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Commentary & analysis with a focus on European economic policy

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Deepening EMU: Commission makes limited steps (mostly) forward

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Today the EU Commission launched a long-awaited set of concrete proposals to deepen European Monetary Union (EMU). The proposals are voluminous and in some areas detailed. Here’s a summary of the most important points and a first evaluation.

First, the European Stability Mechanism, currently intergovernmental, is to be transformed into a European Monetary Fund as a fully-fledged EU institution. Beyond the legal change – which is surely welcome, the intergovernmental solution having been chosen under the pressure of imminent crisis – the Commission envisages few functional changes. The main task of crisis-lending to Member States in need and the related ability to issue bonds to raise finance remain. New is that the EMF is to back-stop the Single Resolution Fund as part of the Banking Union. By providing guarantees or a credit line, and in parallel by reducing the policy areas subject to unanimity, the EMF will be able to offer swift assistance in the case of banking crises, plugging a notable hole in the policy framework. By underpinning confidence in financial stability, this should reduce the likelihood of its having to be used.

Reference is made to the possibility for the EMF develop new financial instruments “over time”. This is a door left open to a future extension of borrowing – and thus stabilization – capacity in the future.

Equally important, unlike in the vision of now-departed German finance minister Wolfgang Schäuble, the EMF is not foreseen to play a key role in disciplining member states and ensuring the implementation of structural reforms. Oversight responsibility is to remain unchanged (i.e. divided between the Commission and the Council). [Read more…]

The strange non-death of public spending

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In 2011 (2013 update 7/3/17) Colin Crouch wrote a noted book entitled The strange non-death of neoliberalism. In it he discussed why neoliberalism had managed to avoid being killed by what had appeared to be its nemesis: the global financial and economic crisis. The title came to mind on reading  some recent work on the political economy of modern capitalism in general, and the European Union in particular, by some other well-known commentators. It seems that, actually, we are witness to the strange non-death of public spending, at least in the EU.

Let me first give two examples of a view that many readers will likely believe to be self-evident.

In Le Monde Diplomatique the reknowned historian and political economist Perry Anderson has just published an analysis of the driving forces behind populism and protest. Under the sub-heading “Draconian austerity” he writes:

From monetary union (1990) to the Stability Pact (1997), then the Single Market Act (2011), the powers of national parliaments were voided in a supranational structure of bureaucratic authority shielded from popular will, just as the ultraliberal economist Friedrich Hayek had prophesied. With this machinery in place, draconian austerity could be imposed on helpless electorates, under the joint direction of the Commission and a reunified Germany…

The economic sociologist Wolfgang Streeck has also been much in the news with a series of pessimistic books and shorter publications on a similar theme. Democracy is being weakened and, [Read more…]

Til the pips squeak? More on the Apple tax case

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Last week I considered the broader implications of the plans by the EU Commission to force Ireland to claim billions of euros in back taxes from Apple. The counter arguments by the US Treasury are weak, I argued, and concluded that “EU Commission needs to stand its ground. And take a big bite of Apple”.

Todays’s news is that the Commission has done exactly that. And the bite – €13 billion plus interest – is bigger than almost anyone envisaged. Some new information has come to light that deserves a brief comment.

The previous post referred to the Financial Times’ assessment that Apple had paid a desultory 2% in corporation tax in Ireland. The latest reports suggest, incredible as it may seem, far lower figures still: “Apple paid an effective tax rate of 1% in 2003 on profits of Apple Sales International. The rate dropped to 0.005% in 2014.” reports the Guardian drawing on the Commission’s analysis.

The other news is a striking confirmation of the main argument of the previous column: that only a supranational authority can stamp out harmful international tax competition and thus prevent a race to the bottom. For the legal appeal against the ruling will be led not only, as expected, by Apple, but by the Irish government. Yes, it will appeal against a ruling under which it stands to gain a windfall of more than €13 bn. (That represents  more than annual government spending on the Irish health service and nearly one-third of Ireland’s annual tax revenue.) And the reason is all too clear. It would put an end to a crucial plank of the country’s “business model” which is to attract mobile sources of tax revenue through opaque sweetheart tax deals, poaching revenues from other countries and driving a race to the bottom. (Yes, other countries are in the same game.)

This is not just about tax. It is about the much more fundamental question of whether the EU can live up to its promise of being an effective supranational counterweight to the negative forces that (along with numerous benefits) untrammelled globalisation has unleashed.