No to a phoney fiscal union, yes to a federal government

Analysis, News & Comment

The European Parliament should call a convention where all actors can debate the future of the EU in order to tackle the so-far faulty Franco-German 'directoire', says Guido Montani, vice president of the European Federalists Union.

Guido Montani is vice president of the European Federalists Union and member of the Spinelli Group in Brussels.

"For much of Europe 2012 will be a year of recession, increasing social discontent and serious political troubles. The 2008 financial crisis spread from the United States to Europe and the world. Today the European recession slows down the world economy and endangers the monetary union. It is the breeding ground for euroscepticism and nationalism, not only in peripheral countries, such as Hungary, but in the actual core of Europe: in France, the Netherlands, Germany and Italy. The sovereign debt crisis was not caused by the financial market, but by the inadequate Franco-German governance.

As a rule, when a government is not able to face the problems of a political community, the citizens can change the administration. Opinion polls reveal that the citizens are greatly dissatisfied with the way the European Union works, but nobody tells them how to change the European “governance.” Here is the gist of the European democratic deficit: in the Lisbon Treaty the word “government” does not even exist. And since the EU does not have a legitimate government, the Franco-German directoire, a non-democratic government, rules.

During the sovereign debt crisis, the strategy of the Franco-German directoire was to defend the euro at the least cost – the European Financial Stability Facility (EFSF) – compatible with the interests of France and Germany. Of course the interest of Germany was to save the euro, because the German economy is fully integrated into the single market, but also to lower the risk of instability deriving from member states with excessive deficits and debts. This explains the obsession on austerity policies. The smooth working of the monetary union requires the compliance of member states with the Stability and Growth Pact (SGP), but an excess of austerity can kill the European economy.

In Greece, the GDP fell by 5% and the risk of default is still looming. In 2012, Italy, Spain and France will be in recession. There is something wrong in the European economic policy. If we consider the result of the 9 December Council, it is easy to see the shortcomings. The so-called fiscal union is a deception, a new name to impose more effective rules for the members of the SGP.

But can a fiscal union do without an EU budget? Why does the European fiscal union consist only of national budget constraints? The EU budget is the tool to finance European public goods – such as investments in research, energy grids, green investments, cohesion funds, etc. – in short, it is the tool for solidarity and growth. It is worth the effort to remember that EMU means Economic and Monetary Union: a fiscal union should provide tools for a more coherent and effective economic union. But for the German government Europe does not need more solidarity and more growth.

The 9 December proposals also display the French idea of Europe very clearly: a new “Europe des patries,” a Europe led by France and its allies. According to President Nicolas Sarkozy’s declaration after the Council: “The fact that the responsibility of the governance now belongs to the heads of state and government marks an indisputable democratic progress.”

This is the second deception of the Council. In a Council of 17 members it is clear that the main decisions will be taken by the Franco-German directoire. Can we consider this kind of governance democratic? Can the European Parliament (not even mentioned in the Council’s proposal) dismiss the directoire?

For Sarkozy, the European democracy is nothing but a summation of national democratic governments. This explains why in the UMP (Sarkozy’s party) and in other European quarters the idea of a new Parliament, made up of national parliamentary members – as the European Parliament was before its direct election – is being discussed.

The Franco-German directoire had the power to push Europe towards a serious recession, but it does not have the power to plan a recovery. If half of the EU countries are in recession, only a European plan for growth, supported by the main political parties and social partners, can succeed. Europe needs a recovery plan and a democratic government. They are two aspects of the same problem.

The real basis of a European recovery plan is a long-term political perspective on crucial goals, such as renewable energies, investments in human capital, communication networks, regional policies, and the single market. Only a European democratic government can launch an ambitious project, find the support of the European citizens, the national governments and maintain a continuous dialogue with the European Parliament.

The core of a true European fiscal union – not a reinforced SGP – already exists. The linchpin of a recovery plan is a EU autonomous budget. Today, the EU budget is not autonomous and is not big enough. The authoritative report “Europe for Growth” – signed by three MEPs: Jutta Haug, Alain Lamassoure, Guy Verhofstadt – shows the main line for an effective reform: the EU budget should be financed by its own resources (a mixture of a financial transaction tax, a carbon tax, a corporate tax).

Moreover some national expenses (such as advanced research, development aid, defence) can be managed more efficiently at the European level. The economies of scale can produce a substantial European dividend. During times of recession, a sound policy is also to lower national budget expenses. Concerning the recovery, the European Commission has already proposed the growth plan “20-20-20”, that is 20% reduction in greenhouse gas emissions, 20% share of renewable energy in the total energy consumption and 20% improvement in energy efficiency by 2020.

A part of this plan is devoted to investments in transport connexions, electricity grids and broadband networks for more than €1.5 trillion by 2020 (a share of €50 billion has already been implemented). Some of these investments will be financed by project bonds.

We cannot discuss the details of these proposals here. Maybe they are not enough and should be improved.

However, we emphasise that a recovery plan is a political project, because a recession can easily become a 10-year long depression, as in the 1930s. The inevitable social disorders and growing eurosceptism will cause the collapse of the European project. A directoire yields inefficiency, division and recession.

Only a democratic government can lead Europe towards safer waters. The necessary reform to attain this goal is not too complex: the European Commission is already responsible before the European Parliament, but today it is considered a bureaucratic body, a secretariat of the Council.

In order to change the negative image of the European Commission it is necessary to link the choice of its president to European elections, to the will of the people, and to increase its political authority by joining the presidency of Commission and Council. The goal is “One President for the EU.” Later on it will probably become necessary to revise the method to appoint the commissioners.

But the starting point can be a quick reform of the Lisbon Treaty, before the European election of 2014. Moreover, in order to link the appointment of the president of the EU to the European election closely, the reform of the EU Parliament electoral system – a European constituency, as proposed by MEP Andrew Duff – should be taken into consideration. A more radical reform is the direct election of the president of the EU, but this reform requires more time and a broad public debate, since it will set up a presidential system.

Let’s conclude with an appeal to the European Parliament. The legitimate representatives of the European citizens must raise their voice. They cannot confine their role to ratifying the decisions of the national governments or to give advice. They have the power (Article 48 of the Lisbon Treaty) to ask for a new convention. They must use it.

They should involve citizens, organisations of civil society, national parliaments and trade unions in a debate on the future of the Union. Today the citizens’ trust in EU institutions has waned by the bad governance of the directoire. The only way to regain their confidence is to involve them in the construction of a true fiscal union and a federal government."