Paul Goldschmidt: The European Union “On the Road”!

15 May 2017

Macron’s victory offers a short respite during which it is imperative to implement deep reforms of the Economic and Monetary Union so that its existence can, no longer, be regularly put into jeopardy at each national general election.

[...]Since the launch of the single currency, EMU is facing two major internal contradictions that prevent maximizing its benefits. The first is enshrined in the four freedoms of movement (people, goods, services and capital) that are part of the Union’s foundations on the one hand, and the strong inclination by Member States to preserve simultaneously “national sovereignty” in the exercise of several aspects of the same freedoms, on the other.
 
This lack of clarity perpetuates the feeling that the future of the € is not secure and that there remains à risk of dismantling the common currency, leading to the unilateral redenomination of Euro debts and claims as a result of the reintroduction of national currencies. The chaos that would ensue would be all the more disruptive that the economic integration resulting from both the Single Currency and Single Market has created an infinitely large number of cross border transactions/contracts denominated in €, be it within EMU or with third parties located in or outside the EU.
 
It has therefore become essential that this ambiguity be eliminated once and for all. This means that it becomes clear that the Eurozone should accelerate the implementation of its own “budget” which should be financed by “own resources” which, in turn would confer on it an autonomous borrowing capacity. Such a mechanism should aim at allowing perfectly transparent transfers, as is the practice within any sovereign State; it should be implemented by a “government” that would be accountable to a Parliament of the Eurozone.
 
This Parliament should be composed of the elected MEP’s of the EMU Member States rather than creating a hybrid assembly in which national MP’s would participate, a format more likely to create endless conflicts. Similarly, the executive branch of the Eurozone should be made up by the “Commissioners” representing EMU Members rather than represented by a single “Minister of Finance” whose prerogatives risk being excessive and in conflict with those of the Commission President.
 
Non EMU Members would make their contributions directly to the EU budget while a single contribution by the EMU budget would be made on behalf its Members. In turn, the EMU budget would be financed by “own resources” with regard to expenditures relating to its specific mandate and by additional Member State pass through contributions in favor of the EU budget.
 
Thus, expenditures financing policies of the EU 27 (external border security, immigration, defense, development aid, environment, etc.) would be managed as currently with the full participation of the European Parliament; those matters that would have been pooled among EMU Members would be co-managed by the Eurozone Parliament and the corresponding smaller Commission. This dual structure already exists within the Council where EMU Heads of State have met occasionally and the Eurogroupe of Finance Ministers regularly.
 
This structure would be transitory in nature because – the obstacle of the UK having been removed – all EU Members would join over time EMU leading to the merging the separate EU and EMU organs. At such time, the reduction of the number of Commissioners as foreseen by the Lisbon Treaty could also be implemented.
 
The outline here above should serve as part of a compulsory roadmap aimed at implementing the Five Presidents Report on an accelerated timetable. It is of particular importance that it should be accompanied by measures that will demonstrate tangibly the value added of the EU in terms of security, military capability, economic and social protection as well as improving living standards.
 
The second contradiction that undermines the capacity of the EU to meet the aspirations of its citizens is the result of an ongoing ideological cleavage between parties that favor free markets open to the world as opposed to those that promote protectionist measures. This debate appears often to be schizophrenic insofar as one should distinguish between a largely open and free market which is necessary to operate the Single Market (whether one is on the right or left of the political spectrum) and sufficiently regulated global markets. The aim should therefore be to maximise freedom within the Single Market (similar to the internal US market) but which implies a greater degree of fiscal and social harmonisation, while simultaneously instituting appropriate protections vis à vis the outside world. Thus it is perfectly acceptable to promote a “Buy European Act” as suggested by Macron, to negotiate free trade agreements on the basis of reciprocity and providing appropriate safeguards or to protect against either social, industrial or even cultural dumping.
 
By explaining the meaning and the effects of globalisation, and by describing the toolkit to manage it, one should be able to put to rest many of the fears it engenders. Doing so will avoid that it becomes a focal point on which many of the nationalist and populist parties build their utopian promises which threaten the security of their populations aa well as the financial stability of world markets. 
 
Emmanuel Macron has benefitted from exceptional circumstances which were in part unforeseeable but of which he was able to take advantage at every turn. He demonstrated both determination and finesse, taking the considerable risk on basing his campaign on an initially unpopular pro- European program. He was able to kindle Europhile embers that emerged after the shocks caused by Brexit and the election of Trump. Thus, after a narrow defeat of the far right party in Austria, confirmed by the Dutch elections and further strengthened by the diminishing popularity of Germany’s AfD party, the clear Macron victory is the latest testimony to a radical shift of the European public opinion on which it is imperative to capitalise without delay.
 
Since the 2008 financial crisis, the EU has survived by dealing – quite effectively - with successive urgencies but the Authorities have never realised the extent of the risks the population was being subjected to by refusing to deal with the essence of the problems. The failure to act together and with sufficient determination has slowed the pace of recovery which remains subdued. If the EU did not fail, it was largely due to the ECB which, being statutorily independent, showed both discernment and audacity in conducting its monetary policy. To a lesser extent, the Commission also contributed by showing itself particularly flexible in interpreting its mandate to evaluate and monitor the budgetary policies of EMU Members.
 
It is no longer possible both politically and financially to rely exclusively on the ECB to safeguard the €. To the contrary, the Eurozone “government” must be a political counterweight capable of working in harmony with the Central Bank and under the democratic control of the Eurozone Parliament, as is the case in all countries that enjoy their monetary sovereignty.
 
If by the end of Macron’s 5 year term, decisive progress has not been achieved to put “Europe back on the Road”,  the outcome of the next poll could spell the demise of the Union and subject Europe and the remainder of the globe to the fate from which we just narrowly escaped. It is the responsibility of all EU Member States to reinforce the new dynamics that President Macron is advocating.

Full article on Paul Goldschmidt website

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