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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