IEP Lunch Debate with Reimer Böge, Member of the European Parliament
Reimer Böge, Member of the European Parliament refereed the debate on the topic “A fiscal capacity for the Eurozone?” during the IEP’s Lunch Debate at the European House in Berlin on 2 June 2017. The event was moderated by Prof Dr. Mathias Jopp, director of the Institut für Europäische Politik (IEP). Frank Piplat, director of the information office of the European Parliament in Germany greeted the audience a welcoming address.
In his opening words, Dr. Jopp highlighted the importance of the topic by pointing out that a common monetary area also requires common instruments. In this regard, the Böge/Berès report on fiscal capacity is counted among the European Parliament’s three great reports on reform.
Reimer Böge began his speech by locating the topic within an overall concept which the European Union will have to discuss over the next four to five years. Domestic and foreign security, migration and border control as well as a strengthening of neighborhood policies fell within this scope. It was said that more should be done in the area of youth unemployment and in the implementation of climate conference agreements, a point which had again become clearer with the announcement of the USA’s withdrawal from the Paris Agreement. Stabilization of the Eurozone was said to form an essential part of this overall concept. In the end, each of these three points touched on matters of Europe’s self-assertion.
Although the past had shown that there are structural deficits in the Eurozone, its development could still be regarded as a success story. Still, the events were overwhelming. With a short look back towards history, Böge pointed towards the failure to introduce an instrument for the balance of payments in the Eurozone. Indeed such an instrument, which would provide guarantees for countries experiencing problems with their balance of payments, had existed since the Treaties of Rome. The European Parliament had referenced the necessity of such an instrument for the Eurozone since 1997. The debate surrounding a fiscal capacity for the Eurozone has most recently received a boost following the election of Macron in France and the presentation of the European Commission’s reflection paper on the Economic and Monetary Union. In this respect, harmonizing the German and French outlook, as well as integrating the other member states, was said to be of particular importance. France, given its problems with shared sovereignty, and Germany, given its problems with shared risks, must work together.
The idea of a fiscal capacity for the Eurozone essentially emerged out of two considerations. On the one hand is the European Stability Mechanism (ESM) which, according to Böge, must be further developed into a European Monetary Fund. This further development would, in the long term, require changes to the European treaties. However, differing views prevail in this regard among the EU’s member states. He stressed that a European Monetary Fund should prevent too strong of a dependency on the International Monetary Fund (IMF), as the IMF had originally been established to support emerging and developing countries. Additionally, this would avoid allowing the largest contributor to the IMF, the USA, to interfere in the debate over the Eurozone’s stabilization. On the other hand, recognition that too few reserves for later fiscal consolidations had been established in times of economic growth also led to formulating the idea of a fiscal capacity.
The idea of a European Unemployment Insurance was considered as an alternative to a fiscal capacity. This however, according to Böge, would be difficult to implement as social systems differ considerably among the EU’s member states. As such, he clearly stated his support for a “Rainy Day Fund” for the Eurozone. The founding thought process behind this fiscal capacity was that each country would pay a contribution, determined on the basis of GNI, into this fund. If a country were to run into economic difficulties, it would be entitled on the basis of its payments to assistance from the fund. This anticyclical reaction must be clearly linked to a convergence code, i.e. to terms and conditions. Furthermore, the automation of this aid mechanism was said to be a further goal along with preventing drawn out negotiations, as seen during the financial crises, over the type and amount of support to be given. This automatic mechanism would also obviate the need for comprehensive intervention up until the final budget line. It is important to avoid exactly this kind of interventions, as they prepare the ground for conspiracy theorists and Eurosceptics. In addition, it should also be ensured that fiscal capacity is open for non-Euro countries. EU member states that do not form part of the Eurozone cannot be made to feel like second-class Europeans.
Beyond the general functionality of a financial facility for the Eurozone, the question of governance must also be clarified. What should the office of a potential finance minister look like, and which concrete competencies should such an official possess? One possibility was, for example, to fold the office into that of the Vice President of the European Commission. In this case, changes to the treaties would not necessarily have to be undertaken. A fiscal capacity could at first be financed via earmarked contributions. Nevertheless, it would be necessary to take a close look at where future savings could be made in the Multiannual Financial Framework; scrutiny of existing structures would also be necessary. The discontinuance of rebates during Brexit offers a chance to bring up the discussion on potential restructuring during the next budgetary negotiations. However, one must approach such a discussion with caution in order to rebuild the trust which has been lost in the past. Still, Böge named ensuring transparency as the top priority for European citizens.
Author: Petra Fischer