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A third Franco-German initiative is necessary to face the financial crisis

Article written by Guido Montani, Vice-President of the UEF, Professor of International Political Economy University of Pavia

The informal European Council of March 1st ended with the refusal of the countries of the Monetary Union to create a fund to help the Eastern European countries in difficulty. The German government is right to refuse indiscriminate aid, but is wrong in facing up to the more general issue of the European financial system and budget. The financial crisis is putting the cohesion of the Monetary Union to the test and, without adequate powers at European level, national governments, Germany above all, could be faced with the dilemma of having to finance the default of countries which are suffering from the crisis, such as Ireland, Greece, Hungary or Austria, or accepting the disintegration of the Monetary Union.

EU Council 09-03-01
Source Le Conseil de l'Union européenne

Germany has already experienced a similar situation in the past, when it helped countries with a weak currency several times. After the founding of the Monetary Union the problem was solved. Today, a similar unitary solution is necessary. In the 70s, Giscard d’Estaing and Schmidt implemented the building of the European currency, with the European Monetary System. In 1991, in Maastricht, Mitterrand and Kohl gave life to the Economic and Monetary Union, but without reforming the European fiscal system. In 1997, Germany requested and obtained the Stability and Growth Pact. However, as the President of the European Central Bank, Trichet pointed out, “the Stability and Growth Pact is the legal framework that we have as a quid pro quo for the fact that we do not have a federal budget and a federal government”. Now, it is time for a third Franco-German initiative: it is necessary to give the European Union a federal budget and a federal government.

A federal budget is necessary because there are some European public goods – such as monetary and financial stability, sustainable growth, space exploration, etc. – which must be financed by European resources. Other public goods, of national importance – such as the welfare system – must be financed by national budgets. Other local public goods will be financed by a regional financial system. If the European Union cannot count on its own resources, in the case of a crisis, the stronger States of the Union will be obliged to carry out the role of “lenders of last resort”. The world economic crisis is increasingly getting worse day by day. There are two indispensable reforms that need to be implemented as soon as possible:

1. The ceiling of the European budget must be raised to at least 2% of the community GDP (as the McDougall report proposed) and the European Commission should be authorized to issue Union-Bonds, in order to finance a serious plan for the relaunching of European industrial production and for the ecological reconversion of the economy. Without a European Plan, national plans will end up fostering protectionism and causing the waste of public money. The increased European fiscal responsibility should be matched with increased political responsibility. A Minister for Economics and Finance should be appointed within the European Commission and a periodical report should be presented to the European Parliament.

2. An Interinstitutional Agreement – between the European Parliament, the Council and Commission – should be approved at the beginning of each European legislature. The Agreement must contain expenditure limits, such as the maximum level of indebtedness and of public deficit, and the total amount of European budgetary resources. The European budget must be financed with real European resources, therefore euro-taxes, as the European Parliament has proposed. This does not mean an increase in the citizens’ tax pressure, but a better sharing of financial resources between the national level and the European one.

Merkel and Sarkozy

If the French President, Mr Sarkozy, and the German Chancellor, Mrs Merkel, are able to take this step, the Economic and Monetary Union will be strengthened and Europe will be able to face the difficult phase of negotiations for the reform of the world financial and monetary system with a renewed impulse.

European citizens await a response from those who govern them.

Wednesday, March 11 2009 By manajan

Stronger Together in a Federal Europe: UEF Manifesto for the European Parliament 2009-14

Europe must be more united if it is to face up to its current economic and constitutional crises. This is the message of European federalists on the eve of the European Parliamentary elections.

1. The Treaty of Lisbon must be ratified and implemented efficiently as soon as possible. Once the new treaty is in force the Union will have acquired a unique capacity to act on the world stage. It will be a much more powerful, open and democratic Union. If the Lisbon treaty does not enter into force, the European Parliament should push immediately for a new constitutional Convention.

2. The EU must move quickly to establish strict, transparent supervision of the banking, securities and insurance sectors, leading to the creation of an EU financial services authority. The current weak coordination of national policies should be replaced by a common macro-economic policy. EU bonds should be launched to bolster the economic recovery plan.

3. The weak economy is no excuse to return to national protectionism. The EU should dedicate itself to the completion of the single market in finance, services, energy and intellectual property. Structural reforms of the labour market which build Europe's social dimension are badly needed to create the right conditions for renewed long-term investment. The WTO negotiations must be re-started.

4. The EU needs a radical review of its financial system. Relevant spending should be shifted from the national to the European level to get real added value out of the Union. More spent jointly at the European level means less wasted by disjointed national efforts. The EU budget should have adequate resources, financed by fiscal federalism, to fund common policies which enhance competitiveness and create green jobs across Europe. EU spending should be made fully accountable.

5. The eurozone states must assert their autonomy from those who cannot or choose not to join the single currency. The eurogroup must act as one in world monetary matters and take the lead over the reform of the international monetary system. The EU should advocate the establishment of a global network of prudential supervision across currency zones, with the longer term intention to create a world currency unit.

6. The EU must be the driving force at the UN sponsored talks on climate change. The goal is to leave Copenhagen in December 2009 with an internationally agreed package based on the EU model of cutting carbon emissions, conserving energy and increasing the use of renewables.

7. The single market must be extended to energy supply so that consumers benefit from a more competitive and better interconnected industry. The EU should invest directly in diversified sources of energy. It must help energy companies to build the European super-grid as well as the infrastructure necessary to import supplies from Asia and Africa.

8. Whatever the fate of Lisbon, the EU needs to strengthen its contribution to world peace and disarmament. This means a dedicated effort to reform the United Nations as well as building up Europe’s own civilian and military capability to be a credible peace-maker wherever it is needed.

9. Those EU states with the political will and the military means to do so must form a core group in security and defence. This will help NATO modernise and put transatlantic relations on a sound footing. If the Irish again reject Lisbon, the next urgent step must be to agree a separate EU treaty in security and defence between some but not all EU members.

10. The Union should confirm its existing commitments to enlargement, projecting its values, stability and relative prosperity throughout its own neighbourhood. As a top priority reconciliation must be achieved between the two communities in Cyprus, united in a new federal republic.

11. The task of building Europe’s common area of freedom, security and justice has only just begun. The EU urgently needs to sort out its visa policy, and fashion common policies for asylum and for legal and illegal immigration. European states must act together to combat international crime and to ensure that there is decent justice and civil liberty for all. More integration in civil law will help families and consumers.

12. The European Parliament must exercise its new democratic powers and responsibilities with energy and skill, in particular by shaping the programme of the new Commission. MEPs should reform their own electoral procedure so that, in 2014, a number of deputies are elected from a single, transnational constituency. This reform is key to making European political parties fit for purpose, connecting them directly with the citizen and giving citizens a strong voice in how Europe is run.

The Union of European Federalists is a supranational political movement committed to uniting Europe along federal lines. It addresses this manifesto to the parties and candidates campaigning for election to the European Parliament in June 2009. www.federalists.eu

Wednesday, February 25 2009 By manajan - Federalist Manifesto

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