24^th Session of the Congress of Local and Regional Authorities of the Council of Europe (Strasbourg, 19-21 March 2013)

Round table on: “Regionalisation and devolution in Europe in a context of economic crisis” – 20 March 2013

Statement by Ulrike Guérot, Director of the Bureau in Berlin of the European Council on Foreign relations, Germany

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Regionalization and Devolution in Europe in the Context of the Economic Crisis

Regionalization and ambitions for regional autonomy are nothing new in Europe. In the past decade, some of those have had sometimes even militant and separatist backgrounds (Basque, ETA or Corse; or a specific religious background such as in Ireland).

Depending on the country, regional importance is more or less accentuated in the national administration. Large(r) EU member states with a more federal structure – Germany, Italy, Spain, Poland (Vojwodas) – have strong regional features; but some smaller EU member states also have strong regional importance, e.g. Belgium. The most important exception is France, which has a rather centralized administrative structure. This does not grant much autonomy or power to the regions, even though France is historically also structured and composed of regional divisions. In general one can say that – looking at medieval maps – Europe has been a Europe of the Regions before it became a Europe of nation states. Nation state building was essentially a process of the 19^th century and many times it came with violence in the form of war or revolution. Nation states are, in this respect, arte facts of history rather than “naturally composed” political entities, and some regions, especially border regions have often been shifted from one nation state to another by historical developments (Elsass-Lothringen, Eupen-Malmedy, Saarland, Silesia……to name but a few).

With the general diffusion of global power – and state power/ state sovereignty – the importance of regions is growing again and this process is accelerated by the economic crisis. Some regions, especially in the European periphery (but not only, e.g. Mecklenburg Vorpommern in Germany!) are economically and socially suffering more than others; this is true for all regions which are confronted with a sharp decline in population and thus the dismantling of infrastructure. Above all, the economic crisis has produced feelings of fear, anxiety, social unrest and stress, which is why people rediscover values such as regional identity, nearness, and emotional attachment to where they come from.

One of the leading underlying motives of recent regionalisms is the aim of wealthier regions to stop transfer payments to the less wealthy parts to the country/state they belong to. This is particularly true for current regional upraise in Bavaria (Germany), Scotland (UK - which, in difference to the rest of the UK, is also more pro-European), Catalonia (Spain), Flanders (Belgium), South-Tirol or North-Italy. All these regions are net contributors in the national fiscal harmonization regimes of their respective countries:

Some figures her may illustrate this:

-          Catalonia transfers each year between 12 and 16 Bio to the rest of the country, which corresponds to some 6 to 8% of the Catalonian GDP; this on the basis of 165 of Spanish population living in Catalonia, but which are producing 20% of Spanish GDP. Problems arise now as Catalonia is, on its own, highly indebted and has accumulated deficits, with raising unemployment for which it now has to spend some 22% of its budget.^[1]

-          Bavaria, in comparison, transfers only some 0.9% of its GDP to the “central” state of Germany; but still has opted, together with Hessen, to open a legal case in Karlsruhe, the Constitutional Court, against thee payments. One of the central argument her is that other “Länder” in Germany have higher social standards (e.g. Kindergarden are for free), so indirectly Hessen would pay for the welfare of its German neighbour regions. The Constitutional Court is this challenged to rule about the need for social cohesion and harmonization in Germany, which would, however, contradict legislative authority on the level of the “Länder”, the German regions.^[2]

-          Scotland is about to have a referendum on independency in 2014^[3], which is posing serious trouble to the UK, especially in the new context of the British referendum scheduled for 2017 on continuing EU membership. This referendum has been decided in 2011, after regional leader Alex Salmond (SNP) has won the majority in the regional elections. The Scottish government’s annual analysis of spending and revenues show that Scotland has a smaller deficit propositionally than the rest of the UK in 2010-2011 (one of the core arguments in the independency campaign!), but only if its full geographical share of North Sea oil revenues, worth nearly 8,8 Bio Pounds, are included.^[4] The legal situation of Scotland in case of independency remains completely unclear. The EU has no legal clause for such a case. Scotland is voicing interest to enter the EU on its own rights as an independent state, but all other EU members would need to agree and the legal/ constitutional basis would still need to be found.

-          Flanders is a similar case, since the NV-A Party became strongest political force in the local elections of Antwerp, the second biggest town of Belgium. Political ambitions go for not more than a “lose confederation”;^[5] the Belgium state has been for ten month without a government for major regional distortions, and with this, Belgium is certainly one of the most telling case for regional empowerment in the current political situation.

-          Similar stories could be told especially for North Italy (Lega North) and South Tirol, but to spare time, let’s address the more fundamental problems.^[6]

The political economy of Europe is caught between several conflicting trends:

-          There is an increasing rural/ urban divide, with dynamic towns and agglomerations and ever more deserted rural landscapes. This is e.g. true for the Eastern part of Germany, with the exception of some “Islands of Prosperity”(e.g. region of Jena and its optical industry….); or France, which is particularly hit by rural and depopulated regions;

-          There is a general divide between centre and periphery (mainly North-South divide, but empty Northern regions are similarly affected) with respect to the wealth distribution within the EU.

In short and to overstate the argument: the wealth distribution within the EU and its regions is uneven, although the industrial value chain is European. Or, in other words: production is trans-national, social distribution is not. The latter is due to obvious reasons of state (and budgetary) solidarity and constitutional barriers to fiscal transfers beyond national borders.

In addition, the system for bargaining cohesion of social distribution – and thus – social cohesion among member states – is based in the European Union on the bargaining power of nation states: it is done through the negotiations of the EU budget, where the national states are the players and defining the matrix for redistributions (regional funds, structural funds, cohesions funds etc.)

We have just seen in the last budget negotiations that this system is perhaps not the most appropriate system, especially if money from cohesion funds is – like in the cases of Poland or Slovenia - linked to growth figures in order to provide an incentive scheme, which means as a result that regions which grow get more money than regions with weaker growth figures: e.g. Greece gets less money because of negative growth even though it would need it more.

To cut a long story short: the political economy of the Eurozone, but also Europe as a whole is organised in a suboptimal way, and this has to do with the institutional setup of the EU and the fact that regional wealth distribution is decided through a national bargaining matrix, which is stuck in the old-fashioned understanding of national sovereignty. In other words: wealth is generated trans-national, but social distribution stops at national borders.  In an ideal world, the redistribution – especially within the Eurozone, which is thinking about a new fiscal capacity – should be based on transfers from growth regions to non-growth regions. This could e.g. be done through a European Unemployment Assurance – an idea currently promoted especially by the French government. The European Commission has also already launched a working group on this in the meantime. This would be a citizen assurance based on a redistribution system for social cohesion in Europe, rather than a transfer system based on national negotiations. Such a system would also recognize and acknowledge that the rural/ urban divide as much as the centre/ periphery divide as geographical conditions matter much for a regions’ capacity to grow – and some can do less so than others.

Such thinking would, nevertheless, have two prerequisites: Firstly, a common understanding among European citizens that Euroland is already one aggregated economy and should be thought and structured and administered as such, instead of playing one national economy against the other, e.g. by export competition or social dumping (“beggar-the-neighbour”-policy). For this, common economic and social rules e.g. for tax basis or bottom standards for social rights, minimum wages etc. should be dealt with on a pan-European level. Europe needs a sort of new European social contract and Euroland needs ultimately the same compulsory regulations, rules and principles for everybody within the single market. This does not mean that regions should not compete against each other for attraction and economic performance, but only based on the same set of rules for market-state-relations, following the German ordo-liberal principle: “As much market as possible, as much state as necessary”: e.g. tax-race to the bottom (e.g. for corporate tax) is not an option and distorting the legal entity of the single market. The same applies for labour-capital relations and their regulation within the single market, which need to follow a scheme of legal coherence, which allows (regional) competition, but no distortion. Social cohesion is a stipulation the Maastricht Treaty calls for. Needless to say, however, that the current mind-set of European citizens if far away from such thinking and from perceiving Euroland as one aggregated economy; at the opposite: regional, populist and even chauvinist tones are increasing in the public discourse all over Europe (“True Fins” etc.)

Secondly, and this is very important: as much as regional power and self-determination in the institutional system of the EU should in perspective be strengthened in both respects, economically and intuitionally (e.g. by reconsidering the regional participation in the future parliamentarian set-up of the EU), the goal CANNOT and should not be to promote any kind of separatism or autonomy of wealthier regions whose only goal is to “free” themselves from poorer neighbour regions. It is also illusionary of some of these regions (e.g. Bavaria) to think that they could survive as sort of “Island of the happy and wealthy” in the midst of starving regions around them, pressured by social unrest – unless the EU is ready to close borders again (including regional borders) to prevent people from moving. Already, we see an interesting dynamic of South-North immigration with e.g. young Spaniard leaving for Southern Germany in the search of work. Language is obviously a barrier, but Europe must enhance its transnational labour mobility across borders and regional cooperation is of utmost importance here.

Thus, promoting European cohesion is a Must as long as we live – under the stipulations of the Maastricht Treaty - in one constitutional setting with the compulsory search for social cohesion within Europe as one of the European values, one single market, one currency and basically one integrated economy based on one industrial value chain. The question for regions is, thus, not how to break out of European solidarity, but whether in the future this European solidarity is organized through the nation state or not in the EU’s institutional system.

Obviously, ideas like this touch upon the very basis of the current institutional, parliamentarian and democratic set-up of the EU – which ought to be reconsidered, in the medium-term, in the sense of shaping a full-fletched post-national democracy in Europe, in which the political space for the regions could be enlarged; hence, not at the price of sneaking out of pan-European solidarity.

***

And now I would like to take my last 30 seconds of presentation time to draw your attention to an art project of my friend, Valeska Peschke, who is present here in the meeting, and who developed a project of modern happening art – a pneumatic Embassy sofa - which brings the European regions and their citizens in closer contact with the EU and with the aims and visions for Europe. Valeska has brought flyers of her project and I would like to invite you to take one of those and to consider inviting Valeska to your region with her project. It is a perfect project to rethink the role of the regions in Europe!