The Euro Crisis


Interview on the Euro Crisis with Sylvie Goulard MEP, by Frank Turner SJ:

There has been much recent commentary about the possibility that the Euro might disappear. Even if that danger has receded, the fragility of the Euro is newly evident. In the context of the financial crisis, how would you evaluate the current risk to the Euro?

Until the end of 2011 people were genuinely apprehensive. What has become clear since then is that there is the political will to ensure that the Euro will not fail. The tools for its effective management are still lacking, in part, and we can expect further turbulence. But the EU will simply not allow the Euro to fail.

What are the most important and urgent reforms necessary to restore confidence in the Euro? What role can the European Parliament take in pursuing these reforms?

The European Parliament has used the powers given it through the Lisbon Treaty in an attempt to improve the proposals made by the Commission – for example in the case of the so-called ‘six-pack’ of financial regulations (focused on improving the monitoring of fiscal policies and of macroeconomic imbalances). The Council has sometimes been more resistant to the Commission proposals – caught between the will to respond to transnational problems and the desire to protect the ‘independence’ of Member States. In terms of crisis management, the Member States and national parliaments rightly take the lead. But in terms of democracy, the crisis of the Euro touches all areas of economic life (taxation, employment, pensions, etc) and a transparent and transnational debate is essential. The Parliament is an essential vehicle for this debate.

The role of the European Central Bank is also widely discussed. What role should it have in this crisis? In particular, do you think it ought to have the power to issue ‘Eurobonds’?

The Treaties clearly state that the European Central Bank is independent of direct political control. No global currency is without its bond market, so it would be strange to oppose the issue of Eurobonds on principle. However, definitions are crucial, since ‘Eurobonds’ could take several different forms, and work is still needed to determine the best form. Furthermore, a Eurobond market cannot be established instantly because it requires trust between different Member States, not all of whom have previously managed their economies efficiently or transparently. But a well-functioning bond market, by establishing a liability that is ‘joint and several’ can generate trust too, while offering rewards for the reduction of unduly onerous national debts.

Do you share the belief that fiscal harmonisation is necessary or desirable? What criteria should govern any harmonisation? What institution should lead the process?

‘Taxation’ is not a single thing. There is direct taxation on individual wealth and incomes, indirect taxation (on purchases), corporate taxation. No single statement will be equally valid across this range of phenomena. No one is proposing to overturn Member State competence in taxation.

But at least in the sphere of corporate taxation it is highly desirable to control (or prevent) ‘tax arbitrage’ – the practice by which Member States or corporations directly profit by exploiting differences in national levels of taxation. The current policies within the Eurozone, intended to counter the effects of the crisis, rely heavily on solidarity. It is unreasonable to expect Member States to offer such solidarity to other Member States that then undercut their tax rates in order to seek a competitive advantage. Several Member States benefit or seek to benefit from such disparities. But a company such as Google, for example, uses Ireland not to access the Irish market but the European market, and other countries cannot be expected to support Ireland while simultaneously accepting Ireland’s policy of levying an especially low corporate tax rate to attract business from its competitors. The regulations governing transnational business need to be transnationally coherent.

France has approved a financial transactions tax (FTT). Do you believe that the EU ought to promote such a tax? If the Euro takes the lead, will it affect the competitive position of the European finance sector?

I am not simply and straightforwardly in favour of this tax. The reality is too complex. On the one hand, it is reasonable that a sector as influential as the finance sector, which is generally successful in avoiding taxation, should contribute as other sectors of industry and commerce do: so new instruments need to be found. But in a market that is so evidently global, it is problematic to introduce taxes that are not themselves global.

M. Sarkozy’s proposal to introduce a form of FTT, unilaterally if necessary, seems an electoral ploy. Whether an FTT at the level of the Eurozone only can work is not clear. It would clearly favour the City of London industry that will at present be exempted by the British Government. But, for example, several European banks now gain from loans at favourable rates from the ECB, not always using those cheap funds for the purpose intended – that is, to re-lend so as to inject more liquidity in the markets. If these funds are reinvested speculatively, a tax is entirely appropriate.

In general, there is a long-term need for more adequate regulation and taxation of the finance sector, but we should not pin our hopes on one single measure without further consideration.

(A supplementary question) – Policies of austerity are not a remedy to the crisis in isolation, since they threaten further recession: yet in some countries governmental indebtedness is so high that further stimulus seems impossible. What way forward?

It is true that many governments have reached a level of debt that renders new stimulus packages of the kind employed in 2009 very difficult. Furthermore, if increased public spending assured growth, our economies would already be growing! However there are interesting examples of attempts to promote growth through mechanisms other than governmental cash injections. The new Italian government offers some interesting ideas. Changing the governance models of corporations so as to encourage long-term growth rather than short-term thinking does not necessarily require extra subsidies. Nor do attempts to increase employment flexibility in order to make hiring (and therefore ‘firing’, unfortunately, but this is the price to pay for increased labour mobility) less complicated. But in a situation of high government debt, the only way to increase public spending in some areas is to cut it in others: just as examples, to cut military spending, or spending on nuclear energy, so as to increase social spending) Such choices are as much political as they are economic.

Published by Frank Turner

This article was posted in European Consciousness.