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20th Aug 2022

Interview

Juncker's €300bn is beginning of 'fiscal union'

  • "Europe would not endure a ten-year stagnation or deflation as Japan did" (Photo: EU-OSHA)

European Commission president Jean-Claude Juncker's €300 billion investment plan is laying the ground for a fiscal union although no one dares call it such yet, according to a top EU official.

Laszlo Andor, in charge of employment and social affairs in the commission for the last five years, said "this effort to create an investment programme is an attempt to bring in elements of a fiscal union without calling it a fiscal union."

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The Hungarian economist, in an interview with EUobserver, said EU politicians should be honest that only a system of transfers from Brussels to member states will enable the eurozone to survive.

Juncker's idea to use €300 billion to kickstart the EU's economy has generated a lot of headlines although it remains unclear where the money will come from.

"If we are honest we will say publicly that this money either has to be printed or transferred," Andor said, as "repainting" money will not save the EU from stagnation.

Andor, one of a handful of left-wing commissioners in the outgoing commission of Jose Manuel Barroso, said: "It is not only the number and the source of this €300 billion that needs to be clarified but also what kind of investment needs to be done and where exactly."

Referring to Germany, which has come under increasing flak for maintaining a high budget surplus but not spending, Andor said: "By boosting investment at home, Germany would do a big favour to itself but also to the rest of the community at the same time."

But he noted that even this would not be enough if the European Central Bank "whenever it wants to function as a central bank immediately finds itself under fire and the subject of various legal attacks" with relations between Berlin and the European Central Bank (ECB) reportedly at an all-time low over policies the Frankfurt-based bank has taken to try and boost growth and raise inflation.

EU would not survive long period of low growth

Andor suggests that if Germany does not change its policies and the ECB is hindered from taking measures to prevent deflation, the EU may enter a Japanese-style long-term period of low growth.

But while Japan survived its decade of low growth and is “not in bad shape”, this was due to several factors that do not apply to the eurozone - including almost full employment, being a more homogenous society and having a fiscal union.

"Europe is a lot more fragile. So Europe would not endure a ten-year stagnation or deflation as Japan did."

He says the question of fiscal union can continue to be "ducked", but "the system will continue to function in a very sub-optimal way."

At one point, he indicated, countries (such as Greece which has lost a quarter of its GDP since the crisis has begun) will begin to ask themselves why they are putting up with growth that is lower than the US or Japan simply because they are in an "imperfect monetary union".

The question is likely to become louder as more and more countries - including core ones like Austria and the Netherlands - suffer a downturn.

Democracy and the European social model

Meanwhile, the evolution of the crisis has seen the European social model undermined as the commission now asks for national reforms in sensitive areas (such as pensions) in a bid to stop such a crisis happening again.

These are based on "sound analysis but in any country, this is supposed to go through a democratic decision-making system and a social dialogue."

"Without economic governance you face the risk of these imbalances again but you don’t want to have economic governance which otherwise undermines the functioning of democracy or the social dialogue."

The EU still has not managed to square this circle - although the issue is becoming increasingly politically sensitive. Andor suggests a European assembly of national parliamentarians may be the way forward.

As to his own future, it is likely to be in academia. But, in his view, he is leaving a stronger portfolio to his successor, Belgian Marianne Thyssen.

"The powers of this portfolio have been strengthened during this mandate. Financially, I think they are stronger and the employment portfolio became part of the core group of economic governance."

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