p. 405).

208

K. BOREVI

Civic Integration and Immigration Control Another central feature of the civic turn in integration policy is the closer connection it involves between integration policy and immigration control. The ideological rationale behind the ‘civic turn’ informs not only the conditioning of access to permanent settlement and citizenship, and the rights associated therewith, but also the regulation of immigration (Bech et al., 2017; Goodman, 2010). In other words, states use integration requirements not only—or even primarily—to promote integration but also to control immigration (Goodman, 2010). The link between integration policy and immigration control is particularly evident in relation to family migration. Family migrants are not just ‘outsiders’ knocking on a country’s doors and requesting entry; they are also crucially connected with the moral claims of many ‘insiders’—i.e., people who reside within the country in question and wish to be united with their families (Block, 2012, p. 37). In relation to family migration, therefore, civic integration involves a kind of ‘double conditionality’, in the sense that both parties—i.e., both the incoming migrant and the person residing in the destination country, referred to as a ‘sponsor’—are potentially subject to requirements for integration (Bech et al., 2017). The sponsor, for example, may have to show that he or she has fulfilled such requirements; while the incoming family member may need to present evidence indicating a good potential to do so. The connection between integration requirements and immigration control is perhaps most pertinently expressed in a policy introduced in the Netherlands, known as ‘integration from abroad’. In 2005, the Dutch parliament imposed a pre-entry integration regime on foreigners who wished to join a partner, parent, or child in the Netherlands. Now, before gaining admittance to the Netherlands, would-be immigrants had to take exams abroad to prove proficiency in the Dutch language and a knowledge of Dutch society (Bonjour, 2014). This reform introduced a direct link between integration policy and immigrant selection, and it involved double conditionality. It entailed evaluating both the deservingness of the sponsor and the potential for civic integration of the incoming family member (Bech et al., 2017). This pre-entry model is also an example of policy diffusion. In subsequent years, namely, a similar model was adopted in Austria, Denmark, France, Germany, and the United Kingdom. Various justifications were given for this reform in the different countries, but the main one stressed the importance of distinguishing between different

9

IMMIGRATION AND ASYLUM IN THE EU …

209

applicants according to their willingness and ability to acquire knowledge considered important for integration in the destination country (Bonjour, 2014). Demands aimed at the sponsor first of all concern a secure residential status—e.g., a permanent residence permit. This in turn often presupposes that the sponsor has successfully met a number of integration requirements, such as passing language tests and demonstrating knowledge of the host country’s society. The sponsor also needs to fulfil a list of conditions in connection with income, employment, housing, social insurance, and the like. Another increasingly common element in family migration policies is an age requirement for the immigration of spouses (or fiancées) which is higher than the legal marriage age for residents. This stricter age requirement, typically justified as helping to counteract forced marriage, is arguably part of the larger trend in policies for civic integration, given its demand that newcomers demonstrate civic maturity (Bech et al., 2017). Policies for civic integration have developed in an ongoing interplay with evolving EU legal principles and the European Convention on Human Rights (Geddes & Scholten, 2016). The purpose of the EU Family Reunification Directive, which was introduced in 2003 and which entered in force in 2005, was to promote the right of third-country nationals to family life, by establishing a minimum level of rights to which states commit themselves. Among other things, the Directive indicates what member states may require as a condition for family reunification. Paragraph 4.5 stipulates that, ‘as part of the work to promote integration and counteract forced marriage’, member states may impose a minimum age requirement for the reunification of spouses; however, the minimum age cannot be higher than 21. Paragraph 7 allows member states to require that the sponsor have health insurance, suitable housing, and a stable and regular income—and also that he or she live up to ‘integration requirements’. Paragraph 8 specifies that member states may require that the sponsor have resided legally within the country for a certain period before becoming eligible for family reunification; however, such a requirement may not exceed two years. As discussed above, one generally disputed issue concerns whether EU policies and institutions represent a liberal constraint or an instrument of exclusion. Where family migration is concerned, it has been argued that the Family Reunification Directive has indirectly contributed to a ‘race to the bottom’—that it prompts member states to converge on the minimum level. At the same time, the partial shift of power from the national to the

210

K. BOREVI

EU level that has occurred since the Treaty of Amsterdam appears to have had a liberalizing impact, in view of the strong position which the CJEU has acquired as a defender of the right to family immigration (Block & Bonjour, 2013).

Does Civic Integration Work? Evaluating whether policies associated with the ‘civic’ turn in integration policies actually work is difficult. This is not just due to a lack of highquality data; it also reflects a variety of ideas about what the goals of this policy actually are (Borevi et al., 2017). The main measures associated with civic integration—requirements regarding entry, permanent residence, and naturalization—are often justified as ways to motivate and spur immigrants to acquire certain capacities, attitudes, and skills that will allow them to participate in the labour market, in civil society, and in democratic processes. However, integration requirements are also intended as screening mechanisms to keep out (potential) immigrants who would be more difficult to integrate (Goodman, 2011; Groenendijk, 2011; Van Oers et al., 2010). Civic integration may furthermore have symbolic goals: i.e., governments may wish to impress host populations with their alleged competence and ability to control the country’s borders or with their concern with maintaining and strengthening cultural cohesion and national identity (Goodman & Wright, 2015). There is evidence to support the existence of immediate gatekeeping effects—e.g., in relation to pass rates for citizenship tests (e.g., Dronkers & Vink, 2012; Van Oers, 2013). A Danish report showed that 40 per cent of applicants in 2008 were denied citizenship on grounds of inadequate proficiency in the Danish language (Ersbøll & Gravesen, 2010). One study assessing the impact of such policies on the integration of immigrants found that they had little impact, whether positive or negative, on immigrants’ self-reported levels of social trust or financial well-being (Goodman & Wright, 2015). However, a comparison of Turkish migrant workers in France, Germany, and the Netherlands did find that linguistic and social assimilation occurred more frequently when rights were conditioned on the fulfilment of integration requirements—although the effect was a small one (Ersanilli & Koopmans, 2011). One oft-used argument to justify stricter policies on family migration is that they help to prevent forced marriage. Increasing the age limit for

9

IMMIGRATION AND ASYLUM IN THE EU …

211

the immigration of spouses/cohabitants in particular is often justified in this way; however, the same argument is also often deployed for placing demands on the sponsor in terms of housing and economic support. Forced marriage is a phenomenon which is difficult to study, but the studies that do exist provide little evidence to support such common assumptions. According to a government commission in the United Kingdom, for instance, increasing the age limit for family reunification from 16 to 18 years had not resulted in fewer cases of forced marriage. In focus-group interviews, furthermore, victims of forced marriage said they did not believe increasing the age limit would prevent forced marriage (Hester et al., 2008). A Danish study from 2009, finally, drew similar conclusions regarding the age requirement of 24 years for spousal reunification in Denmark (Schmidt et al., 2009). In sum, the limited empirical assessments which are available suggest there is little evidence that measures associated with the civic turn are successful in promoting the integration of newcomers.

Integration Issues Must Be Taken Seriously if Positive Immigration Outcomes Are to Be Achieved This chapter has highlighted tensions between nationalization and supranationalization in the area of migration and asylum policy. Attempts to develop common Union approaches in this area have met with some success, notably in the introduction of several directives. However, efforts to enunciate operative principles for the sharing of responsibility between member states have so far failed. These failures have exacerbated trends at the level of the member states to engage in a kind of ‘negative regime competition’ in this policy area. This dynamic also involves integration policy, as I have stressed in this chapter. If one member state provides conditions which are more favourable or ‘generous’ than its counterparts elsewhere in the Union, this is thought to furnish potential immigrants with an incentive to choose that particular country as their destination. As discussed above, the ‘civic turn’ in integration policies seen across Europe since the early 2000s has entailed a stronger emphasis on the link between integration measures and immigration control. This nexus was further amplified by the events of 2015, when asylum and migration policies in the member states met with a crisis, and many countries responded

212

K. BOREVI

by introducing restrictions not only in their asylum policies but also in connection with integration. Sweden was a case in point. Renowned for running one of the most open immigration regimes in Europe, and with integration policies which had resisted much of the trend towards civic integration (Borevi, 2014), Sweden responded to the crisis of 2015 by introducing significant restrictions on immigration, based solely on the argument that the country had to do so in order to avoid being an ‘asylum magnet’. Sweden started out in the fall of 2015 by proudly welcoming refugees. This was symbolized by Prime Minister Stefan Löfven’s declaration in early September that ‘my Europe does not build walls’—a message similar to Chancellor Angela Merkel’s ‘wir schaffen das’. As the boats kept arriving on Greek shores, however, and as the number of people making their way through Europe remained high, attitudes in Sweden, as in other parts of Europe, grew increasingly negative. In November, the Swedish government announced that, having accepted more than 149,000 asylumseekers in 2015 alone, it could no longer handle the influx of refugees— the system needed ‘time to breathe’ (Stern, 2016, p. 7). Internal border controls were introduced, and a temporary new bill on asylum was presented, with the explicit goal of lowering Sweden’s practices in this area to minimum EU and international standards (Government bill, 2016). Among other things, the bill meant that persons granted protection in Sweden would no longer be granted permanent residence permits. Considerable restrictions were also introduced on family reunification. These restrictions were heavily informed by the idea that, in order not to be an ‘asylum magnet’, Sweden would have to avoid providing more favourable conditions than other European states. A humanitarian framing, however, was still salient on this issue. As noted in a comparative study on post-2015 policy debates in Denmark, Norway, and Sweden, the restrictions were discussed in Sweden in terms of the need to pressure other states to take their share of responsibility, rather than in terms of any need to discourage refugees from coming to Sweden (Hagelund, 2020, p. 9, cf. Stern, 2016). The Swedish government presented the restrictions as a necessary evil for controlling immigration. As for the implications for integration, those were mostly conspicuous by their absence from the debate, or they were referred to as a negative but unavoidable consequence (Borevi, 2018). This may be exemplified by the words spoken by Yilmaz Kerimo, a Social Democratic MP, in the parliamentary debate in

9

IMMIGRATION AND ASYLUM IN THE EU …

213

June 2016 on the temporary bill: ‘We are fully aware that temporary residence permits and restrictions on family immigration are not in the best interests of every individual asylum-seeker. But as long as EU member states do not share the responsibility for asylum reception in a solidaristic fashion, but choose instead to shift the problem on to some countries— such as Sweden—we cannot have policies that diverge significantly from those pursued by our neighbours in the EU. No country can bear an outsize share of the responsibility alone’ (Minutes from the Parliament, 2016). In 2019, the temporary law was prolonged by another two years, and a parliamentary committee was appointed to prepare a permanent new immigration bill. The report produced by said committee, presented in October 2020, proposed that temporary residency for persons granted protection in Sweden be made the main procedure. The committee further suggested that permanent residency status be conditioned on good conduct (no record of criminal offence), economic self-support, and fulfilment of a language requirement and a civic-skills requirement. These restrictions were heavily informed, as were other proposals made at the time, by the idea that Sweden cannot provide more favourable conditions than other European states do, if a large-scale influx of asylum-seekers is to be avoided. The implications of such an approach for integration were clearly downplayed (Committee of Inquiry on Migration, 2020). In 2021, the government presented a bill that featured most of the proposals in the committee report, although the question of language and civic-skills requirements were postponed to later legislative sessions (Government bill, 2021). The changes were accepted by Parliament in June 2021. Sweden stands out for the far-reaching paradigmatic changes in its immigration policies following the refugee crisis of 2015. However, restrictive changes were also made in the policies of many other European countries in connection with both asylum policy and the integration of immigrants. This illustrates the tendency, highlighted in this chapter, for reforms in the latter policy area not to be motivated solely—or even primarily—by a concern with improving the economic and social integration of immigrants. A large part of the reason for their adoption, namely, lies in their utility for deterring prospective asylum-seekers from arriving. Of course, the stricter conditionality and selectivity characteristic of the trend towards civic integration may have a ‘dual functionality’, in the sense of promoting both immigration control and better integration (Goodman, 2014). The problem, however—as seen in the Swedish

214

K. BOREVI

example above—is that the issue of integration outcomes risks fading from view. The message of this chapter is that these goals can come into conflict. A stronger emphasis ought therefore to be put on evaluating ongoing policy changes from the standpoint of integration. The current tendency to use integration policy to send political signals—such as to broadcast a government’s intent to regulate and control immigration, thereby appeasing currents in society opposed to immigration—is based on short-term thinking. If resilient migration and integration policies are to be enacted and enforced in the EU and its member states, then the implications of restrictive policy changes for integration outcomes must be taken seriously.

References Adam, I., & Caponio, T. (2018). Research on the multi-level governance of migration and migrant integration: Reversed pyramids. In A. Weinar, S. Bonjour, & L. Zhyznomirska (Eds.), The Routledge handbook of the politics of migration in Europe (pp. 26–37). Routledge. Andersson, R. (2014). Illegality Inc.: Clandestine migration and the business of bordering Europe. University of California Press. Bech, E., Borevi, K., & Mouritsen, P. (2017). A ‘civic turn’ in Scandinavian family migration policies? Comparing Denmark, Norway and Sweden. Comparative Migration Studies, 5(7). Block, L. (2012). Regulating social membership and family ties: Policy frames on spousal migration in Germany (Unpublished doctoral dissertation). Department of Political and Social Sciences, European University Institute. Block, L., & Bonjour, S. (2013). Fortress Europe or Europe of rights? The Europeanisation of family migration policies in France, Germany and the Netherlands. European Journal of Migration of Law, 15, 203–224. Bonjour, S. (2014). The transfer or pre-departure integration requirements for family migrants among member states of the European Union. Comparative Migration Studies, 2(2), 203–226. Bonjour, S., & Vink, M. (2013). When Europeanization backfires: The normalization of European migration politics. Acta Politica, 48(4), 389–407. Borevi, K. (2014). Multiculturalism and welfare state integration: Swedish model path dependency. Identities, 21(6), 708–723. Borevi, K. (2018). Familj, medborgarskap, migration: Sveriges politik för anhöriginvandring i ett jämförande perspektiv. Delegationen för migrationsstudier, Delmi.

9

IMMIGRATION AND ASYLUM IN THE EU …

215

Borevi, K. (2021). Scandinavian approaches to begging as a policy problem and the double insider/outsider status of marginalized intra-eu migrants. Journal of Social Policy, 1–18. Borevi, K., Jensen, K., & Mouritsen, P. (2017). The civic turn of immigrant integration policies in the Nordic countries. Comparative Migration Studies, 5(7). Brekke, J., & Staver, A. (2018). The renationalization of migration policies in times of crisis: The case of Norway. Journal of Ethnic and Migration Studies, 44(13), 2163–2181. Carrera, S. (2020). Whose pact? The cognitive dimensions of the new EU pact on migration and asylum. CEPS Policy Insights. Committee of Inquiry on Migration. (2020). En långsiktigt hållbar migrationspolitik. Betänkande av Kommittén om den framtida svenska migrationspolitiken (Migrationskommittén) SOU. 2020:54 [A migration policy sustainable for the long term: Report from the committee on future Swedish migration policy]. Fritzes. Davis, K. (2020). The European Union’s Dublin regulation and the migrant crisis. Washington University Global Studies Law Review, 19(2), 261–290. Donkers, J., & Vink, M. P. (2012). Explaining access to citizenship in Europe: How citizenship policies affect naturalization rates. European Union Politics, 13(3), 390–412. Ersanilli, E., & Koopmans, R. (2011). Do immigrant integration policy matter? A three-country comparison among Turkish immigrants. West European Politics, 34(2), 208–234. Ersbøll, E., & Gravesen, L. K. (2010). Country report Denmark: Report from the ITEC project: Integration and naturalisation tests: The new way to European citizenship. Centre for Migration Law, Radboud University. European Commission. (2015, May 13). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the regions, A European agenda on migration, COM (2015) 240 final. European Commission. (2016a, May 4). Proposal for a regulation of the European Parliament and of the Council establishing the criteria and mechanisms for determining the Member State responsible for examining an application for international protection lodged in one of the Member States by a third-country national or a stateless person (recast), COM (2016) 270 final. European Commission. (2016b, July 13). Proposal for a Directive of the European Parliament and of the Council laying down standards for the reception of applicants for international protection (recast), COM (2016) 465 final. European Commission. (2016c, July 13). Proposal for a Regulation of the European Parliament and of the Council on standards for the qualification of thirdcountry nationals or stateless persons as beneficiaries of international protection,

216

K. BOREVI

for a uniform status for refugees or for persons eligible for subsidiary protection and for the content of the protection granted and amending Council Directive 2003/109/EC of 25 November 2003 concerning the status of third-country nationals who are long-term residents, COM (2016) 466 final. European Commission. (2016d, July 13). Proposal for a Regulation of the European Parliament and of the Council establishing a common procedure for international protection in the Union and repealing Directive 2013/32/EU, COM (2016) 467 final. European Commission. (2020, September 23). Communication from the Commission on a new pact on migration and asylum, COM (2020) 609 final. European Migration Network. (2017, April 25). 2016 Annual report on migration and asylum. European Migration Network (EMN). Faist, T., & Ette, A. (Eds.). (2007). The Europeanization of national policies and politics of immigration. Palgrave Macmillan. Fassi, E., & Lucarelli, S. (2022). EU foreign policy and migration: A political and normative assessment. In M. Ceccorulli & E. Fassi (Eds.), The EU’s external governance of migration: Perspectives of justice (pp. 169–191). Routledge. Ferrera, M., & Rhodes, M. (2001). Recasting European welfare states: An introduction. West European Politics, 23(2), 1–10. Geddes, A., & Scholten, P. (2016). The politics of migration and integration in Europe. Sage. Goodman, S. W. (2010). Integration requirements for integration’s sake? Identifying, categorizing and comparing civic integration policies. Journal of Ethnic and Migration Studies, 36(5), 753–772. Goodman, S. W. (2011). Controlling immigration through language and country knowledge requirements. West European Politics, 34(2), 235–255. Goodman, S. W. (2014). Immigration and membership politics in Western Europe. Cambridge University Press. Goodman, S. W., & Wright, M. (2015). Does mandatory integration matter? Effects of civic requirements on immigrant socio-economic and political outcomes. Journal of Ethnic and Migration Studies, 41(12), 1885–1908. Government bill. (2016). Tillfälliga begränsningar av möjligheter att få uppehållstillstånd i Sverige [Temporary restrictions on the issuing of residence permits in Sweden]. Government Bill 2015/16:174. https://www.riksdagen. se/sv/dokument-lagar/dokument/proposition/tillfalliga-begransningar-avmojligheten-att-fa_H303174 Government bill. (2021). Ändrade regler i utlänningslagen [Changed rules in the Aliens Act]. Government bill 2020/21:191. https://www.riksdagen. se/sv/dokument-lagar/dokument/proposition/andrade-regler-i-utlanningsla gen_H803191

9

IMMIGRATION AND ASYLUM IN THE EU …

217

Groenendijk, K. (2011). Pre-departure integration strategies in the European Union: Integration or immigration policy? European Journal of Migration and Law, 13(1), 1–30. Guiraudon, V. (2000). European integration and migration policy: Vertical policy-making as venue shopping. JCMS: Journal of Common Market Studies, 38, 251–271. Hagelund, A. (2020). After the refugee crisis: Public discourse and policy change in Denmark, Norway and Sweden. Comparative Migration Studies, 8(13). Henrekson, M., Sanandaji, T.,& Öner, Ö. (2019). Flyktingkrisen och nationalstatens återkomst. In A. Bakardjieva Engelbrekt, A. Michalski, & L. Oxelheim (Eds.), EU och nationalstatens återkomst (pp. 93–124). Santérus Förlag. Hernes, V. (2018). Cross-national convergence in times of crisis? Integration policies before, during and after the refugee crisis. West European Politics, 41(6), 1305–1329. Hester, M., Khatidja, C., & Gangoli, G. (2008). Forced marriage: The risk factors and the effect of raising the minimum age for a sponsor, and of leave to enter the UK as a spouse or fiancé(e). School for Policy Studies, University of Bristol. Joppke, C. (2007). Beyond national models: Civic integration policies for immigrants in Western Europe. West European Politics, 30(1), 1–22. Joppke, C. (2010). How liberal are citizenship tests? In C. Joppke & R. Bauböck (Eds.), How liberal are citizenship tests? EUI RSCAS, 2010/41, [GLOBALCIT], EUDO Citizenship Observatory. European University Institute. Kasparek, B. (2016). Complementing Schengen: The Dublin system and the European border and Migration regime. In Bauder & C. Matheis (Eds.), Migration policy and practice: Interventions and Solutions (pp. 59–78). Palgrave Macmillan. Kaunert, C., & Léonard, S. (2012). The development of the EU asylum policy: Venue-shopping in perspective. Journal of European Public Policy, 19(9), 1396–1413. Kaya, A. (2022). Closing the door to migrants and refugees: Assessing justice in the EU-Turkey statement. In M. Ceccorulli & E. Fassi (Eds.), The EU’s external governance of migration: Perspectives of justice (pp. 61–78). Routledge. Lavenex, S. (2006). Shifting up and out: The foreign policy of European immigration control. West European Politics, 29(2), 329–350. Luedtke, A. (2018). Migration governance in Europe: A historical perspective. In A. Weinar, S. Bonjour, & L. Zhyznomirska (Eds.), The Routledge handbook of the politics of migration in Europe (pp. 15–25). Routledge. Minutes from the Parliament. (2016). Riksdagens protokoll 2015/16:123. https:// data.riksdagen.se/fil/8DAAD682-FA06-4902-8114-9DDE20EAEEC9

218

K. BOREVI

Mouritsen, P. (2006). The particular universalism of a nordic civic nation. In T. Modood, R. Zapata-Barrero, & A. Triandafyllidou (Eds.), Multiculturalism, Muslims and citizenship (pp. 70–93). Routledge. Niemann, A., & Zaun, N. (2018). EU refugee policies and politics in times of crisis: Theoretical and empirical perspectives. JCMS: Journal of Common Market Studies, 56(1), 3–22. Noll, G. (2016). Flykten till Europa och EU:s invandrings- och asylpolitik. In A. Bakardjieva Engelbrekt, A. Michalski, & L. Oxelheim (Eds.), EU och de nya säkerhetshoten (pp. 229–250). Santérus förlag. Orgad, L. (2010). The cultural defense of nations: A liberal theory of majority rights. Oxford University Press. Parusel, B. (2020). Pieces of the puzzle: Managing migration in the EU . European Liberal Forum asbl. Rostbøll, C. (2010). The use and abuse of ‘universal values’ in the Danish cartoon controversy. European Political Science Review, 2(3), 401–422. Schmidt, G., Krogh Gaversen, B., Jakobsen, V., Jensen och, T. G., & Liversage, A. (2009). New regulations on family reunification: What have the new regulations meant for patterns in partner selection by ethnic minorities? SFI. Stern, R. (2016, June 16). Responses to the ‘refugee crisis’: What is the role of selfimage among EU countries? European Policy Analysis Issue 2016:10 EPA, Available at SSRN: https://ssrn.com/abstract=2933381 Tebble, A. (2006). Exclusion for democracy. Political Theory, 34(4), 463–487. Theileman, E., & Dewan, T. (2006). The myth of free-riding: Refugee protection and implicit burden-sharing. West European Politics, 29(2), 351–369. Van Oers, R. (2013). Deserving citizenship: Citizenship tests in Germany, the Netherlands and the United Kingdom. Martinus Nijhoff Publishers. Van Oers, R., Ersbøll, E., & Kostakopoulou, D. (2010). Mapping the redefinition of belonging in Europe. In R. Van Oers, E. Ersbøll, & D. Kostakopoulou (Eds.), Re-definition of belonging? Language and integration tests in Europe (pp. 307–331). Martinus Nijhoff Publishers. Zaiotti, R. (2011). Cultures of border control: Schengen and the evolution of European frontiers. University of Chicago Press.

CHAPTER 10

Intra-European Labour Migration for a Resilient EU Erik Sjödin and Eskil Wadensjö

Introduction The EU has a common labour market. It has been developed gradually since the EEC was created. It has continued to develop in stages as the EU acquired new Member States. A common labour market means, among other things, that migration between Member States has been facilitated. There are many forms of migration, which are regulated in different ways. The Covid-19 pandemic has shown that restrictions can still be imposed and reintroduced for migration between countries within the EU. Migration to the EU, including intra-European labour migration, is a “hot potato” in the public debate, with different views prevailing both

E. Sjödin (B) · E. Wadensjö Swedish Institute for Social Research, Stockholm University, Stockholm, Sweden e-mail: [email protected] E. Wadensjö e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_10

219

220

E. SJÖDIN AND E. WADENSJÖ

between and within Member States. This chapter deals with labour migration within the EU. There are many forms of labour migration. It is not always clear that these are different categories in legal terms. In some sectors, such as construction, labour migration within the EU has had a significant impact. Intra-European labour migration was an issue in the referendum that resulted in Brexit. It is also important to note that to care for the welfare of workers who move within the EU can be perceived in different ways: on the one hand, as an expression of protectionism, but on the other, as normal special attention for workers in a vulnerable position. The national perception may depend on whether the country is primarily sending or receiving labour migrants. The impact of intraEuropean labour migration on these interests and perceptions is therefore central to the EU and its resilience. Migration between EU Member States is a foundation on which collaboration rests, as it constitutes one of the four freedoms (free movement of persons). Which persons are entitled to such mobility and the conditions under which it may take place are subject to repeated judicial reviews by the European Court of Justice. Both the EU legislator and national legislators have to deal with and also respond in legislation to judgements that affect the conditions for intra-European migration. Intra-European labour migration consists partly of short-term migration (commuting; posting; migrant workers), and partly of migration involving a long-term association and integration with the country to which migrants move. Migration consists of both highly specialised labour and low-skilled labour. Some countries in the EU have extensive net migration from other countries in the EU, while others have extensive net emigration. Migration has an impact on the migrants, on the country from which they move and on the country to which they move. The areas of impact on which the focus usually falls are those on the labour market in the countries of emigration and migration, but there are also other effects, such as the impact on trade and the effects of remittances. The EU’s common labour market is facing several challenges, not least during the Covid-19 pandemic. Countries have imposed different restrictions on cross-border mobility between countries within the EU, and the economic problems and unemployment resulting from the pandemic may bring about a change in the pattern of mobility and significantly reduce certain types of migration. Furthermore, the UK exited the EU

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

221

on January 31, 2020, which may have an impact on migration within the EU. We now see a claimed effect in terms of lack of truck drivers, which previously to a large extent were foreign drivers. Both the pandemic and Brexit may, through their impact on migration, result in challenges to collaboration within the EU and collaboration between the EU and the UK. This chapter aims to highlight the regulation of intra-European labour migration and the effects of this migration. It explains how this issue is being handled and how it could be handled, and also how this migration is affecting labour markets. The chapter therefore concerns the ability of EU citizens to move around within the EU in connection with work; we will only briefly deal with the conditions and effects of migration to the EU from non-EU countries. We will start with an overview of the different stages in the development of the EU’s common labour market. The subsequent sections deal with how labour migration is legally classified. We then deal with the starting points for the regulation of terms and conditions of employment for the different forms of labour migration within the EU. This presentation will focus on civil labour law. Sweden represents an interesting case, as it is one of the few countries that chose not to introduce transitional rules in connection with the enlargements of 2004 and 2007, and it is the country in which one of the most high-profile legal cases on intraEuropean labour migration has been enacted, the so-called Laval case. Sweden’s experiences are of interest to other countries in the EU. We also consider the regulation of other forms of migration within the EU, such as those for study and for family reasons, which may also impact the labour market. The next section deals with the scale, composition and between which countries migration takes place within EU. In this part, we show under what conditions intra-European labour migration should be possible. The subsequent three sections deal with the impact on the migrants, on the country to which they travel and on the country from which they come. In the section after that, we deal with the question of what impact the pandemic may have on migration within the EU. Finally, we offer two suggested courses of action as routes to a resilient EU.

222

E. SJÖDIN AND E. WADENSJÖ

The Emergence of the EU’s Common Labour Market The EEC, the EU’s predecessor, was formed in 1958, but the establishment of the common labour market, with the free movement of citizens (one of the four freedoms) in the six Member States (Belgium, Luxembourg, the Netherlands, France, Italy and West Germany) at the time, did not happen until ten years later, in 1968. As the EEC, and then the EU, got new Member States, their citizens all had access to the common labour market. But when three Southern European countries— Greece (1981), Portugal (1986) and Spain (1986)—became members, transitional rules were introduced. These countries did not become part of the common labour market until a number of years after they had joined the EU. Only then were citizens of these countries given the right to migrate to other EU countries for work. Such transitional rules were not, however, introduced when Denmark, Ireland and the UK joined the EU in 1973, or when Sweden joined in 1995 together with Finland and Austria. The four Member States of EFTA (European Free Trade Association), Iceland, Norway, Liechtenstein and Switzerland, also became part of the common labour market at the same time as Finland, Sweden and Austria. When the EU was enlarged in various stages in 2004, 2007 and 2013, it became possible for the former EU countries to introduce transitional rules that restricted mobility. At the 2004 enlargement it was possible to introduce transitional rules for a maximum of seven years, divided into three periods of two, three and two years, in respect of labour migrants from the eight countries of Central and Eastern Europe that had become new members (Estonia, Latvia, Lithuania, Poland, Slovakia, Slovenia, the Czech Republic and Hungary). Three of the then fifteen Member States of the EU, Ireland, the UK and Sweden, did not introduce such rules. It was not, however, possible for the former EU Member States to introduce transitional measures for migration from the other two new Member States, Cyprus and Malta. But not all of the twelve countries that did introduce transitional measures kept them for the full seven years—Finland, Greece, Italy, Portugal and Spain only had transitional rules for the initial two-year period, the Netherlands abolished them in 2007 and France did so in 2008. The explanation for the differences in the countries’ policies may be found, for example, in differences in the extent of migration.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

223

In the same way, it was possible to introduce transitional rules when Bulgaria and Romania became EU members in 2007, and when Croatia joined in 2013. When Bulgaria and Romania became members, ten countries did not introduce transitional measures. Sweden did not do so either on this occasion, while Ireland and the UK did. Five of the countries that introduced transitional rules only kept them during the initial twoyear period. When Croatia joined the EU, 14 countries did not introduce any transitional rules. Eight countries that did introduce transitional rules abolished them after the initial two-year period, while five countries, Malta, the Netherlands, Slovenia, the UK and Austria, retained them. The decisions to introduce transitional rules or refrain from doing so affected both the direction of labour migration from the new Member States and the form of migration. It was not possible to introduce transitional rules for the posting of labour or for the migration of self-employed workers. Both of these forms of migration were particularly important for migration to countries that introduced transitional rules. Migration between different countries within the EU was modest in scale in the decades immediately preceding the enlargements in 2004 and 2007. After that, migration became much more substantial. Most migrants moved away from Romania and Poland, two countries with large populations. In terms of the proportion of the population, the highest numbers migrated from Romania, Bulgaria, Lithuania and Estonia. See Eurostat for yearly updating of migration within the EU.

Different Forms of Labour Migration The traditional form of labour migration is that someone moves from one country to another to work for an employer in the country to which the person travels for a shorter or longer period of time. Those who come with the intention of only staying for a short time were previously referred to as guest workers. But many who arrived as guest workers chose to stay longer than they had planned, and some of those who came to stay for a longer period of time returned earlier than originally planned. Another kind of migration is commuting from one EU country (or an EEA/EFTA country) to another. Migration can take the form of daily commuting, but also weekly commuting, which involves staying in the country in which they work during the working week and in their country of origin at the weekend. A third form of labour migration is that a company registered in one country sends its employees on a posting to work in

224

E. SJÖDIN AND E. WADENSJÖ

another country for a shorter or longer period. The posting company may also post workers who are nationals of a third country (an EU/EFTA country or a non-EU country). A fourth form of labour migration is that someone moves as a self-employed person from one country within the EU to another country within the EU in order to work there too as a self-employed person. Posted workers are subject to two sets of rules: those of the country of origin and those of the host country. This is a consequence of international private and procedural law. Posted workers are sent from one country to another, in order to perform a service in that country on behalf of their principal. The service can consist of many different things: repairing a lift, programming something, working in a factory or building a school. During their time in the host country, the posted worker is also employed by a company in the country of origin. The posting employer is providing a service in the host country. Posting is perhaps the clearest example of what is and should be possible in the EU’s internal market, which is characterised by the free movement of goods, services, persons and capital. Posting as a concept is based on the fact that it is temporary and that the worker who has been posted shall return to the country of origin once the service has been provided. When these different forms are described, it sounds as if they constitute very different kinds of migration. But in practice, they can be similar forms of migration. One example is that construction workers can move as labour migrants from country A to country B, be posted as construction workers from country A to country B or move as self-employed workers from country A and work as self-employed workers and sell services as workers to a construction company in country B. We consider the regulation and composition of migration in these forms in more detail in later sections. Those who migrate are largely young adults, both women and men. There is overrepresentation among those who have higher education and among those who perform manual labour. Migrants are underrepresented in occupations that require good knowledge of the language of the host country. When it comes to those with higher educational qualifications, there are major differences, depending on the field of education. Migration is common, for example, among doctors, but not among lawyers.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

225

There are also different forms of gradual migration, when the first stage of migration is not for work, but for family reunification, family formation or study. In a second stage, the person who has arrived as a family member seeks work, and those who have come to study often work while they are studying, and many stay and work after having completed their studies. The variations among those migrants who come to study may be significant in terms of whether or not they remain in the country after completing their studies (see for example Weinar et al., 2019).

Legal Classification of Labour Migration in the EU There is an extensive literature on free movement within the EU (see for example Arnholtz & Lillie, 2020; Freedland & Prassl, 2016). Labour migration, as described in the previous section, can take place in various forms. Here these forms will be classified in relation to EU treaties. The internal market is based on the free movement of goods, services, persons and capital (see Article 26 of the Treaty on the Functioning of the European Union [TFEU]). The EU consists of independent countries, and the treaties enable free movement between the different countries without permits that are otherwise required for labour migrants from countries outside the EU. The internal market presupposes access for persons, and an overview will be presented here of what, according to the various forms of labour migrants, provides such a right of access. The Treaties state that obstacles to freedom of movement must be justified. Grounds for justification such as public order, public security and public health are specified directly in the treaties. But opportunities to justify obstacles to freedom of movement have also been developed by the European Court of Justice, so-called overriding reasons relating to a general interest, which include the protection of workers. The pandemic has resulted in restrictions being imposed in ways not previously witnessed. It is, however, clear from the guidelines issued by the Commission that freedom of movement should continue, especially for workers in so-called critical occupations which include various forms of health workers. The Commission also emphasises that any restrictions imposed must be proportionate (European Commission, 2020).

226

E. SJÖDIN AND E. WADENSJÖ

Free Movement of Workers, Posting and Self-Employed Persons Article 45 TFEU states that the free movement of workers must be guaranteed. This free movement must, pursuant to that Article, include the possibility for workers to accept actual offers of employment, to move freely within the Member State, to reside in order to hold employment in accordance with the rules that apply there and to remain there after the termination of employment under the conditions laid down by the Commission. The free movement of workers laid down in the Treaty thus allows for traditional labour migration as described above. The right to free movement under the treaties therefore applies to workers. The question then arises of who may be considered to be a worker and thereby be granted this opportunity for economic mobility in the European internal market. In a national context, the same question answers who is comprised by labour law regulation, such as protection against unfair dismissal and the right to paid holidays from the employer (cf. Article 31 of the EU Charter). Labour law regulation differs between Member States, and may consist of varying degrees of public and civil law regulation. When regulating not only free movement, but also other aspects of the labour market, the EU considers the differences in labour market regulation between countries. The European Court of Justice has on several occasions examined whether someone should be treated as an employee, emphasising that the free movement of workers is one of the fundamental principles of the European Union and that as such it must not be interpreted restrictively. According to the European Court of Justice, the most important characteristic of an employment relationship is that a person, for a certain period of time, performs work of economic value for another party under that party’s direction. This may be seen, for example, in Judgement of the Court C-66/85 Lawrie-Blum v Land Baden-Württemberg EU:C:1986:284, issued in July 1986, concerning whether a British trainee teacher who was working in Germany could be considered to be a worker. The Court concluded that she was a worker within the meaning of the Treaty. The fact that even a person who is performing work to a limited extent may be considered to be a worker within the meaning of the Treaty is evident in Judgement of the Court C-456/02 Trojani EU:C:2004:112. This judgement concerned a person who was working

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

227

at a shelter run by the Salvation Army in exchange for subsistence and pocket money. This free movement of workers also enables cross-border commuting as described above across Member State borders in order to work in a country other than the country in which the person is resident. Article 6 of the Citizens’ Rights Directive states that Union citizens have the right to reside in another country for three months without any requirement other than a valid ID card. The right of active as well as inactive people to social security benefits is something that can ultimately be subject to a review by the European Court of Justice. See, for example, C-333/13 Dano EU:C:2014:2358, which concerned a Romanian woman and her son and their right to certain benefits in Germany. The European Court of Justice ruled that EU law did not prevent national law that denied them benefits under specific circumstances. It is already apparent from the Treaty that freedom of movement can be restricted in the interests of public policy, public security and public health (Article 45(3) TFEU). As already mentioned, the free movement of workers is a fundamental principle of EU law, and restrictiveness must be observed when imposing restrictions on it. Movement may, however, be restricted in view of the behaviour of an individual, including crime (cf. Article 27(2) of the Citizens’ Rights Directive). A highly topical issue 2021, during the Covid-19 pandemic, is the ability of Member States to restrict freedom of movement with reference to public health. Article 29 of the Citizens’ Rights Directive states that the only diseases that can justify restrictions on freedom of movement are those that may be epidemic according to the World Health Organisation, as well as other infectious diseases to which their own citizens are subject. It should be noted that on 11 March 2020, the World Health Organisation concluded that Covid-19 was such a disease that allows Member States to restrict freedom of movement. Article 45(4) TFEU states that freedom of movement does not apply to public sector employment. The European Court of Justice has ruled that this includes a number of positions such as teachers in state schools, nurses in public hospitals, etc. The freedom to provide services under Article 59 TFEU is another fundamental economic freedom. Although technological developments have made it possible for such services to be provided across borders without a person having to cross a border, it does also happen that persons move from one country to another in order to provide services there.

228

E. SJÖDIN AND E. WADENSJÖ

When people travel across borders to work, it does not automatically mean that the host country’s rules apply to those who enter. In the early 1990s, the European Court of Justice ruled that the provider of a service in another Member State also has the right to bring its staff into the other country. In the Judgement C-113/89 Rush Portuguesa EU:C:1990:142, the Court ruled that a Portuguese contractor had the right to bring its own staff into the country for the construction of a light rail project in France. The position of the European Court of Justice made it clear that there was a need to regulate this phenomenon in order to clarify which Member State should do what. The Court also stated, in an obiter dictum, that Member States had the right to impose requirements on the contractor. Such regulation was introduced by the Posting of Workers Directive, which was adopted in 1996, which also defined the concept of posting. Article 3 of the Posting of Workers Directive draws a distinction between three different forms of posting. • The contract situation: when an employer sends workers to an EU country on its own account and under its own direction under a contract concluded by the employer with the recipient of the services in that country; • The corporate-group situation: when an employer sends workers to an EU country, to a workplace or to an undertaking that belongs to the corporate group; and • The temporary work agency situation: when an employer who is a temporary work agency makes labour available by sending workers to a user company that is established in an EU country or that operates business activities in that country. Posting must be temporary, even if it may continue for a long time. In cases during the 1990s, in relation to transitional rules on the free movement of workers, the European Court of Justice ruled that posted workers do not have access to the host country’s labour market, a view that can no longer be considered valid. Posting is a growing, albeit small, element of the European labour market. Some would even argue that the hiring of people solely for posting has become established as a special business model in the 2020s (Countouris & Engblom, 2014). As mentioned above, the various forms may appear to be fundamentally different, but they are in many respects similar. Difficulties in identifying who may considered to be posted workers have resulted in legislative

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

229

measures in the so-called Enforcement Directive (2014/67/EC), which was adopted in 2014 and supplements the 1996 Posting of Workers Directive. The Enforcement Directive contains provisions that aim to clarify and make it easier to identify an actual posting. The heading of Article 4 reads “Identification of a genuine posting and prevention of abuse and circumvention”. The first paragraph of the article states that a court must make an overall assessment and that all factual elements must be taken into account when examining whether someone has been posted. The article also lists a large number of factual circumstances that must be taken into account in order to determine that it is a matter of a posting. The above restrictions on the free movement of workers apply in a similar way to the free movement of services. Labour can also move across borders through the freedom of establishment, which is also a fundamental economic freedom. The freedom of establishment provided for in Article 49 TFEU allows both undertakings and also natural persons to establish themselves and under the conditions in force in the Member State. When a company establishes itself in another country, this company is an actor like others in the new host country. The Treaty’s regulation of free movement aims to remove obstacles for undertakings from other countries to exercise their freedom of establishment. However, obstacles to freedom of movement can be justified in the same way as for workers and services. Labour migration can be legally classified in accordance with the division of the treaties into the free movement of workers, services or establishments. This classification may affect the application of the transitional rules adopted in connection with new Member States joining the EU. Furthermore, the classification affects the way requirements— e.g. regarding terms and conditions of employment—imposed on those crossing borders are to be assessed, which in turn affects the ability to regulate the terms and conditions of employment for labour that crosses borders.

Regulation of the Terms and Conditions of Employment of Labour Migrants The means and opportunities to regulate the terms and conditions of labour migration differ, and depend on how the labour migrants are legally classified. These opportunities have been affected by the fact that

230

E. SJÖDIN AND E. WADENSJÖ

since the enlargements of the twenty-first century there are bigger disparities in income between Member States. The Services Directive that was proposed in 2004 contained a country-of-origin principle that would have affected the ability to regulate terms and conditions of employment, caused large-scale demonstrations in both Brussels and individual Member States. That principle was never introduced in the directive. The fact that there are repeated changes of this issue at EU level shows that there is not yet unanimity on these issues, and dividing lines between old and new Member States persist. The following section presents the starting points for the regulation of terms and conditions of employment for the different forms of labour migration. First, it is necessary to highlight a formal aspect relating to private international law. It determines according to which country’s law a dispute is to be decided and which country’s courts are competent to hear the case. Posted workers are employed in one country, but perform work in another. This means that private international law as well as procedural law is always relevant. In contrast to the traditional form of labour migration mentioned above, posted workers are thus not automatically subject to labour law in the host country. Labour migrants covered by the free movement of workers are normally subject to one country’s labour law. Posted workers who take advantage of the free movement of services are subject to the rules of both the host country and the country of origin. This means that in the traditional form of labour migration, persons are employed by an employer in the other Member State, and that the national labour law regulation applies to this contract of employment. It is the law of the country where work is performed that governs how employment contracts are concluded and also how they are terminated, as well as what terms and conditions of employment apply. The same applies to self-employed persons who choose to establish themselves in another Member State. Both the Treaty and Regulation 492/11 on freedom of movement for workers within the Union set forth the right to equal treatment with regard to terms and conditions of employment. The right to equal treatment entails a ban on both direct and indirect discrimination. This may mean, for example, that there must not be any unjustified language and qualification requirements for employment in the country. The starting point is therefore that the terms and conditions of employment for these workers must be determined in the same way as for others, and that these workers have the same opportunities to influence their conditions.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

231

Regulation 492/11 on freedom of movement for workers within the Union also states, inter alia, that workers are entitled to assistance from employment offices in the country in which they are seeking employment (Article 5), the right to social benefits (Article 7(2)) and that the worker’s children must have the right to education (Article 10). There is also secondary law regulation on how to reconcile pensions earned in different countries. The posting of workers has been a topic for heated debates especially after the enlargements in 2004 and 2007. The main focus of debate has been on the extent to which posted workers should be allowed to compete with lower wages (see for example Evju, 2013; Menz, 2008). The solution in the 1996 Posting of Workers Directive was that posted workers should be guaranteed a “hard core” of terms and conditions of employment, including the minimum wage. In the high-profile Laval case, Sweden’s implementation of the posting of workers was rejected.1 Furthermore, the judgement contained a number of clarifications on the meaning of the Posting of Workers Directive. Among other things, the European Court of Justice ruled that the host State could only require the “hard core” of the Posting of Workers Directive to be applied. The reasons given by Sweden for the Swedish solution were not considered acceptable by the European Court of Justice, as the relevant part of the Swedish Co-determination act, Lex Britannia, was deemed to be directly discriminatory. One major contributory reason for the rejection of the Swedish implementation was that the Swedish collective agreement system for the construction sector was perceived as being difficult to understand. The Laval case sparked a wide-ranging debate, but also led to a large number of extensive changes to the regulation of posted workers at both EU and national level. The period before the Laval case has been described as the “age of innocence” in Sweden, meaning that it was previously assumed that no fundamental changes needed to be done (Ahlberg, 2013). It was for the Swedish trade unions to secure the terms and conditions of employment for workers posted to Sweden. The many

1 According to Barnard (2016) the literature about the Laval case can be divided into the following categories: (1) Initial reactions and understanding of the judgements; (2) Developmental and in-depth analysis; (3) Creation of concept and theory; and (4) Those dealing with subsequent developments and reassessing the situation.

232

E. SJÖDIN AND E. WADENSJÖ

and recurring changes bear witness to the fact that the legal situation established after the Laval case has not gained general acceptance. As a direct consequence of the Laval case, the Enforcement Directive mentioned above was adopted in 2014. An additional Revision Directive (2018/957) to the Posting of Workers Directive was also adopted subsequently in 2018. The former is aimed primarily at facilitating control of compliance, i.e. that posted workers are receiving the terms and conditions of employment that the host State must guarantee them. The Directive was part of a package and the regulation on the regulating of the right to strike proposed at the same time was the first to receive a yellow card from the national parliaments in the context of the subsidiarity control mechanism and was thus not adopted. The 2018 Revision directive contains a revision of the original balancing act, and in accordance with the Directive, posted workers must now be guaranteed not only the minimum wage, but wages during the time work takes place in the host Member State. It is not yet clear what actual difference the change will mean in concrete terms for posted workers. The change came in the wake of the social pillar adopted in 2017 and aimed to close the posting wage gap, i.e. the difference between the wages of posted workers and the wages received by other workers in the host country. Furthermore, the amending directive states that if postings last longer than 12 months (or 18 months), additional rules must also apply in addition to the above mentioned “hard core”. The changes are in line with what has been pointed out in jurisprudential research, that the difference in equal treatment between posted workers and other labour migrants is difficult to justify. The implementation of these directives has resulted in an unsatisfactory situation, at least in Sweden, as the regulation of the right to take industrial action against posting employers in 2020 is both extensive and complex. At the same time, research shows that industrial action is no longer being taken to establish collective agreements with posting employers (Sjödin & Wadensjö, 2020). There are, however, a number of judgements from the Swedish Labour Court in which high damages have been awarded when there was failure to comply with collective agreements that had been signed (Sjödin, 2021). But the fact that collective agreements regulating wages and other conditions are not observed by less scrupulous employers is not only a problem relating to posting employers.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

233

Some sectors are more affected than others, and a special directive was adopted in autumn 2020 for the transport sector, which is a sector with workers in a vulnerable position. The Directive (2020/1057) sets forth special rules for drivers who operate across borders. It contains primarily various forms of administrative burdens and was part of a bigger mobility package. All in all, the regulation of posted workers has been characterised by a fragmented approach. Wide-ranging changes have been initiated and taken on a regular basis. Many issues have not yet been examined by the court, and there are still many ambiguities concerning key issues. The possibility of regulating the conditions for workers, regardless of how they are qualified, may in itself affect the acceptance of this form of movement and, in the long term, also contribute to a resilient EU. Acceptance can be difficult to maintain if EU regulation is perceived as a reason for deregulation and it is perceived that the only competitive advantage that labour migrants offer is a lower price.

The Scale and Direction of Migration Within the EU Leaving aside migration from third countries to the EU, the population of the EU is gradually falling (for an account of migration from third countries, see Karin Borevi’s chapter in this book). The proportion—who are at what is commonly referred to as an active age—is falling. The proportion of people in employment is also falling as young people enter the labour market at a higher age than was the case in previous generations. This trend is, however, being offset by an increase in women’s participation in the labour market and by people leaving the labour market later, partly as a consequence of changes in pension systems. The falling proportion of people in employment is offset in some EU countries by labour migration within the EU. Here, however, the trend varies, depending on whether the country is a country of immigration or emigration. In 2017, 1.3 million citizens of one EU country migrated to another EU country, while around one million EU citizens migrated to the EU country of which they were citizens (usually returning migrants, but also the children of returning migrants who had been born abroad) according to Eurostat. The countries that received the most citizens from other EU countries in that year were Germany, the UK, Spain, France and the Netherlands. Many of those who migrate do not do so because of work,

234

E. SJÖDIN AND E. WADENSJÖ

but move as family members or in order to study. It is also important to note that these reported data are based on data from the population register therefore do not include those who commute to, are posted to or are seasonal workers in an EU country other than the one of which they are citizens. We will now take a closer look at some of the different forms of labour migration within the EU. Commuting is common in many EU countries. It takes place partly between neighbouring countries and locations, usually on a daily basis, and partly between more remote places, often on a weekly basis. Commuting to Germany over the period 1999–2019 shows a gradual increase (IAB, 2020). It is highest to border areas, and of these areas it is highest to the federal states in Eastern Germany. At the same time, it is increasing more to non-border areas than to border areas. There is, however, still a higher level of commuting to border areas than to non-border areas. Commuting takes place from many countries, although most come from Poland. Those who commute to Germany from the Benelux countries, Denmark, Switzerland and Austria, western countries with higher wage levels than those in Germany, are often experts and specialists, while those who commute from countries in Central Europe with significantly lower wage levels than those in Germany do so to a very large extent for manual occupations. To acquire greater knowledge of the labour markets, especially in border regions, it would be useful to have similar compilations for other countries as that in respect of Germany, as well as regular statistics on commuting between countries in the EU. This does, however, require effective collaboration between the central statistics agencies in different countries, and often also a change in confidentiality legislation. EU statistics on posting are available from 2010 onwards. It is now based on the A1 documents issued by those countries that send and those countries that receive workers who have been posted (there were previously E101 documents that served the same purpose). The issuing of an A1 document represents, inter alia, an agreement that social security contributions are paid in the country from which the worker has been posted. Most posted workers come from EU15 countries, and a large proportion of them are posted to other EU15 countries. Most are posted to neighbouring countries. The most important exception is posting from Poland, which also takes place to countries in Western Europe that are not neighbouring countries.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

235

The new EU Member States send out more than they receive through posting. One country that posts a very large number is Poland. Many are also posted from Slovenia and Slovakia. By contrast, the two new EU countries with the lowest wage levels, Bulgaria and Romania, do not send a large number. There are, however, very extensive other forms of labour migration from these two countries to countries in Western and Southern Europe. Many are also posted from countries in Southern Europe: Spain, Italy and Portugal. At the same time, quite a lot of workers are posted to these three countries. See De Wispelaere and Pacolet (2017, 2018) and De Wispelaere et al. (2019) for the statistical information on posting. To understand of how migration affects the labour markets in different countries, we will take a look at what net posting for different countries. The five countries for which the net inflow in 2017 was highest are France, Germany, Austria, Belgium and Switzerland, i.e. five countries in Western Europe. The five countries for which the net outflow was highest in 2017 are Poland, Slovenia, Slovakia, Italy and Estonia, i.e. four countries in Central and Eastern Europe and one country in Southern Europe. Even though posting is not particularly extensive in the EU/EEA compared with total labour migration within the EU, it is not insignificant in scale and is increasing year on year. Between 2010 and 2016, it increased by 53.4%, representing an annual growth rate of 7.4%. There are major variations between countries. There were high rates of increase in Switzerland (an annual increase of 12.5%), Austria (12.4%) and Sweden (12.3%). The number of workers posted to certain countries fell. These include Cyprus (an annual change of −8.9%), Greece (−6.2%) and Spain (−3.1%), three crisis-hit countries in Southern Europe. The biggest group of posted workers goes to the construction sector and the next biggest group to the industrial sector. But posting also takes place in many other areas, including of various specialists. Most postings are short-term, but it is often the case that people have repeated postings to the same country, or that people are posted to more than one country in the same year. De Wispelaere and Pacolet (2018) have investigated posting within the EU. They produce a breakdown of posting between EU/EFTA countries by average wage level. In 2017, 40% of posting took place between high-income countries, while 29% went from low-income to high-income countries and 18% from middle-income countries to high-income countries. A small proportion of posting went in different directions between

236

E. SJÖDIN AND E. WADENSJÖ

these three groups. The fact that much of the posting goes between highincome countries can be attributed to several factors. Firstly, these are large economies with large populations, which is why the total number of posted workers will be high, even if postings per inhabitant are not high. Secondly, there is a high level of posting of specialists between these countries. Thirdly, undertakings in these countries can post workers residing in a country other than their own country (sometimes from so-called letterbox entities). We are dealing in this chapter with the migration of labour within the EU, but there is very extensive migration between the EU and countries outside the EU. There are arguments for touching briefly on this subject here. It may provide an additional perspective on migration within the EU. In 2019, 2.4 million people came to the EU from non-EU countries, while 1.1 million left the EU for a country outside the EU according to Eurostat. Those who come to the EU do so for various reasons— as labour migrants, relatives or refugees. The pattern differs significantly between countries. This migration can be highlighted in many different ways. We will only do so here by looking at which is the biggest group of foreign-born people in the various EU countries. In some countries, those who are born in another country come primarily from countries that were former colonies of the countries in which they now live according to Eurostat. This applies to France, where the biggest group was born in Algeria, Portugal, with the biggest group from Angola, and the UK, with the biggest group from India. In four countries, the biggest group was born in Russia. This is the case in Estonia, Latvia, Lithuania and Finland. For some countries, the largest groups are from outside the EU, where they have usually come as labour migrants. This is the case in Belgium, where the biggest group has Morocco as the country of birth, the Netherlands, with Turkey as the most common country of birth, Poland, with Ukraine as the most common country of birth, and Greece, with Albania as the most common country of birth. In some other cases, the biggest group comes from another country in the EU. This applies to Denmark and Germany, where the biggest group in both cases has Poland as the country of birth, and Italy and Hungary, where the biggest group in both cases was born in Romania. In Luxembourg, the biggest group was born in Portugal, and in Ireland, the biggest group was born in the UK. In the Czech Republic and Slovakia, two neighbouring countries with a shared history, the biggest group is from the other of the two countries. In only two

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

237

cases has the country from which most have come been a country where refugees were the biggest group. This is the case in Sweden, where the biggest group was born in Syria, and Slovenia, where the biggest group was born in Bosnia. A review of labour migration in the EU shows that it has several different forms, goes in different directions and varies significantly over time. It goes above all from the new Member States to the 15 older Member States. It is particularly extensive among those who work in certain sectors and have certain occupations.

Impact on Those Who Migrate There is extensive research on the effects of international migration regarding the effects for migrants, the countries of destination and the countries of origin. For overviews on the economic impact of international migration see Chiswick and Miller (2015) and Constant and Zimmermann (2013). For the impact of EU enlargement on the labour market, see Kahanec and Zimmermann, 2009 and 2015. For an anthology on migration in Europe, see Weinar et al. (2019). Those who move to work in another country do so because they believe it is beneficial to them. They might move to earn better wages or have better working conditions in other respects, to be able to work rather than being unemployed, or to gain work experience that they can benefit from if and when they return to their country of origin. There are also costs involved in moving that must be considered when deciding to migrate, such as the lack of proximity to relatives and friends. Migrants do not always come to the occupations and sectors for which they are qualified and to jobs in which they have experience from their country of origin. It is not uncommon for them to earn significantly lower wages and have worse conditions than might be expected if their education and experience had been acquired in the country to which they have come. One explanation is that the qualification they possess when they arrive is not validated for work in the country to which they have come. The expectations of those who move are not always met when they move, and some therefore return home or for other reasons, such as that they have achieved a savings goal or another goal of their stay in the country, or that the labour market prospects have improved in their country of origin.

238

E. SJÖDIN AND E. WADENSJÖ

The arguments for moving suggest that the direction of migration is primarily from countries with lower wages and higher unemployment to countries with higher wages and lower unemployment. In generalised terms, this means migration from Central and Eastern Europe to Western Europe, and to some extent also from Southern Europe to Western Europe. There are major variations over time due to economic variations and also to differences in how countries develop economically. In the political debate and also in research, attention has often been paid to the conditions facing migrants. This involves wages and income, but just as importantly the work environment, housing and other conditions. This applies not least to posted, seasonal and self-employed persons (gig entrepreneurs). A new regulation on minimum wages was agreed in October 2021. It remains to be seen whether those changes will have an impact on the wages of posted workers.

Impact on the Countries that Receive Migrants There is very extensive research into the economic impact on those countries to which labour migrants come. The main results in two areas will be touched on briefly here: public finances and the labour market. Labour migrants are of active age and come to work in the country to which they are moving. As a rule, they make a net contribution to the public finances of the country to which they have come. They pay more in taxes than they receive in public transfers and what it costs the public sector in the form of increased public consumption (see VargasSilva, 2015). Labour migration means that the labour supply increases. If nothing else happens at the same time, this should result in lower wages for those already in the country. But this outcome is not generally found in research in this area (Pekkala Kerr & Kerr, 2011). The explanation may be found in the fact that an increased labour supply is generally combined with and stimulates increased investment. This means that wages do not generally fall for those already in the country. Another contributory factor to this outcome, with increased demand for labour resulting from the expansion of the economy, is that those already in the country leave low-paid jobs for better-paid jobs. Those who have come to the country often go into lower-paid jobs in the economy (Orrenius & Zavodny, 2013). Research into the impact of labour migration on wages does, however, identify one

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

239

kind of exception. The exception is immigration to a sector and occupations where those working in it cannot find higher-paid jobs in the sector or in other sectors if they change jobs. These workers will then receive lower wages as a consequence of immigration to the sector. One example that has been documented in research is construction workers in Norway. They are highly paid compared with those with other manual occupations, and are therefore generally unable to find other higher-paid jobs if they leave the construction industry (see Bratsberg & Raum, 2012). As with wages, it can be explained that research does not indicate that there will be increased unemployment in connection with labour migration—the increase in investment will result in an increase in demand for labour, which means that unemployment will not rise (see Pekkala Kerr & Kerr, 2011). Migration of labour can also contribute to economic development by means of migrants setting up new businesses, often in industries that are new to the economy to which they have come. See Gruenhagen et al. (2020) for a survey of research on returnee entrepreneurs. Migration can also contribute to increased exports to the countries from which the migrants have come.

Impact on the Countries from Which Migrants Come If labour migration takes place from countries with extensive unemployment, it can result in a fall in unemployment and in wages rising for those who remain in the country. This is one economic effect of emigration. If unemployment is already low and emigration is due to lower wages than in the country they are moving to, there will be no impact on unemployment. Labour migration will then in some cases result in labour migration from another third country outside the EU country to the country of emigration. At the same time, for example, Poland has very extensive emigration to other countries in the EU, and very significant immigration from Ukraine. If highly skilled persons move from low-wage EU countries to high-wage EU countries, low-wage countries may face a brain drain problem. Labour migration also has other effects on the country from which migrants move. Those who move often send money back to relatives in their country of origin, thus impacting their financial situation and also the country in general (Brown & Jimenez-Soto, 2015). On the other

240

E. SJÖDIN AND E. WADENSJÖ

hand, the fact that parents move to work in another country while their children stay behind can have negative effects on children in various respects. Another effect is that in many cases those who return have acquired knowledge during their stay abroad, which they take with them when they later work in their country of origin, and they can also bring what are referred to as “social remittances”. This term refers to the fact that they bring with them different types of knowledge from the country they have been in, which enables them, for example, to start up new kinds of companies.

What Happens During and After the Pandemic? The pandemic may affect the extent and composition of labour migration within the EU. The pandemic may have had an immediate effect on migration, with many moving back to their countries of origin when the pandemic hit countries in Western Europe. EU countries also introduced rules that made it difficult for employees to get to their workplace, even for those who already had jobs in countries other than those where they were resident. We will be better able to show what the trend has been when statistics for 2020 and 2021 have been published. But the pandemic is also having other effects. Not least, it can have effects by causing a strong slowdown in the economy in the short term, and it may also have significant dampening effects on the economy in the longer term. The economic effects are different for different groups of labour migrants. Some parts of the service sector and the transport sector, as well as parts of manufacturing industry, were significantly affected as numbers of customers and orders fell. The construction and civil engineering industry were slightly less affected in the short term at least, while healthcare and care of the elderly encountered a strong increase in demand for labour. As a consequence of this, the impact on migrants differs significantly, depending on the sector in which they were working. The impact is likely to be similar for self-employed persons who have moved as for migrant workers, based on the industry in which they are working. In addition to differing effects between sectors, the effects of the pandemic are likely to differ significantly between those who are already working in another country and those who would like to move to another country to work. Migration to a country will, as a rule, fall during

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

241

recessions—the number of vacancies decreases and competition for those available increases, which means that the chances of finding a job decrease and that labour migration is therefore reduced. When it comes to posting, the effects are also likely to differ, depending on the sectors and the occupational groups involved. The effects are likely to be relatively smaller in the construction industry than in many other sectors, and even less for specialists, who have specific, short-term tasks when they come, than they are for other occupational groups. The pandemic coincides with the implementation of the amending directive, which may also affect demand for posted workers. This is because the directive aims to reduce the difference between the wages of these workers and those of other workers in the host country. The same pattern may apply to cross-border commuting. Above all, there will probably be fewer new commuters than would otherwise have been the case, while those who already commute are often likely to be able to continue to do so. There are also differences between sectors and occupations for this group of migrants. Healthcare workers commuting across a border are likely to be much less affected by the pandemic than is the case for many other groups of commuters. Brexit may also have consequences for migration within the EU. Some people who have previously looked for work in the UK will probably look for work in other EU countries. Those who would have moved from Poland to the UK are instead looking for work in other countries, such as Germany and France. Net migration from other EU countries to the UK has fallen since 2015. In 2019, it was negative for citizens of the EU8 countries (the eight Central and Eastern European countries that joined the EU in 2004). A greater number of citizens from these eight countries emigrated from the UK during the year than immigrated to the UK from these countries (Portes, 2021). It is still very uncertain what impact the pandemic has had and will have on labour migration within the EU. Firstly, a statistical follow-up is required on the impact of the pandemic on migration within the EU. Eurostat and the statistical agencies of the various countries have a major, shared responsibility in this respect. Secondly, research into the economic and social impact of a change in migration patterns is also very important. At the same time, it is important to see what impact Brexit has had on migration within the EU.

242

E. SJÖDIN AND E. WADENSJÖ

Labour Migration in a Resilient EU The pandemic is giving rise to a need for stronger, renewed policies in various areas in order to guarantee a common labour market in the EU. We have two overarching recommendations that aim to achieve a resilient Europe. 1. Firstly, agreements are needed to remove both new and old obstacles to the movement of labour within the EU. It is important to have a regulatory framework for how labour migration is to be structured in such a way that migration in its many different forms is possible, not only during the current crisis, but also during future crises. Crises can appear in many different forms. 2. Secondly, it is important to take measures to guarantee working conditions and also conditions in general of those working in a country other than the country of which they are citizens. By guaranteeing the conditions for those who migrate, tensions can be eased between those already living in the country and those who come in. If those who come in have lower wages and poorer conditions than others in the country, this can cause divisions and conflicts.

References Ahlberg, K. (2013). Age of innocence and beyond. In S. Evju (Ed.), Cross-border services, posting of workers, and multilevel governance. Privatrettsfondet. Antman, F. M. (2013). The impact of migration on family left behin. In A. F. Constant & K. Zimmermann (Eds.), International handbook on the economics of migration. Edward Elgar. Arnholtz, J., & Lillie, N. (Eds.). (2020). Posted work in the European Union: The political economy of free movement. Routledge. Barnard, C, (2016). The calm after the storm: Time to reflect on EU (labour) law scholarship following the decisions in Viking and Laval. In A. Bogg, C. Costello, & A. C. C. Davies, (Eds.), Research handbook on EU labour law. Edward Elgar. Bratsberg, B., & Raum, O. (2012). Immigration and wages: Evidence from construction. The Economic Journal, 122(565), 1177–1205. Brown, R. P. C., & Jimenez-Soto, E. (2015). Migration and remittances. In B. R. Chiswick & P. W. Miller (Eds.), Handbooks in economics. Economics of international migration, Volume 1B. North-Holland.

10

INTRA-EUROPEAN LABOUR MIGRATION FOR A RESILIENT EU

243

Chiswick, B. R., & Miller, P. W. (Eds.). (2015). Handbooks in economics. Economics of international migration, Volumes 1A and 1B. North-Holland. Constant, A. F., & Zimmermann, K. (Eds.). (2013). International handbook on the economics of migration. Edward Elgar. Countouris, N., & Engblom, S. (2014). Civilising the European posted workers directive. In M. Freedland & J. Prassen (Eds.), Viking, Laval and beyond. Hart. De Wispelaere, F., & Pacolet, J. (2017). Posting of workers. Report on A1 portable documents issued in 2016. European Commission. De Wispelaere, F., & Pacolet, J. (2018). Report on A1 portable documents issued in 2017 . European Commission. De Wispelaere, F., De Smedt, L., & Pacolet, J. (2019). Posting of workers. Report on A1 portable documents issued in 2018. European Commission. Directive 96/71/EC concerning the posting of workers in the framework of the provision of services (Posting of Workers Directive). Directive 2004/38/EC on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States (Citizens’ Rights Directive). Directive 2014/67/EU enforcing Directive 96/71/EC concerning the posting of workers in the framework of the provision of services and amending Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System (IMI Regulation) (Implementing Directive). Directive 2018/957 amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services (Revision Directive). Directive 2020/1057 laying down specific rules with respect to Directive 96/71/EC and Directive 2014/67/EU for the posting of drivers in the road transport sector. European Commission. (2020). Communication from the Commission Guidelines concerning the exercise of the free movement of workers during COVID19 outbreak. 2020/C 102 I/03 C/2020/2051, OJ C 102I , 30.3.2020, pp. 12–14. European Migration Network. (2019). Attracting and retaining international student in the EU . European Migration Network. Evju, S. (Ed.). (2013). Cross-border services, posting of workers, and multilevel governance. Privatrettsfondet. Freedland, M., & Prassl, J. (2016). Viking, Laval and beyond. Hart. Gruenhagen, J. H., Davidson, P., & Sawang, S. (2020). Returnee entrepreneurs: A systematic literature review, thematic analysis and research agenda. Entrepreneurship, 16(4), 310–392. IAB-Kurzbericht 9/2020. “Immer mehr Beschäftige in Deutschland mit ausländischem Wohnort”.

244

E. SJÖDIN AND E. WADENSJÖ

Kahanec, M., & Zimmermann, K. F. (Eds.). (2015). Labor migration. Springer. Kahanec, M., Zimmermann, & K. F. (Eds.). (2019). EU labor markets after post-enlargement migration. Springer. Menz, G. (2008). Varieties of capitalism and Europeanization: National response strategies to the single European market. Oxford University Press. Orrenius, P. M., & Zavodny, M. (2013). Immigrants in risky occupations. In A. F. Constant & K. Zimmermann (Eds.), International handbook on the economics of migration. Edward Elgar. Pekkala Kerr, S., & Kerr, W. R. (2011). Economic impacts of immigration: A survey. Finnish Economic Papers, 24(1), 1–32. Portes, J. (2021). Immigration and the UK Economy after Brexit. IZA DP No. 14425. Regulation (EU) No 492/2011 of 5 April 2011 on freedom of movement for workers within the Union (Mobility Regulation). Sjödin, E. (2021, August). Criminalisation as a response to low wages and labour market exploitation in Sweden. European Labour Law Journal. https://doi. org/10.1177/20319525211038015 Sjödin, E., & Wadensjö, E. (2020). 25 år med utstationering av arbetstagare till och från Sverige: reglering, omfattning och arbetsmarknadseffekter. Svenska institutet för europapolitiska studier. Treaty on the Functioning of the European Union (TFEU). Vargas-Silva, C. (2015). The fiscal impact of immigration. In B. R. Chiswick & P. W. Miller (Eds.), Handbooks in economics. Economics of international migration, Volume 1B. North-Holland. Weinar, A., Bonjour, S., & Zhyznominska, L. (2019). The Routledge handbook of the politics of migration in Europe. Routledge.

CHAPTER 11

Conclusion: The EU and the Search for Sustainability and Resilience Antonina Bakardjieva Engelbrekt, Per Ekman, Anna Michalski, and Lars Oxelheim

As we have seen in the preceding chapters, the challenge posed by the complexity of the transformation to sustainable economic growth and societal resilience needs to be met on all levels. The EU has an important role to play in this respect by shaping policies that help member states

A. Bakardjieva Engelbrekt (B) Faculty of Law, Stockholm University, Stockholm, Sweden e-mail: [email protected] P. Ekman · A. Michalski (B) Department of Government, Uppsala University, Uppsala, Sweden e-mail: [email protected] P. Ekman e-mail: [email protected] L. Oxelheim Research Institute of Industrial Economics, Stockholm, Sweden e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_11

245

246

A. BAKARDJIEVA ENGELBREKT ET AL.

address multi-faceted challenges and by representing European interests and values in an increasingly antagonistic world. Leaders in the EU institutions have thus far sought to adopt a systematic, holistic approach to the challenges facing Europe. This can be compared with previous decades, during which new political initiatives often were addressed within single, isolated policy areas. The new approach represents a potentially positive development insofar as solutions to the overlapping and multidimensional problems can be found. The question remains, however, whether the EU will be able to reach the necessary political agreement to allocate financial resources where needed, and whether its administrative capacity is sufficient in light of the political climate in Europe and the complex policy processes that broad-reaching holistic initiatives require. Even so, the EU does not stand defenceless in the face of these challenges.

Towards an Over-Arching Coordination for Sustainability and Resilience For many years, the EU has been working on strengthening European environmental law and promoting the global fight against climate change, chiefly through its coordinated efforts to negotiate the 2015 Paris Agreement on climate change. Moreover, in 2020, the EU agreed on a 7-year financial framework that includes both a crisis package for the member states hardest hit by COVID-19 and the necessary resources for implementing the European Green Deal with its roadmap to build a sustainable and competitive green European economy (Council of the EU, 2020a). In a speech to the European Parliament in December 2019, Ursula von der Leyen, president of the European Commission, described the European Green Deal as an initiative that is “not just our vision for a climate-neutral continent” but also serves as a “roadmap for action – with fifty practical steps on Europe’s path towards 2050” (von der Leyen, 2019). As part of the drive towards climate-neutrality, in December 2020 the EU member states agreed to a 55 per cent reduction in greenhouse gas emissions by 2030, compared to 1990 levels. By all accounts, the EU’s role in leading the transition to a green economy and sustainable development will be a tough test of cohesion among the EU and its member states. For the past several decades, the EU has successively adopted farreaching environmental legislation. When ten countries from Central and Eastern Europe became members in 2004 and 2007, this category of

11

CONCLUSION: THE EU AND THE SEARCH …

247

legislation constituted most of the legislative acts that these countries were required to adopt in order to enter the EU (Carmin & VanDeveer, 2005). Since the 1970s, a long list of action programmes, legislative acts, and decisions by the EU Court of Justice have confirmed the EU’s position as a progressive environmental actor. As David Langlet describes in this volume, the 2006 EU chemical framework legislation—REACH—was the first of its kind to regulate entire product groups and improve environmental protection by imposing the identification of different compounds in chemical products. In this way, REACH highlights the importance of knowledge and information in the quest to improve the environment. Although EU environmental legislation has been deepened and broadened at a relatively fast pace since then, it has proven difficult to pass legislation on climate change. This is mainly because the fight against the degradation of the climate requires a transformation of complex systems where considerable economic interests are at stake. For this reason, the EU has chosen to pursue other paths for addressing climate change, for example by introducing an emissions trading scheme. At first, this approach appeared not to have the desired effect, as the member states set the price for carbon emission permits too low, thereby lowering the incentive for emission reductions. For this reason, the system is now being overhauled. In 2019 and 2020, the European Commission outlined several initiatives to support the long-term transition to more sustainable production and consumption patterns for citizens, companies, and the public sector. These initiatives include the European Green Deal of 2019, the European Climate Law of 2021, the Digital Strategy of 2021, and the New Industrial Strategy of 2020 (European Commission, 2019, 2020a, 2021a; EU, 2021). To turn these strategies into concrete policy, in December 2020 the EU enacted a substantial long-term budget of just over 1 trillion euros. Together with the Recovery and Resilience Facility of 750 billion euros which was subsequently enacted by the EU member states in 2021, the long-term budget aims to address the economic downturn in the member states hardest hit by the pandemic (Council of the EU, 2020b). The total financial envelope of the EU until 2027 amounts to 1.8 trillion euros. In addition to the more immediate Corona-relief package, the EU’s long-term budget constitutes the backbone for its ambitious plan to address the economic and social challenges of transitioning to a green economy, including a drive for widespread digitalisation and the need for up-skilling of the European workforce.

248

A. BAKARDJIEVA ENGELBREKT ET AL.

In the first half of 2020, there were concerns that COVID-19, with its catastrophic impact on the European economy and ensuing serious public health and social problems, would force the EU and its member states to abandon the ambitious reform agenda of the European Green Deal and focus instead on combating the pandemic and supporting the hardest hit member states. However, the EU chose not to side-line the broad sustainability agenda and instead sought to implement both the European Green Deal and other urgent reforms, for instance in the area of migration and asylum. Even so, the real challenge remains how these ambitious reforms, strategies, and roadmaps will be implemented, given the circumscribed legal and executive competences of EU institutions. The combination of the ambitious programmatic goal of a climate-neutral economy and limited material, legal and financial resources will prompt the EU institutions to act in unison with the member states, which in their turn are expected to demonstrate solidarity and loyalty to one another and to the common European interest. However, the challenges appear monumental as member states, in practice, often adopt an uncooperative approach, as seen in Poland’s and Hungary’s resistance to the EU Recovery and Resilience Facility’s requirement to respect the rule of law (Raube & Costa Reis, 2021). At the beginning of the 2020s, it is still an open question how the supposed conflict of aims between economic growth, an improved climate, and a cleaner environment can be avoided and instead be turned into synergies in the shift to greener patterns of production and consumption. Regarding the COVID-19 pandemic, Louise Bengtsson explains that after a less propitious start the EU and its member states found ways to ensure the free circulation of goods and to adopt a common policy for the procurement of vaccine and personal protection equipment. On the global level, the EU has taken a strong position in support of international organisations tasked with creating and maintaining common regulatory systems, in particular the World Health Organization (WHO) and the World Trade Organisation (WTO). Particularly regarding the WHO, the EU has sought to promote the COVAX initiative which seeks to ensure vaccines are also available to poor and developing countries. In this context, the EU has pledged to donate at least 200 million doses before the end of 2021 (European Commission, 2021b). However, for the EU the debacle concerning the availability of vaccines in the summer of 2021 brought to the fore the difficulty to coordinate among the EU member states. The EU did not come out well in the controversies concerning

11

CONCLUSION: THE EU AND THE SEARCH …

249

vaccine nationalism which pushed many rich countries around the world to adopt an egotistical stance choosing to vaccinate their own populations before allowing export of vaccine and vaccine components. The EU is also gearing up to make some important changes in the area of asylum and migration, which includes both intergovernmental and supranational aspects. The same goes for the traditional aspects of the welfare state, like the labour market, social security and public health, where the EU has been mindful not to push directly for reform of longstanding social institutions. Even so, in areas where common rules and legislation were previously unthinkable, joint action on the European level has come to be accepted as necessary, often as a result of global crises and economic pressures that have had major impacts on European countries. In September 2020, the European Commission (2020b) presented a draft proposal for a new policy framework for migration and asylum in the guise of the Pact on Migration and Asylum. According to the Commissioner for Migration, Ylva Johansson, the new system will replace the Dublin regulations. The intention is to strengthen the capacity of member states to handle migration flows, primarily by enabling faster decisions to grant asylum to migrants who present genuine asylum claims while denying it for those who do not qualify. This would be an important improvement, perhaps stemming the current tendency described in Borevi’s chapter in this volume of a kind of negative competition among the member states to offer migrants as ungenerous social support as possible. Despite hopes that an improved system for migration and asylum will mitigate the conflicts that have arisen among EU member states, the progress on this package has been slow. Again, external events and crises are pushing the migration agenda forward. In this context, it is worth noting that amidst the crisis of Afghanistan in August 2021, sparked by the US’s hastily military withdrawal, the EU member states have been very reluctant to accept refugees beyond the Afghans who had worked directly for western powers. With the quest for resilience and the ambitious green agenda there are signs that the EU is playing an increasingly prominent role in coordinating national commitments towards common approaches, for instance concerning economic competitiveness, social cohesion, and sustainable development. These are areas where the EU lacks legislative competence. The policy instruments used are primarily “soft”, which in concrete terms means that member state governments are expected to pursue policies in line with common goals and detailed indicators, developed based on

250

A. BAKARDJIEVA ENGELBREKT ET AL.

the exchange of experiences, best practice, and peer pressure through so-called “naming and shaming”. Europe 2020 is the foremost policy platform in this regard, developed in the wake of the sovereign debt crisis that beset several member states during 2010–2014. It includes a process—the European semester—of assessment of EU member states’ budgets according to the goals and commitments within the framework of Europe 2020 which relies on policy coordination and soft governance. The European semester also contain indicators on investment in research and development which is important if the EU is going to achieve the accelerated competitiveness necessary for sustainable development outlined by Elert and Henrekson in this volume. Another important requirement for a positive economic development is financial stability. As Forssbæck aptly shows in this volume the full implications of the Banking Union have not yet been internalised by the EU member states, many of whom still resist thinking holistically regarding the spread of risks in the EMU. Undeniably, integration has made strides in the area of financial markets whether through tightened implementation of financial market regulations by using delegated acts as described by Bergström or the creation of new European supervisory agencies as discussed by Forssbæck. The introduction of soft governance measures has been lauded as well as criticised. For Charles F. Sabel of Columbia University and Jonathan Zeitlin of the University of Amsterdam, soft governance instruments are part of “experimentalist governance” which has as its aim to strengthen the EU’s ability to handle complex policy nexuses by drawing on the combined institutional experiences and practices from member states (Sabel & Zeitlin, 2008). Even so, the main critique levelled against soft governance is the EU’s lack of means to compel member states to adopt undesirable or politically inopportune reforms, even after they have committed to the common objectives. The European Green Deal has likewise been considered wanting in this respect (Greenpeace, 2019). Those who express scepticism towards the initiative argue that it lacks binding commitments for member states that can hold them to account, such as for achieving the goals set for reduced carbon emissions. It is further argued that the European Commission has insufficient means to ensure that financial support pledged for use for climate transition measures is directed to its intended purpose and does not fuel financial corruption. Still, the commitments that member states are making to receive assistance from the EU Recovery and Resilience Facility are consistent with the objectives of the European Green Deal. Together, they form an

11

CONCLUSION: THE EU AND THE SEARCH …

251

ambitious and comprehensive package of policy instruments, combining legislation with common strategies, national plans of action, and financial incentives within the over-arching goal of a sustainable EU. Regardless of whether hard or soft policy instruments or, indeed, the financial incentives on offer are used for the transition to a climate-neutral economy, the European Green Deal has been linked to some means to prevent member states from acting unilaterally or in opposition to common goals, as was seen during the initial stages of the coronavirus pandemic response and during the mass immigration to Europe in the middle of the last decade. In this regard, the mechanisms of supervision granted to the European Commission contain in a similar fashion to the European semester simultaneously soft and harder measures. In the end, however, it will be up to the European Court of Justice to take a stance on breaches of the fundamental norms and values on which the grants and loans are conditioned. Popular Support and Political Cooperation In a February 2020 opinion piece in The Guardian, Varoufakis and Adler, voiced critique of the European Green Deal and the roadmap for a sustainable EU (Varoufakis & Adler, 2020). In their view, the roadmap places too much emphasis on the transformation to a climate-neutral society, while making insufficient investments to mitigate the increasing income gaps both within and between EU member states. Their assessment is that the roadmap risks cementing the deep differences in opinion that already exist between the countries in north-western Europe and those in eastern and southern Europe. Others have pointed out that the climate change can bring about new social divides, particularly between citizens engaged in climate issues—often living in major cities with jobs in the “new” economy—and opponents of climate action—often living in the countryside with little possibility to leave their cars behind and change their energy consumption. The latter group has arguably less to gain from the green economy, while it stands to lose through higher fuel taxes and other climate measures. From this perspective, climate change induces a social transformation of the kind described in Hooghe and Marks (2009). They argue that globalisation, migration, and European integration have created new social divides between those holding progressive values and in favour of

252

A. BAKARDJIEVA ENGELBREKT ET AL.

change and those who fear transformation and maintain traditional viewpoints. The divide is augmented further by the fact that the former group has managed to improve its socio-economic position, while the latter has experienced a deteriorating standard of living. This complex societal problem was illustrated by the 2018 “yellow vest” demonstrations in France against higher taxes on diesel fuel. In many ways, this was a conflict between a perceived backward-looking countryside and digitalised, environmentally conscious cities. While this popular movement arose in France, the transformation to a green economy is, unquestionably, a complex process that creates both winners and losers in all countries further deepening the fault-lines in society. It also has consequences for related issues like technological transformation and the digitalisation of society, both of which generally are viewed as preconditions for a climate-neutral economy. A 2019 survey by Eurobarometer (2019) showed that the populations of EU member states see climate change as a very serious problem for their respective countries and that this viewpoint has become more widespread over the past decade. Europeans also see the climate transition as a serious global issue, ranking just behind poverty, hunger, and access to drinking water. However, they rank climate change higher than terrorism. It can be noted that 55 per cent of respondents believe that the greatest responsibility for tackling climate change lies with national governments, followed by businesses (51 per cent) and the EU (49 per cent). It is not obvious what these survey results actually imply. One interpretation is that the populations of EU member states believe that governments, businesses, and the EU all have a responsibility to take measures to fight climate change and that they expect these parties to cooperate. As Mattsson reminds us in this volume dealing with inter-generational tensions is another long-term challenge for the EU. Many young people were hard hit by unemployment in the wake of the 2008 financial crisis, and many risk the same fate as a result of the coronavirus pandemic. Young people can also be expected to be impacted harder by the longterm effects of climate change than older people. Meanwhile, COVID-19 has affected older people to a greater extent than other groups, especially in terms of mortality rates. This points to societal vulnerability, leading some to question the ability of EU institutions to handle and support an increasingly older population. This is not a new challenge, but the issue became more tangible during the pandemic.

11

CONCLUSION: THE EU AND THE SEARCH …

253

Global Leadership and Influence During the 2010s, the EU has strengthened its role as a global actor, not only in its part of the world but also on the international stage within areas in line with European interests and policy. In parallel to the transformation of the liberal world order, EU foreign policy has focused successively on promoting a rules-based international system, multilateralism, and the role of international organisations (Bakardjieva et al., 2019). In this respect, the EU differs from world powers such as Russia, China, and the US during the Trump presidency. These states have instead adopted a hegemonic approach, promoting bilateral relations, rather than multilateral arenas. Their policies have often been in contravention of international agreements and undermined the organisations that were created to ensure compliance. The election of Joe Biden as president of the United States led to hopes of a return to international cooperation under American leadership which have only partially been fulfilled. The new president took the decision for the US to re-join the Paris Climate Change Accord on his first day in office while he preceded in the early autumn of 2021 over the hastily withdrawal from Afghanistan and the creation of the military alliance in the Pacific, AUKUS, comprised by the US, the UK, and Australia. For Europeans, it is crucial to draw the consequences of the US’s shift in strategic focus to the Pacific and the rivalry with China over global hegemony. These developments make it even more clear that sustainable development in Europe cannot be achieved in isolation from global developments and events. External influences, whether in the form of financial crises, wars, poverty, or contagious diseases, do not stop at the EU’s borders and their effects are soon felt also in Europe. The EU and its member states, together with other liberal nations, champion agendas related to sustainable development in various global forums. The UN’s 2015 Sustainable Development Goals (SDGs) are a prominent example of such a global agenda. The SDGs take a broader approach to sustainability than its predecessor, the Millennium Goals, as they treat sustainability as a matter of concern for all sectors of society and an objective for both developing and industrialised countries. The EU and its member states actively supported the wider approach to sustainability carved out in the OECD’s Development Assistance Committee, which spurred many of the ideas behind the SDGs. In the early 2020s, the EU is striving to incorporate the SDGs in the overall development assistance policy both on the EU level

254

A. BAKARDJIEVA ENGELBREKT ET AL.

and on the level of the member states. The SDGs also figure in the EU’s relationships with the African Union, in bilateral and regional association agreements with Japan, South Korea, Singapore, and Canada, in agreements with African, Latin American, and Central Asian countries, and with countries included in the EU’s European Neighbourhood Policy. In addition, the EU is promoting the SDGs in regional initiatives, such as the EU-Asia Connectivity Strategy, in the ongoing negotiations on a trade agreement with New Zeeland and Australia, and in its bilateral strategic partnership with China. The EU established its global climate leadership in Paris 2015 during the negotiations for a global agreement on climate change (Oberthür & Groen, 2017; Bäckstrand in this volume). Despite the fact that countries such as the US, China, and Russia succeeded in pushing through a less ambitious agreement with carbon emissions reductions on a voluntary basis instead of binding commitments, the EU and its member states have upheld central aspects of the Paris Agreement and pledged ambitious unilateral reduction targets. These commitments have been integrated into the EU’s political initiatives, such as the European Green Deal and the reform of the European carbon emissions trading scheme. The EU and its member states have also been a leading voice for upholding agreements crucial for international security. These include the agreement with Iran on pausing its uranium enrichment programme in exchange for lifting trade sanctions, even though the US left the agreement in 2018. From the mid-2010s, however, the EU’s ability to spread norms, such as human rights, democracy, and the rule of law, has been weakened due to the transformation in the global world order as emerging world powers have rejected these norms which they view as western. Regrettably, some EU member states, especially Hungary and Poland, continue to block common initiatives and statements, especially those linked to human rights. These two countries have at several times prevented the EU from adopting critical statements against states that are in breach of human rights or in other ways frustrated the EU from strengthening human rights and rule of law on the global level (Michalski & Danielson, 2020). Not least, Hungary and Poland have stopped the EU from speaking with a unified voice in the UN Human Rights Council when critique is raised towards China and Russia (even though an EU sponsored resolution on the human rights violations in Belarus was adopted by the Human Rights Council in September 2020). In its global strategy from 2016, the EU admitted in part that these circumstances have led to a somewhat altered

11

CONCLUSION: THE EU AND THE SEARCH …

255

international engagement, adopting “principled pragmatism” as its motto and a guiding principle for EU foreign policy (European Union, 2016). A toned-down rhetoric on norms, like democracy and political rights, does not imply that the EU no longer aspires to spread principles and values that promote a sustainable economic and social development, resilient societies, a rules-based international system and human rights, seen not least in the sanctions against Chinese individuals and companies repressing the Uighurs enacted in March 2021. Aside from its engagement in global agendas, the EU’s most effective means of spreading such values is through its economic power and the attractiveness of the internal market. The EU’s economic relations with countries around the world cover a large number of areas (Bradford, 2020). The EU builds objectives into trade agreements that aim to support the environment, combat climate change, achieve better social protection for workers, and promote human rights. They also include commitments on cooperation in combating terrorism, cyberattacks, financial crimes, and tax evasion. The EU even impacts countries and territories not covered by bilateral trade agreements by influencing rules on data protection, sustainable fisheries and forestry, taxation, and stock markets. This process is described as an extra-territorial reach of regulations (Cremona & Scott, 2019). The EU’s promotion of a rules-based international system and the support that the EU and its member states give to international organisations are important for achieving sustainable development and climateneutral economic growth. This applies to organisations with a broad mandate, like the UN, to those with a narrower mandate, such as the WHO or the WTO, and to those with a regional focus, such as the African Union, or expert organisations such as the OECD. The EU has an advantage in many of these forums as it is represented both by the EU as an organisation and by its member states individually. Therefore, the EU has a strong voice in influencing the direction and global governance in a variety of areas that form the basis for global agendas and international agreements. However, this requires that the EU and its member states are able to agree on a common platform to pursue issues related to climate change, the environment, working conditions, development cooperation, and taxation. At the dawn of a new decade, we see a range of complex and deep-seated challenges for creating a resilient and long-term sustainable Europe. Given that these challenges are multi-dimensional and crossborder in nature, the EU’s role in finding a way forward is undeniable,

256

A. BAKARDJIEVA ENGELBREKT ET AL.

not least because the effects of the pandemic intersect a range of long- and short-term problems. While the immediate action, required to meet the short-term challenges will be partially financed through the comprehensive, debt-financed EU Recovery and Resilience Facility, economic, social, and environmental sustainability call for long-term investments in the new green economy. A coordinated response by the EU is needed, not only to address the current crises, but above all to design workable policies for strengthening the resilience of the European economy and societies in a manner which is sustainable in the long term. There are certainly multiple routes to a resilient EU. What is important when deciding on the way forward is to consider existing vulnerabilities and leverage synergies fully.

References Bakardjieva E. A., Bremberg, N., Michalski, A., & Oxelheim, L. (Eds.). (2019). EU in a changing world order. Palgrave Macmillan. Bradford, A. (2020). The Brussels effect: How the European Union rules the world. Oxford University Press. Carmin, J., & VanDeveer, S. D. (2005). EU enlargement and the environment: Institutional change and environmental policy in central and eastern Europe. Routledge. Council of the EU. (2020a, December 17). Multiannual financial framework for 2021–2027 adopted. Accessed March 26, 2021. https://www.consilium. europa.eu/en/press/press-releases/2020/12/17/multiannual-financial-fra mework-for-2021-2027-adopted/ Council of the EU. (2020b, December 17). Press release: Multiannual financial framework for 2021–2027 adopted. www.consilium.europa.eu/en/press. Accessed March 26, 2021. https://www.consilium.europa.eu/en/press/ press-releases/2020/12/17/multiannual-financial-framework-for-20212027-adopted/. Cremona, M., & Scott, J. (2019). EU Law beyond EU borders: The extraterritorial reach of EU law. Oxford University Press. Eurobarometer. (2019). Special Eurobarometer 490. European Union. European Commission. (2019, December 11). The European Green Deal. COM (2019) 640 final. European Commission. (2020a, March 10). A new industrial strategy for Europe. COM (2020) 102 final. European Commission. (2020b, September 23). Press release: A fresh start on migration: Building confidence and striking a new balance between responsibility and solidarity. www.ec.europa.eu. Accessed March 26, 2021. https:// ec.europa.eu/commission/presscorner/detail/en/ip_20_1706

11

CONCLUSION: THE EU AND THE SEARCH …

257

European Commission. (2021a, September 15). State of the Union: Commission proposes a path to the digital decade to deliver on the EU’s digital transformation by 2030. Press release. European Commission. (2021b, July 22). Vaccinating the world: ‘Team Europe’ to share more than 200 million doses of COVID-19 vaccines with low and middleincome countries by the end of 2021. Press release. European Union. (2016). Shared vision, common action: A stronger Europe: A global strategy for the European Union’s foreign and security policy. European Union. European Union. (2021, June 30). The European Climate Law, Regulation (EU) 2021/1119. Official Journal of the European Union. Greenpeace. (2019). European Green deal misses the mark. Assessed March 29, 2021. https://www.greenpeace.org/eu-unit/issues/climate-ene rgy/2517/european-green-deal-misses-the-mark/ Hooghe, L., & Marks, G. (2009). A Postfunctionalist theory of European integration: From permissive consensus to constraining consensus. British Journal of Political Science, 39(1), 1–23. Michalski, A., & Danielson, A. (2020). Overcoming dissent: Socialization in the EU’s political and security committee in a context of crisis. Journal of Common Market Studies, 58(2), 328–344. Oberthür, S., & Groen, L. (2017). The European Union and the Paris Agreement: Leader, mediator, or bystander? WIREs Climate Change, 8(1). Raube, K., & Costa Reis, F. (2021). The EU’s crisis repsonse regarding the democratic and rule of law crisis. In M. Riddervold, J. Trondal, & A. Newsome (Eds.), The Palgrave handbook of EU crises (pp. 627–246). Palgrave Macmillan. Sabel, C. F., & Zeitlin, J. (2008). Learning from difference: The new architecture of experimentalist governance in the EU. European Law Journal, 14(3), 271– 327. Varoufakis, Y., & Adler, D. (2020, February 7). The EU’s green deal is a colossal exercise in greenwashing. The Guardian. Accessed March 26, 2021. https://www.theguardian.com/commentisfree/2020/feb/07/eugreen-deal-greenwash-ursula-von-der-leyen-climate von der Leyen, U. (2019, December 11). Speech by President von der Leyen in the Plenary of the European Parliament at the debate on the European Green Deal. Accessed March 26, 2021. https://ec.europa.eu/commission/presscorner/ detail/en/speech_19_6751

Correction to: Legal Preconditions for an Environmentally Sustainable European Union David Langlet

Correction to: Chapter 4 in: A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_4 The original version of Chapter 4 was inadvertently published as nonopen access, which has now been changed to open access under a CC BY 4.0 license, and the copyright holder has been updated to ‘The Author(s)’. The corrections to the chapter have been updated with the changes.

The updated version of this chapter can be found at https://doi.org/10.1007/978-3-030-93165-0_4

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0_12

C1

Index

A Accountability, 170, 181, 189 Adaptivity, 65, 66, 82–85 Age at home, 121 Agencies, 171, 176–178, 181, 182, 185–190 Anthropocene, 2 Antifragility, 18, 24 Asylum, 195–198, 200–205, 211–213 B Bail-in, 147, 156, 157, 164 Bailout, 143, 144, 147, 156, 157, 164 Banking crisis, 143, 144 Banking supervision, 144, 155 Bank Recovery and Resolution Directive (BRRD), 147, 149 Bank-sovereign doom loop, 144 Biodiversity, 72, 75, 77, 78, 81, 85, 86 Borders, 195–197, 199, 201, 203, 205, 210 Brexit, 46

Brundtland Commission, 3

C Capital Requirements Directive, 146 Central and Eastern Europe, 44, 48, 55 China, 43, 45, 46, 48 Civic integration, 206–210, 212, 213 Climate change, 246, 247, 251–255 Climate emergency, 50 Climate policy, 39–44, 48, 49 Collaborative innovation bloc, 19, 22, 24, 25, 28–33 Comitology, 175, 178, 179, 188 Common fisheries policy (CFP), 83 Common labour market, 219–222, 242 Commuting, 220, 223, 227, 234, 241 Country of origin, 223, 224, 230, 237, 239, 240 Court of Justice of the European Union (CJEU), 170, 172, 174–176, 179, 185–188, 190

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 A. Bakardjieva Engelbrekt et al. (eds.), Routes to a Resilient European Union, https://doi.org/10.1007/978-3-030-93165-0

259

260

INDEX

COVID-19, 5–7, 9, 89, 90, 96, 97, 100, 104, 109 Credibility problems, 157 Crisis management, 90, 96, 99, 104, 109 Cross-subsidisation, 161

D De Larosière Report, 180–182 Deposit Guarantee Schemes Directive (DGSD), 146, 150 Deposit insurance, 146–148, 150, 154, 155, 158–160, 162, 164, 165 The Dublin Convention, 199

E Ecosystem based management (EBM), 66, 68, 86 Ecosystems, 64, 65, 67, 68, 71, 73, 77 Elder care, 117, 118, 120, 121, 124, 126, 128, 133 Elderly, 115–133, 135–137 EMU, 250 Entrepreneurship, 18, 19, 21–23, 25–27, 30–33 Environment, 49, 50, 52, 55, 58 Environmental action programme, 64, 69, 75 Environmental information, 69, 73 Environmental objectives, 70, 74, 78, 80, 82 Environmental quality standards (EQS), 77, 83 EU-crises, 5 EU ETS, 65, 76, 81, 84 EU member state, 7, 13 Eurobarometer, 252 Eurodac, 201, 203

European Banking Authority (EBA), 182 European Banking Union, 142, 148 European Central Bank (ECB), 148, 149, 153, 155, 163 European Centre for Disease Prevention and Control (ECDC), 91, 93–99, 103, 104, 108, 109 European Climate Law, 76 European Commission, 148, 150 The European Green Deal, 4, 8, 65, 70, 76, 81 European Insurance and Occupational Pensions Authority (EIOPA), 182 European integration, 5 Europeanization, 205 European Parliament, 42, 44, 50, 52, 55, 57, 66, 74, 76, 104, 108, 170, 172, 174–177, 179, 182, 185, 186, 246 European Securities and Markets Authority (ESMA), 177, 182–184, 186, 187, 189, 190 The European semester, 250, 251 European Stability Mechanism (ESM), 149, 150, 158, 165 European Systemic Risk Board (ESRB), 148, 155, 182 European System of Financial Supervision, 147, 177 European Union, 16, 17, 19, 20, 24, 34 External border, 196, 197, 199–201, 205 F Financial crisis, 169, 170, 175, 178, 180, 181, 186, 188, 189 Financial integration, 144, 145, 159 Financial safety net, 142, 145, 154 Financial stability, 250 Fiscal backstop, 150, 158, 165

INDEX

Free movement, 196, 198–200

G Global climate leader, 41–43, 48 The green recovery, 52, 54, 55, 58

H Habitats directive, 72, 77, 82 Health care, 116, 121, 124, 125, 127–130, 132–134, 137 Health crisis, 90, 91 Health policy, 91, 94, 96, 101, 104 Health security, 94–97, 99, 100, 104, 109 Host country, 224, 228–230, 232, 241

I Immigration, 195–200, 202, 208–214 Infectious diseases, 94–97, 110, 111 Innovation, 16–19, 21–24, 26, 32–34 Institutions, 23, 28, 32 Interdependence, 2

J Judicial control, 189, 190 Judicial review, 176, 187

K Kyoto Protocol, 42, 44–46

L Lamfalussy Report, 179 Lender of last resort (LOLR), 154, 155

261

M Macro-prudential supervision, 145, 148, 149, 154, 155 Marine strategy framework directive (MSFD), 72, 77, 79, 82 Micro-prudential supervision, 145, 148, 154, 155 Migration, 248, 249, 251 Migration policies, 209, 211

N Natura 2000, 65, 80, 83 Next Generation EU, 43, 53, 58 Non-performing loans, 152, 153, 161, 164

O Older Persons’ Rights, 118, 131–133

P Pandemic, 89–92, 94, 96–101, 103, 104, 106–109, 111 Pandemic crisis, 189 Paris Agreement, 39–43, 45, 46, 48, 50, 57 Policy reform, 91 Posted workers, 224, 228, 230–236, 238, 241

R Reach regulation, 72, 81 Refugee crisis, 196, 202, 213 Regulation, 30, 31 RescEU, 102, 105 Resilience, 2–4, 6, 8–12, 65, 66, 68, 69, 75 Resolution, 147–150, 154–158, 160, 164, 165 Risk reduction, 161, 164

262

INDEX

Risk-sharing, 145, 156–158, 160–162, 164, 165

Systemically important banks, 147, 156, 158

S Schengen, 195, 196, 199, 205 Securitisation, 96, 97 Self-employed, 223, 224, 230, 238, 240 Self-employment, 29 Single Resolution Fund (SRF), 149, 150, 165 Single Resolution Mechanism (SRM), 149, 157, 160, 164 Single rulebook, 146–148, 150, 154 Single Supervisory Mechanism (SSM), 148 Social-ecological systems, 64, 65, 67, 73, 85 Societal resilience, 245 Sovereign debt crisis, 141, 143, 144, 153 State of the Union, 49 Subsidiarity, 79 Sustainability, 3, 4, 7–9, 12 Sustainable, 3, 4, 6–10, 12

U Unemployment, 220, 238, 239 United Nations Framework Convention on Climate Change (UNFCCC), 40, 43, 44, 47, 48, 54 United States, 43, 45

V von der Leyen, Ursula, 40, 42, 49, 57, 104, 106, 108, 246 Vulnerability theory, 119, 135

W Wages, 231, 232, 237–239, 241, 242 Waste, 69, 76 Water framework directive (WFD), 71, 72, 77–80, 82, 83 Welfare, 116, 117, 119, 123, 125–127, 131