Year LXII, 2020, Single Issue, Page 131

 

 

APPLYING THE ECSC MODEL
TO GIVE THE EU FISCAL POWER*

 

 

As recounted in Jean Monnet’s Memoirs, at the start of the 1950s, just a few years after the end of the Second World War, a new war in Europe was widely felt to be inevitable, and the divergent interests of the European countries certainly made this a very real risk. Having barely recovered from the devastation of the war, and despite the lesson they ought to have drawn from that experience, the European countries, trapped by old patterns and old ways of doing things, were veering back towards the hitherto prevailing logic underpinning relations between nation-states, according to which each would negotiate individually with the aim of maximising its own benefits. A solution was needed that would reverse this logic and allow a common interest to emerge.

This is the spirit in which Jean Monnet, aware of the crucial importance of the historical moment, and also of the enormous political implications of this new perspective, conceived the European Coal and Steel Community project, which Schuman quickly embraced. The project was clear: coal and steel, being the basis of both economic and military power, had strong symbolic value; furthermore, the fact that, in Europe, these resources were produced mainly in France and Germany meant that their common management could provide a tangible image of the rapprochement between these two previously warring states. Coal and steel production was, as mentioned, a key sector, but also a clearly defined one, therefore its joint management would, as stated in the Conclusions of the initial project, serve a political purpose: to weaken national sovereignty to a small degree, just enough to be acceptable to the states, while also inducing them to come together and reach the unity necessary for ensuring peace.

One aspect that emerges particularly strongly from Monnet’s recollections of that time is his awareness of the revolutionary nature of the proposed project — a true leap in the dark —, as well as his tenacity in defending it against the numerous attempts, during the negotiations, to eliminate its crucial ingredient, namely the ECSC’s, and particularly the High Authority’s, independence from the member states.

This independence was linked to a completely novel feature for an international organisation: financial autonomy, stemming from the fact that the High Authority (the body corresponding to today’s European Commission) funded the ECSC budget through levies on coal and steel production and by contracting loans (purely for the purpose of then granting loans to businesses).

Unlike what happens in the EU today, the above levies were not paid through the member states’ budgets, but directly by the companies into accounts opened in the name of the High Authority. The ECSC thus had a centralised Treasury, and the means of collecting unpaid dues: it could charge penalties of up to 5 per cent for late payments and decisions on such pecuniary measures amounted to enforcement orders (applicable following mere authenticity checks by the authorities of the member states).

Although this fiscal power was limited, since the levies could not exceed 1 per cent of the annual value of the products, the methods for applying and collecting them were decided by the High Authority; furthermore, the 1 per cent threshold could actually be exceeded with the prior authorisation of the Council, acting by a 2/3 majority (and thus not unanimously).[1] Although no provision was made for involvement of the Assembly (whose role in the ECSC was marginal, given that the latter’s functioning revolved entirely around the High Authority), it is important to underline that the ECSC Treaty created and introduced genuine European taxes. As already mentioned, these related only to one well-defined sector, that of coal and steel production, but the key point is they allowed the organisation to fund itself independently.

The parallels with what we are today seeing with Europe and the integration process are extremely clear. The public health crisis that has exploded in the past month, combined with the EU’s now glaringly ineffective operating mechanisms (one need only think of the failed attempts to approve the Multiannual Financial Framework), has exposed the fact that the member states are still tempted to let the logic of selfish national interests prevail. As the initial reactions clearly showed, had the crisis hit only some of the European countries (as opposed to rapidly emerging as a dramatic symmetrical shock), the idea of creating forms of solidarity between sovereign states would have remained inconceivable, given that such states, by definition, each pursue their own interests, particularly (in the context of the current generalised crisis of democratic politics) their own immediate interests. Therefore, although the increasing depth of the crisis is convincing even the so-called frugal member states to agree to aid measures for the countries in difficulty, and support for the weaker economies, it should not be forgotten that these mechanisms are still part of the logic of cooperation between sovereign states, which requires that the most “virtuous” — those with greater financial solidity — provide guarantees for, and lend extraordinary support to, the most fragile ones, whose hands are tied by the restrictions stemming from their almost unsustainable sovereign debts. In the immediate wake of the Second World War, the differences between the European states seemed to foreshadow the outbreak of a new war; in the same way, once the current pandemic has been overcome, the differences between states that we have been witnessing in recent years will return even more strongly to the fore.

The lesson to be drawn from the ECSC experience is that the solution to the current crisis, which in addition to a health and economic emergency is primarily a political crisis, cannot be found in tools that remain stuck within the logic applied thus far. It needs to be understood that what is needed is a project with real political value, capable of completely changing the relationship between the member states and the Union, by rendering the latter autonomous and capable of acting within in its sphere of competence. A project that, although initially limited to certain sectors or certain resources, is able to finally break through the seemingly impenetrable wall of national sovereignty, so that the common interest might be allowed to prevail over the interests of single states.

The solution, as we know from the ECSC experience, is to assign the EU the power of taxation. Along the lines of that model, this power, initially applied in a narrow field, should be assigned to the European Commission which, like the High Authority, would establish the methods of application and collection of the taxes (within a ceiling decided by the European Parliament and the Council acting by qualified majority). These would then be paid directly to its Treasury, without going through the member states.

These resources could be linked to “European public goods”, like the environment, and therefore initially consist of taxes such as the border carbon tax, pending the addition of others in the future.

This is a solution that cannot be based on the current Treaties, as they do not give the EU the power of taxation. Instead, given that fiscal competence is still in the hands of the member states, it could take the form of a separate Treaty between the member states wishing to be part of it.

There is no point denying that this would be a very difficult transition, constituting a decisive step towards the transfer of sovereignty to supranational level, but the fact that the present crisis is dramatically affecting all the EU states means that it is also forcing them to be open to previously unthinkable ideas. In this sense, it should be seized as an opportunity. In the words of Jean Monnet, “les problèmes concrets, je le sais par expérience, ne sont jamais insolubles à partir du moment où ils sont abordés du point de vue d’une grande idée.”

Pavia, 22 March 2020

Giulia Rossolillo


* A reflection paper supporting the MFE campaign For Europe – a Community of Destiny.

[1] Under the terms of art. 95, par. 3 of the Treaty establishing the European Coal and Steel Community, in the event of “unforeseen difficulties emerging in the light of experience in the application of this Treaty, or fundamental economic or technical changes directly affecting the common market in coal and steel”, the High Authority (Commission) and the Council had the possibility to “adapt the rules for the Commission's exercise of its powers. In such circumstances the High Authority would conceivably have been able to procure sources of funding additional to those provided for by the Treaty, for example by resorting to contracting loans, an instrument normally allowed only to grant loans to businesses and not for the purposes of funding the organisation. Cf. A. Potteau, Recherches sur l’autonomie financière de l’Union européenne, Paris, Dalloz, 2004.

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