UPDATE: This post was originally published on 19/07/2012. It has been republished as the original was lost following a hacking attempt on this website. New security and daily backups are in place so with any luck this will no longer be a problem in the future. Reactions to the original piece have been lost.

This post was prompted by a little debate I had on Twitter with my fellow euro-bloggers Ronny Patz and Jon Worth. The question being: What is the most powerful EU institution?

In particular, I had criticized Der Spiegel for suggesting in a profile piece on European Commission President José Manuel Barroso that he “has been the head of the most powerful EU institution for eight years.” The statement, I felt, was deeply misleading. In my experience, both the European Council (representing national governments) and the European Central Bank are infinitely more powerful. It prompted these exchanges with Jon and Ronny:

@jonworth #euco and #ECB are infinitely more powerful, like several orders of magnitude, than the Commission. It’s pretty much a front.

— Craig James Willy (@CraigJWilly) July 18, 2012

@CraigJamesWilly I think it would be worth studying how much legislation&budgets proposed by COM are actually altered by other institutions — R P (@ronpatz) July 18, 2012

I’m writing partly out of frustration with one aspect of Brussels journalism: the dealing with press conferences and press releases of non-actors. For example, every day the Commission organizes a “Midday Briefing” press conference where spokespersons present the official news and journalists ask questions.

It’s not always clear what the point of this exercise is. If the journalist is doing his job well, he might ask about something his readers care about, for example, how the EU’s euro policy is causing recession and double-digit unemployment in his country. The spokesperson can only shrug his shoulders and half-heartedly defend policies that the European Council and the European Central Bank decided, not necessarily his institution, the Commission. It ends up being a rather inglorious exercise of polishing someone else’s turd. (For an introduction to turd-polishing please see here.)

So I hereby present you this post on who really runs the EU. In any EU civics course (and in the poli sci classes I took in Liverpool), you will be taught that EU politics is determined by the “institutional triangle” of the European Commission (executive), the European Council (representing member states, a sort of Senate) and the European Parliament (representing the people, the Lower House). But as always, there is a gap (sometimes a chasm) between how powers are divided on paper and how they exist in reality.

This is not unusual. The Haitians have a proverb for the phenomenon: “Constitution is paper, a bayonet is iron.” But it’s also true for less lawless places. You will not, for example, understand the U.S. government simply by reading the Constitution. Certain realities – the rise of permanent military intervention, of mass media and the federal government in general – mean that the modern President is much more important than what the Constitution suggests. (Indeed, most Presidents between the Founding Fathers and World War II are completely forgettable.)

Similar divergences exist between legal theory and political practice in the EU. IMHO, the pecking order is as following:

1. European Council (member states)
2. (Eurozone: Core states)
3. European Central Bank
4. (Eurozone: Peripheral states)
5. European Commission
6. European Parliament

Now, why?

European Council: National governments still top dogs

The first fact of European political life is the preeminence, though no longer supremacy, of national governments. “European law” is, as a rule, whatever the Prime Ministers and Presidents of the European Council say it is. This is certainly the case when they actually agree on something. Often this can be reduced to the Franco-German duo. So when Jacques Chirac and Gerhard Schröder decided the Stability & Growth Pact’s budget limits could be ignored, it was so. Equally, when Nicolas Sarkozy and Angela Merkel agree to waive the EU Treaties’ ban on bailouts of other states or decided there should be tougher limits on deficit spending, it was so.

If national leaders commit to something, this creates irresistible pressures to move forward, with very little possibility of pushback, especially on important dossiers. For obvious reasons, you will never see José Manuel Barroso or Martin Schulz (President of the Parliament) go on television to explain why they can’t accept a deal reached by 17 or 27 Prime Ministers and Presidents.

This is for the (fairly rare) cases when governments agree on something of substance. But the member states are also strong when they disagree. Specifically, a tiny minority representing 26% of votes can block legislation, even when Qualified Majority rules apply. In “sensitive” areas, which in fact make up the bulk of politics including taxes, the budget, defense, military affairs, a single country can undermine all of the Commission’s carefully-crafted plans. In foreign affairs, the Foreign Minister of Malta can veto any policy of the pompously-titled High Representative for Foreign Affairs and Security Policy Catherine Ashton.

Governments can also, if they wish, simply use (or threaten to use) the “nuclear option” by citing “national interest” and systematically veto everything as did Charles de Gaulle in the 1960s and Margaret Thatcher in the 1980s. The EU has no material power on the ground and nor can an anonymous Eurocrat really stand up to a democratically-elected national leader (though they try sometimes).

This is the still the fundamental reality of European politics, even if it is a decreasingly true one. More and more areas have come under QMV and, in 2014, the rules will change under the Lisbon Treaty so that a “qualified majority” only means having at least 55% of countries representing at least 65% of population. The power of minority states is also declining as “Enhanced Cooperation” is used more and more, a system whereby a “coalition of the willing” of states can create an EU policy on their own, even if others do not participate, most recently used to create a common European patent without Spain and Italy (who are protesting the fact their languages cannot serve as official languages).

The ECB: The incredible power of the printing press

I want to stress this point: The euro has changed everything. This is only a slight overstatement. In the crisis we have another example of real-life, in this case economics, overwhelming politico-legal niceties. As rule, there’s no reason for most people to notice the EU’s actions: its budget is 1% of GDP and its rules and regulations tend towards the lowest-common-denominator. Not so for the eurozone.

Here we have a fundamental attribute of national power, the currency, transferred to the European level, with massive implications for individual nations’ budgets and economies. These, incidentally, go to the core of what citizens care about: taxes, public spending (health, pensions…) and economic livelihood ((un)employment, growth).

Nowhere else is European integration’s impact felt so dramatically. Eurozone politics and broader EU politics, then, exist on two completely different levels of power. Over the course of the crisis, we have learned what most U.S. economists (and some European ones) were pointing out: that the Maastricht Treaty rules don’t make sense and the euro won’t work.

Now we face fundamental questions on how to “fix” the eurozone: Should it be split up? Should rich states finance poor states? How do we protect states from financial speculation? (The U.S., UK and Japan use their central banks to do so.) In monetary policy, what is the correct balance between fighting inflation and stimulating growth and jobs? And so forth.

On these questions national Prime Ministers and Presidents – and sometimes the “Merkozy” duo alone – have been overwhelmingly the dominant actors. Residents of the Brussels Bubble are almost irrelevant, the Commission and Parliament having been completely sidelined.

And then of course, there is the incredible power of the European Central Bank (which my otherwise-excellent EU poli sci course barely discussed). This very strange institution is very much unlike other central banks in that it is apatride, countryless, and that is subject to Bundesbank-style rules.

The Bank sets the general interest rates that set the tempo of economic activity, it determines the exchange rate value of the currency (thus the competitiveness of exports, price of imports), and can lend unlimited amounts of money to private banks and (indirectly) to national governments.

These powers have become staggeringly important in the eurozone crisis. In December 2011 and February 2012, the ECB sought to prevent outright collapse of the European economy through the so-called “Long Term Refinancing Operation” (LTRO) which provided over €1 trillion [sic] in low-interest loans to hundreds of eurozone banks.

This is a lot of money by anyone’s standards, but to put this in EU perspective, €1 trillion is about the same amount of money as the entire 2014-2020 EU budget. This budget is the subject and fruit of constant, continual negotiation between the Commission, Parliament and, especially, the 27 national governments. In financial terms, the ECB is more powerful than all these Brussels Bubble actors put together. In fact it is much more so, because its actions are done without any open debate or accountability.

This power also extends into national politics. The ECB can indirectly finance governments by buying their bonds on the secondary markets (it has bought €200 billion in government bonds, mostly Spanish and Italian)… or it can let them go bankrupt. The Bank can and does use this power to blackmail (“pressure”) governments. This is not something often commented upon in Europe – it’s not clear to me why, except (perhaps) that the countries concerned are typically ones whose citizens are used to being peripheral or even imperial subjects.

But it often shocks Anglo-American commentators. The U.S. Federal Reserve and the Bank of England regularly buy their country’s public debt. It’s the main reason why the financial markets are willing to lend to them at lower rates than in the eurozone, despite the fact that they have more public debt. The Maastricht Treaty bans the ECB from acting in the same way (Germany was and is afraid of being liable for others’ debt). But an American cannot conceive, for example, of the Federal Reserve beginning to dictate to President Barack Obama or the Congress on what economic policy they should follow. The ECB regularly does this with European leaders.

For example, Silvio Berlusconi – not a very agreeable man but nonetheless the democratically-elected Prime Minister of Italy – was effectively toppled by the ECB. In August 2011, Frankfurt sent what The Economist called a “diktat” to Rome with “a blueprint for privatization and economic liberalization, urging cuts in government spending so that the budget could be balanced in 2013, a year earlier than planned.” Italy, by the way, had a primary budget surplus (it makes more than it spends if you exclude the interest on existing debt) and its debt had been decreasing, but Chancellor Angela Merkel decided this was insufficient and pressured the Italian President to topple Berlusconi. She and ECB President Draghi eventually succeeded and imposed one of their own, former Eurocrat and Goldman Sachs-advisor Mario Monti, as Prime Minister. This kind of power is shocking to American Liberals. As Matt Yglesias put it: “This is contrary to democratic values, plainly incompatible with sound monetary practice, and a terrible way to encourage sound structural reforms to boot.”

This stunning, revolutionary violation of national sovereignty and democracy is increasingly the norm in eurozone politics. It goes both ways: peripheral countries see their democracies trampled upon by Eurocrats while citizens in the core countries such as Germany have no democratic control over how the ECB lends to the periphery.

The eurozone is also represents a dramatic decline in national power in general. The core countries, especially the German government, increasingly dominate politics in the periphery, prescribing specific policies (or even governments), with German MPs in the Bundestag sometimes examining national budgets before national MPs do (the same thing happened to Ireland again with bailout plans). The Commission has also been strengthened through various legislative acts – the “Six Pack,” the “Two-Pack,” etc – which give it power to withdraw EU funds from countries with excessive deficits.

However, taken on the whole, the crisis has made the incredible power of the ECB far, far more apparent than any other institution. It’s just several orders of magnitude greater than that of the Commission or Parliament.

This poses massive problems. I won’t get into the details of how and why the ECB is “independent,” “apolitical,” and “technocratic”. It has partly to do with a French desire to force monetary union before Europe was ready and a German desire to make the ECB a copy of the Bundesbank. Suffice to say that it wields its power without any transparency or democratic checks. As the ECB’s website notes the “accountability” of the institution is limited to the ECB’s issuing reports on its activities (at least 4 times a year), board members giving speeches, and their appearing before the European Parliament. There are no democratic-legal means for individual citizens or elected politicians of influencing its policy or of holding its officials to account for their actions.

The Commission: Finding the lowest-common-denominator

All this eurozone business – the brutal way in which power is wielded – is fairly recent, really only fully manifest since 2008, although there were forewarnings. Our vocabulary and assumptions about EU affairs are still largely dominated by the pre-euro era, in which member states’ diplomats, the Parliament and the Council quietly work in the Brussels Bubble.

Typical EU work is nowhere near as undemocratic, coercive or indeed important as in the eurozone. And, as a consequence, the Commission and Parliament have a much stronger role.

The Commission does initiate legislation and its job is to find a text – really any text - in a given policy area which is acceptable to everyone. In practice, the culture of consensus is extremely strong. A report by VoteWatch found that in the Council member states voted unanimously in 65% of votes where QMV was allowed.

Every country has its own quirks, priorities, prejudices, redlines, particular government, etc. The result is the texts tend to be very, very weak. As the Financial Times (actually a Europhile newspaper) put it:

A fierce commitment to negotiate international deals, no matter the technical complexities or political sensitivities, is characteristic of the EU. Unfortunately, so is the fact that the resulting agreements tend to be full of legal loopholes and vague commitments – that are then easily picked apart and reneged upon, once national governments leave the conference chamber and return home.

The reasons for this were aptly described by Honor Mahony, editor of EUobserver: “This is partly due to having 27 people sitting around the table and partly due to a tacit agreement nobody should ruffle anybody else’s feathers.”

The Commission, then, has to come up with legislative proposals that anticipate the responses of the member states and are written in such a way as to be acceptable to everyone. This often means the texts are vague, empty or meaningless. For those of us who have to follow these texts daily (as I did for a while), it’s an endless story of back and forth between institutions, with the phrase “watered down” being used a lot. If the Commission tries to do something dramatic it will be shot down, such as on financial taxation (Britain), agricultural reform (France) or Eurobonds (Germany).

Also, the power of EU legislation in general tends to be quite weak because member states have leeway in how to implement. Violators have to be brought before the European Court of Justice – which takes forever – and they often face a fine or some other sanction they can ignore.

It should be said that the Commission’s room for maneuver is increasing: more and more it can target “coalitions of the willing” of member states through QMV and Enhanced Cooperation. The Commission also has some executive powers over how to define EU laws (so-called “delegated acts”) and how to apply them. And it can pressure member states a little through the Parliament. Which brings us to…

The Parliament: We exist too

Did I mention Parliament? It is to my knowledge the only “legislature” in the world that cannot initiate legislation. MEPs can propose amendments and, as legally co-equal decision-makers with the Council, can veto legislation. But its real influence often seems nebulous.

The Parliament has flexed its muscles on numerous occasions. It has blocked Commission nominees (notably Rocco Buttiglione for hostility to gay rights and Rumiana Jeleva for perceived incompetence). It has voted down the “SWIFT agreement” to share banking data with the U.S. and the ACTA online piracy treaty. In some ways, in regular EU affairs, the Parliament is asserting itself as a real force to be reckoned with in the same way as the U.S. Congress.

In other ways, however, it’s hard to escape the conclusion that Parliament’s action is marginal. It later accepted SWIFT with minor changes and ACTA was only voted down after it was already declared dead in several member states. The Parliament has no consistent “will” or majority pushing for a particular agenda, except generally nudging things towards more integration, more power for itself, and backing the popular cause of the day (which is often good thing). But the Parliament often serves merely as a platform for politicians to grandstand and pass unremarked resolutions. Some have even become YouTube stars by endlessly trolling the EU – notably Daniel Hannan with his purple harangues in the empty Parliament chamber and Nigel Farage with his regular insulting of EU officials.

It is in fact typical that the more famous and influential an MEP is, the less time he or she spends working for the European Parliament. In the case of France this is flagrant with national stars across the political spectrum have the worst attendance records (including Jean-Luc Mélenchon, Marine Le Pen, Rachida Dati, Eva Joly and Daniel Cohn-Bendit…).

This isn’t to denigrate the Parliament. By all right it should be the most powerful institution with the Council. European democracy does not really exist today. If it is to exist (assuming democracy is possible in a multinational union), the Parliament (and the elections on which it is based) will have to have the same impact on the Commission and the EU in general as do national parliaments and elections. We are a very longs way from that.