Monday, October 31, 2016

EU Reform: Hard and Soft

In my previous piece on EU Reform I presented elements and the rationale of a "hard reform" scenario. The main term one hears these days is "union of sovereign nations". As I explained you cannot expect the Germans, the Dutch and the Finns to pay for your roads and bridges and claim to be a sovereign nation. Or send workers to work in another country using your own national employment terms. Let me take it further, as UK developments have illustrated: You cannot expect foreigners to freely buy your products and services but deny them the right to live and work in your country.

These are no simple issues and the whole world is at crossroads nowadays. Let's see for example who wins in the US (not just the White but in all November races). See what almost happened with CETA and Wallonia.

As I proposed in other pieces on EU Reform, "it's the Economy stupid", people want jobs and a good life and when they do not get them they start looking for scapegoats. As the UK ref showed, people who said No to Europe and foreigners tended to have low skills/education, be aged, be on welfare. And they are not just the 5% that is currently unemployed in the UK, it is 52% in total. Those people have rights too and they don't just exist in the UK but throughout Europe and the whole world (and the "West").

So let's keep these things in mind and talk about soft or softer EU Reform scenarios.But let's be aware that if Europe does not advance in a way that promotes growth and jobs/working conditions then - even if it does not try to reduce members' sovereignty - the EU will still be blamed for problems at national and local levels. CETA may have been signed but as explained in previous posts the German constitutional court's opinion as well as the forthcoming ECJ ruling on the EU-Singapore trade deal (which too goes beyond pure trade issues) are live issues.

1) Taxation:

As the French PM pointed out in his recent FT article, there is a need for convergence in tax matters and he does not mean indirect taxation - VAT. He mainly means tax rates. There is also demand for this in Germany and Germany is where 81 mio EU voters live, ie a large % of the EU27 population. Low tax rates for certain companies or sectors (be they straightforward or tax breaks) do not differ that much from state aid - subsidies, they too distort competition.

Of course member states such as Ireland are not willing to give up sovereignty in direct taxation, probably even if they get offsets for that.

Valls, the French PM, says that it is feasible for certain members to move ahead in these taxation matters. How much sense does that make, are we talking on a repeat of things in the Euro and Schengen, ie a "core"? EU members will low tax rates will still undercut others.

Plus, one must not forget that double tax avoidance and other matters of direct taxation, corporate and personal, in the EU are still governed by bilateral agreements based on an OECD model! That is ridiculous for an EU .

Thus the idea of national sovereignty in tax matters seems less and less credible in the EU. Yet a state is based on taxation, it is a basic potency of a state. Who will agree to give that up, even marginally? Wars were fought over that. Well, in VAT, members have long accepted that their VAT rates should converge, ECOFIN decides those matters not national parliaments.

2) Trade:

The EU has a sole competency in making trade deals. The reason CETA had to be approved by 34 national and regional parliaments of the member states is that it included non pure trade issues. One could think of issues to be included in EU competencies in a new EU Treaty.  But it will be complicated.

3) Employment - Labour Relations:

Mention EU minimum wage and watch for the reactions in any forum. Not only from fans of sovereignty but also from those who against a minimum wage ideologically. Is it realistic to want a common minimum wage in Spain, Germany and Hungary? Or even inside the Eurozone. Can eg the Greeks have the same minimum wage as Germans do? Of course, as in the US, there can be federal minimum wage and states can have higher ones if they so choose. If Wyoming has the same federal minimum wage as California, why not Spain and Germany? But Spain already has 19% unemployment, Germany 5%.

Let's forget EU professional wage agreements and sectoral ones for now. There are European Social Dialogues going in the EU, both horizontal and sectoral/professional, but wages are not in the agenda. Someday, if the EU still exists, they will be.

There are EU rules on safety at work, working time, firing caps per month for employers, the rights of employees when a company changes ownership and some other areas.

4) Social Security:

When you travel inside the EU you get a card that gives you access to hospitals in other member states as many pointed out when a UKIP MEP had to hospitalised in the French hospital recently. Yet that does not mean that you will not be charged eventually, it depends on your national social security system back home and your provider.

When you have worked in more than one member states and retire, member states' social security systems co-operate to calculate your pension and award to you.

Is there a need for an EU-wide social security system? Yes there is. It would perfect sense, especially for a Single Market for jobs. But it's too complicated a deal to be even considered in 2016.

5) Education:

An engineer studies for three years in the UK, five in Greece. But everyone likes EU funding for academia work, that is one key thing UK unis will miss.

6) Transport:

The EU has a common transport policy. Yet there is no one railway company that can take you from Germany to Spain and/or from the UK to Greece. There has been a lot of progress though in airline travel, you can fly to many points inside the EU with a third (EU) country's carrier.

7) Defense:

Greece spends top dollar for its defense although in crisis because if it is ever invaded it has no reason to believe that being an EU member will save it. East European countries have concerns too. France complains that its army serves de facto as an EU one. With the UK leaving there is a military vacuum.

The EU has grown to have geostrategic ambitions consistent with a powerful country in the world yet it is not a country, not yet. Far from it. An army would make sense for a United States of Europe, but how many eg Spanish or Lithuanian men are willing to die in defense of eg Bulgaria, in 2016 or 2026?

If an EU Treaty tries to create any EU army or anything resembling this they will hardcore debates all over Europe and it will top in the agenda when national ratification time comes.

Will look into more areas and these areas more analytically in forthcoming posts. Feel free to send constructive comments to (in English).

Tomorrow I will look at diverging unemployment levels throughout the EU and the Eurozone and discuss reasons for them plus look how it relates to EU Reform.

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