Tunisia in turmoil: how should the EU react? CEPS Commentary, 4 March 2013

The assassination of the opposition leader in Tunisia exposed the underlying divisions between members of the ruling classes, between those in and outside of government, between religious groupings and secularists, and between the coastal areas and the hinterland of Tunisia. Since the revolution, tackling social inclusion has become a pressing problem: men versus women, young versus old, opponents versus supporters of the old regime and political forces inside Tunisia versus those in exile. The National Constituent Assembly (NCA)’s inability to address these fault lines and approve the second draft of the constitution has hampered the transition of the country towards the next elections, while all of the above have undermined trust in the political process. Although Tunisians are primarily responsible for the political processes in their country, argue authors Hrant Kostanyan and Elitsa Garnizova, the EU should step up its efforts to deliver on its commitments in the areas of money, market and mobility.

Money for structural reforms in the eurozone: making sense of contractual arrangements. Egmont Paper 57, May 2013

Executive Summary. Both the Commission’s proposal for a ‘Competitiveness and Convergence Instrument’ and the ‘contractual arrangement’ presented by President Van Rompuy share a common concept: associating EU money with national structural reforms under a binding arrangement. The targeted ‘structural reforms’ are the labour market reforms and product and services market reforms in eurozone ‘peripheral’ countries facing the most severe external imbalances. Their implementation would speed up and facilitate the ‘internal devaluation’ process of these countries. In the worst case scenario, failure to adopt the necessary reforms and to adjust wages and prices downwards may lead the most vulnerable countries to leave the eurozone under social and political pressure. Contracts seek to reduce this risk by increasing compliance with the country-specific recommendations for structural reforms issued by the EU institutions within the European Semester, and in particular with the Macroeconomic Imbalance Procedure (MIP). As for the financial support, it follows two different, albeit overlapping rationales. First, the perspective of obtaining EU funding would incentivize the governments of vulnerable countries to adopt reforms that would bear a high political and social cost in the short term. That is, without some form of incentive, it is unlikely that the necessary reforms would be undertaken and this could have significant negative consequences for the EMU as a whole. The second rationale amounts to outright solidarity: EU support is needed to cushion the inevitable socio-economic costs implied not only by the structural reform, but also by the internal devaluation taking place. To make sense of contractual arrangements, some points should be considered in future discussions: 1. Contracts on a voluntary basis only: Contracts cannot be mandatory unlike initially suggested in the Van Rompuy report. This stems not only from the inherent definition of a ‘contract’ – where mutual consent is key – but also from the non-binding nature of the preventive arm of the MIP. Making the country-specific recommendations issued by the EU institutions systematically binding would imply transfers of sovereignty from the national to the EU level that go well beyond the present discussion. Instead, contracts would introduce the possibility of making the preventive arm binding for some countries where corrections are most needed and urgent for the EMU as a whole.