In its current state, the eurozone is not only vulnerable to economic crises and populist slogans from the left and right. It also lacks democratic legitimation, argues Joachim Poß.
Joachim Poß is a Socialist member of the German Bundestag.
While the debate over the future of the eurozone hit a peak during the crisis years, it lost attraction in subsequent years. Now with the release of the Five Presidents Report, which is the single biggest contribution by the EU institutions in recent years, it figures prominently on the agenda again.
In the report, the presidents of the European Commission, the European Parliament, the European Council, the Eurogroup and the European Central Bank present a strategic timeframe for the years ahead. For now, lost trust has to be regained within the framework of the Lisbon Treaty. Building on this success, steps can be taken towards a deepened Economic and Monetary Union.
In order to regain the people’s trust, three points should be prioritised (alongside migration policies): a closer coordination of budgetary and fiscal policies, the effective tackling of tax dumping and the implementation of the Juncker Plan for more real investment.
Closer Coordination of Budgetary and Fiscal Policies
In order to bring about closer coordination, the report proposes a fiscal advisory committee. It would work towards national budgetary policies in member states accommodating asymmetrical business cycles. In contrast to the current approach in which all member states are supposed to pursue balanced budgets at all times, this would stimulate growth across the eurozone by absorbing macroeconomic shocks. Yet, this kind of policy needs ownership by national governments and parliaments. That is why the European Semester has to be intensified at the same time. The already initiated presentation of country-specific recommendations by the Commission to national parliaments is a first step in the right direction.
End Tax Dumping
The credibility of European integration also depends on how successful we are in bringing an end to competition over tax dumping between member states. The Benelux countries in particular have to deliver. We must uphold the principle that profits must be taxed where they are generated. A harmonisation of corporate income taxes could be an important milestone.
In addition, an agreement on a European financial transaction tax would have symbolic importance, alongside its fiscal contribution. It would be a decisive step towards holding those people who essentially caused the crisis accountable for its costs. The revenues could form the basis of a future fiscal capacity for the eurozone.
Today, the single most important task for Europe is to get the economies of crisis-ridden countries back on track. Alongside reforms in member states and on the European level, the investment programme which has been set up by the Juncker Commission is central. Mediterranean countries suffer heavily from a chronic lack of investment. The European Fund for Strategic Investments (EFSI) supports public and private investment where it is jeopardised by credit crunches, enormous economic uncertainty and austerity. It is important for member states to engage so that a sufficient number of projects will be facilitated.
Trust before Reforms
There is a good chance that we will be able to boost public approval for steps towards deeper integration if we make visible progress in the mentioned areas. In this regard, it is important to broaden the political debate. There is a looming split between two parties. On the one hand, there are those who aim to mutualise tasks on the European level, aiming to create a more stable, more just and more democratic union. In this vein, the ministers for economic affairs of France and Germany, Sigmar Gabriel and Emmanuel Macron, published a joint article promoting a further deepening of the eurozone and additional competencies on the European level, which ultimately lead to an economic and social union.
On the other hand, there are those who follow the principle ‘everyone should put their own house in order’. The German Council of Economic Experts, as well as the German finance minister demand stricter rules and the right of direct access for a European finance minister. Countries that resist should not receive solidarity but undergo the disciplinary effects of the markets. Given the fact that market failures and bad decisions by private investors were the trigger for the financial crisis, this is a curious proposal. After all, it asks us to make the future of Europe dependent on the volatilities of anonymous markets.
Instead of watering down the monetary union, we should do everything to bring about stability on the institutional, economic and political levels. Ultimately, instead of anticipated convergence, the last years were shaped by a drift in economic and social realities. From this follows a need for eurozone reform to meet the demands of a monetary union. We need European institutions that promote cohesion. This is why we should take the Five Presidents Report as an opportunity to develop political solutions in three central areas: fiscal union, banking union and social union.
Euro Commissioner instead of finance minister
We must be successful in improving the institutional set-up of the eurozone. To do so, we need a stronger centralisation of decision making authorities, for example a euro Commissioner. This function would need to do more than just observing the adherence to rules, as a conservative finance minister would do. Instead, the euro Commissioner needs a budget that is capable of countering recessions in individual member states effectively.
The fiscal stabilisation function also needs stronger parliamentary participation rights – both through a eurozone chamber in the European Parliament and a stronger involvement of national parliaments. In the spirit of the community method, it also needs to be checked whether the European Stability Mechanism (ESM) could be transformed into a European Monetary Fund. On the one hand, this way democratic control of the crisis resolution mechanism could be enforced and on the other hand, future crises could be solved independently of the IMF.
Furthermore, the growing economic inequality, not only within but particularly between member states is worrying. Thus, we should push forward the social union to not only improve the lives of citizens but also to undermine populist movements, using instruments like minimum wages or the promotion of effective social systems.
And finally, the Greek crisis demonstrated that while we have alleviated the vicious circle between banking crises and sovereign debt crises, we have still not managed to resolve it fundamentally. Hence, we must struggle for a eurozone-wide deposit guarantee fund, to bring about a genuine banking union.
We must find the right balance between European solidarity and control on the one hand and rules and political institutions on the other. There should not be a step backwards to the old Maastricht days, but neither should we place too much hope in a European federal state. In October, heads of state and government will discuss the Five Presidents Report. They should take it as an opportunity to launch a progressive reform of the eurozone.