political revue


Year LVI, 2014, Single Issue, Page 3



From Coordination Between States
to Political Union:
the True Challenge Facing the Eurozone



The economic and financial crisis has dramatically exposed the inadequacy of the resources available to the European Union to cope with periods of difficulty. This inadequacy is due to the “congenital” defects of the single currency, in other words to the false assumption, which dates back to Maastricht, that it is possible to create a currency in the absence of a state, leaving economic policy to be managed at national level in the misguided belief that the mere existence of a single monetary policy can mitigate the imbalances between different states, and that these imbalances can be contained through simple coordination of economic policies.

In this framework, recent years have seen the member states and the EU institutions, faced with a glaring lack of effective tools to deal with the crisis, attempting to strengthen the instruments that do exist, and to force the provisions of the Treaties in order to contain the emergency. The approach they have adopted, however, involving coordination of the different states’ economic policies and the development of forms of cooperation and intervention at intergovernmental level, is the same as the one that characterised the Maastricht Treaty and all the Treaties that have followed since: in short, an approach based on efforts to find compromises between the positions of the single member states, which remain the key actors in the process. The steps that have been taken to strengthen economic and budgetary surveillance of the eurozone countries and the mechanisms that have been put in place to allow interventions in favour of countries in difficulty are both indicative of this approach.

As regards the issue of surveillance, the mechanisms set up by the Stability and Growth Pact were already seen to be insufficient as long ago as 2000, when France and Germany failed to comply with the parameters it set out. Indeed, in the absence of binding instruments that can force a state to adopt a certain conduct, infringements are almost inevitable in times of recession, when it becomes harder for the member states to respect the deficit and debt rules. On the other hand, the provisions of the Stability Pact, which effectively gave the states the possibility to declare one of their number in default, created a blackmail-type mechanism that effectively prevented the correct working of the Pact (i.e. it led single states, fearful that they might soon find themselves in the same situation, to choose not to use this faculty).

To overcome these limits, the Pact has been modified numerous times through recourse to different solutions — an international treaty, acts of secondary legislation, and non-binding measures. In this context, there have therefore been several developments: it was decided that the countries signing the Euro Plus Pact should coordinate their economic policies more closely and report periodically on their progress; the fiscal compact reaffirmed the constraints of the Stability Pact, committing the states to gradually reduce their debt and introducing a mechanism of almost automatic sanctions in the event of their exceeding the 3 per cent deficit limit. These pacts, together withthe Six-pack and the Two-pack legislation, introduced: the so-called European semester, a procedure for preventing excessive macroeconomic imbalances, the mechanism of reverse qualified majority voting to decide on sanctions against a state, and a strengthening of the economic and budgetary surveillance of the eurozone member states. All the above, however, are mechanisms based on coordination between states, and serve only to allow stiffer (and more specific) controls and sanctions.

Similarly, the mechanisms that have been put in place to help struggling countries remain in the traditional mould. The European Stability Mechanism (ESM), despite constituting an important development — it is an international treaty that, applying only to the eurozone member states, recognises that the needs of these states are different from those of the other member states —, is indeed an intergovernmental-type mechanism, financed essentially by the member states, in which the decision to help a state is subject to a unanimous decision by the ESM Board of Governors.

This manner of proceeding, i.e. this attempt to remain within a framework of mere coordination of different national interests, has given rise to some quite considerable problems. First of all, it has created a distinction, whose effects are extremely negative, between virtuous and non-virtuous states: while, on the one hand, Germany (which belongs to the first category) is somehow expected to step in and pay for everyone, with scant regard for the fact that this country’s fiscal resources are provided by German taxpayers and not by the taxpayers of the entire EU, on the other, the struggling states (which belong to the second category) have, objectively, no chance of getting themselves out of the dire economic conditions in which they find themselves, which austerity measures would likely serve only to aggravate. This situation accentuates the states’ lack of trust in each other and makes a common vision highly improbable. Second, the domestic situation has become extremely difficult for many of the national governments, such as the Italian one: the more intrusive the European surveillance mechanisms and instruments of economic and fiscal policy become, the less the national government is perceived as legitimate by the citizens, who can clearly see that it has no autonomous room for manoeuvre or decision-making capacity. Furthermore, the EU is perceived as a bureaucratic entity capable only of imposing austerity policies, but not of offering a solution to the crisis. All these elements play into the hands of the eurosceptics and fuel nationalism and populism.

In order to find a way out of this vicious cycle it is therefore necessary to adopt a radically new perspective, quite unlike the one from which the crisis has been tackled to date. This means going beyond the concept of coordination between sovereign states and creating genuinely supranational instruments.

In particular, as also highlighted by the Commission’s “blueprint for a deep and genuine economic and monetary union”, the turning point will be the creation of a eurozone fiscal union, and thus the furnishing of the eurozone with fiscal resources to finance its own separate ad hoc budget. In other words, it will be a question of allowing the central power to procure autonomously, through taxation, the resources it needs to conduct the policies that must necessarily be implemented at supranational level, and the member states, in turn, to procure the fiscal resources they need to manage the policies that remain at national level, in accordance with the system in place in federal states. Clearly, we are talking about a quantum leap for eurozone integration, which would inevitably lead to the creation of a true economic government of the eurozone. Indeed, the attribution of fiscal competences demands democratic legitimation of the power responsible for exercising these competences; this is why their attribution to a technical body not controlled by the representatives of the citizens is inconceivable.

At first glance, this leap might seem difficult to make, as it implies relinquishment, by the eurozone states, of their sovereignty. On closer examination, however, it is a step liable to throw up far fewer problems and contradictions than those that would inevitably arise should Europe instead continue, with increasing determination, to pursue coordination of its member states’ economic policies. Indeed, it can already be observed that the instruments adopted in recent years reflect a tendency towards increasingly strict monitoring, by the European institutions (the Commission in particular), not only of the member states’ budgetary policies, but also of their economic policies, this tendency even leading the Commission to go so far as to tell the states how they should be using certain resources and what reforms to implement.

Such a tendency, if carried to extremes, ultimately renders national sovereignty an empty concept, assigning the power to make economic and budgetary policy choices to authorities that have not been democratically legitimised; it also surreptitiously expands the powers of EU institutions, violating the principle of allocation and distribution of powers between the Union and the member states. In such a scenario, even though the power to decide the amount and the use of fiscal resources (a cornerstone of state sovereignty) would formally remain in the hands of the states, this power would, in reality, be strongly conditioned by decisions taken elsewhere, namely within the EU institutions and by the Commission in particular.

A shift to fiscal federalism — and thus to a framework in which both the European level (eurozone) and the national level can finance, with their own fiscal resources, the policies for which they are responsible — would instead root out these problems. There are three reasons for this: first, such a shift would imply the creation, at eurozone level, of an authority accountable to the European Parliament (or rather to a part of it) and would not therefore raise problems of democratic legitimacy; second, the eurozone member states would have, each within its own sphere of competence, the necessary resources to take effective action; third, the presence of a eurozone fiscal authority empowered to impose taxes on certain economic activities of supranational relevance and to use these resources to finance a separate budget would allow the implementation of effective measures to remedy the imbalances between member states and help those that are really struggling.

In truth, steps in this direction could already be taken, by exploiting two new elements now present in the EU landscape: the new organisation of the Commission and the financial transaction tax (FTT). The present European Commission is, indeed, the first whose president was appointed in accordance with the selection procedure provided for by the Lisbon Treaty, which involved the nomination of a candidate by each of the various political groups within the European Parliament; furthermore, the Juncker Commission promises to be far more political and less bureaucratic than the Commissions of the past. In fact, the President of the Commission is flanked by seven vice-presidents (six commissioners plus the High Representative), each responsible for an area within which several commissioners work. This organisation of the Commission is intended to prevent its work from being fragmented into numerous separate compartments and encourage a more collective management of it, and also to give it a stronger political impetus. Certainly, a more political and less bureaucratic Commission could play a prominent role in, and be a driving force for, a change of direction in economic crisis management and in efforts to achieve the steps set out in the aforementioned blueprint. The FTT, on the other hand, could be the starting point for the creation of eurozone fiscal resources. There has, in fact, been talk of a tax on financial transactions for some time now and an enhanced cooperation in this area between eleven (eurozone) states has already been authorised. But, to date, all the steps to create this resource have been taken in accordance with the traditional approach. Indeed, an enhanced cooperation between eleven states would not meet the financing needs of the eurozone (given that it would include only some of the states that have adopted the single currency); furthermore, the debate on the use of this resource suggests that it is envisaged that the states should decide unanimously what proportions of the revenue from this tax should feed, respectively, the national budgets and the EU budget. Moreover, under the project as it currently stands, the share of the FTT revenue paid into the EU budget by the states participating in the enhanced cooperation would replace, in a corresponding amount, part of the percentage of GDP that these states currently pay to Europe. In other words, the FTT would not constitute an additional resource with respect to the European budget, given that, offset by the payment of a smaller share of GDP, it would not increase the size of the EU budget.

Such an approach renders the FTT irrelevant for the purpose of finding a European solution to the economic crisis. Yet, seen in a different way, this tax could in fact play a crucial role — in particular, as a means of tackling the problem of unemployment or of promoting investments.

Europe’s share of revenue from the FTT (the size of which should be decided both by the national parliaments and by the European Parliament) would need to be channelled into a special chapter of the EU budget created specifically for the eurozone (or rather the “eurozone plus”) and should not be subject to the constraints of the EU’s multiannual financial framework. The resources included in this chapter could then be used, on the one hand, to create a European system of unemployment support, and on the other to realise a European investment plan promoted and managed by the Commission.

Such a solution would constitute the first step towards the creation of a true eurozone fiscal capacity, and thus towards a democratic government of the economy. It would therefore be the breakthrough capable of overcoming the current impasse situation in which the method based on coordination of national interests is causing the Union to sink. For Italy, which — insofar as it proves able to provide its European partners with concrete evidence that it has the capacity to implement structural reforms — could once again have a decisive influence on the evolution of Europe, it is both an opportunity not to be missed and a responsibility not to be shirked. It is in the interests and within the possibilities of our country to fight to replace the current contraposition between “austerity and growth” — which actually reflects two sets of opposing national attitudes and interests within the eurozone — with a constructive proposal, namely to have the monetary union make the quantum leap to political union.

The Federalist



il federalista logo trasparente

The Federalist / Le Fédéraliste / Il Federalista
Via Villa Glori, 8
I-27100 Pavia