Paul Goldschmidt: European Union: the suspension of budgetary rules.
23 March 2020
It would seem that the opportunity offered by the coronavirus epidemic has been wasted, writes Goldschmidt; this was a unique chance to reinforce significantly the powers exercised by the European Institutions, but the EU's hasty and poorly thought decision is likely to be irreversible.
[...]Reacting precipitously, the Commission proposed last Friday to suspend the rules that framed the budgetary processes of EMU Members and whose enforcement constitutes the foundation and sustainability of the Single Currency. By bowing to Italy’s pressing demands and taking note of France’s unilateral measures, the Commission has allowed each country to pursue its own national budgetary policies. It has given in to the path of least resistance and opened Pandora’ Box which it is unlikely to ever be able to shut again.
There were, however, alternatives which, though certainly requiring political leadership that is cruelly lacking, would have demonstrated the added value of the Union and laid the ground for the major part it should play on the world stage in shaping the deep transformations that one will unavoidably face in the aftermath of the crisis. The message sent by the Commission is, unfortunately, a step in the opposite direction, insofar as granting the freedom to act in their own selfish interest prepares inexorably the dismantling of the € (and of the EU) and it’s attending economic, social and political dislocations; these will be added to the - already considerable – disruptions resulting from the epidemic. It also guarantees that the EU27 will have no voice and will have to accept passively decisions made by the “great powers” to which, individually, they will no longer belong.
In line with the initial declarations of Ursula von der Leyen when she outlined her ambition to strengthen the geopolitical footprint of the EU, the Commission, based on its powers of initiative, should have proposed to the European Council (possibly putting its resignation on the line?) to adopt a position inspired by President Obama’s handling of the 2008 financial crisis. Based on a situation of absolute emergency, it should have suggested adopting immediately the plurennial budget for 2021-27 based on the European Parliament’s proposal amounting to 1,3% of the EU’s GNP to which would be added an initial borrowing capacity of € 1trillion to meet the urgent budgetary needs of the EU27; in exchange, Members would agree to comply strictly with the existing budgetary rules.
This approach – through the application of existing treaty rules which provide the joint and several guarantee of Members to ensure the EU’s balanced budget – institutes a form of mutualized debt without having recourse to new instruments. In this way one avoids the risks of “moral hazard” resulting from the juxtaposition of independent national policies which would jeopardize the sustainability of the €.
For sure, such a step constitutes a massive transfer of national sovereignty to the EU. Unfortunately, one will have had to wait for a crisis of exceptional amplitude to occur, in order to consider it seriously despite the fact that completing EMU and extending it to all Member States was enshrined in the Maastricht and subsequent EU treaties, the implementation of which was paid scant attention in the interval.
It is not too late to act and to ensure that the EU will be able to play its full part on the international stage in the aftermath of the crisis. In addition, a strengthened €, a Central Bank able to coordinate with a Commission endowed with considerable resources, the removal of the spectre of competitive devaluations and its unavoidable corollary of exchange controls, would underpin the emergence of a powerful EU; it would be able to escape its vassalization to the US dollar and defend the interests of its citizens in a world which cannot escape a thorough re-evaluation of its ethical values, moral principles, social standards, economic relationships, etc.
At the same time that we are submitting to this huge collective effort, we might be able to come up with a credible answer to the pervading musings of the national-populists, who are spreading their poisonous recipes within a directionless public opinion, all to ready to point the finger to those in power and be tempted by the lure of radical change of which they would be the first victims. [...]
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