Steve Peers

French economist Thomas Piketty unexpectedly became a prominent intellectual figure, especially in the UK and US, with his book “Capital,” which presents a new perspective on the relationship between capitalism and democracy.

Maintaining his engagement with current issues, Piketty has contributed to a proposal for EU reform, connecting his academic work to practical solutions.

The EU, once adept at managing capitalism but less so democracy, now struggles with both. Piketty’s proposals aim to rectify these issues.

Piketty’s Proposals

Firstly, Piketty suggests harmonizing corporate income tax in the Eurozone, beginning with France and Germany. This entails a shared tax base, a 20% minimum rate, and a 10% federal rate levied by a Eurozone authority. This would enable Eurozone-level investment programs. Other measures include automatic exchange of banking information, progressive taxation of wealth and income, and combating tax havens outside the Eurozone.

Secondly, a Eurozone parliamentary chamber comprising members from national parliaments should be established. Representation would be proportional to population, starting with countries supporting strong fiscal and political union. This chamber would oversee a Eurozone finance minister and eventually a Eurozone government. Piketty dismisses the idea of a second chamber with heads of state, proposing the existing European chamber instead, focusing on issues like corporate governance, childcare, training, social legislation, and carbon pricing.

Thirdly, a debt redemption fund would handle debts exceeding 60%, with the Eurozone parliament determining annual deficit levels.

Comments

Even if Piketty’s economic analysis is accurate, the practicality of his EU reform suggestions, while addressing valid concerns, is debatable.

Treaty reform, deemed necessary by the authors, is more complex than suggested. Recent amendments were minor. A major reform attempt in 2011 regarding economic governance failed. The Treaty of Lisbon, the last significant amendment, took years to finalize. Therefore, EU reform advocates should prioritize changes achievable within the existing framework or through agreements between member states.

A harmonized corporate tax base and minimum rate are achievable under EU law through enhanced cooperation. In fact, discussions on harmonizing the corporate tax base are already underway. Alternatively, a treaty between member states, adhering to EU regulations, could address this.

However, the EU’s authority on wealth and income taxes is limited. A treaty among member states, consistent with EU non-discrimination rules, could be a solution.

The EU already has numerous measures regarding tax information exchange. Addressing tax havens within the EU is difficult due to free movement rules. Negotiations with non-EU tax havens fall under EU jurisdiction.

A Eurozone budget can be established within or outside the treaties without amendments.

However, the debt redemption fund requires Treaty reform as it likely violates the “no bail-out” rule.

While a Eurozone parliamentary chamber and government could be established through a treaty, overlapping powers with existing EU institutions, particularly regarding carbon pricing and social legislation, pose legal challenges. Additionally, any authority over a debt redemption fund necessitates a Treaty amendment.

The reform proposals overlook the existing Council, comprising ministers from member states, which functions as a second legislative chamber alongside the European Parliament.

Reform would be more effective by modifying existing bodies. Creating a Eurozone-only section within the European Parliament could be a viable solution.

Creating a new Eurozone chamber might be the only way to address concerns about EU legitimacy and democracy, particularly after the upcoming EP elections. This new chamber’s structure could also address concerns about representation within the European Parliament. However, its powers must be distinct from existing EU institutions, focusing on areas like tax harmonization and supervision of the European Stability Mechanism (ESM).

Finally, establishing a Eurozone parliamentary chamber raises the question of its location. Strasbourg is a potential option, allowing the European Parliament to consolidate its operations in Brussels. This point is surprisingly absent from the French reformers’ proposal.

Barnard & Peers: chapter 2, chapter 3, chapter 19