Home Debts Taxes Democratising Europe: by taxation or by debt? – Social Europe

Democratising Europe: by taxation or by debt? – Social Europe

14 min read

Europe desperately needs to resolve its collective-action problem to emerge from the crisis. Democratising Europe, with a fiscal capacity, is better than monetary easing.

Thomas Piketty

On December 10th 2018 we launched a Manifesto for the Democratisation of Europe, along with 120 European politicians and academics. Since it was launched, the manifesto has accrued over 110,000 signatures and it is still open for more. It includes a project for a treaty and a budget enabling the countries which so wish to set up a European Assembly and a genuine policy for fiscal, social and environmental justice in Europe—all available multilingually on the website.

In the Guardian, on December 13th, Yanis Varoufakis presented his ‘Green New Deal’ as an alternative to the manifesto, which he considers to be irrelevant. Concerned to ensure the quality of debate before the coming European elections, we set out some answers to his criticisms and clarify the differences between his plan and our proposals.

The Varoufakis plan builds on the European Investment Bank (EIB) which is responsible for issuing bonds to the value of €500 billion per annum, including these securities in the programme of purchase of securities by the European Central Bank (ECB). ‘They will sell like hot cakes,’ he says with the communicative enthusiasm which the former minister of finance in the Tsipras government in Greece is known to display for his own solutions.

What purpose would the funds thus raised serve—the ecological reconversion of the European economy, whence the slogan ‘New Green Deal? We have no intention to criticise this aim. The reconversion of our system of growth towards a sustainable economic regime is an absolute necessity today. It should be implemented at European level and indeed plays a central role in our own proposal.

What is the difference?

The main criticism by Varoufakis seems to be the following: why do you want to create yet more new taxes when one can create money? Our budget is indeed financed by taxation, whereas his plan is financed by public debt. In his proposals, private firms involved in the ecological transition borrow money from the ECB, after having been selected by the EIB. In fact, part of this arrangement already exists in the form of the Juncker plan. What Varoufakis adds is the purchase of securities by the ECB rather than by private investors.

In the first instance, our proposals are based on taxes because a major part of the expenditure which we propose is public expenditure: financing research in new technologies by universities and sharing the cost of migration among member countries are beyond the sphere of private firms. This is one of the fundamental differences between our proposals: we propose to give Europe the means to provide public goods to its citizens—including the campaign against global warming, but not uniquely.

Secondly, the new shared taxes we propose are aimed at reducing inequality within countries. There are rich Greeks who do not pay sufficient taxes and poor Germans who pay too much; our aim is to ensure greater participation by the richest, wherever they are, to the greater benefit of the poorer, whatever their country.

Varoufakis criticises us however for limiting transfers among countries associated with the new additional budget to 0.1 per cent of gross domestic product. We introduced this parameter to avoid the delusion of the ‘transfer union’ being once again aired as an excuse for doing nothing. If there is a consensus to increase the threshold to 0.5 per cent of GDP or more, and if Varoufakis knows a way of forcing the various countries to accept it, then we would be happy to support such a modification. But one can already achieve a lot by establishing more fiscal justice and reducing inequality within countries.

Technocracy to the aid of the climate?

Another major difference between our proposals is that we set ourselves the imperative of a legitimate, democratic framework. Not so with Varoufakis. By radically shifting the decision-making centre of European economic policy towards the central bankers of the ECB, Varoufakis does not seem to be as concerned as he previously was by the fact that high-ranking civil servants will take decisions behind closed doors which affect millions of European citizens. The Varoufakis plan hands the reins of European policy to an uncontrolled technocracy, as if he had not drawn all the consequences from the Greek crisis!

In contrast, our manifesto takes into consideration the lessons of the present day. It does not build on the hypothetical ecological awareness of central bankers. Our intention is to anchor the reorientation of European policies in a new, stable, institutional and democratic architecture; this will enable the intervention of actors who to date have been marginalised in arrangements not clearly defined, so as to change the balance of power at the centre of Europe.

The policies carried out at European level by ministers of finance lack legitimacy, among other things. To be legitimate, these European policies, which now intervene at the core of the social pacts of states, should be initiated and controlled by an assembly comprising European parliamentarians and, above all, nationally elected members, who, in the last resort, remain the guarantors of these pacts within our democracies.

To act as if everything could be settled by the issuance of a debt and to deem as negligible the question of fiscal justice and the democratic legitimacy of decisions concerning political economy, while restricting oneself to the eurozone, do not seem very convincing to us. That being said, we fully agree that our project would gain from being extended in many directions, in particular in matters of currency and debt.

The treaty we propose does indeed provide for the possibility of a sharing of debts above 60 per cent of GDP and would enable better democratic supervision of the ECB, thanks to the approval and examination of its senior staff by the European Assembly. But these parts of the treaty would gain from being aired and Varoufakis is right to stress the potential importance of the EIB and ECB in any credible strategy of ecological transition.

Financing the ecological transition

The Manifesto for the Democratisation of Europe enables states who so wish to sign a treaty creating a new European Assembly—20 per cent European elected members and 80 per cent nationally elected—which would raise new taxes such as on the profits of major firms or the wealth of the richest European citizens. This would ensure that those who have gained from the construction of Europe participate in the financing of European public goods, for example the ecological transition and the reception and integration of migrants. And provided that the states brought together represent at least 70 per cent of EU population, the European Assembly would take up the task to democratically control and direct the economic policies carried out by the ministers of finance of the states which made it up.

On these issues, it is very difficult to predict the transnational majorities which might emerge in the assembly. There is nothing for example to indicate whether the social fractions of the major European Christian-democrat parties would, or would not, side with left-wing parties to guarantee more social justice in our European societies—currently under threat everywhere from populist forces.

In conclusion, while they have the great merit of existing, the criticisms and proposals of Yanis Varoufakis do not seem to us to be in keeping with the issues at stake. Europe cannot ignore the questions of genuine democratic legitimacy and fiscal justice.

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