Eoin Drea is senior research officer at the Wilfried Martens Centre for European Studies and a research fellow at Trinity College, Dublin.
The European Commission’s plan to tackle the coronavirus crisis and salvage the bloc’s economy has been heralded as “Europe’s moment.” Instead, it may be its undoing.
In presenting the blueprint, Commission President Ursula von der Leyen framed her proposal — an enlarged EU budget coupled with an additional €750 billion euro recovery fund — as a choice between leaving countries behind or taking a “bold new step together.”
The Commission is right that the economic devastation caused by the coronavirus crisis requires an EU-level response. But the scramble toward a more centralized, more deeply integrated EU risks setting the bloc up for failure.
On paper, allowing the Commission to borrow on behalf of all EU countries will help bridge the widening rift between Southern and Northern Europe. An expanded budget that supports digital and green policy objectives will better prepare economies for the post-virus world.
The specific proposals to create a common consolidated tax base are the prelude to corporate tax harmonization across Europe.
In practice, however, the Commission has doubled down on measures that would further centralize power in Brussels.
From a “deeper and more digital single market” to “completing the Capital Markets Union and the Banking Union,” the proposals are a greatest hits of every big idea the EU has failed to deliver over the past two decades.
It’s a “buy one get one free” of long-cherished Eurocrat dreams.
In seeking relevance (and hoping to repair its initial missteps during this crisis), the EU has dressed up corporate tax harmonization, softer EU competition rules, suitably vague EU level taxes and a bigger, more expensive Europe under the guise of “repair and prepare.”
But let’s be honest. This amounts to a French blueprint for Europe rebadged for the coronavirus age. And that spells all kinds of trouble for the future.
The specific proposals to create a common consolidated tax base are the prelude to corporate tax harmonization across Europe. The implications for states as diverse as Ireland, the Netherlands, Estonia and Bulgaria are obvious.
Tax harmonization is a competition killer designed with the aim of making the EU’s periphery part of the wider Franco-German economic orbit. The countries with some of the highest corporation tax rates in Europe are making sure smaller, more nimble competitors follow suit.
But hey, who can argue with helping countries in their time of need?
Similarly, the proposal to “ensure that competition rules remain fit for today’s world” is shorthand for retrofitting decades of legal precedence to allow for the development of European “champions” to compete against U.S. and Chinese competitors. This has been a shared Franco-German objective since the EU torpedoed the planned merger of Siemens and its French suitor, Alstom, in 2019.
The trouble is that none of the reasons underpinning the EU’s opposition to the merger in 2019 have changed. Nothing, that is, except Europe’s desperation to carve itself a geopolitical role and the shift in political mood in Berlin.
By presenting these long-desired eurocrat goals as conduits to a recovered, greener and more digital Europe, the EU is betting the house on very long odds. These measures only make sense if one assumes that countries like Italy will reform their economies and start to grow — and that shared debt will unite rather than fragment the bloc.
Rather than the current scatter-gun approach, Brussels should be concentrating on a much smaller number of initiatives that would immediately strengthen political and public support for the EU.
This is not only naïve; it’s incredibly dangerous.
Picture Italy in 2024. Will nearly €200 billion in EU grants and loans reform an education system stuck in the 1970s, a labor market that remains discriminatory against young people (particularly women) and the doomed loop that ties the Italian state, banks and households in an almost existential embrace?
It’s nonsensical to think it will. Because only the Italians can really save Italy. Once the glow of solidarity fades (and it will eventually as societies recover) and the money runs out, all that will be left is a vacuum for populist leaders to exploit. And that will spell trouble for an indebted, more expensive and fractured EU.
As to shared debt uniting the EU, the harsh reality is that the European Council summit on June 19 will be the beginning of countless meetings of national leaders riven by disputes about allocations, oversight, value for money and implicit (or explicit) conditionality.
But we shouldn’t let issues like conditionality distract from the much more important issue. Because what these forthcoming disputes should really be about is what kind of Europe we envisage for the future. A bigger, more centralized European super-state planned by Brussels, or a leaner, meaner, more flexible economic colossus underpinned by member state support?
Europe needs a smarter, smaller, more competitive EU. What it’s getting is the exact opposite.
Rather than the current scatter-gun approach, Brussels should be concentrating on a much smaller number of initiatives that would immediately strengthen political and public support for the EU. Reforming the eurozone (completely ignored in the Commission’s proposals, apart from some window dressing), reducing the burden of EU regulation for small businesses and sending sources to a coherent external border protection force would do more to strengthen Italy’s long-term economic performance than making it buy 1 million electronic Volkswagens.
Europe needs a smarter, smaller, more competitive EU. What it’s getting is the exact opposite.
The EU has succumbed to the panic of the coronavirus, to the inherent disarray of lockdowns and soaring unemployment. It has locked itself in to unattainable policy initiatives as drivers of economic recovery.
The sage of Omaha, Warren Buffet, once noted that “what we learn from history is that people don’t learn from history.” The latest proposals from the EU prove his point.