28th Sep 2020

EU proposals to explore budget and tax co-ordination

  • The current Greek crisis has exposed eurozone weaknesses (Photo: Wikipedia)

A European Commission proposal on greater economic co-ordination and member state surveillance is set to explore the sensitive topics of greater tax and budgetary co-ordination.

Speaking on the basis of anonymity, an EU official with an understanding of next month's communication told EUobserver the document's aim was to "stimulate debate" and to "correct the imbalance of what was not agreed at Maastricht."

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The 1992 Maastricht Treaty led to adoption of the euro currency some seven years later, although economists at the time warned that different member-state fiscal systems, imperfect labour mobility and the lack of a European political union could pose problems for the currency club in the future.

Recent events in Greece have served to highlight the eurozone's weaknesses, with European Commission President Jose Manuel Barroso saying last week there is increased appetite in national capitals for greater economic co-ordination as a result.

"The fiscal crises in some of our member states have highlighted also the consequences some mistakes made in one country may have on other countries," he told journalists in Brussels.

The commission's communication is to outline a number of potential mechanisms "to ensure the proper functioning of economic and monetary union."

Among the ideas is greater eurozone tax co-ordination, said the EU official, with France and Germany long complaining that countries with low tax rates undermine their capacity to pay for generous state-provided services.

An upcoming report on the completion of the EU's single market by former commissioner Mario Monti is also set to highlight the need for greater European tax co-ordination.

The EU official also signaled that the commission's communication would explore the idea of greater eurozone member-state examination of each others national budgets, although details are still hazy.

Former French prime minister Edouard Balladur recently presented his own ideas paper to the French government for greater eurozone co-ordination, under which euro area members would have to submit their annual budgets to the 16-country bloc for majority approval.

Preventative arm

Debate has centered this week on the need for a European Monetary Fund, an additional corrective arm capable of providing loans to member states struggling with financing difficulties, as currently seen in Greece.

The commission and a number of eurozone members are keen to introduce greater preventative measures however, to prevent the build-up of structural imbalances that lead to budgetary problems in the future.

"It has been known for a long time that public sector salaries in Greece were too high, but we could not do anything," said the EU official.

As a result, the commission's communication is set to propose that a wider range of economic indicators be used when assessing the health of a eurozone economy.

If agreed and turned into legislation, the commission and eurozone members could call on a particular government to correct economic structural flaws, such as excessive public sector salaries, at an earlier stage than currently permitted.

Greek drama heightens debate on economic co-ordination

The Greek drama currently being played out in financial markets across the globe has brought the eurozone's weaknesses into sharp relief, with greater economic co-ordination increasingly touted as a possible solution.

EU countries stuck on rule of law-budget link

Divisions among EU governments remain between those who want to suspend EU funds if rule of law is not respected, and those who want to narrow down conditionality.

MEPs warn of 'significant gaps' in budget talks

The budget committee chair said the European Parliament expects tangible improvements to the package in its talks with member states - while the German minister argued that the EU leaders' deal was difficult enough.

Top EU officials urge MEPs give quick budget-deal approval

MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

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