French MEP floats ‘win-win’ green compromise on EU budget

“Our contacts in Berlin, Paris, Warsaw, Stockholm, Madrid and Frankfurt lead us to believe that what was impossible a few months ago is now becoming possible” due to coronavirus crisis, Larrouturou says. [European Union 2019, source: EP]

A European tax on financial transactions and corporate profits could bring an annual €120 billion to the EU budget and finance a green recovery from the COVID-19 crisis, without asking a penny more from national governments, says Pierre Larrouturou.

What do the “Frugal Four” group of EU countries have in common beyond a taste for austerity? And how could they be persuaded to support a bigger EU budget in response to the coronavirus crisis?

French MEP Pierre Larrouturou thinks the answer lies in the European Green Deal.

In a letter sent last week to the President of the European Commission and the EU’s 27 national delegations in Brussels, he describes how a greener EU budget – financed by new European taxes – could meet the demands of both the “Frugal Four” and poorer EU countries to the south and east of Europe, who have called for greater solidarity during the crisis.

Last week, Angela Merkel and Emmanuel Macron set out a joint Franco-German proposal to restart the European economy, proposing to raise an additional €500 billion for the EU budget, that would be redistributed mainly in the form of grants.

The European Commission is now preparing a new proposal for the EU’s next seven-year budget, which is due to be presented on Wednesday (27 May) alongside a recovery plan – a package which is expected to total more than €2 trillion over the next seven years.

Commission President Ursula von der Leyen said the recovery plan will contain a mix of grants and loans for hard-hit countries, and involve “borrowing” money from the markets.

But details of the plan have so far been sketchy and some worry that the new package will fall short of what’s needed to jolt the economy back to life after what is expected to be the worst recession in EU history.

Coronavirus will trigger the deepest recession in EU history

The economies of EU countries will shrink by 7.4% this year as the coronavirus crisis is set to cause the worst recession in the bloc’s history, according to the European Commission’s spring forecast presented on Wednesday (6 May), which also foresaw a significant rebound in 2021.

A plan inspired by Roosevelt

“In the short run, debt is the solution for a Recovery Instrument up to the magnitude of this crisis,” says French MEP Pierre Larrouturou, who is the European Parliament’s rapporteur on the EU’s 2021 budget.

The key to convince the frugals, he adds, is to make sure that any debt can be reimbursed swiftly thanks to new sources of revenue, much like US President Franklin Roosevelt did in the 1930s in the aftermath of the Great Depression.

“The ‘Frugal Four’ can be reassured: they will not have to pay €1 to redeem the €500 billion in loans, if this redeeming is ensured by two own resources, which can be agreed fairly quickly and bring in some €120 billion each year,” Larrouturou says.

According to the French socialist MEP, these two new resources are a European tax of 0.1% on financial transactions, which could yield up to €57 billion per year, and a 5% EU profit tax which could bring another €75 billion per year.

Both proposals are already on the table but have remained stuck in the European Council for years due to the reluctance of some EU countries who refuse to raise additional taxes to finance the EU budget.

However, Larrouturou believes that “the terms of the debate have sharply changed” because of the coronavirus crisis and that Northern EU countries would now be more open to reconsider EU taxes.

“Today, these same countries are afraid that the whole of Europe falls into recession, and most of them are asking the European Union to accelerate the pace on the Green Deal,” he pointed out.

“Therefore, they will support new resources if they are dedicated to a sustainable recovery”.

“Our contacts in Berlin, Paris, Warsaw, Stockholm, Madrid and Frankfurt lead us to believe that what was impossible a few months ago is now becoming possible,” said Larrouturou.

MEP Larrouturou: ‘Entire S&D group wants guarantees on financing European Green Deal’

Incoming EU Commission chief Ursula von der Leyen should take an extra month or two to negotiate a coalition agreement with the European Parliament, including a new finance-climate pact to support the energy transition, says Pierre Larrouturou, adding he will not vote for the new Commission without additional climate cash.

“Frugal Four” issue counter-proposal

For the time being, there are no signs that the “Frugal Four” are ready to budge. On the contrary, Austria, Denmark, Sweden, and the Netherlands appeared to dig in their heels over the weekend saying they opposed the Franco-German plan to offer grants to hard-pressed countries.

In a joint paper, the four Northern EU states said they were ready to support the creation of a one-off emergency fund but rejected any kind of debt mutualisation or “significant increases” in the EU’s upcoming seven-year budget.

And in Brussels, there is little hope that the positions of EU member states will change radically when it comes to adding new sources of revenue for the EU budget.

“Taxes are always unpopular,” said an EU source with insider knowledge of the discussion among the 27 leaders in the European Council. “I don’t think there will be too much creativity or adventurousness. The 27 leaders will want to stick to the basics.”

Larrouturou doesn’t exclude that Europe will go for a “minimalist agreement” to appease the “Frugal Four”. But he warns this “would be very, very far from the recovery plan of 5% of GDP” demanded by the employer associations of Germany, France and Italy – the BDI, MEDEF and Confindustria.

“With a minimal agreement, Europe would sink into a recessionary spiral with dramatic social and political consequences,” Larrouturou warns.

> Read the full paper below or download here.

Non-Paper - How to find an agreement on a sustainable recovery

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