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 in London on 23 March 2019. Re-adopted and amended by the European Congress in Liège on 21 November 2021. Re-adopted and amended by the European Federal Committee in Tartu, Estonia on 14 April 2024. 

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;
  • Noting with concern that, even more than a decade after the sovereign debt crisis, Eurozone Member States are still very exposed to large economic or financial shocks, especially 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;
  • Acknowledging the strong impact that the COVID-19 pandemic, the Russian full-scale invasion of Ukraine, and the cost of life crisis have had in the economic stability of European states in general, and of Eurozone states in particular;
  • Further noting, that the Next Generation EU (NGEU), which tried to absorb the economic shocks and invest in a post-pandemic European economy; however stressing that NGEU is just a temporary program and the Economic and Monetary Union (EMU) needs permanent stabilization mechanisms;
  • Noting that deep financial and economic crises, and the high social costs they result in, is creating a climate of political and social unrest, and it is leading to serious risks for democracy and the rule of law within the European Union;
  • Reaffirming strongly that the EMU continues to be incomplete, leaving the single currency vulnerable still to future financial and economic crises;
  • Fearful that the EMU might not be able to overcome these challenges; 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 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;
  • Highlighting the success of Next Generation EU Green Bond, as an example of how the European Union’s financial capabilities would have more impact with stronger planning at the EU level;
  • 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);
  • Welcoming 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;
  • Welcoming the anti-tax avoidance directive (ATAD), but demanding that more needs to be done to improve transparency and cooperation among national governments on the fight against tax evasion and avoidance;
  • 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 steps that OECD and G20 have been taking to coordinate corporate tax regime;
  • Considering that divergences among Member States on corporate taxation produce economic inefficiencies within the Single Market, as uncompetitive companies may unjustly benefit from a lower level of corporate taxation in the Member State in which they are based;
  • 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, such as shared cross-border infrastructure and joint public procurements, must be financed by own European resources in addition to national contributions to the EU Budget;
  • 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;
  • Strongly convinced that the Next Generation EU instrument and joint debt that is linked to a rule of law clause is a right step towards a common fiscal union;
  • Positively observing the step forward taken by the European Commission with the proposal for a next generation of own resources, in particular direct 30% of the revenues from emissions trading in the EU, 75% of what countries collect under Carbon Border Adjustment Mechanism (CBAM), and 0.5% of the national EU company profit base to the EU budget;
  • Welcoming the proposal of a Framework for Income Taxation (BEFIT) made by the European Commission, introducing a common EU-wide system for calculation of the corporate tax base.

JEF Europe, therefore,

1. Calls for the creation of a Fiscal Union at the level of the Economic and Monetary Union (EMU);

2. Calls for the Fiscal Union to be built around three pillars:

  • A fiscal capacity, that is, the ability to raise taxes at EMU level,
  • A budgetary capacity, that is, a budget at EMU level that can provide, at least, for macroeconomic stabilisation,
  • 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:

  • 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;
  • 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;
  • That all major policy discussions and decisions – in the European Parliament – on fiscal matters and regarding the management of the Eurozone budget should involve members from all Member States at Committee level, but only Eurozone MEPs at Plenary level;
  • 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 managed at EU level.

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

4. 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;

5. A Eurozone budget could be financed wholly or should be complemented and expanded by EU-own resources, such as: the already existing

  • GNI based own resources consisting of a uniform percentage levy on Member States’ GNI;
  • VAT-based own resource currently consisting of the transfer of a percentage of the estimated value added tax (VAT) collected by the Member States to the Union;
  • Plastic own resource introduced as of January 2021 consisting of a national contribution on the basis of the quantity of non-recycled plastic packaging waste, with a uniform call rate of EUR 0.80 per kilogramme;
  • Traditional Own Resources, such as custom duties;

and new sources of revenue stemming from

  • The environmental sector: common carbon tax, proceeds from a carbon-adjustment mechanism at the EU border, the revenues of the EU Emission Trading System (ETS),
  • The single market: revenues generated by applying a common minimum rate for an EU Corporate Income Tax (EU CIT), a digital tax (modelled on the EU CIT, by including the concept of “digital permanent establishment”), a genuine European VAT, the rate of which can be modified by a decision of the European Parliament and the Council;
  • The Schengen area: revenues proceeding from the application of the European Travel Information and Authorisation System;
  • In the long term, direct income taxation from citizens to the European budget, with a view to transferring some of an individual’s tax burden from the national to the European level where possible. The introduction of such taxes or any changes to the legislation establishing them may only be done through democratic process and should not aim at increasing the overall burden on EU citizens;

Furthermore, JEF Europe:

6. 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;

7. Demands that the Eurozone budget’s primary 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;

8. Calls for the ESM to provide a fiscal backstop to the Banking Union, with no limit in size, financed by a European Sovereign Debt;

9. 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 full respect; as part of this reform, the existing rules should be simplified and streamlined, allowing for proper counter-cyclical fiscal policy;

10. Calls for the European Commission to monitor competition among Member States and issue recommendations for policy corrections where needed;

11. Hopes that, eventually, a different idea of European taxation, meant 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.

Taking into account the Next Generation EU recovery plan and the multiannual financial framework (MFF) 2021-2027 and with regard to a future Treaties change, JEF Europe:

12. Demands further that any financial payout is linked to a rule of law clause and strict oversight by the European Commission and other competent authorities;

13. Calls for the EU institutions and national governments to explore ways to continue common programmes similar to Next Generation EU, with a view to reforming the fiscal structures of the Union;

14. Advocates for future European investment to focus especially on future-proof sectors and investments with a trans-european dimension;

15. Finally, calls for treaty change, which also needs to touch upon the Fiscal Union and its fundamental structures in order to guarantee a streamlined and effective economic governance.