- The European political future, in which direction should we go? - May 1, 2018
- How the Dutch housing market recovery pushes people into trouble - April 3, 2018
- The non-performing loans problem, will Europe follow Japan? - January 15, 2018
- “This time is different” – how bail-ins should relieve taxpayers’ money - October 31, 2017
- Will the commercialization of football ever reach its limit? - October 2, 2017
Lately, the European Commission has been in the news a lot. In a negative sense, with the so-called “super promotion” of Martin Selmayr, the right-hand of Jean-Claude Juncker, the chairman of the European Commission. Instead of discussing such a small problem, we should focus on the debate on the political future of Europe.
The best blueprint for the future of Europe is to take a look at the US. The US consists of a very heterogeneous population (Afro-Americans, Hispanics, etc.) and the wealth between states differs a lot. Take for instance California which has a larger “GDP” per capita when compared to France and compare this state with New-Mexico, which has a “GDP” per capita similar to a country in Africa. Lastly, the power of the US president is – contrary to what many people think – quite limited. Think for instance of the abortion rules, the legalization of marijuana, or the death penalty. Moreover, most climate rules that are implemented in the US do not come from Capital Hill, but instead from the state California. California is the leading regulator when it comes down to this issue and other states take over their policies, without any interference from the federal level. As has been showed by the above examples, the states have a lot of autonomy.
When reading this, one might think that the European countries have (to a large extent) some things in common: Each country determines his own penalties for crime (except the death penalty, that is not allowed as a member of the EU), have their own energy policies, and are allowed to levy their own taxes.
The last point, of taxes, shows the first difference between the US and the EU: In the EU there is no central authority that can levy taxes on all countries that are a member. The US does this to have in every state a minimum level of social security (e.g. think of Medicare, Medicaid, Obamacare, federal pension system, etc.). In Europe, this particular kind of tax is absent.
So now we finally reach the focal point of this column: Do we want to have a similar system like the US or not? In order to do so, this means that we should get fiscal transfers between EU countries and a social safety net at the European level will be introduced. This means as well that all budgets need to be approved by a central European authority and the EU gets its first minister of the Treasury (So we get the first Alexander Hamilton of the EU).
Of course, another possibility is to oppose this central form of authority (i.e. less centralization to the EU-level). In this situation, there will not be a central authority arranging many things, like social security, and financing it by EU-wide taxes. Moreover, EU members should not be brought into the position of bailing out other countries. The latter can only be the case if there is a solid banking union at the EU-level. This means that banks should have sufficient reserves to sustain mass write-offs if a country defaults. In this way, the tax payer will not foot the bill (either via bailing out banks or bailing out countries).
The two described routes show that both have some pros and cons. There is no right or wrong direction, it all comes down to what the voters in Europe prefer. They choose the representatives for the European Parliament as well as the domestic representatives (e.g. the country’s ministers determine to a large extent what happens at the European level). The discussion in Europe should be focussing on more or less power to the central European government instead of complaining about single issues such as a promotion in the European Commission.