The (grim) state of the Union

Juncker’s vision is for full EU control over members’ economies

Some quick first impressions of the economic aspects of today’s State of the EU address by European Commission President Jean-Claude Juncker.

Jean-Claude Juncker’s State of the Union address was remarkable for its strident, defensive and utterly oblivious tone, but for little else.

On deepening the Economic and Monetary Union, he outlined several proposals that have already been floated several times by the Commission in recent years. The most significant of these are to introduce a euro-area budget line within the EU budget, and to create a European Monetary Fund and a European Finance Minister to take over responsibility for administering the EU’s debt and deficit criteria – the austerity agenda currently administered by the Commission.

There are two main goals evident in the Commission’s proposal. The first is to ensure that the current informal economic governance structure that exists in the Eurozone – outside of the Treaties and beyond democratic oversight – is extended across the EU as a whole in order to pressure the non-euro member states to join the common currency as soon as possible, and to give the Eurogroup the veneer of legitimacy.

The second is to implant Germany’s failed and ideologically-driven deficit fetishism ever more firmly in the structure of the EU by creating a Ministry to surveil and structurally reform the economies of Member States, and to surveil and control their spending, taxation and borrowing through budgetary control.

After the election of President Macron in France this year, Germany and France set up a working group to discuss the creation of a European Monetary Fund, or EMF, to deal with future crises. The states who may require the aid of the European Monetary Fund are those of us in the periphery of the EU – the Irish state, Greece, Spain, Portugal – who are suffering debt crises largely as a result of Germany’s massive and damaging current account surplus.

Yesterday, El País reported that Germany is proposing that a German-dominated EMF take fiscal oversight away from the Commission – but that it is attempting to win the support of France and Italy for the move by including the promise that Germany, France, and Italy can each have a veto over its decisions. This will essentially give Germany strict control over the oversight of budgets of all the EU states who require the assistance of the fund, with only France and Italy having the right to reject the EMF’s conditions.

The French side has been pushing for the EMF to also require more risk-sharing and debt-sharing, which would benefit the peripheral states more. The Commission’s final proposal regarding turning the current crisis fund, the European Stability Mechanism, into an EMF, will be published in December. It is unclear from Juncker’s speech and its accompanying documents which aspects of the German and French proposals will form the basis of the detail of the EMF proposal – but if Juncker’s other proposals are an indication of the general balance of power, it’s safe to bet on the German proposal winning the day.

For several decades now, France’s demand for a European monetary union was always met with the German response that it must be accompanied by fiscal union, or German-led surveillance and control over national budgets. The same argument continues today, based on the same failed ideology.

Juncker’s speech was as significant in what it didn’t propose as what it did propose – it looks like the Commission is already walking back from, or at least stalling on, ideas it had previously floated in its ‘reflection paper’ on deepening the Economic and Monetary Union released earlier this year. These included ideas of creating a European unemployment insurance scheme and an investment protection scheme, both of which would go some way towards meeting longstanding French calls for some form of financial transfers from the core (Germany) to the small and mid-sized economies in the EU, albeit with destructive conditions attached.

There was no mention of these proposals today, and Juncker firmly told the periphery states that their hope for a common bank deposit insurance scheme (which would amount to one form of financial transfer from the core to periphery) is on ice until they start following Germany’s orders on risk-reduction. His exact words were: “To get access to a common deposit insurance scheme you first need to do your homework.”

Over decades of core vs periphery fights over debt and investment, the outcome is always the same – the so-called peripheral states surrender more and power over their spending, borrowing and taxation to German-dominated institutions in exchange for the promise of aid or financial transfers that simply never come.

So, no big surprises here: just confirmation that the brief talk of fundamental change of the structure of the EU that followed Macron’s election was just that – talk.

 

 

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