Nobody seems to know exactly what the new "fiscal compact" is comprised of and what form it is going to take. Any hope for formal treaty change comprising all 27 EU Member States died with Cameron's "no" so it is most likely that we are going to end up with an intergovernmental agreement amongst the 17 eurozone States and, possibly, other non-eurozone states that may want to join. The legality of this agreement, compact, or whatever it turns out to be, is shaky to say the least.
The idea, however, is to move towards fiscal union, meaning that national budgets and fiscal policies would become 'Europeanised'. This is an odious step for advocates of national sovereignty and a misguided triumph for European federalists. I say misguided because it is a breed of federalism born from intergovernmentalism which, in my opinion, is bound to fail in the long run. This is one of the most basic flaws that emerged from the Brussels Summit on December 8th. The second is that it hasn't done much, it seems, to calm the markets and the credit rating agencies.
Thirdly, this compact is born from the premise that individual (mostly southern) European states are solely to blame for the crisis. Surely, Greece's fudging of numbers and projections contributed to the euro debt crisis but to say that this is solely Greece's fault (coupled with Spain, Italy, Portugal and Ireland - PIIGS) would also be misguided. It basically leaves out the banks and financial institutions (who also contributed to the crisis) which states like the United Kingdom and Malta shockingly want to protect in the "national interest".
Fourthly, the idea that states can spend more than they earn and incur deep budget deficits has to end. To this end the compact places a cap on a budget deficit of 0.5% GDP and automatic consequences (penalties) for countries that exceed 3% GDP. Perhaps this would mean that a budget deficit below 0.5% GDP is fine whilst a budget deficit of between 0.5% and 3.0% incurs a warning or possible sanctions. Any budget deficit exceeding 3.0% of GDP would be automatically punished, presumably by the Commission. National budgets will no longer remain sovereign but would now be scrutinised by the Commission and the European Court of Justice.
This notion of fiscal discipline and budget surplus sounds great on the face of it. However, I fear that deep down such policies would effectively kill off any hope for fair wealth distribution (social democracy) within Europe. By legitimising (constitutionally - as member states are bound to do) the economics of austerity, discipline and punishment, this compact will criminalise expansionary fiscal policy and Keynesian economics. Basically the only outcome is for member states to tax more, slash wages, privatise everything and spend less, thus dismantling the social welfare safety net and with it, any hope for a decent living for those who are not well-off. It is beyond me how certain politicians, who should know better, advocate the protection of major financial institutions over the social protection of ordinary working citizens by opposing measures such as taxes on financial transactions. Perhaps they endorse the concept of "trickle-down" economics even though it is proven to have failed? At least they should thoroughly explain their position and define, credibly and objectively, how a so-called Tobin tax would be detrimental to the economy.
The irony is that I endorse fiscal union and European oversight but not in the manner that is being proposed, largely because it is anti-democratic and completely removed from the general populace. If we are going to have fiscal union we should also demand more democratic institutions such as more powers for the European Parliament; an elected Commission and an elected EU Council President. I feel more and more dejected by Europe if it is going to be run by France, Germany, conservatives, eurosceptics, banks and unelected bureaucrats. The least Europe can do, to ensure its survival, is to give some measure of power to the people rather than simply deny and take away.
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