Thursday, 16 September 2010

Lisbon prospects

Decision making in the European Union has always been an interesting if not controversial topic. The top decision making body, the Council of Ministers consists of a single representative of each member state. When voting, the fact that member states are rather heterogeneous in size is taken into account by using weighted voting with a qualified majority. The Treaty of Lisbon, ratified late 2009 has introduced new voting rules effective from 2014. What are the effects of the reform? This is the topic of my most recent working paper.

In the early days of the EU it was rather easy to make decisions. The six original members formed a rather heterogeneous group and there was usually a unanimous agreement among them. Would it have mattered if some members had disagreed? This is what voting power is about: the ability to change decisions. The question is not whether you were lucky to have the decision you wanted, but whether your vote mattered. Ultimately it is all about money: if it did, lobbyists will be grateful.

It turns out that the different members had different power, which seems to be fine given the differences in size. What is less fine is the fact that Luxembourg had no power: Luxembourg gave up part of its sovereignty in exchange for... the benevolence of others. While those times were over soon (Luxembourg is not even the smallest member now), other problems arouse. Netherlands and Belgium have been treated as equals until recently: this has been appropriate at the start, but today the first has over 16 million inhabitants versus Belgium's 10. Populations do change and somehow that must be included in the model (more prominently).
This and the numerous extensions required regular updates of the voting weights. Seemingly a trivial process, the member states made it complicated by introducing vetoes for certain groups of countries. The weights have been assigned so that the large members cannot exploit the small, the old cannot exploit the new, the Northern countries the Southern ones, etc. etc. Now practically no-one can make a decision. Indeed out of 50 coalitions only 1 has the qualified majority - compare this with the ratio 1:2 in simple majority.

The Lisbon Treaty abolished the controversial voting weights and introduced new rules based on population data. Populations, as we know, change. While the Netherlands is not expected to grow much further, Ireland will be about 48% more populous in 50 years according to the Eurostat estimates. This may be a lot, but it is much more, when we see this in an EU with an overall shrinking population. Bulgaria, at the other extreme will lose as much as a quarter of its population and many other Central and Eastern European countries are on a similar path including Germany, for instance. When evaluating the Lisbon treaty, there are, therefore two effect: one, due to the new "weights" under the reform and one due to the different demographic trends. When voting and ratifying should take (or have taken) this into account.

It turns out, that most of them did not. Looking at a combined effect by 2060 we find that the clear winners are the largest member states (note, the negotiations took place during the German presidency!), and interestingly the smallest ones, too (the new rules require more countries to support a motion). The biggest losses are suffered by medium-sized countries with declining populations: Bulgaria, Lithuania, Czech Republic, Hungary.
I summarise the changes in the cartogram below. Here the area of each member state has been multiplied by the relative change of the country's Shapley-Shubik index. Countries that are "fat" and deep green are the biggest winners, while "thinner" deep red countries will lose most.
The good news is that under the new voting mechanism 1 out of 8 coalitions is winning, making the EU decision making about 6 times quicker and hopefully less bureaucratic.

László Á. Kóczy, 2010. "Prospects after the voting reform of the Lisbon Treaty," Working Paper Series 1012, Óbuda University, Keleti Faculty of Economics.

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