The €750 billion Eurobond to pay for the bloc’s recovery from the COVID pandemic “will pave the way for a treasury and common EU taxation”, a cross-party group of EU lawmakers have argued on these pages this week.
It’s a bold statement that, if borne out, would mark the biggest step in European integration since the creation of the single currency.
For the moment, it is still some distance away. This ‘Eurobond’ has been agreed by national leaders and is a one-off with minimal oversight for the European Parliament.
It is hard to say where the €750 billion will come from. The ‘frugals’ have not changed their minds about common forms of EU taxation, nor are they likely to any time soon.
In any case, treaty change would be needed to genuinely make common EU taxation a reality. The prospects of new EU taxes beyond a modest carbon levy being in force by 2030 are extremely slim. Fortunately, in this case, they don’t have to be.
A decade ago, plans for Eurobonds, bank deposit guarantees and financial transactions taxes (to name but a few) foundered because national treasuries in wealthy countries saw that they would immediately suffer an economic hit or higher bond spreads.
European integration has tended to be driven when, as is the case this time, the horse is in front of the cart.
In this case, the bond has been agreed and the €750 billion will hit the European Commission’s balance sheet over the next couple of years.
It will, in turn, have to be repaid at some point in the distant future. That means that a solution will have to be found which, again, opens up a plethora of options, one of which is the common treasury advocated by integrationists.
It is not the only idea on the table. Earlier this month, a group of economists argued that the European Central Bank could simply write off a large chunk of its balance sheet.
That is effectively what the Bank of England has done to cover some of the costs of the near £300 billion in COVID-related spending, racked up by the UK government last year. ECB chief Christine Lagarde has rejected the idea out of hand but that always happens when such a radical plan is floated for the first time.
That is the optimistic view.
There is also the risk that a major political storm has merely been stored up for the future.
Just over a decade ago, the eurozone crisis was caused, in large part, because political leaders from Germany to Greece – and those in-between – were not straight with their electorates about what they had signed up for.
There is little sign right now that national electorates would support a raft of new EU taxes in addition to existing national budget contributions. If governments are not forced to be honest about how the bill will be paid, the risk is that in twenty or thirty years’ time, they will feign ignorance and hide their wallets.
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