A relatively propitious moment. To what extent should progress in the eurozone towards common economic governance and enhanced solidarity instruments require a parallel development in Europe's political unity? This is a controversial question. The European Federalist Movement, particularly its French section, is significantly increasing initiatives. The Altiero Spinelli Group is doing likewise, although it gives the impression that it is a little lacklustre with regard to its intentions in this domain at the beginning. Other observers are still sticking to their principled positions but are not ignoring the current situation. Jacques Delors has therefore acknowledged the fact that for the time being, most member states oppose a transfer of sovereignty (“no one wants it”, see this column in EUROPE 10275). So what actually is causing this deadlock?
In my opinion, this would not be the correct interpretation of the situation. On the contrary, we are at a favourable juncture for a number of positive developments and they should be seized and assessed accordingly. According to Jacques Delors, the European Stability Fund and the birth of the “European semester” for national budgetary policies do indeed represent reasons for optimism and reaffirming that the eurozone cannot be consolidated “without a minimum of fiscal and social harmonisation”. Ms Merkel strongly rejects that she is lukewarm with regard to European construction and affirms, on the contrary, that enhancing solidarity instruments requires cooperation in the area of economic competitiveness and tax harmonisation. She also calls for greater political integration. Following the Franco-German meeting, which laid the groundwork for this week's European Council, commentators emphasise the two common positions rejecting any immediate increase in financing the European Financial Stability Fund and rejecting eurobonds. This twofold rejection, however, is not a definitive position and is strongly linked to insufficient progress in the different areas of harmonisation. “We will defend the euro together because the euro is Europe and our determination is unquestionable”, declared Nicolas Sarkozy, whilst pointing out that Germany and France are the two main contributors to the European Solidarity Fund. Ms Merkel reaffirmed Germany's commitment because if the euro fails, Europe will disintegrate. Nonetheless, she did underline that progress in solidarity required further political integration. According to Mr Sarkozy, tax convergence is the prelude to economic convergence of the eurozone.
Indispensable conditions. The real question is therefore one of establishing whether the less solid eurozone member states have sufficient capacity and political determination for respecting the rules of the zone. The question is not only addressed to political leaders, who have, in general, taken a pretty firm line, but also the respective populations, whose attitude is linked to a large number of different elements, including the mentality of their citizens and the country in question's history. A number of political figures have given a negative response in this connection and the most brusque attitude displayed was that of one of the creators of the euro, the former German Chancellor Helmut Schmidt, who, whilst confirming the advantages of the single currency for Germany, deplored “the enormous error of taking in just about anybody”. In his opinion, any evolution towards a more select eurozone is inevitable; France would only have a 51% chance of participating in it and Italy would have very little chance. Beyond these rather extreme positions (Mr Schmidt is not the only one), all the different parties admit that eurozone rules should be toughened up, including the penalties.
The Irish affair. This is not a North-South question but rather, involves political orientations. In the case of Ireland, Jacques Delors described Ireland's decision as “being a little off” to practise fiscal dumping by imposing a particularly low corporation tax of 12.5%. How many arguments have taken place over the years and how many efforts have been made to harmonise these rates or at least introduce a uniform basic rate, in an effort to obtain transparency! According to Olivier Lacoste, the director of studies at Confrontations Europe, this “non-cooperative fiscal practice is an economic aberration” because companies do not need to transfer their businesses to Ireland to benefit from it and the major industrial groups can simply introduce the practice of “profit shifting”. The advantage for Ireland was temporary and did not prevent its banking system from collapsing but according Mr Lacoste, “it has resulted in collective disaster: loss of tax revenue for the whole of Europe”. In his opinion, “fiscal cooperation should constitute one of the criteria for joining the euro”.
These comments and those made previously have the modest aim of providing additional elements of reflection in view of the European Council this Thursday and Friday.
(F.R./transl.fl)