Year LVI, 2014, Single Issue, Page 89

 

 

A “EUROPEAN SOLIDARITY MECHANISM” FOR THE EUROPEAN CITIZENS

 

 

A primary objective of the new European Parliament and the new Commission must be to introduce, within their term of office, the second of the unions envisaged in the Commission’s Blueprint, namely the fiscal union. This will be a decisive transition for ushering in political and economic union, and thus for the establishment of Europe’s first federal core. Juncker has embraced this programme and the October European Council could represent an opportunity to take the first step forward. With the present document, the federalists aim to introduce into the debate a proposal for initiating the creation of a European fiscal pillar.

1. Today, we still cannot talk of a European economy in the same way as we can talk of the American economy. The European market and currency, by themselves, do not create a European economy, even though the former played a key role in the negative integration phase and the latter has been important in consolidating the eurozone internal market. Europe still has 28 national economies and it was only with the birth of the euro that it started to be possible to talk of the creation of European instruments of governance for the eurozone. In this regard, the eurozone, driven by the economic and financial crisis, has taken some important steps forward, strengthening itself through the establishment, for the first time, of solidarity mechanisms such as the European Stability Mechanism, the ECB’s Outright Monetary Transactions, and the Single Resolution Fund (the first example of risk sharing on a European scale). These measures have stabilised the financial system and, indirectly, the real economy. However, no solidarity measures have, as yet, been developed for the European citizens as such, and Europe continues to lack autonomous policies for growth. Indeed, as clearly shown by the history of the USA which, with its New Deal and Social Security Act, can be said to have passed the test of solidarity between the citizens of different states, a European economy will be able to emerge only when it is the subject of a European public policy capable of providing the citizens with public goods and of setting the economic system on a European course.

2. The national governments, in the misguided belief that economic growth depends on them alone, think mainly of national solutions, such as requesting more flexible interpretation of the fiscal compact. At best, they suggest large-scale European interventions which, however, never come to fruition. As previously pointed out by Tommaso Padoa-Schioppa, Europe should be responsible for growth policy and the states for economic recovery policy. Today, it has to be added that Europe as a whole — and not just the states — should take responsibility for addressing the difficulties of the European citizens hardest hit by the crisis, and also underlined that the crucial point is not the size of the interventions, but rather the European procedure that must be followed in order to fund them and get them started, thereby restoring a climate of trust in Europe.

3. As federalists, we believe that the eurozone plus must give the European citizens a sign of solidarity, financially sustainable, by creating a Eurozone Unemployment Insurance System complementary to the national ones. At the same time, by directly promoting investment projects, it must give the market a sign that there exists a European leadership not just of the monetary economy, but also of the real economy. To that end, the EU budget needs to set up a special budget heading called European Solidarity Mechanism, specifically for the eurozone plus. This heading, not subject to the constraints of the EU’s multiannual financial framework, should envisage two separate funds for the two types of intervention mentioned above. This is an idea whose political foundations lie in the legitimation, through the European elections, of the new President of the European Commission.

4. The American experience, with regard to its policy of support for the unemployed, provides a useful point of reference. First of all, it shows that the problem is not one of achieving uniformity of social legislation across the continent: in the USA there exist as many as 53 different legislations which, moreover, differ on essential points. Second, it is not even, within certain limits, a problem of the amount of funding to be set aside at federal level. In 2013, benefits paid from the US Unemployment Compensation Fund were covered in part by the federal government (5.3 billion dollars), while most of these payments (50.7 billion dollars) was met by the sates. The US federal government intervenes with supplementary measures (Extended Benefits) when the rate of unemployment in one or more states exceeds 5 per cent. In this circumstance, the Federal Treasury, for a limited number of weeks, covers 50 per cent of the additional cost. In 2010, the year in which spending on unemployment benefits peaked, the USA, following a decision by the Congress, spent around €117 billion on benefits, and 60 per cent of this was met by the federal government. In the same year, the governments of the eurozone alone paid €143 billion in benefits.

5. As long ago as 1975, a European Commission report entitled “Economic and Monetary Union 1980” (the Marjolin Report) stated that, in creating the EMU, provision should be made for the establishment of a European unemployment benefits scheme, not just to win support among the citizens for the European project, but also to mitigate, through European measures, the effects of the corporate restructuring encouraged by the internal market and the single currency, whose costs would be borne solely by the single states. More recently, this idea has been taken up by the Commission in its Blueprint for a Deep and Genuine EMU, and by the European Council in its report Towards a Genuine Economic and Monetary Union. These contributions are in agreement as regards the nature of the proposed European intervention, which should be temporary and limited to the short-term unemployed. This European intervention, consisting of a minimum per-capita contribution complementing the national contribution, would be implemented by the eurozone plus in two circumstances: a) as support for the short-term unemployed in countries in which the level of short-term unemployment, in the two years leading up to the granting of the subsidy, exceeded a given threshold, possibly 10 per cent, which is already twice that applied in the USA; b) as support for the short-term unemployed in countries that agree to a programme of reforms. In this latter case, if the country in question failed to implement the reforms, the subsidies would be converted into a loan which would then have to be repaid. In a country meeting both of the conditions for the granting of support (i.e. exceeding the unemployment threshold and agreeing to reforms), both types of intervention would be applied.

6. As regards the financing of these interventions, the federalists suggest that, until such time as the eurozone has worked out a basic unemployment insurance scheme and the method of financing the European share through a European tax, the proceeds of the financial transaction tax (FTT) could be used. This would, however, have to be the result of a democratically legitimated European decision. In other words, following a proposal from the Commission, the splitting, between European and national level, of the revenue from this tax would have to be subject to a binding vote, by the European Parliament as well as the national parliaments. The measure would come into force following its approval by the majority of the national parliaments of the states representing a majority of the population of the participating countries. Eurozone countries not adhering to the FTT directive would, in order to qualify for unemployment support, have to adhere to it; this would be a binding condition. The estimated outlay, which varies depending on the assumptions taken into account, is €5-15 billion, considerably less than the expected revenue from the FTT, which the European Commission estimates to be €30-35 billion. It is possible that the implementation of this mechanism will require an amendment of the Treaties. Nevertheless, it is deemed that the simplified revision procedure could be used, as it was for the establishment of the European Stability Mechanism. Should the unanimity requirement prove to be a stumbling block, it would be possible to go down the route that led to the establishment of the Fiscal compact, without detriment to the role of the European Parliament mentioned above.

7. The second type of intervention is that of activating a European investment plan. For this to constitute a reversal of trend compared with the initiatives envisaged to date, which are compromises between different national priorities, this Plan must be promoted and managed by the Commission on the basis of European priorities, as a sign to the market that the European economy is governed by European institutions. One of the federalists’ proposals, in line with the investment plan announced by Juncker, is to establish a European Joint Undertaking in the energy sector, with the task of investing in R&D and in the missing links, and a Strategic Reserve in the oil and gas sector, along the lines of the Strategic Petroleum Reserve implemented by the Americans and the Chinese, so as to be able to promote a European energy transition policy. The investment projects should encourage the implementation of a “European energy union” and, therefore, solidarity and security of energy supply among the participating countries. The European Commission should hold the absolute majority (51 per cent) of the new Joint Undertaking, and of its corporate bodies, so as to ensure that the common European interest, de jure and de facto, prevails. This request is, after all, justified by the democratic legitimation enjoyed by the current President of the Commission. The capital of the Joint Undertaking should amount to €10-20 billion, making it possible, with acceptable financial leverage (compared with current levels), to mobilise €100-200 billion. The return on equity and the debt service would be guaranteed, as will be the case with the “Galileo” Joint Undertaking, by the charging of a fee for the use of the energy infrastructures. The Commission’s share of equity could be funded by the revenue from the FFT. In this case too, countries willing to take part in the investment plan should be required to join the TTF Directive if they have not already done so. The start of the Joint Undertaking in the energy sector requires no Treaty amendment and can be decided by a majority, whereas its funding may require modification of the Treaties (simplified revision procedures).

Domenico Moro

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