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EDITIONS
Europe Thursday, 3 June, 1999, 11:44 GMT 12:44 UK
Europe: The issues
It's all change at the European Union. MEPs are up for election in all 15 member states. Later this year a new European Commission must be appointed to replace the acting commissioners who resigned en masse in March, but are still at their desks months later.

A new president of the commission, Romano Prodi, is already waiting in the wings to take over from the outgoing Jacques Santer (who is expected to be back in Brussels in the guise of a Luxembourger MEP).

But though some of the main players will change, the key issues facing the EU remain the same.

The euro and Euro-economy

European monetary union is the most ambitious project the EU has embarked on. But the euro has still to prove its credibility.

The first five months of its existence have been bumpy. Before its launch on 1 January 1999 there had been hopes it would rival the dollar. Instead the fledgling currency has slumped 11% against it.

Similarly, the "one-size-fits-all" approach of the European Central Bank must also prove it can work. The weak euro has boosted exporters in the eurozone - particularly welcome for those countries, like Germany, currently at a low point in their economic cycle.

For booming economies, though, the euro's weakness and the low interest rate set by the ECB are not such good news - and encapsulates the problems of attaining economic convergence within euroland.

Also crucial is how closely the eurozone members maintain fiscal and budgetary discipline by sticking to the tough terms of the "stability pact".

This is the agreement between eurozone members to maintain strict financial discipline, keeping budget deficits within a 2% of GDP limit - or face stiff fines.

Special one-off economic circumstances may win a country permission to breach the pact - which is just what has happened to Italy. At the end of May, EU finance ministers agreed to let the Italian government go to a 2.4% deficit.

But the financial markets wonder how many "one-offs" there are likely to be in future.

Common foreign and security policy

The Kosovo conflict has brought into sharp focus the post-cold war reality that US and European interests are, increasingly perhaps, two different things. And yet the EU is dependent on the US to resolve a military conflict in Europe's own backyard.

After the US, the biggest players in the war are the UK and France - a fact partly explained by EU divisions, but also reflecting the absence of an effective European defence capability.

Moves towards a common European foreign and security policy are aimed at tackling this. Hence the decision to appoint an EU foreign policy supremo - a "Mr Europe" who will deal with relations between the EU and the rest of the world.

For the EU to be undertake its own military, humanitarian and peace-keeping interventions, without having to worry about the US - whose domestic concerns have been a key factor behind President Clinton's reluctance to commit to using ground troops - a common defence policy is needed.

This will require member states to overhaul their defence capabilities. It could also mean increased defence spending too, instead of the "peace dividend" analysts thought would eventually be reaped following the end of the cold war.

Enlargement

Plans to extend EU membership to central and eastern Europe are a major part of the EU's business for the next few years. But institutional reform and changes to EU funding will have to take place before expansion can take place.

With just its present 15 members, the EU's decision-making processes can be cumbersome. A future EU of more than 25 members raises the issue of whether its structure should be reformed to accommodate a larger and more diverse membership - a wider, looser EU - or whether a more integrated, federal union is required.

The EU's "big five" (the large members: UK, France, Germany, Italy and Spain) currently have two European Commissioners each, while others have just one.

Unless the way commission places are allotted is changed, then after the next wave of enlargement - possibly bringing in Poland, Hungary, Estonia, the Czech Republic, Solvenia., Cyprus and Malta - the total number of commissioners would be 27. This unwieldy structure would in turn get bigger as more countries joined the EU.

Proposals put forward as a solution include cutting to one the number of commissioners for each of the large states, with some smaller states sharing a commissioner between them.

As for the number of MEPs in the European Parliament, this is limited to a number that "shall not exceed 700". There are currently 626 MEPs. Expansion would boost that number, and so an across-the-board cull will eventually be required.

But no member, large or small, is keen to cede influence. And the timetable for expansion appears to have slipped, even as the prospect of EU membership for the Balkan states was being raised by politicians as a way of aiding stabilisation, security, democratisation and economic rehabilitation of the region.

Another prerequisite to expansion is the extension of qualified majority voting (QMV) in the European Council. The areas presently subject to QMV are limited, with key issues requiring agreement by all EU members.

This effective veto available to each state would, in an expanded EU, be a major obstacle to decision-making. But extending QMV is a highly sensitive domestic issue for most members.

The democratic deficit

The European Parliament is the only directly-elected part of the EU's "three pillar" structure. The other two pillars are the European Commission (appointed by member states), and the Council of Ministers (government ministers of member states). Yet the Parliament is the weakest.

But it has been progressively increasing its powers. The Amsterdam Treaty, which came into effect on 1 May, shifts more powers to MEPs. The Parliament now has greater powers of veto and can approve or reject members states' nomination for commission president and commissioners, and for the EU budget.

It can also amend more legislation, and the European Central Bank must regularly report to it.

The commission's mass resignation earlier this year, provoked by the prospect of imminent censure by the Parliament, served also as a symbolic flexing of muscle by MEPs.

While the Parliament has some way to go before achieving its aim of becoming at least the decision-making equal to the Council of Ministers, it is at least moving in that direction - to the discomfort of some EU governments, who would rather ministers retained maximum control.

The CAP doesn't fit

Just about everyone - with the possible exception of the farmers themselves - wants to reform the Common Agricultural Policy (CAP). But no one can agree precisely how it should be done.

The CAP effectively guarantees farmers prices for their food. Though noble in intention, having been originally devised to encourage food production in the post-war period, it has led to gross distortions in the economies of food production.

Consumers face unreasonably high prices for their food, money is wasted on food storage, "surplus" produce is dumped as cheap exports, or even destroyed, and environmentally damaging farming practices are encouraged.

There has been some reform of late. But it has generally been minor stuff, rather than the fundamental recasting of the policy that will have to take place before poorer, agriculturally dependent countries such as Poland and Hungary are allowed into the EU.

But the farming industry is a well-organised and powerful lobbying force. Each EU member does not want its own agricultural sector to lose out.

Budgetary reform

Who should foot the bill for Europe? With enlargement on the horizon, reform of EU funding is essential. But the issue is also one that provokes heated controversy about individual country nations' contributions and over corruption and disappearance of funds.

The UK enjoys a special rebate of £2.8bn a year. It was negotiated by Margaret Thatcher in 1984 - her famous "I want my money" demand - and was awarded to recompense a budgetary imbalance.

But now many European leaders, and the commission, have said this imbalance is no longer unique and the rebate distorts the whole system of contributions. Germany, the biggest net contributor to the EU, wants its own payments reduced.

At the Berlin summit last March, at which the last EU budget was hammered out, the talk was all of the need for big cuts in spending to pave the way for new members.

In the end, the budget was just modestly trimmed - to the great relief of members like Spain and Ireland, which have both greatly benefited from EU regional funding.

And German Chancellor Gerhard Schröder put off the confrontation he said he was ready to have with the UK over the rebate.

But he, and other leaders, are still determined to press the issue at a later date.

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