On the creation of a Fiscal Union in the Eurozone

Resolution submitted by: JEF Political Commission 1 – Institutions and Governance

Adopted by the Federal Committee, London, March 23rd, 2019

JEF Europe,

  • Recalling how the deep crises of 2008-2013 in the Eurozone and the EU have exposed the contradictions and unsustainability of the Economic and Monetary Union, whereby supranational monetary policy and the national fiscal policies were unable, due to the lack of a real economic government, to stabilise the economic cycle and prevent the high social cost European citizens faced as a consequence of these crises;
  • Alarmed by the recent Eurozone economic forecasts by the IMF that foresee a lower growth for the entire area, as opposed to what was anticipated on March 2018;
  • Noting with concern that, even after the recent Sovereign Debt Crisis, Eurozone Member States are still very exposed to large economic or financial shocks, especially for the Member States in which public debt levels are still high and where Governments are not endowed with enough fiscal space to enact counter-cyclical policies;
  • Noting that deep financial and economic crises, and the high social costs they result in, can create a climate of political and social unrest, leading to serious risks for democracy and the rule of law within the European Union;
  • Reaffirming strongly that the Economic and Monetary Union continues to be incomplete, leaving the single currency vulnerable to future financial crises that it might not be able to withstand; convinced, therefore, of the need to strengthen the Euro area through the creation of a real Fiscal Union;
  • Emphasising that a Fiscal Union is necessary to ensure the stability of the single currency, the resilience of the Banking Union, and a proper transmission of monetary policy;
  • Believing that the Economic and Monetary Union (EMU), as a large currency area, needs a central fiscal power to tackle macroeconomic imbalances and asymmetric shocks and therefore provide a fiscal counterpart to the European Central Bank; noting that this would improve the credibility of the Eurozone and lead to an increase in investments and growth;
  • Stressing that the creation of a Fiscal Union and the sharing of fiscal risk would help in complying with budgetary discipline at national level, by allowing for the possibility to provide fiscal relief to Member States in crisis situations or deep recessions;
  • Condemning the utter lack of genuine democratic accountability in the EU budgetary process, whereby the European Parliament co-decides with Member States in the Council on annual spending, but does not enjoy equal powers in determining the budgetary framework or in raising revenues;
  • Condemning, furthermore, the total lack of transparency by the European Council and the Council of the EU in deciding on the system of own resources (revenues) and the Multiannual Financial Framework (long-term spending);
  • Takes note of the proposal by the European Commission to end Member States’ veto power on European tax matters and move to a qualified majority mechanism;
  • Highlighting the magnitude of tax avoidance and cross-border tax fraud at EU level, which causes a sizeable loss for European and national public finances, and therefore damage to European citizens
  • Noting that Member States have allowed for aggressive tax planning and engaged in harmful tax competition in favour of high earners and multinational companies, thus undermining tax fairness, causing further imbalances, and eventually increasing the tax burden on EU natural persons; welcoming the measures taken so far by the European Commission to stop such harmful practices;
  • Considering that the divergences among Member States on corporate taxation create additional costs for the European economy and hinder the ability of companies and citizens to reap the benefits of European economic integration;
  • Noting that economic policy, and taxation policy in particular, should abide by the principles of subsidiarity and fiscal federalism, including considerations on the international mobility of tax bases;
  • Strongly convinced that for the EU to be able to act effectively, it must eliminate the principle of unanimity in taxation matters, and ensure convergence of tax systems,
  • Convinced of the need in the long term to  give real powers to raise European taxes to the European Commission and the European Parliament;
  • Aware that the processes that will precede the creation of the Fiscal Union, in which further integration of the fiscal jurisdictions of Member States will proceed at different speeds, must be conducted respecting the principles of subsidiarity and proportionality, the primacy of the European law over national legislation, and its consistent application in the Member States;
  • Convinced that European public goods, must be financed by European resources;
  • Convinced that strengthening European sovereignty by the faculty of collecting taxes and having public resources, is a fundamental step towards a political union in Europe;

JEF EUROPE therefore,

  1. Calls for the creation of a Fiscal Union at the level of the Economic and Monetary Union;
  2. Calls for the Fiscal Union to be built around three pillars:
    1. A fiscal capacity, that is, the ability to raise taxes at EMU level,
    2. A budgetary capacity, that is, a budget at EMU level that can provide, at least, for macroeconomic stabilisation,
    3. A borrowing capacity, that is, the ability to issue Sovereign Debt at EMU level;
  3. Calls for the following institutional reforms, necessary for achieving a stable and democratic Fiscal Union:
    1. The establishment of a Eurozone Finance Minister, who would oversee the Eurozone Treasury, which would include a Eurozone Budget and the European Stabilisation Mechanism, and the issuance of EU Sovereign Debt. The Eurozone Finance Minister would be accountable to the European Parliament and should be one of the Vice-Presidents of the Commission;
    2. That EMU fiscal policy be set in the framework of binding EU law following the Community method, subject to the democratic control of the European Parliament and the judicial control of the European Court of Justice;
    3. That all major policy discussions and decisions – in the European Parliament –on fiscal matters and regarding the management of the Eurozone budget should involve all Member States at Committee level, but only Eurozone MEPs at Plenary level;
    4. The development of the European System of Central Banks into a proper federal network of Central Banks, with the ECB at its helm. National Central Banks would become branches of the ECB tasked with carrying out its policy. In particular, the provision of Emergency Liquidity Assistance should be centralised at EU level.

Furthermore, JEF Europe considers that the following measures and policies must be implemented in the short-term:

  1. A reform of the EU system of own resources according to the principles of economic efficiency, equity among citizens, fairness among Member States, transparency, democratic accountability and subsidiarity;
  1. A Eurozone budget could be financed wholly by genuine EU-own resources, such as:
    1. Environmental own resources: proceeds from a common carbon tax, proceeds from a carbon-adjustment mechanism at the EU border, the revenues of the EU Emission Trading System (ETS), proceeds from a tax on plastic;
    2. Single Market own resources: revenues generated by applying a common minimum rate for an EU Corporate Income Tax (calculated on the CCCTB), a digital tax (modelled on the EU CIT, by including the concept of “digital permanent establishment”), a genuine European VAT;
    3. Schengen own resources: Proceeds from the application of the European Travel Information and Authorisation System;
    4. Eurozone-specific own resources: proceeds from a European Financial Transaction Tax (EU FTT) or any other levy capturing the profits or value-added of the financial sector, the share of ECB profits currently distributed to national Treasuries;
    5. Revenues from the current Traditional Own Resources;

The introduction of such taxes or any changes to the legislation establishing them may only be done through due democratic process and should not aim at increasing the overall burden on EU citizens;

  1. Calls for a revision of the principle of financial autonomy as stated in the Articles 311 and 332(2) of the Treaty on the Functioning of the European Union, in order to, as already proposed by the European Parliament in 2018, modernise the existing own resources, introducing new ones and most importantly increase their ceilings to maintain the credibility of the EU budget. However, in the long term, to insert in the future Constitution of the European federation the principle of fiscal autonomy;
  2. Demands that the Eurozone budget’s first aim be to stabilise the economic cycle, for example through a mechanism of European unemployment reinsurance, and the protection of Banking Union savers through a European Deposit Insurance Scheme, so that it does not overlap with the EU budget, whose primary aim is to correct regional imbalances, support innovation and mobility, finance European public goods such as security, defence and the fight against climate change, and promote  investments and growth;
  3. Calls for the ESM to provide a fiscal backstop to the Banking Union, with no limit in size, financed by European Sovereign Debt;
  4. Believes that, once a Eurozone budget sizeable enough to provide macroeconomic stabilisation is established, the EU should undergo a deep reform of its budgetary discipline rules – the Stability and Growth Pact, the Six-Pack, Two-Pack and the Fiscal Compact – with the objective of ensuring their respect in full; as part of this reform, the existing rules should be simplified and streamlined, allowing for proper counter cyclical fiscal policy: tighter constraints when the economy is growing, and looser constraint during slowdowns;
  5. Expects that competition among Member States will be coordinated by the European Commission and the European Parliament will have the possibility to intervene on this matter, especially in those situations that are in contrast with the same principles of the European federation;
  6. Demands as a matter of urgency, that all Member States transpose the anti-tax avoidance directive (ATAD) into national legislation, and that the European Union improves transparency and cooperation among national governments on the fight against tax evasion and avoidance;
  7. Hopes that, eventually, a different idea of European taxation, meaning as a way to collect those financial means that are essential to the development and viability of the European collective according to just principles of distribution, will take root among national governments and the European citizens.

— Read the resolution —