Former prime ministers, officials call for “gradual” EU federalism

Ahead of the summit of EU leaders in Granada this week, 32 former high-level politicians, EU officials and economists published a manifesto for “the European Union at the Time of the New Cold War”, calling for a central fiscal capacity for the EU, the completion of the Banking Union and Capital Markets Union, a shift to a new EU “business model” and institutional reforms.

The signatories, who include former EU Commission president Jean-Claude Juncker, former European Council president Herman van Rompuy, former Italian  prime Mministers Romano Prodi and Mario Monti, argue for a “gradual and pragmatic federalism.”

“The time has come to acknowledge that nationalism is contrary to the national interest, that Member States’ national sovereignty is ineffective unless it is redefined in terms of European sovereignty, and that the supply of European Public Goods is crucial to satisfy national demands for economic, social, and political security,” the manifesto argues.

Capital Markets Union

Looking at the challenge for European industries to adapt to the technological changes, a lot of money will be needed, according to the signatories, encompassing economists like Jean Pisani-Ferry and former central banker Erkki Liikanen.

“Reaching the technological frontier will require mobilising private and public resources that no Member State can do alone,” they write, arguing for the completion of the Banking Union and the Capital Markets Union.

According to the signatories, what is needed is “a decisive move towards the construction of integrated and deep European financial markets based on the issuance of a European safe asset and the definition of a fully-fledged crisis management system.”

The need for a European Safe Asset and further fiscal integration to achieve a Capital Markets Union has recently also been put forward by the leadership of the European Central Bank, namely Fabio Panetta and Christine Lagarde.

Fiscal Union

The manifesto also hails the EU’s reaction to the pandemic with its recovery fund as a positive step, especially compared to the European approach to crises in the previous decade.

However, it criticises that the fact that the EU can only go for common solutions in times of crisis made the institutional structure very fragile and argues for a more stable regulatory framework.

For this, the manifesto also brings back the call for achieving a Fiscal Union: “Short of that, the EU will not be successful in pursuing its green and digital agendas and will continue to be at the mercy of external events, thus remaining vulnerable domestically and on the global scene.”

According to the signatories, stable EU funds underpinned by proper revenue streams will also be needed to ensure European security in light of the Russian invasion.

“Joining up forces and funds at the EU level will be needed to meet the immense task of reconstructing Ukraine,” the manifesto argues, saying that “moving towards strategic autonomy will require pooling sovereignty at EU level in defence and security.”

Especially in light of the US presidential elections next year, in which Donald Trump seems to stand a good chance of winning, the EU should be ready for a much more isolationist US that does not care much about European security.

Made with Europe

The signatories also refer to Europe’s current industrial challenges in light of Chinese and US industrial policies, warning of an uncoordinated subsidy race among European countries that is currently undermining the single market.

In their view, instead of trying to bring entire value chains back to Europe, the EU should focus on parts of it where it has a strategic advantage, for example, due to its highly educated and well-trained workforce.

“[T]he goal should not be ‘made in Europe’, but ‘made with Europe’,” the manifesto argues.

This goes in a direction that has also been advocated by Tobias Gehrke and Julian Ringhof, geoeconomics specialists at the European Council on Foreign Relations (ECFR). In a recent article, they call for the EU to secure “leadership in specific technologies that are vital to key supply chains and the global economy as a whole” instead of aiming for leadership in entire sectors.

Ways forward

To move forward to this “gradual and pragmatic federalism”, the manifesto also wants to reform the voting system in the EU Council. In some critical areas like foreign affairs and tax issues, member state governments can only decide unanimously.

The manifesto calls for “flexible ways to allow isolated dissent not to become a veto, whilst at the same time protecting the dissenting member from the effects of the decision.”

Moreover, as institutional reform is so difficult to achieve, it should be possible to “proceed with variable geometry and Member States’ clubs”.

Finally, the signatories of the manifesto hope their ideas could be taken up and debated in the European elections next year.

[Edited by Alice Taylor]

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