viernes, 18 de octubre de 2019

Corporate tax avoidance: it's no longer enough to take half measures




Multinationals’ failure to pay is hitting governments’ ability to fight the climate crisis and inequality

Globalisation has gotten a bad rap in recent years, and often for good reason. But some critics, not least Donald Trump, place the blame in the wrong place, conjuring up a false image in which Europe, China, and developing countries have snookered America’s trade negotiators into bad deals, leading to Americans’ current woes. It’s an absurd claim: after all, it was America – or, rather, corporate America – that wrote the rules of globalisation in the first place.

That said, one particularly toxic aspect of globalisation has not received the attention it deserves: corporate tax avoidance. Multinationals can all too easily relocate their headquarters and production to whatever jurisdiction levies the lowest taxes. And in some cases, they need not even move their business activities, because they can merely alter how they “book” their income on paper.

Starbucks, for example, can continue to expand in the UK while paying hardly any British taxes, because it claims that there are minimal profits there. But if that were true, its ongoing expansion would make no sense. Why increase your presence when there are no profits to be had? Obviously, there are profits, but they are being funnelled from the UK to lower-tax jurisdictions in the form of royalties, franchise fees, and other charges.

This kind of tax avoidance has become an art form at which the cleverest firms, like Apple, excel. The aggregate costs of such practices are enormous. According to the IMF, governments lose at least $500bn (£406bn) a year as a result of corporate tax shifting. And Gabriel Zucman of the University of California, Berkeley, and his colleagues estimate that some 40% of overseas profits made by US multinationals are transferred to tax havens. In 2018, 60 of the 500 largest companies – including Amazon, Netflix, and General Motors – paid no US tax, despite reporting joint profits (on a global basis) of some $80bn. These trends are having a devastating impact on national tax revenues and undermining the public’s sense of fairness.

Since the aftermath of the 2008 financial crisis, when many countries found themselves in dire financial straits, there has been growing demand to rethink the global regime for taxing multinationals. One major effort is the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which has already yielded significant benefits, curbing some of the worst practices, such as that associated with one subsidiary lending money to another. But, as the data show, current efforts are far from adequate.

The fundamental problem is that BEPS offers only patchwork fixes to a fundamentally flawed and incorrigible status quo. Under the prevailing “transfer price system”, two subsidiaries of the same multinational can exchange goods and services across borders, and then value that trade “at arm’s length” when reporting income and profits for tax purposes. The price they come up with is what they claim it would be if the goods and services were being exchanged in a competitive market.

For obvious reasons, this system has never worked well. How does one value a car without an engine, or a dress shirt without buttons? There are no arm’s-length prices, no competitive markets, to which a firm can refer. And matters are even more problematic in the expanding services sector: how does one value a production process without the managerial services provided by headquarters?

The ability of multinationals to benefit from the transfer price system has grown, as trade within companies has increased, as trade in services (rather than goods) has expanded, as intellectual property has grown in importance, and as firms have gotten better at exploiting the system. The result: the large-scale shifting of profits across borders, leading to lower tax revenues.

It is telling that US firms are not allowed to use transfer pricing to allocate profits within the US. That would entail pricing goods repeatedly as they cross and re-cross state borders. Instead, US corporate profits are allocated to different states on a formulaic basis, according to factors such as employment, sales, and assets within each state. And, as the Independent Commission for the Reform of International Corporate Taxation (of which I am a member) shows in its latest declaration, this approach is the only one that will work at the global level.

For its part, the OECD will soon issue a major proposal that could move the current framework a little in this direction. But, if reports of what it will look like are correct, it still would not go far enough. If adopted, most of a corporation’s income would still be treated using the transfer price system, with only a “residual” allocated on a formulaic basis. The rationale for this division is unclear; the best that can be said is that the OECD is canonising gradualism.

After all, the corporate profits reported in almost all jurisdictions already include deductions for the cost of capital and interest. These are “residuals” – pure profits – that arise from the joint operations of a multinational’s global activities. For example, under the 2017 US Tax Cuts and Jobs Act, the total cost of capital goods is deductible in addition to some of the interest, which allows for total reported profits to be substantially less than true economic profits.

Given the scale of the problem, it is clear that we need a global minimum tax to end the current race to the bottom (which benefits no one other than corporations). There is no evidence that lower taxation globally leads to more investment. (Of course, if a country lowers its tax relative to others, it might “steal” some investment; but this beggar-thy-neighbour approach doesn’t work globally.) A global minimum tax rate should be set at a rate comparable to the current average effective corporate tax, which is about 25%. Otherwise, global corporate tax rates will converge on the minimum, and what was intended to be a reform to increase taxation on multinationals will turn out to have just the opposite effect.

The world is facing multiple crises – including climate change, inequality, slowing growth, and decaying infrastructure – none of which can be addressed without well-resourced governments. Unfortunately, the current proposals for reforming global taxation simply don’t go far enough. Multinationals must be compelled to do their part.

Joseph E Stiglitz is a Nobel laureate in economics, university professor at Columbia University and chief economist at the Roosevelt Institute.


 

¿Cómo cobrar impuestos a las multinacionales?


Estos últimos años la globalización ha vuelto a ser blanco de críticas. Algunas de estas críticas tal vez están erradas, pero hay una muy certera: que ha permitido a grandes multinacionales como Apple, Google y Starbucks eludir el pago de impuestos. Apple es el mejor ejemplo de elusión fiscal corporativa: tras declarar que unos pocos cientos de empleados en Irlanda eran la fuente real de sus beneficios, llegó a un acuerdo con el Gobierno de ese país por el que sólo paga en impuestos un 0,005% de sus ganancias. Apple, Google, Starbucks y empresas similares se dicen socialmente responsables; pero el primer elemento de la responsabilidad social debería ser pagar la parte de impuestos que a uno le corresponde. Si todos eludieran y evadieran impuestos como estas empresas, la sociedad no podría funcionar, y mucho menos hacer las inversiones públicas que hicieron posible Internet, de la que dependen Apple y Google.

Las corporaciones multinacionales llevan años alentando a los países a competir entre sí por cobrar los impuestos más bajos. La rebaja impositiva promulgada en 2017 por el presi­dente estadounidense, Donald Trump, fue la ­última etapa de esta “carrera a la baja”, y un año ­después, sus resultados ya son visibles: el estímulo efímero que dio a la economía estadounidense está desapareciendo a toda prisa y dejando tras de sí una montaña de deuda (que el año pasado se incrementó en más de un billón de dólares).

Alertada por el riesgo de que la economía digital prive a los Gobiernos de ingresos con que financiar su funcionamiento (amén de distorsionar la economía, al provocar el abandono de los modos de venta tradicionales), la comunidad internacional por fin se dio cuenta de que hay algo que no cuadra. Pero los defectos del marco actual para la tributación de las multinacionales —basado en los “precios de transferencia”— se conocen hace ya mucho tiempo.

La idea de precios de transferencia se basa en el principio comúnmente aceptado de gravar las actividades económicas según el lugar donde se realizan. Pero ¿cómo se determina dicho lugar? En una economía globalizada, hay productos que atraviesan las fronteras varias veces, por lo general no terminados: camisas sin botones, autos sin transmisión, circuitos electrónicos sin chips. El sistema de precios de transferencia da por sentado que es posible asignar a cada etapa de la producción un valor de forma independiente y luego calcular el valor agregado en cada país. Pero no es así.

Hay que fijar un tributo global mínimo. EE UU y la UE deben tomar la delantera y evitar que ganen las grandes empresas

Esto se complica todavía más por la creciente importancia de las propiedades intangibles e intelectuales, ya que es muy fácil pasar la declaración de propiedad de un país a otro. Por eso hace mucho que dentro de Estados Unidos se dejó de usar el sistema de precios de transferencia, para aplicar en cambio una fórmula que distribuye el total de ganancias de las empresas según la proporción de ventas, empleados y capital que tienen en cada Estado. Tenemos que ir hacia un sistema similar para todo el mundo.

Pero no es lo mismo hacerlo de cualquier modo. Si se aplica una fórmula basada ante todo en el lugar de la venta final (que ocurre desproporcionadamente en los países desarrollados), los países en desarrollo quedarán privados de ingresos necesarios, tanto más necesarios en la medida en que las restricciones fiscales disminuyan los flujos de ayuda internacional. El criterio de lugar de venta final puede ser adecuado para gravar las transacciones digitales, pero no es aplicable a las manufacturas y otros sectores donde es esencial tener en cuenta también el nivel de contratación de empleados en cada país.

Algunos temen que incluir el criterio de contratación agrave la competencia impositiva entre países, ya que los Gobiernos tratarán de alentar a las multinacionales a crear puestos de trabajo en sus respectivas jurisdicciones. La respuesta apropiada a esta inquietud es imponer un impuesto global mínimo a los ingresos corporativos. Estados Unidos y la Unión Europea pueden —y deben— tomar la delantera en esto; si lo hacen, otros los seguirán, y se evitará una competencia en la que sólo las multinacionales ganan.

El proyecto sobre erosión de la base imponible y traslado de beneficios de la OCDE y el G20 viene haciendo desde su creación un importante aporte al replantear la tributación de las multinacionales, al promover una mejor comprensión de algunas de las cuestiones fundamentales involucradas. Por ejemplo, si en las multinacionales hay valor real, el todo es mayor que la suma de las partes. De modo que para la asignación del “valor residual” deberíamos guiarnos por los principios tributarios estándar de simplicidad, eficiencia y equidad, como sostiene la Comisión Independiente para la Reforma de la Fiscalidad Corporativa Internacional (de la que soy miembro). Pero estos principios son incompatibles tanto con el sistema de precios de transferencia como con el criterio de tributación basado en el lugar de venta.

Hay en esto un componente político: el objetivo de las multinacionales es conseguir apoyo a reformas que prolonguen la competencia entre países y las oportunidades de elusión fiscal. Los Gobiernos de algunos países avanzados donde estas empresas tienen una influencia política importante las apoyarán en el intento, aunque al hacerlo pongan en desventaja al resto del país. Otros países avanzados, pensando más que nada en sus propios presupuestos, simplemente lo verán como otra oportunidad de sacar provecho a costa de los países en desarrollo.

La iniciativa de la OCDE y el G20 se presenta como un intento de proveer un “marco inclusivo”. Dicho marco tiene que basarse en principios, no sólo en consideraciones políticas. Si el objetivo es lograr una inclusión auténtica, la principal prioridad debe ser el bienestar de los más de 6.000 millones de personas que viven en los países en desarrollo y en los mercados emergentes.

 

Traducción de Esteban Flamini.

 

Joseph E. Stiglitz es el ganador del Premio Nobel 2001 en Ciencias Económicas. Su libro más reciente se titula ‘El malestar en la globalización revisitado: la antiglobalización en la era de Trump’.

 

© Project Syndicate 1995-2019.

martes, 22 de enero de 2019

AN ECONOMY FOR THE 99%/ OXFAM



 
Interesting OXFAM report to reflect on how to tackle poverty and inequality

New estimates show that just eight men own the same wealth as the poorest half of the world. As growth benefits the richest, the rest of society – especially the poorest – suffers. The very design of our economies and the principles of our economics have taken us to this extreme, unsustainable and unjust point. Our economy must stop excessively rewarding those at the top and start working for all people. Accountable and visionary governments, businesses that work in the interests of workers and producers, a valued environment, women’s rights and a strong system of fair taxation, are central to this more human economy.



domingo, 20 de enero de 2019

Economia para el Desarrollo: el caso de Ecuador

https://www.bing.com/videos/search?q=economiaparaeldesarrollo&&view=detail&mid=74467BC02B55BBFC3E7074467BC02B55BBFC3E70&&FORM=VRDGAR



martes, 4 de diciembre de 2018

Artificial Intelligence and Europe

What is Europe’s place in a world enabled by Artificial Intelligence (AI)? Are there opportunities to be seized and where do they lie? What is the role of 5G, the internet of things (IoT) and the new world of digital communications? At ETNO, the association representing Europe’s leading telecom operators, we have launched a fresh work stream to understand the consumer, industrial and policy implications of embedding AI into digital communications. Here, we summarize some early findings. To learn more, join us for an exclusive AI workshop on 12 December 2018, in Brussels.
The global AI game: A place for Europe
AI is a global race for excellence and industrial leadership. At present, if we survey top opinion editorials and academic work, we see that the United States (U.S.) is considered among the global leaders in AI. The levels of U.S. investment in this field is increasing, with tech giants performing very strongly on some of the fundamentals of this new technology: computing, big data, algorithms and attracting venture capital, among others.
Similarly, observers point to China as a superpower in the making. In perspective, China can count on two main strengths. First, heavy public funding: by 2030 the Chinese government plans to cultivate an AI industry worth $150 billion. Second, a huge amount of centrally located and managed data, coupled with a relatively high freedom to process it. For a data-hungry technology like AI, this is a really important asset, although controversial in terms of user rights.
Europe is currently seen by many as a leader in ethical AI, with the ambition to create a set of global standards worldwide. This approach is grounded in cultural factors and it goes beyond policy and regulatory aspects. A number of top European players such as Deutsche TelekomSAP and Telefonica announced their AI principles, in which the ethical use of AI emerges also as a clear business differentiator. Europe must improve in areas such as innovation-ready laws and venture capital, as well as AI patents and research. In addition, there are “virgin” territories that offer promising avenues for European leadership and that should be explored.
AI, IoT and 5G: Opportunities for European leadership
If Europe is to scale and compete globally in AI, new sources of large streams of data need to be exploited and processed using European security and privacy standards. If we are to embrace recent projections, the next wave of data for AI will come from billions of cheap,  battery-powered sensors that will be connected over new generation networks — or 5G — offering great connectivity and high security. These sensor-enabled devices will report temperature, humidity, acceleration, position and other variables, on top of which AI will enable smart services.
European telcos are investing heavily in 5G and are working closely with “industry verticals” to activate digital transformation. We are interacting with transports and automotive, energy, agriculture, fisheries and many other fundamental industry ecosystems. The data generated in such interactions will create fresh resources for growing a unique AI space for Europe. It is at the intersection between the IoT and AI, empowered by 5G, that we can create a new promise for globally competitive European industries. In other words, 5G will drive IoT, and IoT will in turn fuel European AI. Together they can form a truly perfect “technology storm”, a huge opportunity for the Continent.
Policy: Enabler or obstacle?
When it comes to policy and regulation, the debate is currently diverse. Many in the tech policy community believe it may be far too early to regulate AI. This is the case of Pekka Ala-Pietilä, who leads the European Commission’s High-Level Expert Group on Artificial Intelligence. In a recent POLITICO interview, he stressed we should “make sure that we do regulate when it’s the right time but we don’t do it prematurely”. Others, especially in the academic world, have called for speeding up the debate on regulation.
via iStock
There are potentially many policy and regulatory areas to which the AI debate is relevant. However, two main areas appear to stand out:
Data and privacy: where we will be called upon to take tough decisions. On the one hand, Europe wants and needs to keep protections high for its citizens. On the other hand, we need to make sure we are able to develop and propose products and services based on European values. The alternative is to be outpaced by China and the U.S., and to become the importers of AI solutions developed elsewhere.
Security: where we see AI as a problem-solving technology. Already today, our companies are using AI to ensure high network security. This nicely fits in both corporate and government-led initiatives to improve cybersecurity. The main issue will remain to ensure that all parts of the ecosystem adopt high cybersecurity standards.
While there are many other regulatory or policy areas that are AI-sensitive, at ETNO we believe that the political debate should be primarily informed by values and by a shared understanding of the technological aspects.
Beyond just regulation, we think EU policies should encourage investment in AI technology, and leave more space for innovation, research and support for businesses that are speeding up the delivery of services based on European values.

Government Expenditure in Europe

Europe is the region of the world where government expenditure represents the largest share of GDP – roughly 46%. This is largely because Europe is home to the most comprehensive and developed social safety nets in the world. In fact, over 70% of government expenditure in the EU is linked to citizens’ wellbeing, whether in the form of social protection, health, housing or education. Thanks to these high levels of social protection, Europeans have generally been better sheltered from recent increases in inequality that have affected other developed and emerging economies, threatening their internal cohesion. Importantly, the EU and its Member States have managed to maintain these high levels of government spending, while at the same time significantly improving their fiscal sustainability. In 2017, the EU’s public deficit amounted to just one fifth of that of the US, and one quarter of that of Japan. Public debt in the EU is also considerably lower than in the US, standing at 83% of its GDP in 2017, compared to 108% in the US, and as much as 240% in Japan. Nonetheless, interest payments on public debt stock still represent a meaningful – albeit limited – share of EU governments’ expenditure. While accounting for a moderate 2.2% of GDP on average, they vary significantly, from 0.2% of GDP in Estonia to 4.3% in Portugal. And, even though no EU Member State currently faces short-term fiscal sustainability risks, the medium- to longer-term fiscal implications resulting from the end of accommodative monetary policies, and, more importantly, from an ageing population and a shrinking workforce, will present challenges for as many as half of the EU’s Member States.1 There is increasing consensus that, in a rapidly changing world, government expenditure – including social expenditure – needs to be oriented ever more towards investing in the future, to enable citizens and economies to better face the challenges ahead. In the EU, only a handful of Member States are really thinking long-term when setting their public investment priorities. Countries like Denmark and Sweden, for instance, currently allocate 6.9% and 6.6% of their GDP respectively on education, as well as 2.2% and 1.8% on R&D – far more than many of their counterparts. Naturally, government finances are not just a question of deficits and surpluses, or of where one spends ones money – but also one of quality. How governments spend their resources matters. Experience in the EU Member States shows that very different levels of social protection spending can in fact achieve similar outcomes. Vice versa, similar levels of spending can also result in very different outcomes. The following overview of government expenditure by function across Member States nevertheless suggests that there is a significant margin for improvement in the way that the EU and its Member States use their fiscal resources. Without compromising on the wellbeing and protection of citizens, more (and better) resources should be targeted towards future-oriented areas like innovation, research, education, training and defence.


European Political Strategy Centre
https://ec.europa.eu/epsc/sites/epsc/files/epsc_-_where_eu_governments_spend.pdf



lunes, 19 de noviembre de 2018

New Perspectives for Europe


Habermas analysis of Europe Perspectives 
I am invited to talk about New Perspectives on Europe, but new ones fail me, and the Trumpian decay afflicting even the core of Europe makes me seriously question my old perspectives. Certainly, the risks associated with a significantly changed state of the world have penetrated public awareness and have altered perspectives on Europe. They have also directed the broader public’s attention to the global context in which the countries of Europe have more or less unquestioningly felt at home so far. The perception has grown within public opinion throughout the nations of Europe that new challenges affect each and every country in the same way and therefore could best be overcome together. That strengthens, indeed, a diffuse wish for a politically effective Europe.
So, today, the liberal political elites proclaim, louder than before, progress should be made in European co-operation in three key areas: Under the heading European foreign and defence policy, they demand a boost to the military self-assertiveness that would allow Europe “to step out of the shadows of the USA”; under the motto of a common European asylum policy, they further demand robust protection of Europe’s external borders and the establishment of dubious reception centres in North Africa; and, under the slogan “free trade”, they wish to pursue a common European trade policy in the Brexit negotiations as well as in the negotiations with Trump. It remains to be seen whether the European Commission, which is conducting these negotiations, has any success – and whether, should it fail, the common ground of EU governments simply crumbles away. That’s one, encouraging side of the equation. The other is that nation-state selfishness remains unbroken if not bolstered by misguided considerations of the new International of surging right-wing populism.

Nationalist Short-Termism

The hesitant progress of the talks on a common defence policy and on an asylum policy that, again and again, falls apart over the distribution question shows that governments give priority to their short-term national interests – and this all the more so, the more strongly they are exposed at home to the undertow of right-wing populism. In some countries there’s not even any tension left between empty pro-European declarations on the one hand and short-sighted, un-cooperative behaviour on the other. In Hungary, Poland and the Czech Republic, and now in Italy and pretty soon probably in Austria, this tension has evaporated in favour of an openly europhobic nationalism. That throws up two questions: How is it that, in the course of the last decade, the contradiction between residual pro-European lip-service and the actual blockade of the required cooperation has come to such a head? And why is the eurozone nevertheless still holding together when, in all countries, right-wing populist opposition to ”Brussels” is growing – and at the heart of Europe, i.e. in one of the six founding nations of the EEC, has even led to an alliance of right- and left-populists based on a shared anti-European programme?
In Germany the twin issues of immigration and asylum policy have since September 2015 dominated the media and pre-occupied public opinion to the detriment of anything else. This fact suggests a swift answer to the question about the decisive cause of the increasing wave of euroscepticism, and that suggestion may be supported by some evidence in a country which still suffers from the psycho-political divisions of an unequally reunited nation. But, if you look at Europe as a whole and especially the eurozone in its entirety, growing immigration cannot be the primary explanation for the surge in right-wing populism. In other countries, the swing in public opinion developed far earlier and indeed in the wake of the controversial policy for overcoming a sovereign debt crisis brought on by the crisis in the banking sector. As we know, in Germany the AfD was initiated by a group of economists and business people around economics professor Bernd Lucke, that is by people who feared the snaring of a prosperous major exporter in the chains of a “debt union” and who set in train the broad-based and effective polemical campaign against the threat of mutualising debt. Last week the tenth anniversary of the insolvency of Lehmann Brothers recalled the arguments about the causes of the crisis – was it market failure or government failings? – and the policy of enforced internal devaluation. This debate was conducted in other eurozone member states with substantial impact on public opinion whereas here in Germany it was always played down by both the government and the press.

Germany Alone

The predominantly critical voices in the international debate among economists, which were the voices of the Anglo-Saxon mainstream against the Schäuble- and Merkel-driven austerity policies, have been barely noted and appreciated by the business pages of the leading media in Germany, just as on their political pages the social and human costs that these policies have dished out – and by no means only in countries like Greece and Portugal – were more or less ignored. In some European regions the unemployment rate is still just below 20 percent while the youth jobless rate is almost twice as high. If we today are worried about democratic stability at home, we ought also to remember the fate of the so-called “bail-out countries”: It is a scandal that in the unfinished house of the European Union such a draconian policy which impinged so deeply upon the social safety net of other nations was lacking even in basic legitimacy – at least according to our usual democratic standards. And this still sticks in the craw of Europe’s peoples. Given that within the EU public opinions on politics are formed exclusively within national borders and that these different public spheres are not yet readily available one for one another, contradictory crisis narratives have taken root in different eurozone countries during the past decade. These narratives have deeply poisoned the political climate since each one draws exclusive attention to one’s own national fate and prevents that kind of mutual perspective-taking without which no understanding of and for another can be formed – let alone any feeling for the shared threats that afflict all of us equally and, above all, for the prospects of pro-active politics that can deal with common issues and only do so in a cooperative mode and mentality. In Germany this type of self-absorption is mirrored in the selective awareness of the reasons for the lack of co-operative spirit in Europe. I am astonished about the chutzpah of the German government that believes it can win over partners when it comes to the policies that matter to us – refugees, defence, foreign and external trade – yet simultaneously stonewalls on the central question of completing EMU politically.
Within the EU, the inner circle of the member states of the EMU are so tightly dependent on each other that a core has crystallised, even if only for economic reasons. Therefore, the eurozone countries would, if I may say so, naturally offer themselves for acting as pace-makers in the process of further integration. On the other hand, however, this same group of countries suffers from a problem that threatens to damage the entire European Project: We, especially those of us in an economically booming Germany, are suppressing the simple fact that the euro was introduced with the expectation and political promise that living standards in all member states would converge – whereas, in fact, the complete opposite has come to pass. We suppress the real reason for the lack of a co-operative spirit that is more urgent today than ever before – namely, the fact that no monetary union can in the long run survive in view of an ever-wider divergence in the performances of different national economies and thereby in the living standards of the population in different member states. Apart from the fact that, today, in the wake of an accelerated capitalistic modernisation, we have also to cope with unrest about profound social changes, I consider the anti-European feelings spread by both left- and right-wing populist movements not as a phenomenon which only mirrors the present kind of xenophobic nationalism. These eurosceptic affects and attitudes have different roots that lie in the failure of the European process of integration itself; they emerged independent of the more recent populist inflammation of xenophobic reactions in the wake of immigration. In Italy, for example, euroscepticism provides the sole axis between a left and a right populism, i.e. between ideological camps that are deeply split when it comes to issues of “national identity”. Quite independently of the migration issue, euroscepticism can appeal to the realistic perception that the currency union no longer represents a ‘win-win’ for all members. The south against the north of Europe and vice versa: Whilst the “losers” feel badly and unjustly treated, the “winners” ward off the feared demands of the opposing side.

Macron Plan

As it transpires, the rigid rules-based system imposed upon the eurozone member states, without creating compensatory competences and room for flexible joint conduct of affairs, is an arrangement to the advantage of the economically stronger members. Therefore, the real question to my mind does not arise from an undetermined either “for” or “against” Europe”. Underneath this crude polarisation of a “pro” or “con” which goes without any further differentiation, there remains among Europe’s supposed friends a tacit question which so far remains untouched even though it is the key fault-line – namely, whether a currency union operating under sub-optimal conditions should just be made “weatherproof” against the risk of further speculation, or whether we should hold fast to the broken promise about developing economic convergence in the euro area and therefore develop the monetary union into a pro-active and effective European political union. This promise was once politically linked to the introduction of the EMU. In the proposed reforms from Emmanuel Macron both goals have equal value: On the one hand, progress towards safeguarding the euro with the aid of the well-known proposals for a banking union, a corresponding insolvency regime, a common deposit guarantee for savings and a European Monetary Fund democratically controlled at the EU level. Despite diffuse announcements it is well known that the German government has been blocking any further steps from being taken in this direction – and is resisting all this up to now. But Macron is on the other hand also proposing the establishment of a eurozone budget and – under the heading “European minister of finance” – the creation of democratically-controlled competences for political action at the same level. For the European Union could gain political prowess and renewed popular support only by creating competences and a budget for implementing democratically legitimised programmes against further economic and social drifting apart among the member states.
Interestingly, this decisive alternative between the goal of stabilising the currency on the one hand and the further-reaching objective of policies aimed at containing and shrinking economic imbalances on the other hand has not yet been put on the table for a wide-ranging political discussion. There is no pro-European Left that comes out for the construction of a Euro Union which is able to play a role at the global level and, thereby, has in sight the far-reaching goals such as an effective clamping down on tax evasion and a far stricter regulation of financial markets. That way, European social democrats would first of all emancipate themselves from the convoluted liberal and neoliberal goals of a vague “centre”. The reason for the decline of social democratic parties is their lack of profile. Nobody knows any longer what they’re needed for. For social democrats no longer dare to take in hand the systematic taming of capitalism at the very level at which deregulated markets get out of hand. In making this connection I’m not in particular concerned with the fate of a distinct family of parties – although we should always remember when talking about this that the fate of democracy in Germany is historically more tied up with that of the SPD than with any other political party. My general concern is with the unexplained phenomenon that the established political parties in Europe are unwilling to or fail to forge platforms upon which positions and options vital for the future of Europe are sufficiently differentiatedThe upcoming European elections serve as an experimental design in this regard.
On one side, Emmanuel Macron, whose movement so far is not represented in the European Parliament, is trying to break up the current party groups so as to build a clearly recognisable pro-European faction. By contrast, all those groups currently represented in the Parliament, with the obvious exception of the anti-EU far right factions, are internally divided even below the actually required degree of differentiation. Not all the groups allow themselves such a widely-spread balancing act as the EPP which so far is clinging on to Orbán’s membership. The mindset and conduct of the CSU-member Manfred Weber who is seeking to become president is typical of the wishi-washiness that goes with a totally ambiguous stance. But there are similar splits running through the liberal, socialist and (not least) leftist groups. With regard to at least a lukewarm commitment to Europe, the Greens might share a more or less clear position. Thus, even inside the Parliament, which is supposed to create majorities for societal interests generalized across national borders, the European Project has obviously lost any sharper contours.

Caught In A Trap

If you in the end ask me, not as a citizen but as an academic observer, what my overall assessment is today, I’ll have to admit to failing to see any encouraging trends right now. Certainly, economic interests are so unambiguous and, despite Brexit, as powerful as ever that the collapse of the eurozone is unlikely. That implies the answer to my second question: why the eurozone still clings together: Even for the protagonists of a northern euro the risks of separation from the south remain incalculable. And for the corresponding case of a southern state’s exit we have seen the test case of the current Italian government that, despite loud and clear declarations during the election campaign, has immediately relented; for one of the obvious consequences of leaving would be unsustainable debts. On the other hand, this assessment is not very comforting either. Let’s face it: if the suspected link between the economic drifting apart of the eurozone member economies on the one hand and the strengthening of right-wing populism on the other hand in fact holds, then we’re sitting in a trap in which the necessary social and cultural preconditions for a vital and safe democracy face further damage. This negative scenario naturally cannot count for more than just that. But already common-sense experience tells us that the European integration process is on a dangerous downward curve. You only recognise the point of no return when it’s too late. We can only hope that the rejection of Macron’s proposed reforms by the German government has not been the last lost opportunity.
This text is an abridged version of a speech given at a conference on “New Perspectives for Europe” at Humanities College, Goethe University (Frankfurt), in Bad Homburg (21 September 2018). Translated by David Gow.