Thursday, 14 June 2012

Choppy waters for the Fiscal Stability Treaty in the Bundestag


It's interesting to see the politics of passing the Fiscal Stability Treaty in the German Bundestag over the last few weeks. Angela Merkel's government needs the opposition for the two thirds majority needed to pass the Treaty, and the opposition Social Democrats and Greens are trying to extract concessions on a growth agenda for Europe that echoes some of François Hollande's proposals.

The opposition wants:

- The strengthening of the European Investment Bank.
- Bonds for the indebted countries of the EU (I understand this to mean bonds that cover the debts in excess of the 60% of GDP-limit).
- Better use of the EU structural funds.
- Project bonds.
- A financial transaction tax.

(There is also an issue of how it will affect the Bundesländer, or the states, and local government).

The biggest clash lately has been over the financial transaction tax (FTT). Initially the government said that it would be impossible for an FTT to be brought in before the end of the legislative period, but now the Commission has come out contradicting the German government. The Süddeutsche Zeitung reports that it could be possible to pass a law on FTT by the end of the year, and collect the tax in 2014 (in the next German legislative period). If the FTT is to pass this year, it will be under enhanced cooperation between at least 9 Member States, given that taxation is still subject to the veto and the UK refusal to sign up to an FTT. Die Süddeutsche notes that the finance ministers of Germany, France, Spain, Italy, Greece, Portugal, Finland, Belgium and Austria signed up to the principle of an FTT in February, though obviously there would be a lot of detail to hammer out between them, and there's no guarantee an FTT coalition will look the same when it comes to passing the law.

It's worth noting that the Süddeutsche also reports that the German finance minister, Wolfgang Schäuble, seems to be considering another extra-EU treaty if it would be a faster way of achieving an FTT. What could this mean for the talking point of the month, the Banking Union? If an FTT was seen as a way of financing support of the financial sector without burdening the taxpayer, then it could be dangerous for other Eurozone countries to sit out talks on this FTT if it could be expanded to fit into the Banking Union or be taken as a model for it. Another extra-EU treaty would be a bad direction to go in: the EU provides a procedure for further integration of a group of Member States, and circumventing the EU institutions further poisons the trust in the rules and procedures agreed to by all Member States being respected.

The Fiscal Stability Treaty is part of a piecemeal approach that is rightly open to criticism: it doesn't solve the crisis in itself, and without a comprehensive deal on what a fiscal union will look like, these half-measures will erode confidence in the ability of the Eurozone to get its affairs in order. Hopefully this initiative of the German opposition will help push a more balanced and fairer approach to the Eurozone crisis, but it would be better if the left started cooperating across borders on what it wants to see from a fiscal union.

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