The Five Presidents' Report and Economic Governance: Towards a Federal and a More Neoliberal EU?

Daniel Albarracín

February 2016
The 2015 Greek episode was a clear demonstration of the limits of the Euro System, and showed how the current economical design of the EU cannot guarantee the proper development of the peripheral member countries.
The EU has developed fragile, tangled and twisted economic instruments, and they are not adequate for the job. The Fiscal Policy and the Spending Policy are not strong enough. The European Semester coordinates national macroeconomic policy management, focusing on the public deficit and debt control, the fiscal consolidation. The European Semester has tried, largely unsuccessfully, to make each country follow its problematic guidelines, regardless of any entailing social injustice and inefficient economic outcomes. Some countries, mainly the richer ones, have tacitly refused to follow the guidelines, while other peripheral countries are economically unable to follow the guidelines.
There is a serious investment crisis in Europe. We have only a small budget for investment. The contributions from member countries are at present inadequate. In addition, when taking into account the differing personal economic income averages by country, we find the contributions are highly uneven, with some wealthy members contributing less that they should. Moreover, the total national contributions from all countries accounts for only 1% of EU GDP. This, coupled with a weak and problematic investment plan, Plan Juncker, is not nearly enough to deal with the present economic and financial crisis.
The EU is also unable to address the problems of disparity arising from the increasing concentration of power, income, and wealth within the core regions and elites, and the continuing loss of economic power within the peripheries and working classes.
Thus far, the EU´s most powerful instrument has been the monetary policy deployed by the ECB. However, beyond the problematic ECB design and the applied financial orientation, the monetary policy has gone too far. In addition, ECB policy is presently also unable to foster investments and ineffective in preventing clear deflation trends[1]. Macroeconomic evolution has been caught up and stifled in the web of the liquidity trap. We can see how the Quantitative Easing programme has been taken to an unreasonable extreme. This particular kind of expansive monetary policy, which serves the private banking sector interests, has shown itself to be unable to provide financing or credit to the productive sector in such a way to trigger sufficient and balanced development.

In fact, it has achieved scarcely anything beyond delaying the onset of the next recession. Financial instability, economic stagnation, and deflation are still with us, and are more serious problems than ever, and it is likely their worst consequences have yet to materialise.
Consequently, the EU institutions are being pushed to bring about some important changes in order to attempt to address a new and broader banking crisis. A new adjustment project for Europe is being put in place. Central to this streamlining, completion, and enforcement of the economic tools of the EU is The Five Presidents' Report.
The Five Presidents' Report puts forward a more developed model of Neoliberalism of State, based on the recentralisation and federalisation of additional powers in Brussels. Drafted by European Commission President Jean-Claude Juncker, with the collaboration of presidents of other prominent European institutions: Donald Tusk, Jeroen Dijsselbloem, Mario Draghi, and Martin Schulz, it consists of a plan made up of three stages. The first part has been formally underway since last October, and the full plan, looking at the streamlining of the European project, is to be implemented over the next ten years. The Five Presidents' Report integrates various inter-governmental instruments and agreements within the European Treaties. Inasmuch as the TTIP and CETA are the most important external trade policies, The Five President´s Report is the most important internal initiative regarding the EU, and is at least as important as the Maastricht Treaty.
The ruling classes are looking into ways of dealing with the problems that will arise from the impending widespread bankruptcies in the financial sector. Banking union reform is the first step they wish to take before any other measure regarding economic growth can get underway. In particular, Merkel absolutely prioritises the banking union reforms over everything else, mostly to protect the private financial corporations of Germany and Germany´s alliances with central and northern Europe.
In the view of the elites, the banking sector is the backbone of the economy, and its needs take precedence over everything else. Nevertheless, the bureaucratic body of the EU institutions is aware that a more ambitious project, looking to more than just needs of the banking sector, is required. Such a project is what is drafted in The Five Presidents´ Report.
The measures to be put in place go further than mere banking union reforms. They seek to complete the economic architecture of the EU, enabling far greater control over macroeconomic management. The project envisages a type of fiscal union to be introduced once the banking union is wound up, in order to complement monetary policy, macroeconomic coordination and economic governance (European Semester).
The Financial Union, an initiative very strongly supported by Germany, is the first to be put in place. The Five Presidents´Report will incorporate within the EU Treaties the European Stability Mechanism, the well-known financial whip that has scourged many peripheral countries. This juggernaut of a financial instrument, until now an intergovernmental institution, would be put in a position to extend the experiences of Portugal, Ireland, Spain, Cyprus, and Greece onto any country in banking difficulties.
The Brussels bureaucracy states that the ESM was conceived with the aim of stabilising the Eurozone. However, in fact it has been primarily applied to impose adjustment measures against the people in exchange for financial aid for the banks.
The ESM is a tool to facilitate a kind of debt mutualisation under the control of the core countries which direct this fund. But the high cost of this fund (80 billion Euros as a public guarantee, capable of mobilising up to 700 billion Euros after issuing bonds[2]) has led core countries to push for a particular model of Banking Union aimed at minimising any threat to their own banks from any peripheral banking crisis.
In the event that peripheral banks experience solvency problems, the scheme defines restructuring procedures that are to be carried out before any use of the fund is made. In our opinion it seems the fund is intended mainly to bail out ‘too-big-to-fail’ banks in the core countries, and not to assist peripheral banks.
There are a number of new supervisory institutions working to evaluate the medium-sized and large banks, and they are very close to the ECB, both in the way they operate, and physically, all of them being located in Frankfurt. They are the Single Supervisory Mechanism, the Single Resolution Mechanism, and the European Systemic Risk Board. One of the more controversial proposals is the Guaranteed Deposit System, which aims to protect the interests of individual depositors. At this stage it looks as if it will be rejected by the governments of the richest countries.
In order to engage and facilitate private investors in acquiring these public bonds, a more flexible capital market regulation – a capital market union – is also going to be established.
The Five Presidents' Report, in short, poses a particular federalist project for the EU. The report´s diagnosis is that the weight of Member States is so heavy it prevents improvements in efficiency, and restricts better coordination of the economy. Beyond this, the aim of the reforms is to set the recovering the profit rate over national sovereignty – at least the sovereignty of peripheral countries. The project does not include any new progressive tax regimes or social policies aimed at mitigating the social inequalities within the European economy.
The consequence of this will be that democracy in decision making will ultimately be eroded. The Eurogroup would be included as an EU institution, losing its intergovernmental condition, and the powers of its director would be enlarged.
The project reinforces the economic governance established so far. The incompliance of the Stability and Growth fact is going to be more difficult from now to the future. New bodies are going to be established – Competitiveness National Authorities. They are going to be in charge of streamlining the national economies in order to maximise the competitiveness and profitability of the European market. These Authorities have to approve any new budgetary, fiscal reform, or wage policy proposal before it may be implemented. The Member States must follow the instructions of these Authorities, dependent on the Commission and the Council, in order to decide any fiscal regime changes, and new wage policy or public budgetary matters. There are clear points claiming to prevent progressive tax reforms, increasing the tax burden, and high public expenditure and deficit.
The salary evolution also has to be aligned below labour productivity, and those agreements reached by employers' associations and trade unions would be subordinated to this pattern. Any collective agreements on labour regulation are to lose their main powers.
In summary, the fiscal and salary devaluation are going to be deepened. Most of all, it is more clear in a single currency framework without a distributive social policy, progressive fiscal regime, or proper market regulation.
The chapter about the Economic Union pursues the reinforcement of the powers of the ECB with some manner of fiscal union. A Single Treasury is not envisaged from the very beginning, although the integration of the ESM into the Treaties will be the means by which such an instrument is to be created. It has demonstrated its power to impose adjustment policies and hard conditionalities to entire countries and their public sectors, in order to bail out and restructure their private banking sectors.
Although it is not fully defined, the future Single Treasury, likely the EU Budget and the ESM sum, does not imply a tax burden increase, insofar as the aim is to reduce the tax burden at national level, while the European level would increase its own resources. Basically, it means a higher centralisation of resources in the EU, and a lessening of national decision making. The Budgetary Union is to the detriment of National Budgets in this context. Combined with the National Competitiveness Authorities, it allows national governments very little room to manoeuvre.
Furthermore, the project envisages the nomination of a Eurozone single external representative in order to defend the euro role as one of the main international world currencies.
An Alternative Is Possible.
Beyond the tensions between Germany and the Brussels' Bureaucracy, which stress the likely problems with implementing all the foreseen steps, The Five Presidents' Report implies the federalisation and the recentralisation of competences in the UE. But far from being a real convergent project, it does not point to more redistribution, nor more democracy. On the contrary, it gives more powers to the financial elites and the European autocracy.  
In fact, this is a huge project to extend the socialisation of private debt, after the turning of it into public debt throughout a neoliberal of state model (the public sector rescuing the capital and punishing the tax payers, the productive sector, the working classes and those more vulnerable people). It is far from a political union and fiscal union under a democratic process.
Fortunately, there is some atmosphere of hope. Some left parties, and political organisations close to the popular classes have shown they can reach and affect governments, making them put up some resistance to these initiatives, and it likely others will achieve similar success in the future.
There are also some interesting initiatives at international level, learning from the Greek experience, which warns against isolated initiatives. The Plan B Conferences (Paris, Berlin, Roma, Madrid,...) are a good debate space to stimulate reflection on how to fight austerity and promote democracy. Whatever intergovernmental or federalist projects there are have learnt that mutual support and cooperation at supranational level is a necessity. In all cases, social movements are taking into account the fact that certain points must be faced. Austerity is the common enemy. The debt and the current institutions that build the architecture of the single currency are what are behind social conflict in modern times. The challenge is to promote a broad organised movement at international level to fight the "austeritarian" policies. Likely, after winning this battle, we will see the blossoming of a new society on the horizon.

[1] According to the OECD, in June 2015 inflation in the EU disappeared, and in October the IMF calculated inflation at roughly 0.2%, following data registered by the European Parliament, November 2015 (Key Macro-economic Indicators in the Euro Area and the United States).
[2] In any case, an amount completely insufficient to tackle the bankruptcy of several systemic banks at the same time.

No hay comentarios: