The Road to the EU Fiscal Capacity: Commentary on the New Book by Federico Fabbrini

Herman Van Rompuy (former first President of the European Council)

This text is a record of the remarks made by Herman Van Rompuy, former President of the European Council, at the book launch of EU Fiscal Capacity: Legal Integration After Covid-19 and the War in Ukraine, by Federico Fabbrini (Oxford University Press, 2023).

Federico’s book brought back memories from almost a decade ago. At an informal European Council on 24 May 2012, I presented a text tasking myself with writing a report to take Economic Monetary Union to a new stage. There was general consensus that we need to strengthen the economic union to make it commensurate with the monetary union. I will report in June, in close cooperation with the President of the Commission, the President of the Euro Group and the President of the European Central Bank, on the main building blocks and on a working method to achieve this objective.

I took the Council by surprise. That proposal had grown out of the realisation that since early 2010, since the outbreak of the Greek crisis, we had only had an approach in which member states had to put their house in order. We had not addressed the systemic flaws in the architecture of the eurozone itself. The eurozone as for that matter also the EU, is more than the sum of its parts. Too many lack this understanding. This is why the decision on the Recovery Fund (NextGenerationEU) in summer 2020 was so important. It was the recognition that there was an EU problem as such that went beyond the challenge for a few countries individually.

A few weeks later on 29 June 2012, there was already a first report on the table with proposals for a Banking Union, a Fiscal Union, an Economic Union and greater democratic legitimacy and accountability. The European Council then specifically decided to create a single supervisor for the major banks in the eurozone. That was a breakthrough that the ECB was waiting for to come up with its own unprecedented action to show that it would do everything it could to defend the currency.

But truth be told, the further path towards a genuine EMU stalled after the summer of 2012. The reason is simple: the eurozone had been saved and was never in danger again in the years that followed. The momentum had passed. A decision was still taken in 2019 on the entire second part of the Banking Union namely the single resolution mechanism for for resolving failing banks but on the third part in particular a European deposit insurance sheme got nowhere. On the Economic and Fiscal Union, nothing has happened until the NextGenerationEU Recovery Fund in 2020. However important, but it is only part of the EMU and moreover, it was temporary. The lesson I draw from all this is well known: the Union can, in fact, only take big decisions in times of crisis with the knife at its throat and the abyss in front of it. It then does so to the surprise of many and to ourselves.

The fiscal capacity we thought of in the ‘Four Presidents’ report’ was a stabilisation tool, creating  a shock-absorption function, for instance, to act together in the event of a downturn in the economy. I am more inclined to see the NGEU as a growth instrument to prepare for the green and digital transition, now also the energy transition. Precisely because it aims to fundamentally change our model of economic growth, it cannot be temporary. After all, the problems do not stop in a few years when the Recovery Fund is no longer there. Moreover, on top of that comes the energy scarcity. One can still keep up a little pretence by saying that member states can spend the unused funds in the €800 billion package on energy and so there is no urgent financial need. But that does not solve the long-term problem for the Union as a whole to cope with the transformation of our economy and society. That need for a European fiscal capacity is increased by giving member states much more scope to provide national support to their industrial companies. That is a real threat to the single market and allows the law of the jungle to prevail in the Union. To compensate for this, there should be precisely a real European fund to give equal opportunities to all member states. We have already seen that race to save its own skin in 2022 when each country individually looked for energy suppliers other than the Russians. It still ended reasonably well but it was not a model of cooperation. We are far from the ECSC of the 1950s which was also about energy.

The NGEU and its financing, as mentioned, was a breakthrough. Yet it left the spending itself of the sums mainly to the member states. This also means that there is almost no room for supra-national initiatives. In today’s world, however, scale matters. A permanent instrument could be much more focused on Europe-wide projects.

May I add a footnote here? With the UK, the NGEU would never have come about. One is free to draw conclusions from this.

Fiscal capacity is not an end in itself. It serves the objectives of the Union where the Green Deal and strategic autonomy are central. Those who want the end must also want the means. How can the EU play a geopolitical role if it is so dependent in strategic areas?  We need to get away from mere market thinking where people are looking for the cheapest energy, the cheapest batteries or telecommunications. This commercial mindset has plunged us into today’s energy crisis. Had we made ourselves less dependent on Russian gas and oil after the annexation of Crimea, the current energy crisis would have been avoided. Against all agreements made in 2014, we continued in business as usual, literally and figuratively. We were not competent to think geopolitically, including the so-called big countries. National and economic interests were more important. Sometimes I am not sure we are learning the necessary lessons for good. Sooner or later, another crisis can occur. Think of Taiwan.

The question of whether we should work to amend the treaties to have a full-fledged fiscal capacity is, of course, legitimate. The political question is whether the 27 can take that step without a crisis moment obliging them to do so. Personally, I am not in favour of a fundamental change of the Treaties but of changes in the Treaties. I would not repeat the 2002-2003 Convention. There is too little consensus in the Union today for that. It would be a debate that divides more than it unites. Instead, I would focus on well-defined changes. In any case, if the Union is to be widened, it will have to be deepened. The rule of unanimity on foreign policy and taxation is i.a. once again on the agenda. A number of member states want to postpone the enlargement process, for instance with regard to Ukraine. Further enlargement could be quicker than many think. Why can we not think of a group of wise men who, as in 1999, would formulate proposals on what should be on the agenda for a possible Intergovernmental Conference (IGC)? The Conference on the Future of Europe was a good exercise but it did not carry enough political weight. The European institutional framework will always be ambiguous, hybrid, particular or hermaphroditic as Giuliano Amato put it earlier.

The world in which we are working on the ‘Four Presidents’ report’ is a different world from today. The primacy of economics has been replaced by the primacy of politics. I would even say the primacy of geopolitics. The EU must act in unison, as we have done much more than expected in recent years, by the way. But we need to be even more aware that we need to be more than the sum of the parts. The European interest, the European common good, is something other than just the sum of national interests. That was the lesson of 2012 I talked about at the beginning. I would like to end by thanking Federico Fabbrini for his book as always very precise and above all very committed to the European cause, our cause.

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