In the face of the momentous internal and external threats facing European citizens, a merely intergovernmental European Union will fail to match them.
The European Council of March 26th showed once again that the divisions among European governments are seriously jeopardising the future of the union. Their communiqué declared: ‘We fully acknowledge the gravity of the socio-economic consequences of the Covid-19 crisis and will do everything necessary to meet this challenge in a spirit of solidarity.’ Unfortunately, the opposite is true.
The tensions between the two Europes, north and south, are sparking a new wave of nationalism. Europe’s citizens are asking for help. They are receiving some from their governments, but they await concrete answers from the union.
‘Transfer union’
According to Germany and the Netherlands, the creation of eurobonds would mean accepting a ‘transfer union’ not foreseen in the Lisbon treaty. This is groundless. Article 3 of the treaty states that the union ‘shall promote economic, social and territorial cohesion, and solidarity among Member States’.
And the much feared transfer union already exists: the European Regional Development Fund, for example, redistributes resources from richer to poorer regions, thanks to the European budget. The same process exists within the Federal Republic of Germany, with the Finanzausgleich arrangement, and similar mechanisms are present in other countries such as Spain and Italy.
If we examine the problem from a technical point of view alone, there are solutions which would eliminate potential ‘moral hazard’ and prevent any given region or state from demanding an excessive transfer. Procedures such as those adopted by Germany, for example, could be applied to the European Union.
Political, not technical
The problem is not technical, but political. The discussion in the council focused on the European Stability Mechanism, the institution created during the financial crisis to help eurozone member states in difficulty, provided they accept some conditionalities, as happened with Greece. Headquartered in Luxembourg, the ESM is based on an intergovernmental treaty and integrated only indirectly in the European institutions through the reform of article 136 of the Treaty on the Functioning of the European Union. It was set up in 2013 and has a substantial fund, currently amounting to €410 billion.
Eurobonds can be issued on the condition that there is a public budget to guarantee subscribers the solidity of the bond. The problem is that the EU budget is too small (at around 1 per cent of European gross domestic product) to support this.
While the ESM could do it, it imposes conditions. Nine countries are rejecting that idea, on the grounds that the current crisis is profoundly different from that of 2008: it is symmetrical, affecting all member states, and no country can be held responsible for causing the pandemic. The challenge we are facing today is new.
Deep roots
The divide between the two Europes has deep roots. The financial resources of the EU budget are decided by means of a codecision procedure between the European Parliament and the Council of Ministers, while the European Commission acts as the EU executive. Since the Werner plan in 1970 and the McDougall report to the Jenkins commission (1977), there has been the question of establishing a fiscal capacity for the union to apply to the countries in the monetary area. Yet some countries, led by Germany, have always been opposed to this.
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When it became clear that the European budget was insufficient to deal with the financial crisis, the intergovernmental route (the ESM) was preferred, to ensure that the parliament and the commission could not interfere in the decision-making process. Governments want to decide how and to whom to grant aid.
We shall not get past this stalemate until we find the courage to tackle the issue of creating an EU fiscal capacity based on European taxes, paid into the European budget, which must be approved by Europe’s citizens via the election campaign for the European Parliament. ‘No taxation without representation’ and, vice versa, ‘No representation without taxation’. This is how it is done in democratic regimes, and this is how it must be done in the EU.
First step
In an emergency situation, we will not be able to accomplish what was not achieved in Maastricht in 1991. But eurobonds would be a first step towards an EU fiscal capacity. The debate in the European Council revealed that some heads of government have not yet understood the seriousness of this crisis.
Humanity is at war with an invisible and ruthless killer. It is a world war which will not be won by any national government acting in isolation. The secretary-general of the United Nations, Antonio Guterres, told Euronews:
The IMF already has a lending capacity of about $1 billion. We need special drawing rights that in a war economy we need to print money. The way to print money globally is through special drawing rights to put at the disposal of the developing world …
In addition, Guterres proposes that the World Health Organization be strengthened to enable it to help poor countries without adequate hospital facilities and refugee camps, where the virus could take millions of lives. Many scientists are at work to create a vaccine. But even if they succeed, we cannot delude ourselves that the fight against the virus is over. ‘Herd immunity’ will only be achieved when the entire global population is immune.
Twofold challenge
The union therefore faces a twofold challenge: the internal challenge of protecting European citizens and the external threat. If the war against this planetary killer is not won, no country will be safe.
Until now, Europe’s evolution has been based on the principle of ‘negative integration’: customs barriers were first removed, then those between people and finally those between capitals, with the creation of economic and monetary union. European citizens can study, work and move freely throughout the union. The Charter of Fundamental Rightsratified this goal.
Now it is a case of working to establish second-generation rights: social rights to apply on a European level, naturally in co-operation with member states; effective rights to health and work for all European citizens. This is the European solidarity we need today. European fiscal capacity is not the result of a centralist conspiracy of federalists to steal powers from national governments. What we need is a Europe that protects its citizens with effective policies.
If European governments do not have the courage to adopt adequate European fiscal measures, some sovereignist demagogue will inevitably be ready to sound the death knell for a timorous, divided EU.
Guido Montani is professor of international political economy at the University of Pavia. He is a former president of the European Federalist Movement in Italy. In 1987 he founded in Ventotene the Altiero Spinelli Institute for Federalist Studies. His latest book is Antropocene, nazionalismo e cosmopolitismo: Prospettive per i cittadini del mondo (Mimesis, 2022).