Europe will have started 2021 marked for a long time by profound changes. It will no longer be able to escape, after having postponed if not forgotten them for so long, from radical reforms in order to assume all the consequences.
Good bye Britain
The first change was also the most anticipated. After exhausting and opaque bargaining, the United Kingdom finally left the European Union, inflicting its own set of secessionist tensions in the process.
The European Union, for its part, will have shown unfailing solidarity in this divorce, where many feared divisions, or worse, domino effects. This British exit certainly affects the specific weight of the European Union. But it has the merit of making things clear: one cannot with impunity want to have one's cake and eat it too while blocking the renovation of the creamery...
Maastricht urgently revisited
This clarification comes at the best possible time. For the other change, the one that was no longer expected, was the lifting, following an improbable virus, of the other locks that were blocking this renovation. Thus, to prevent the economy from sinking under the weight of a historic recession (minus 8% in 2020 for the EU as well as for France), the European Central Bank reviewed the Maastricht moorings in its own way, sweeping aside the prejudices of the Constitutional Court of Karlsruhe. 1,300 billion, i.e. ten times the EU's annual budget, in bond buybacks and liquidity injections, without worrying too much about treaty interpretations.
The European Union was not to be outdone, breaking the Maastricht codes in its turn, the crisis having rendered Chancellor Merkel unrecognisable to the point of being the first to bite the forbidden fruit waved by Macron, this project of joint borrowing that had for so long remained in the sights of a Siegfried line protecting its interests as well as its virtue. All that remained for the Commission President, a fellow countryman contaminated by transgression, to do was to increase the heresy to 750 billion. More accustomed to fighting over a few million than over so many billions, the 27 nevertheless ended up ratifying it roughly at the end of a half-week marathon, at the dawn of 21 July 2020, which will go down in the annals of the Union as its 'night of 4 August'!
New deal on the starry carpet
A virus will therefore have moved the red lines of the treaties, which are so diligent in limiting the means of living together to the priority interests of the States. But "necessity is the law", the 27 finally admitted. The stock markets will have made the most of all these reversals, doped up on paradises, even if they are artificial, after having come close to hell...
What happens now? With the euro made permanent in the long term, solidarity blocked in parallel with no way out, common expenditure suddenly higher than non-borrowed funds, the European Union finds itself forced to move and innovate, after so many years lost in immobilism and conservatism...
A 2021-2027 budget with a double bottom
With the UK gone, however, the 27 do not simply remain faithful to the practical use of its universal language. There is also a lingering scent left by the absent one. Labelled frugal by some, stingy by others, several states that are better off and less converted than others were quick to shake off the July vapours to resurrect in December all the "money back" spirit concreted by Margaret Thatcher.
The stormy negotiations at the end of 2020 on the 2021-2027 European multiannual budget bore witness to this, restricting it to 1,074 billion euros (barely re-evaluated to 1,085 by the European Parliament at the cost of accounting transfers), traditionally close to the 1% of GDP as was the case for the previous 2014-2020 budget of 960 billion.
To this must be added the 750 billion borrowed by the Commission, even though the 500 billion in subsidies originally proposed had already been reduced to 390 by the frugal ones during the July marathon, with loans revalued from 250 to 360 to save the 750 envelope.
This loan thus breaches for the first time the ceiling of 1% of GDP imposed on the European budget. But this is still a far cry from the 20% of the US federal budget, where the overall tax burden is one third less than that imposed on Europeans, even approaching half of GDP for France!
An insoluble equation without innovation
From 2028 onwards, the 27 will have to repay joint instalments that bind them until 2058. And although interest rates are low today, the loan will still have to be paid for in the accounts. Some economists or qualified economists like to talk about the mirages of debt cancellation, despite the irreparable distrust and fractures that such a debate would create, breaking all confidence and ensuring the failure not only of the recovery but of the Union itself. It will have to be paid back, as the ECB President immediately pointed out.
Some will temper the official word by whispering that it will be necessary to give ourselves the means to honour the deadlines even if we were to decide to continue to 'roll over' the debt. The Commission has certainly undertaken to present this loan as non-renewable, but what will the future hold in a world where the balance of power is constantly changing? Jacques Chirac is said to have confided that in politics, promises are only binding on those who receive them. Will it necessarily be different at the European level? We can also meditate on François Mitterrand: we must give time to time. And above all, let's not waste any more of it!
Innovating to enhance the value of borrowing
Now that Eurobonds have passed from the realm of fiction to that of reality, the question of their optimal management by the Commission arises. With it, a long-eluded project deserves to be revived: should we not create a European "Treasury" to better manage, in conjunction with the ECB, this common financial engineering, even if it would have been more logical to think about it before than after?
It is also surprising that this European loan is not being advertised to all savers today, as if it were to remain a private matter for the insiders of high finance. Is the Commission not missing yet another opportunity to bring Europe closer to its citizens?
The use of the large loan would have deserved a better debate. The redistribution of funds is currently governed by national quotas, mainly directed towards the countries of the South, which was certainly part of the deal. Without in any way denying this imperative in the face of the health crisis, which has only been reinforced by the ecological requirements, would it not have been useful to open up the loan to innovative trans-European investments in order to respond to the common delays in integration, which has hardly been done?
Innovating to rebuild the budget
The grafting of the major loan will, in any case, upset the balance of the budget in a very lasting way. From 2027 onwards, a 2028-2034 budget will have to be adopted, integrating all the joint obligations for repayment of maturities starting in 2028. This will require reforms on both the revenue and expenditure sides.
As far as budgetary revenue is concerned, we will have few years to rebuild and increase own resources without increasing the overall tax burden of a Europe that is already the world champion. On the contrary, our competitiveness and attractiveness will require us to reduce this burden by means of economies of scale, while at the same time initiating a fiscal rapprochement between countries, which has been left untouched for the time being.
An indicative tax timetable has already been outlined by the 27, targeting in particular plastics, carbon emissions, digital, financial transactions and corporate taxation. The 'gafa' and other internet giants are also in the crosshairs, having so far taken advantage of the gaping holes in our tax system to enrich themselves at the lowest cost. These decisions will certainly require unanimity, which is why we have failed so far. However, as all states are now jointly liable for the loan, such unanimity will no longer be out of reach tomorrow!
As far as expenditure is concerned, it will no longer be possible to postpone the communitarisation of duplicative national expenditure at lower cost and greater efficiency, even though credible integration requires resources that are commensurate with the task: European security and defence, unified customs administration, common issues relating to the police, justice and civil protection, support for new technologies (digital, robotics, biotechnologies, environment). The 27 have placed particular emphasis on the climate issue, but other common priorities will not be evaded. Will it finally be decided to create a European Budgetary Institute to start evaluating economies of scale, targeting projects and ordering priorities?
Innovating to boost growth
Such a reorganisation of the Community budget would already make it possible to significantly support the growth that Europe absolutely needs, as much to assume and then reduce its debt at the various levels as to regain its rank in global competition. However, to achieve this, a fundamental reorientation of a certain number of common policies as they are currently conducted by the European Commission cannot be avoided either.
European competition policy deserves to be at the top of the list of these reforms. Faced with a globalisation that is as inescapable as it is aggressive, it will henceforth have to focus not on dissuading but on promoting the emergence and success of European champions, while at the same time providing better support for the intensification of transnational subcontracting networks with SMEs.
It is therefore high time to learn all the lessons from the tragic decline of European companies in the global competition on new technologies. Despite the commendable efforts of Commissioners Davignon and Bangeman, as early as the 1980s, to group these companies around future projects, the blind stubbornness of the Commission's Directorate-General for Competition in restricting these groupings to the "pre-competitive" stage, and in dissuading them at the operational and industrial level, will have directly contributed to excluding Europeans from the new giants that are now ruling the roost in the globalised world of the internet, online commerce, flat screens, smartphones, robots and other connected tools, while at the same time forcing these same Europeans, in so many cases, to sell their own patents or even their own brands to the Americans, Chinese, Koreans or others!
As for the common external trade policy, which is currently wide open to all winds, it is just as essential, beyond the all too often deceptive and artificial search for reciprocity, to arbitrate it from now on according to Europe's strategic, technological and security priority interests, as the United States, China and the others are doing without any qualms.
Innovating to regain confidence
Beyond all the merits of the large loan, which will have enabled a step forward as major as it was unexpected for the construction of Europe, a question remains on which the future will depend: will the new obligations, both accounting and legal, which henceforth bind our States jointly and severally indebted, be sufficient to force them to make up, willy-nilly, for all the time lost?
The answer to this question will of course determine the fate of the last chance given to Europe to relaunch, complete and perpetuate its integration, i.e. to assert itself in globalisation and regain the confidence of Europeans.
YUSTE ACADEMY NEWSLETTER Nº 3. March 2021
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