Thursday 11 November 2010

The Fair Share

European Council President Van Rompuy gave a speech on Tuesday, the anniversary of the fall of the Berlin Wall (link; PDF). As you would expect from a Europe-focused, (European dated) 9/11 speech, the reunification and integration of Europe had a central place. However, the rise of nationalism, economic governance, and the EU's budget made their way into the speech. Van Rompuy made clear that economic union would have to accompany currency union, but he did not suggest anything new, only pausing to name-check the economic task force that he recently headed.

Nationalism was characterised as a manifestation of fear, and the resolve of governments to implement austerity plans was praised. Despite re-iterating the relevance of questions of war and peace when it came to inspiring European integration, there was little to offer in terms of inspiration or aspiration to the individual citizen. The fall of Communism, the ending of the wars in Europe, are all powerful and important theme and motivators in European politics, and can still invoke strong feelings, but it is essentially a warning from the past not to do something. As a guide to the present and future it remains vague and unsatisfying. Europe should focus on a positive vision of the future.

What is most striking for me was Van Rompuy's comments on the budget, with the European Council President slapping down suggestions of more direct contributions to the EU budget - or direct taxation - page 8:

"In my view the limited Treaty amendment all Heads of State and Government agreed upon ten days ago is essential, but it should not reopen the entire ‘internal debate’ on the nature, the goal and the architecture of the Union: we have more pressing matters at hand. For the same reason, I do not think that redesigning the way the EU get its revenue is a top priority. The current system reflects as a rule the Member States’ capacity to pay. Contributions are based on the Gross National Income and thus seen as fair. Some have suggested to replace this with a direct EU tax, for instance on financial transactions or on carbon. It is argued that such real 'own resources' would make the Brussels institutions 'more responsible'. I am personally open to new ideas, but since most alternative sources of income would risk to hit Member States unequally, this would weaken the fairness of the current system, its built-in solidarity. So let's be prudent, but let's discuss it."

Using GNI as a base, and arguing that direct taxes would fall on different member states differently (and therefore unfairly) is a strange argument to me. First of all, you have to ask if GNI is a good basis for fairness. According to GNI, when Greece had to be bailed out, Ireland contributed one of the highest per capita contributions, despite the austerity and crisis it was in. Of course Member State contributions should be a significant part of the budget, as the EU is a way of maximising Memeber State power through trade agreement negotiations, common market regulation, etc. But having the burden fall mainly on Member States' budgets does not necessarily mean that it is "fair".

Just as the EU is a "Transfer Union" whether Germany likes it or not (given the history of the CAP, the EC/EU has always been a transfer union), and such a transfer union is based on burden distribution, the central question is of burden sharing - or fairness. When it comes to cohesion funds, the EU has undertaken that funds will be paid out to help develop the poorer regions to ensure they aren'y left behind by those reigions that are more wealthy and better placed to to better out of the internal market (essentially the richer regions help the poorer). To me it's a bad argument to assert that shifting the burden from Member States contributions to direct taxation (note that this is separate from the overall size of the EU budget) is unfair on certain Member States. The whole point of direct taxation is that it would shift the burden from general taxation and the budgets of national governments to private individuals engaged in certain economic activities. When it comes to financial or aeroplane emission taxes, this would shift the burden on to individuals and sectors that benefit most from the freedoms of the internal market, or sectors that can only be effectively regulated at the continental scale.

Would it be so unfair to shift some of the burden of the EU budget on to such shoulders?

What taxes and how well defined they are is a major issue, and I've written about it before, but when it comes to fairness, the issues and factors at play are much wider than the general econoomic performance of the Member States. On the other hand, the political possibility of bringing in direct taxation is extremely low. On practicality I would agree with Van Rompuy, but on principle I would have to disagree.

How Van Rompuy dealt with the different issues he raised in his speech show is that he is strongly intergovernmental. This isn't surprising, given his position as the head of the most intergovernmental institution in the EU, but the issue focus and rhetoric show that an intergovernmental Europe is firmly at the heart of his political world- or continental -view.

1 comment:

  1. The UK and the cascade of other rebates do not quite support the argument about the fairness of the current budget.

    Yes, the EU needs positive visions. The member state governments seem to be unlikely candidates for this task, so the question remains how useful Van Rompuy is going to be for EU citizens in his role as spokesperson for member state consensus.