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8th Aug 2022

EU commission prepares ground for far-reaching economic powers

  • The German parliament - EU policy makers are increasingly wondering how to balance national democracy with central economic governance (Photo: PeterXIII)

The European Commission has started preparing the ground for legislation that would prevent member states from undertaking major tax, labour or financial reforms without running it by the commission and other governments first.

In an ideas paper published Wednesday (20 March), the commission said this ex-ante co-ordination should concern "major national economic reform plans and should take place at an early stage before the measures are adopted."

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The suggested scope of covered policies would implicate virtually all national government legislation - including competitiveness and employment laws, reforms that cover product and services markets, as well as those affecting tax systems and network industries.

Financial stability and fiscal sustainability are also suggested benchmarks for whether legislation should first be discussed in Brussels before being implemented at home.

The proposals - to eventually take shape as a draft legislation later this year - are part of a general attempt to induce the interdependent 17-country eurozone to behave more as one political and economic entity.

The current eurozone crisis has driven home how connected euro countries are.

Small, about-to-be-bailout-out Cyprus, with a vastly inflated banking sector, is considered a "systemic risk" to the rest of the eurozone.

Fears that markets would drive Italy in the same direction saw EU leaders in 2011 persuade former prime minister Silvio Berlusconi to step down in favour of reform-minded technocrat leader Mario Monti.

And member states already snipe at one another for what they consider unfair practices among their neighbours.

Ireland and Cyprus are frequently criticised for their low corporate taxes, while the Belgian government recently indicated it would complain to the European Commission about Germany's low wages.

The law could also hand far more power to the European Commission, which already has greatly increased oversight on national budgets since the start of the crisis in 2008.

One of the questions it is asking to be considered ahead of drawing up the legislation is whether it can have the power to make spontaneous requests for policy information from governments and whether it make changes to the proposed measures.

The commission is also working on a proposal for "contractual arrangements," whereby governments would enter into a contract with the EU executive to undertake specific economic reforms.

The idea was originally raised by the Netherlands, keen for a mechanism to rein in fiscally miscreant states.

Key details will be whether it is only economically ailing euro states that will undertake these contracts and whether it will be voluntary for them to sign.

As a sweetener, the commission is suggesting that member states signing up to the contracts will have financial help under "strict conditions" to make the reforms. But it remains unclear where this money would come from.

EU leaders are to discuss these ideas in detail at their June summit.

But the legislative proposals, when they come, are bound to once more raise questions about how to balance democratic concerns with the need to ensure economic harmony in the eurozone.

So far, EU policy makers have struggled to find a way to compensate for national law-makers having much less say over domestic budgets.

This issue is set to become much more acute when national taxation and labour policies - key and emotive policy areas - become the business of other member states and Brussels.

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