By Laura N Haar
The global economic crisis has forced national and regional policy makers to reconsider their policy priorities in order to speed up economic recovery. Below, Laura N Haar considers how some EU policies have been affected by the financial crisis.
The global economic crisis, beginning with the credit and liquidity crunch of 2008, followed by the various banking crises of 2009 and 2010, and manifested afterwards in the sovereign debt crises across Europe and the USA, has undoubtedly forced national and regional policy makers to reconsider their policy priorities in order to speed up economic recovery. The European Union (EU) policy makers were no exception as the crisis deepened the challenges already faced by many EU-promoted policies, including agriculture, energy, fisheries and trade. Importantly, the impact of the financial crisis on the monetary and social policies cannot be neglected either. As it is amply explained in a recent edited collection of essays on EU policies entitled Re-examining EU Policies from a Global Perspective1, the EU decision makers need to consider more carefully the interdependencies between various policies and, where financial constraints are the greatest, propose a degree of decentralisation at country level. The book dedicates a chapter to each of the most important EU policies and explains how these have evolved over time in both scope and instruments. In what follows I will offer a snapshot of how some of these EU policies have been affected by the financial crisis.
The EU Energy Policy
The EU energy policy, for example, in its various manifestations, has been at the heart of the European integration from the start, dealing with concerns about energy supply and security. Dating back to the European Coal and Steel Community (ECSC), the main objectives of the EU energy policies were to minimise costs and reduce the risk in the supply of energy through an internal energy market; enhance security of supply, including a reduction of import dependence and internalise environmental externalities with a bias in favour of conservation. As with many other EU policies, most of these policy objectives did not change over time, but the instruments used to pursue them shifted from traditional forms of taxation and subsidies towards increased reliance upon market forces and mechanisms. In the case of energy policy, this meant vertical separation of competitive segments such as generation, marketing and retail supply from the regulated segments of distribution, transmission and system operation; horizontal restructuring of the generation segment to ensure competition in the wholesale market; creation of independent system operators and so on. The introduction of the European Emissions Trading System (ETS) in 2005 is another example of emphasis upon market mechanisms to achieve policy objectives. Currently in its Phase III, the ETS represented the EU landmark climate policy instrument that used tradable emission allowances to ration and impose costs upon the production of carbon dioxide from power stations and key industrial processes and plants. Although the EU energy policies have been generally successful in achieving their objectives, the ETS struggled to provide sufficient incentives for energy companies to invest in low-carbon technologies2 and, perhaps unsurprisingly, has met with limited success3.
Importantly, careful coordination of EU-wide energy policies and similar national initiatives is necessary to mitigate some of their diverse and often conflicting outcomes. For example, success in promoting nuclear and renewable energy improves security of supply but undermines the ETS by driving CO2 prices down. Similarly, preoccupation with cost minimisation is at variance with intermittent sources of energy such as renewable which, in the absence of subsidies, are far less price competitive than fossil fuels. In addition, a functioning ETS would result in higher energy prices to change producers’ behaviour and encourage lower green house gases emissions, an outcome that could undermine the drive to lower prices through market liberalisation, privatisation and integration. For this reason, a holistic view of energy policy becomes imperative, as seen in the latest target-oriented EU policy papers such as the so-called ’20-20-20 Directive’4 and the ‘2050 Roadmap’5.
The global economic crisis has had surprisingly little impact on the formulation and implementation of the European energy policy. There is little to suggest that policy making since 2009 has changed direction from the policies already underway despite the fact that, for example, programmes involving renewable energy, using many of the traditional instruments of taxation (of undesirable technologies) and subsidies (of desirable low-carbon technologies) impose net costs upon an economy and reduce growth. Yet, these concerns have not yet led to any plans to prioritise policies, although at national level some such measures were adopted, as in the case of the UK where plans to increase the fuel escalator were dropped to alleviate the financial strain of certain environmental programmes upon households. Given the size of national debt and budget deficits across the EU, advancing environmental objectives should come under increased scrutiny.
The EU Agricultural Policy
Perhaps no other EU policy is more controversial than the EU agricultural policy (known as the Common Agriculture Policy, or CAP) which affects agricultural producers both within and outside the regional block. As in the case of the EU energy policy, the objective of CAP did not change over time – to offer the European farmers stable income – but the various CAP mechanisms did. The policy had been criticised from the outset for being not only protectionist but also very expensive. For example, the growing costs of rising stocks and subsidised exports were becoming unsustainable, the pressure to undertake intensive farming led to environmental concerns and the dispersion in farm sizes was not carefully considered6.Through successive reforms the emphasis shifted from agricultural support, price setting and overproduction to environmental compliance, food quality, consumer protection, and, significantly, rural development. The single farm payment scheme introduced in 2003, for example, has reduced the welfare cost of the CAP as did, later on, other measures such as the phasing out of the price support. The global economic crisis had a mixed impact on the participants of the EU agricultural sector: for example, the EU dairy farmers suffered but rising food prices around the globe reduced the EU budget expenditure on export subsidies and intervention purchases.
Looking forward, the move from quantity to quality and to more ecological value in agriculture should continue, due to increased public awareness of health and food safety. But such shifts require further investments in the agro-food chain, especially in the new member states, where the flow of agricultural produce from farmers to the final consumers does not function smoothly. It is expected that significant economic pressure will be placed upon the food industry in the new member states. It is likely that post-2009 budget constraints at both national and regional level will slow down the CAP reform process.
The EU Trade Policy
The process of economic integration is most visible in the case of the EU trade policy. Initially established as a customs union, the EU has achieved gradual removal of tariffs among member states and the introduction of a common external tariff. The European Single Market eventually required that non-tariff barriers also be removed among member states. In aggregate, trade among EU member states accounts for 70% of all EU trade, but the global economic crisis has seen the internal market shrinking. The EU trade in automobiles, steel and construction industries suffered the most. In post-2009 Europe, declining growth rates led to shrinking demand for goods and services and many EU governments made efforts to diversify geographically their export markets.
Currently, the EU applies trade barriers to imports from non-EU members, especially with respect to agriculture, textiles and clothing, motor vehicles and the audiovisual sector. During the WTO multilateral trade negotiations, the EU adopted a mixed position: although in favour of the free trade in principle, the EU policy makers were reluctant to pursue a more significant liberalisation of the agricultural market. Laudably, though, in the aftermath of the global economic crisis, the EU refrained from introducing new trade barriers, defending its liberal position. It seems that the crisis has reinforced the free trade orientation of the EU rather than undermining it7. Yet, some regulatory (non-tariff) barriers may still be expected, in particular with respect to environmental protection and there are concerns that the EU may adopt a more protectionist stance vis-à-vis trade with emerging markets. Indeed, the expansion of the sanitary and phytosanitary non-tariff barriers has led to high compliance costs for many developing country exporters8. In this context, some believe that even a modest result at multilateral negotiations (currently the defunct Doha Round) could be a better outcome for the EU economy than any agreement outside the WTO. There are critics who point out that the new trade and development agenda of the EU for the 2020 focuses too much on developing countries, ignoring the potential of other players in the world economy. If accurate, this position may prove welfare-reducing to EU consumers and businesses alike. In its post-2009 trade policy, the EU should further seek market access with a clear set of rules instead of the many exemptions it has offered previously via bilateral agreements.
EU Fisheries Policies: Overfishing in EU Waters
Finally, with respect to the EU fisheries policies, their importance in the absence of sufficient international regulation does not need emphasising. The creation of the ‘Blue Europe’ agreement, albeit a landmark achievement, was fraught with difficulties even before the financial crisis of 20089. In the past, overfishing in the EU waters was tackled with reforms that included fleet restructuring and the creation of the European Fisheries Fund. Whilst total catches fell over time as a result, the decline was far from uniform across member states and its rate makes it hard to bring fishing within sustainable levels any time soon. New measures to ensure compliance and enforcement, such as guarantees of minimum profit per vessel, are required but the funds necessary are not likely to be available in the current economic climate. An alternative solution that gained traction among EU policy makers is to encourage some degree of decentralisation of decision-making at local level and tie-in the fisheries industry reform with specific objectives that are important at local level, such as reducing chronic unemployment. The need, identified in the context of other policies as well, to exploit the interdependency between various EU policies and address such issues for a wider perspective remains.
Coordination at National and Regional Level
Although many of the EU policies, as highlighted above, have had some promising results, such as the creation of the Single Market for trade in goods and services and the gradual liberalisation of energy markets, there is still a great deal to be achieved. Looking ahead, a major task for the EU policy makers is to coordinate efforts at national and regional level to ensure consensus and a similar degree of policy implementation. Both may be harder to come now as a shrinking EU budget, like that of the many EU member states, renders any decision involving finance more challenging.
About the Author
Dr Laura N. Haar lectures at the University of Manchester, Manchester Business School, UK. Her research covers industrial policy, European energy market reform, trade liberalisation and multinational investment in Central and Eastern Europe. She has published articles in several peer reviewed journals such as Business History, Financial History Review, Energy Policy, Europe-Asia Studies, Journal of Business Ethics and Policy Studies.
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2. Helm, D. (2012) The Carbon Crunch: How We’re Getting Climate Change Wrong and How to Fix It (New Haven, CT: Yale University Press)
3.Haar, L. and Haar, L.N. (2006) “Policy Making Under Uncertainty: Commentary upon European Emissions Trading Scheme”, Energy Policy 34 (17), 2615-2629.
4. EU COM (2010) 265 final, “Analysis of options to move beyond 20% greenhouse gas emissions reductions and assessing the risk of carbon leakage”, Brussels.
5. EU SEC 2011 (112) “A roadmap for moving to a competitive low carbon economy in 2050”, Brussels.
6. Garzon, I. (2006) Reforming the Common Agricultural Policy: History of a Paradigm Change (Basingstoke: Palgrave Macmillan)
7. De Ville, F. and Orbie, J. (2011) “The European Union’s Trade Policy Response to the Crisis: Paradigm Lost or Reinforced?”, European Integration online Papers (EIoP), 15 (2), http://eiop.or.at/eiop/texte/2011-002a.htm.
8. Erixon, F. (2012) “The EC Communication on Trade, Growth and Development: Comment” in The Next Decade of EU Trade Policy: Confronting Global Challenges, Overseas Development Institute, London.
9. Churchill, R. and Daniel, O. (2010) The EC Common Fisheries Policy (Oxford: Oxford University Press)[/ms-protect-content]