There are many advantages in the EU becoming more financially independent of its member states, write Jakub Kučera and Lukáš Rejzek.
Jakub Kučera and Lukáš Rejzek are members of the Programme Commission on EU and Foreign Policy in the Czech political party, STAN.
The COVID-19 pandemic has brought about many changes and resulted in some policies we would have previously considered hard to imagine. The funding of the EU is no exception.
A Recovery and Resilience Facility is being prepared which to some degree resembles a mutual debt as the EU will, for the first time, issue common bonds guaranteed by, at the end of the day, all member states.
Before the pandemic, this step had been energetically opposed by some member states, most notably Germany. As far as the EU’s finances are concerned, there is another topic worth discussing. We strongly argue that the union should be more independent of member states’ direct contributions. We suggest the EU should have its own sources of income.
The current system could be easily likened to Robin Hood of Sherwood Forest who famously “robbed the rich to give to the poor”. Although all member states contribute to the common budget, the greater part of it is disbursed through various programmes mostly favouring the poorer members.
For several reasons, we believe it would be much better if the EU had more of its own sources of funding, such as import duties on products from outside the EU and fines imposed when businesses fail to comply with EU regulation. Right now, these are the only meaningful fiscal revenue streams going more or less directly to the EU budget, making about 24% of all revenues in 2019. The larger part is covered by the direct contributions of the member states.
Let us first determine what the new income sources of the EU could, and should, be like. Above all, the new fiscal resources should not be easily traceable to the actual payers. In this regard, customs duties are ideal. Although they are collected by the individual member states, for example by Germany on goods coming into the EU through the port of Hamburg, we may easily argue that it is far from certain that the actual payer is a German company or citizen. Within the EU single market, the goods may end up in another member state. Revenues stemming from an EU carbon border tax, which is supposed to shield the EU from so-called carbon leakage by increasing prices of carbon intensive imports, would be similarly appropriate.
It would also be desirable if the new financial resources reflected the EU’s power. The already mentioned carbon border tax is a good example in this respect, too. For single member states it would be much harder to impose unilaterally a measure that discriminates goods from trade partners such as China, India, or the USA. Another good example is an EU-wide digital tax aimed at the tech giants, which even France, one of the most powerful EU members, had trouble to impose.
Apart from plainly showing the advantages of the EU to its citizens, new sources of revenue could enhance the group’s cohesion in a very direct way. Although this revenue stream would flow only into the common budget so it would be outside direct control of the national capitals, it would be clear to the member states that their collective bargaining power would bring greater benefits than anything that they could negotiate independently. When leaving the EU, a member state would probably lose access to this pool of money completely.
The just described consequences of an ideal new revenue stream for the EU (it will be a projection of its strength and it will increase the gravitational pull to the centre) are also the first advantages of the EU having more of its own financial resources.
Another somewhat similar advantage would be that it would do away with the current give-and-take equation many people apply when they think about the benefits of EU membership. In poorer member states many citizens see the EU through the optics of the positive cash flow coming from Brussels. As long as their states pay less to the common budget than they receive from it, then the membership is good. Once the tide turns and their states become net contributors, their attitude may change. If the EU had its own financial resources, there would only be a one-way cash flow, from Brussels to the member states.
The generous subsidies flowing from the EU budget to some member states can be used as leverage when these member states start to slip away from democratic norms, such as an independent judiciary or press freedom. Last year, when Hungary and Poland resisted efforts by the EU to strengthen democratic norms (by introducing a new budget mechanism), the threat of some member states to cut off Hungary and Poland from the EU budget helped to reach a compromise. Imagine if Poland and Hungary were net contributors to the EU budget. However sad it is that some countries tend to consider the EU mainly as a cow to be milked, with Robin Hood gone, all member states will have an incentive to stay in the EU and stick to its norms.
Last but not least, for investors buying the soon to be issued bonds backed by the EU, it would be reassuring that the Commission, as the EU’s executive body, was able to fall back on its own income. The repayment would, therefore, be less dependent on the member states’ whims. Investors buying EU bonds would have more confidence in the bonds, which in turn would lead to lower interest rates.
The idea of richer countries supporting the poorer ones is doubtless correct and the EU should not abandon this principle. By adopting the above suggestions, it will still be the case since richer member states will logically still shoulder a bigger burden, e.g. through higher customs duties stemming from a higher consumption. But the optics will be different, and the EU will be less open to attacks by Eurosceptics.