Economics / Federalism / Politics

A federalist’s point of view on the results of the European Council

J.M. Barroso, President of the European Commission and H. Van Rompuy, President of the European Council, at the EP plenary session in Strasbourg, during the debate on the outcome of the European Council (Flickr)

On the 28th and 29th June a summit of the European Heads of States and governments, was held in Brussels. Against the expectations, important decisions were made – they will be summarized below. The subject of this article will be limited to economics, the key issue of the summit. It will also not discuss the European Patent Convention (which could stimulate innovation within the EU) as the Commission and the European Parliament have already announced their disaccord on the conclusions made by the European Council on this.

At the same time as the summit, the federalist MEPs within the Spinelli Group (named after Altiero Spinelli (1907-1986) a devoted advocate of a federated Europe and author of the 1941 “Manifesto for a Free and United Europe”) met at the Shadow European Council in which they adopted a 12 Point roadmap which will be presented in this article.

We will thus be able to see how to judge the outcome of the European Council summit from a federalist point of view. 

The main decisions of the European Council

The President of the institution, Herman Van Rompuy, presented the outlines of the report “Towards a genuine Economic and Monetary Union” (EMU) he is writing with José Manuel Barroso, Jean-Claude Juncker and Mario Draghi, respectively President of the European Commission, Eurogroup and ECB. An interim report will be presented at the next meeting, in October, and the final report will be discussed in December. The EP and the Member States will be involved in the thinking that must lead to a timetable and concrete proposals in view of a full realization of the EMU.

The first draft of the rapport indicates a plan based on four pillars:

1) An Integrated Financial Framework (which includes, in particular, a European bank supervisor and a collective guarantee on deposits)

2) An Integrated Budgetary Framework (i.e. a better co-ordination of national budgetary policies and measures to guarantee more respect for the rules with an aim to working towards a budgetary solidarity and the reduction of common debt).

3) An integrated Economic Policy Framework (which will put into place national and European policies in favour of sustainable development, employment and competitiveness).

4) A “need to ensure democratic legitimacy and accountability” of decision-making within the EMU (for example, in reinforcing inter-parliamentary cooperation at the national level and closely involving the European Parliament).

Furthermore, the European Council also supported the economic recommendations addressed by the Council and the Commission to the Member States at the end of May (for France, you can find our articlehere; for other countries, more articles will follow).

What is more, in-depth discussions were held with the EP President on the topic of the multi-annual financial framework, in order to reach an agreement by the end of the year.

Finally, the European Council adopted a “Compact for Growth and Jobs”.

Many actions will have to be taken at the level of the Member States, in particular by implementing the recommendations on economic policy made in the frame of the European Semester:

– pursue fiscal consolidation without destroying growth potentials.

– restore a viable level of lending to the real economy, coupled with a restructuring of the banking sector in some countries.

– implement structural reforms (green economy, liberalisations, reduction of the administrative burdens, etc.)

– modernise public administration.

– adopt reforms favouring job creations and better use the European Social Fund (particularly for the young people, by improving their skills and offering them several opportunities if they do not find immediately a job: internships, traineeships, continued education…).

European policies also should contribute to create growth and jobs.

First, the common market should be deepened, by removing unjustified barriers, in particular in the services, by facilitating the settlement of cross-border commercial disputes or by improving access to public procurement and the mutual recognition of professional qualifications in another Member State.

Innovation also should be stimulated at European scale, by increasing the support to creative SMEs and start-ups.

The development of infrastructures should enable to realize a common market in sectors such as energy and telecommunications.

The regulatory burden should be reduced both at European and national level.

120 billions Euros will be spent to stimulate growth: the lending capacity of the European Investment Bank (EIB) will be increased by 60 billions, thanks to an increase of its capital of 10 billions euros; a pilot phase of project bonds will be implemented, enabling to add another 4.5 billions; and the remaining 55 billions will come from unused money of European funds that will be redeployed to support SMEs, R&D and youth employment.

The European budget is also an instrument to stimulate the economy.

Regarding tax policy, there will be no tax on financial transactions at EU level, as some countries still oppose it (NB: It could be implemented within the euro area). But a stronger fiscal convergence and the fight against tax fraud and evasion have been discussed.

The stimulation of labour mobility within the internal market should also help to reduce unemployment. To reach this aim, the European Council suggests to further develop the online portal EURES and to suppress hurdles to get a job in another Member State.

The European leaders also indicated support to free, fair and open trade, while at the same time insisting on reciprocity, e.g. on access of European businesses to public procurement markets in third countries. Free-trade agreements with several countries are being negotiated.

Finally, regarding financial stability, it will be dealt with in the Van Rompuy report.

A summit of the euro area was also taking place on the 29th of June, during the European Council. Members decided that a single bank supervision mechanism would be associated to the ECB and that, once operational, the ESM could recapitalize directly the banks, under some conditions, to break the vicious circle between bank’s troubles and public finances. This vicious circle works like that: the bank ask the State to help them. He does it. Public deficits get bigger, so the rating agencies lower the credit rating of the State. The consequence is that national debt titles (which the bank owns, often because the State insisted on it) are worth less, which brings the bank again in trouble, it needs another help, etc.

The rescue plan for Spain also received support by the leaders. Once the memorandum adopted, the EFSF will provide the money until the ESM becomes operational.

Finally, Member States that implement the required reforms and respect the deadlines for it could be “rewarded” with the acquisition of some of their debt by the EFSF and then the ESM, in order to lower the yields on their bonds.

The twelve points of the Spinelli Group

The first set of measures deals with the banking union. Federalist MEPs call for the establishment of a European wide deposit guarantee scheme and resolution fund for troubled banks, as well as a European fund to directly recapitalise European banks.

Furthermore, they call for the creation of a “single supervisor in the euro area for banks carrying a systemic risk”. Tougher rules should be enforced on banks that benefited from public aid, lending to the SMEs should be encouraged and condemnable practices (such as too high pay and bonuses, golden parachutes, but also fiscal evasion) should be eliminated.

The second set is about the economic and fiscal union. The Spinelli Group calls for a “new strategy for economic and social convergence and sustainable growth”, with binding targets and sanctions for Member States of the euro area.

It supports the stimulation of growth by the “compact for growth and jobs”, while wishing a wider use of project bonds in order to finance investments in the sectors of energy, transport and telecommunications of at least 1% of GDP during the next decade.

Regarding the mutualisation of the debt, it endorses the idea of some German economists, to pool the part of national debt that is above 60% of GDP. It would be repaid over the next 20-25 years by common debt issuance. Besides, the Spinelli Group wishes a roadmap towards the introduction of Eurobonds.

The federalists MEPs also wish an important European budget, with own resources, without leading to a heavier tax burden on the citizen, nor to a reduction of national contributions.

Finally, they demand a fiscal harmonisation, with the introduction of minimum corporate tax rates and a mandatory common consolidated corporate tax base, in order to avoid fiscal competition within the EU.

The third set of measures is about the political union.

Noting that the absence of a European government is an important hurdle to tackle the crisis and that intergovernmental decision-making lacks democratic legitimacy (because of the lack of implication of the EP and national Parliaments), the Spinelli Group suggests to set up a government of the euro area, entrusted to the Commission and responsible for developing and supervising economic and fiscal policies. To strengthen the legitimacy of the next Commission’s President, the candidate of the European political families would be an MEP, in conformity with the model of the parliamentary democracy. It should be the case also for at least half the members of the Commission.

Last, but not least, to develop a European democracy, the federalists MEPs advocate the introduction of trans-European lists for the election of a fraction of MEPs, as well as the development of a European public space, with transnational media, more exchanges between the citizens and the European Citizen Initiative (ECI).

Finally, the last point of the conclusions of this shadow European Council deals with the Greek difficulties and suggests to modify the memorandum as follows: lengthen the time limits to implement reforms, redefine the goals in order to favour structural reforms rather than social cuts, provide support for the Greek real economy, ask foreign banks to provide information about accounts held by Greek clients (to fight fiscal evasion) and set up an independent European audit commission to understand precisely what went wrong in Greece and led to such a bad situation.

The federalist point of view: the glass is half full

We shall hail the fact that European leaders are aware of the fact that action needs to be taken both at national and European level.

Furthermore, in view of the major short-term problems, in particular the risk of contagion from one country to another, it was important to make immediate decisions, especially to the benefit of States experiencing troubles that are doing a lot of efforts, and also to break the vicious circle between bank’s troubles and growing public deficits. The decision to create a banking union also goes in the right direction, if going with all necessary guarantees (it is a good sign that the new supervisor will be associated with the ECB).

Combining sustainable growth and sound public finances – which could be done with European public expenses while Member States are tightening their belts, a way the European leaders seem willing to take – is very laudable, as well as wishing to stimulate innovation and research, to sweeten the social consequences of the crisis, to modernise public services, to enforce domestic structural reforms or to deepen the internal market.

However, I deeply regret the absence of a precise vision for political integration – François Hollande said that the political union was, at the time, without any content -, contemplated to be progressively implemented in the next decade. Of course, a political union cannot be decided within 24 hours and, of course, the European Council is competent only to provide the outlines, leaving the details to the other institutions, but it is a pity that the conclusions of the European Council did not further mention this most important topic.

The idea of an important European budget with own resources is not mentioned either, though it would be a very interesting tool to stimulate growth in Europe and ensure an increased cohesion and solidarity, while allowing the Member States to put order in their public finances.

Finally, the question of fiscal harmonisation was barely put on the table, despite being too a corner stone of a deepened economic and political union

What we can retain of this European Council is that, though major progress have been made to tackle short-term problems, there remains a lack of impetus for a deeper European integration, necessary to build robust foundations allowing to guarantee responsibility and solidarity at the same time.

Pierre Antoine-Klethi

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