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Commentry on the article by Pierre Defraigne (La Libre Belgique 06/01/2017)

 

As usual, I find myself in agreement with nearly all the author writes. I do not, however, follow him on three points that, at a minimum, deserve clarification. 

The first concerns the question or the geographic perimeter to which the proposed reforms should apply: is it the EU of 27 Members, the Eurozone or some other grouping of Member States? 

Starting from the concrete reality of a shared monetary sovereignty within EMU, I believe that the Eurozone should constitute the core of the EU with its stated aim – embodied in the Treaty – to extend its reach to all signatories. It would seem impossible to include in the EU described by P. Defraigne, a country that is not a Member of EMU. 

The proposed reforms encompass a significant transfer of sovereignty to the European level. Their implementation implies revisiting the question of “irreversibility” of a new Treaty and specifically the need to reconsider the pertinence of Art.50 which allows members to withdraw from the Union and has achieved widespread attention within the context of Brexit. 

The second point concerns the “mutualization” of existing “sovereign debts”, a very delicate subject that could hamper any progress in further European integration. 

Actions carried out jointly in the name of the EU should be funded by sufficient “own resources” levied independently of the goodwill (or ability) of Members to make their contribution. The EU, endowed with resources levied on its population and enterprises, would also have access to debt financing based on its taxing powers. Obligations issued in its name would constitute truly “mutualized” debts (between the EU’s citizens rather than between Member states), the proceeds of which would be dedicated to execute the “federal” budget and used in the interests of the Union (including the possibility of providing support to Member States). 

However, there appears little justification to mutualize Member’s existing debts. The legacy of past debts should be entirely assumed by those who contracted them. If solidarity should allow, in the future, supporting a Member (as the American government helps individual States facing difficulties), such aid should be entirely dependent on the European Authority rather than, as presently, subject to the unanimous approval of Members with all the opportunities for blackmail that entails. Such assistance may (should?) be subject to strict conditionality. 

Such a system would avoid that the default by a member state would, by contagion, lead to the implosion of the single currency, by allowing the restructuring of “national debts” independently of the “federal debt”; the latter would, like US Treasuries, have unlimited access in case of need to the printing presses of the European Central Bank. Thus EMU and the Euro would enjoy all the necessary attributes to rival with the US dollar as a reserve currency and benefit – at last – from all the advantages that were spelled out when the currency was first introduced. The political independence of the EU would be dramatically reinforced.  

The European Authority, like any sovereign issuer of a currency, would acquire a new tool that has, to date, cruelly hampered the smooth delivery of Eurozone monetary policy: recourse, in concertation with the ECB, to “monetary financing”. The purchase by the ECB of EU debt securities, would substitute truly “mutualized” debt to the current practices of purchases of Member States debt securities, according to an irrelevant and artificial formula totally disconnected from the actual needs of the beneficiaries. Such flexibility would also provide a useful tool to guide (manipulate?) the exchange rate, should a currency war develop in the light of protectionist measures implemented by other major actors of world trade.  

Thirdly, even if I fully share P. Defraigne’s suggestion to restore as many powers as possible to Member States, I fear that the example of repatriating entirely the Common Agricultural Policy would be difficult because the establishment of European norms is necessary for the smooth functioning of the single market and the free movement of goods. 

In conclusion, under pressure from both technological and political developments, be they internal or external to the Union, we are fast approaching the point when we shall have to make a decisive choice between sharing true sovereignty over our common destiny at European level and abandoning such ambition in the name of an inward outlook and the mirage of a purely fictitious “national sovereignty”.  The decision to create the equivalent of a “United states of Europe” with its own specificities is, by necessity, an irreversible choice which cannot go hand in hand with halfhearted measures, however well-meaning they might appear.

 

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