Monday, 5 May 2014

Our manifesto for Europe

European Union institutions no longer work. A radical financial and democratic settlement is needed

Thomas Piketty and 14 others                       Guardian/UK                                 2 May 2014

It is time to recognise that Europe's existing institutions are dysfunctional and need to be rebuilt. The central issue is simple: democracy and the public authorities must be enabled to regain control of and effectively regulate 21st century globalised financial capitalism. A single currency with 18 different public debts on which the markets can freely speculate, and 18 tax and benefit systems in unbridled rivalry with each other, is not working, and will never work. The eurozone countries have chosen to share their monetary sovereignty, and hence to give up the weapon of unilateral devaluation, but without developing new common economic, fiscal and budgetary instruments. This no man's land is the worst of all worlds.

Concretely, our first proposal is that the eurozone countries, starting with France and Germany, share their corporate income tax (CIT). Alone, each country is hoodwinked by the multinationals of every country, which play on the loopholes and differences between national legislations to avoid paying tax anywhere. National sovereignty has thus become a myth. To fight against this "tax optimisation", a sovereign European authority needs to be given the power to establish a common tax base that is as broad as possible and strictly regulated. Each country might then continue to set its own CIT rate on this common base, with a minimum rate of around 20%, and with an additional rate on the order of 10% to be levied at the federal level. This would make it possible to give the eurozone a real budget, on the order of 0.5% to 1% of GDP.

Our second proposal is the most important and flows from the first. To approve the tax base for the CIT, and more generally to discuss and adopt the fiscal, financial and political decisions on what is to be shared in the future in a democratic and sovereign fashion, we must establish a parliamentary chamber for the eurozone. In this scheme the European Union would have two chambers: the existing European parliament, directly elected by the citizens of the EU 28, and the European chamber, representing the states through their national parliaments. The European chamber would initially involve only the countries of the eurozone that want to move towards a greater political, fiscal and budgetary union. But it would be designed to welcome all EU countries agreeing to go down this road. A minister of finance of the eurozone, and eventually an actual European government, would answer to the European chamber.

This new democratic architecture for Europe would make it possible to finally overcome today's inertia and the myth that the council of heads of state could serve as a second chamber representing the states.

Our third proposal concerns the debt crisis. We are convinced that the only way to put this definitively behind us is to pool the debts of the eurozone countries. Otherwise speculation on interest rates will renew again and again. It is also the only way for the European Central Bank to conduct an effective and responsive monetary policy, as does the US Federal Reserve (which would also be hard pressed to do its job properly if every morning it had to arbitrate between the debts of Texas, Wyoming and California). The pooling of debt has de facto already begun with the European Stability Mechanism, the emerging banking union and the ECB's Outright Monetary Transactions programme, which already affect the taxpayers of the eurozone to one extent or another. It is necessary now to go further, while clarifying the democratic legitimacy of these mechanisms.

Thomas Piketty Director of studies at the École des hautes études en sciences sociales (EHESS) and professor at the Paris School of Economics
14 other names are added. NOTE: These are extracts only, from a long article.

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