The current crisis management in Europe is a patchwork: on the one hand, responsibilities are shifting to the European level through stricter European regulations. On the other hand there is only loose coordination between Member States when it comes to combating unemployment or revitalising the economy. It is therefore more vital than ever to transform the porous structure of the EU into a stable, federal house. A key instrument for this is the budget of the EU, through which European problem-solving capacities can be enhanced.

Since the outbreak of the financial and economic crisis, EU political and economic elites have boasted that they are able to achieve stability in Europe through a number of measures. All of these measures – from the European Semester to the Euro Plus Pact to the Economic Governance Package (‘’six-pack’’ and ‘’two-pack“) to the Fiscal Compact – have one thing in common: they set binding European rules for national budgetary policies. The Member States commit themselves to austerity and budgetary discipline, which in case of non-compliance will be strictly penalised. The Commission takes further responsibility for the implementation of disciplinary measures, in combination with the supervision of budgetary requirements. Simultaneously the discretion of national parliaments to draft up and decide over the budgets is being increasingly restricted. The loss of democratic legitimacy, however, has not been balanced out by expanded parliamentary oversight on the European level. Significant responsibilities are thereby being transferred from the democratically legitimised national parliaments to the European executive (Commission and Council). Formerly national tasks are being mutualised through commitment to the binding rules of a united ‘’economic government.’’ From a federal perspective one can perceive the Europeanisation of national budgetary policies with a simultaneous loss of democratic mechanisms as an excessive intergovernmentalism within the European multi-level governance.

Nation states responsible for economic growth and fighting unemployment

In contrast, the responsibility to solve the social and economic consequences of the crisis (unemployment, recession) remains with the nation states. Although the European Council adopted a ‘’Compact for Growth and Jobs,’’ and more recently a ‘’Youth Employment Guarantee,’’ neither of the measures are endowed with an adequate budget, nor equipped with the same legal obligations as the fiscal discipline. The negotiations on the multiannual financial framework from 2014-2020 also remain focused on austerity. Moreover the negotiations pursue the logic of defending national interests (i.e. net contributor debate), while ambitions for a further-reaching Europeanisation are indiscernible. Overall the crisis management reveals a problematic growing divergence: the concrete crisis management is left to the nation states whose budgets are restrained by EU rules. Battling unemployment and boosting economic growth is merely coordinated at the European level. Thus a standstill in economic and integrational policy is reinforced.

Multifaceted crises need european solutions

This crisis management policy is completely inadequate to address the current challenges (financial and economic crisis, energy and environmental crisis, crisis of democracy). It is in fact counterproductive, illustrated for instance by rising unemployment. Considering these challenges and how intertwined Europe is economically, the Member States cannot solve the resulting problems alone. There must be common solutions in a well-balanced European multi-level governance. With the EU institutions, with the division of powers between the European and national levels, and with the EU budget, the EU already possesses many traits of a federal structure. From our point of view the crisis can only be resolved by strengthening and implementing the federal principle. The decision-making responsibility of democratically legitimate bodies must take place at the level at which the problems can be addressed most effectively. Therefore the subsidiarity principle should be the guiding one.

Europeanise the EU budget

Just as in any federal system, the linchpin of the European project is the budget, which currently comprises only 1% of the GNP of the EU. In comparison the federal budget of the USA is approximately 22% of GDP. A similar dimension for Europe is unforeseeable as, according to the principle of subsidiarity, the European level even in the long-term will not finance certain expenditures such as health or pensions. Yet the EU budget must be considerably increased and concentrate on those areas in which it can be of added value to the national budgets and can correct distortions of the single market. The added benefit would be to foster economic stabilisation, climate protection, ecological renewal in terms of a green economy (‘’Green New Deal’’) and the production of public goods with positive cross-border synergies (for example research and infrastructure).

In addition to the principles of added value, cost efficiency and economies of scale, a federal budget is also a matter of cohesion and solidarity. The Member States display unequal levels of development and are affected by the crisis to different degrees. The previous Cohesion Policy of the EU is a solid foundation for further steps toward a European fiscal equalisation scheme. All Member States share the responsibility for economic recovery in Europe and for the elimination of all disparities. This implies that the nation states must incur the same costs in financing their national budgets. The mutualisation of debts through ‘’Eurobonds’’ is therefore a vital step. Europe can be transformed into a socially fair, ecologically and democratically legitimate community only with joint measures and a political change of direction. Trust in Europe will only increase when the livelihoods of its citizens are improved through a European budgetary policy and fiscal equalisation adequate to the problems we face.

Separate EU taxes and tax harmonisation

Financing the European budget from its own revenue sources is in line with the European spirit and lives up to further integration. The Lisbon Treaty contains the key to the additional resources for an expanded EU budget. In article 311 TFEU it states ‘’Without prejudice to other revenue, the budget shall be financed wholly from own resources.’’ Currently the budget stems primarily from national contributions. The result is that the focus of the multiannual financial framework negotiations is not on how the funds are allocated, but rather on ‘’horse trading’’ about national net returns.

Proposals for EU taxes range from a financial transaction tax to environmental taxes to company taxes. A prerequisite would be tax harmonisation in the EU with the goal of ending the ruinous tax competition between Member States. Tax harmonisation thus far has failed due to two hurdles: the fetish of tax competition and the principle of unanimity, which must be replaced with a qualified majority. One community with common interests and values must realise that tax dumping and ineffective supervision of taxation standards are counterproductive for our common livelihood. Part of such a tax package is also a unified wealth tax, which can ensure the revenue base for the nation states.

Strengthening the European Parliament

But any mechanism for solving these crises can  be effective only insofar as the relevant decision are connected to the citizens of Europe. It is therefore all about attaining the division of powers on the European level. The European Parliament, the only body of the EU that is directly elected by the citizens of Europe, must be invested with all the rights of a fully-fledged parliament: the sole authority to initiate legislative proposals and budgetary sovereignty. It would become the central decision-making body for guiding economic policy as well as controlling the executive in all European affairs. The Council would be installed as a second chamber to the European Parliament to represent the member states. The European Commission would become the executive branch, charged with carrying out the EU budget and European economic policy and accountable to the European Parliament as well as the Council.

These proposals mean that the EU must continue to develop in the direction of a federal union. This goes hand in hand with further competencies being transferred to the European level in policy areas that can only be resolved at a higher level. The future of European federalism lies in a parliamentary multi-level democracy in which the nation states continue to play a central role in fulfilling key societal needs. Only a stable federal EU house, one that can meet existing challenges thanks to its prudent division of powers, can enjoy the trust of its citizens and endure.

Mapping the Green Transformation
Mapping the Green Transformation

This edition focuses on four key debates the that Journal has identified as being crucial to the future of Europe: federalism; sustainability; solidarity; and hospitality.

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