More Taxation with Representation

The political dilemma of the European Union (EU) was well summarized some time ago by Jean-Claude Juncker, Prime minister of Luxembourg, president of the Euro-Group and the most veteran member of the European Council: “We all know what to do –he said--, but we don’t know how to get re-elected once we have done it”. We indeed know that what to do is, first of all, to culminate the current process of transforming huge private debt in a number of countries into those states’ public debts by transforming them into EU public debt. This would be a substitute for the expected but never fulfilled economic convergence in the Union. As has been repeatedly noted, this would be comparable to what the first Treasury secretary, Alexander Hamilton, did in the US with the states’ debt –even with the advantage regarding the US in the late 18^th century that the EU has already a central bank.

    

But the analogies with the US experience may not finish here. In addition to assuming the states’ debt, the EU could implement stimulus to growth, as the high level of European economic integration is making now state-focused public spending less able to generate effective aggregate demand than in previous periods with closer national economies. On this the EU is, of course, in disadvantage in comparison with the US, where stimulus packages have been relatively more effective because the bulk of public spending is in the hands of the federal government. Nevertheless, resources could be drawn not only from the EU’s budget, but from the Central Bank, the Investment Bank and the Stability Mechanism in amounts that can already attain a significant percentage of the European GDP.

    

Most European leaders are committed to an ever closer fiscal union, especially regarding control of states’ public spending. But the political question is that public spending administered through EU institutions should be based on EU taxes, not on state taxes, in order to make taxpayers aware of the consequences of their votes and the EU rulers accountable. Democracy requires both taxation and representation. There are certainly other possibilities: taxation without representation implies lack of democracy (as still proclaimed in the car plates of Washington, DC), while no taxation with representation might be the ideal for both citizens and rulers (as happens with some local governments) but it’s not sustainable by itself. The problem of the European Union is that it has little of the two elements: both low spending and taxation capabilities and deficient representation.

    

The fatal mismatch is that politicians like Juncker making decisions at the EU level are not running in elections at the EU level, but at state level. They are wary of doing what they know to do in the European institutions because they are not looking at expectations and demands from the European electorate, but at reactions from taxpayers and voters in their domestic constituencies.

    

Within the current institutional framework, two ways could be followed to try to reduce this deficit. One would be to reinforce the role of the European Commission and its links with the directly elected European Parliament. This is a kind of parliamentary option, which was actually promoted by the parliamentarians of Germany at the European Constitutional Convention gathered in Brussels ten years ago, but it was compromised with a more powerful but not directly elected presidency of the European Council --a figure that was promoted by the French.

    

The other way would be, thus, to make the European Council, which is formed by the states’ chief executives, more directly representative of and accountable to the European electorate. This is also, of course, the type of option that was taken in the US constitution. Then, EU decision-makers more empowered to emit debt, collect taxes and deliver public investment and economic stability, even if they had developed their initial political careers in, say, Germany, Finland or Luxembourg, could successfully obtain popular support in peripheral, Southern or Eastern countries benefitting from higher federal integration –in a similar way as also happens in the US. In Juncker’s terms, they could know how to be re-elected –although for different, Europe-wide offices.

    

The challenge currently faced by the EU is, thus, not only of higher fiscal integration, but also of better democratic integration. More spending without taxation or more taxation without better representation would be recipes for failure.

A SUMMARY:

A version in Spanish in the daily El Pais: CLICK




COMMENTS

Jorge Dezcallar said…

Querido Josep

Me ha gustado tu artículo. Tienes mucha razón.

Gracias por enviármelo

Un gran abrazo

Leandro Prados de la Escosura said…

Well done!
Me ha gustado mucho

Un abrazo

Leandro

Cristina Sanz said…

I don't see taxation without representation as less democratic per se, but as colonial, even when the metropolis, which in this case ironically sits in the colony, is the seat of a democratic government…

Your definition of dictatorship is broader than mine, I understand

Carlos M. de la Cruz, Sr. said…

Josep, very good analysis. I think globalization generates pressures to create unelected bodies with explicit or implicit veto power and we are still learning how to deal with this phenomena. Greece reminds me of Cuba in 1933 when Machado was overthrown for agreeing to pay the foreign debt owed mostly to US banks and to repudiate the domestic debt owed mostly to Cubans. The Platt Amendment in the Cuban Constitution allowed the US the right to intervene in Cuban affairs and, in a way, presented the same challenge as the Germans do to the Greeks. Some politogs think that it was this that eventually culminated in the 1959 Revolution which was successful because of the disgust by many with the governing processes. Regards, Carlos   

BloombergBusinessweek just ran a substantive article on the young, left-wing opposition Greek leader that triggered my comment to you because it reminded me of Guiteras, who was murdered but really changed the course of Cuban politics following the overthrow of Machado.

Ivan Bofarull said…

bonissim!!! i la carta brilliant

per cert, mira't aquest link, dins de la tragedia, he rigut molt:

http://www.washingtonpost.com/blogs/ezra-klein/post/from-krugmania-to-draghia-five-ways-to-save-the-euro-zone/2012/06/06/gJQAPMBcIV_blog.html