Are we moving towards a eurozone fiscal federal authority?
by our secret columnist in Brussels
24 September 2012
Democracy rests on checks and balances and who controls the controllers - as the Romans used to say. But how would this work out with a fiscal federal authority for the single currency area? Our secret columnist Schadenfreude investigates
Angela Merkel grew up in East Germany. She knows all about central control. A trained scientist, she uses straight line thinking without cant. As leader of a coalition government, she understands the murky world of compromise. Merkel has two priorities. She wants to keep the eurozone afloat, since it is one of the sources of German export success. She also wants to protect the German taxpayer against any legal or moral obligation to transfer resources to underperforming economies in the single currency area.
In this, she has the backing – when she takes it - of the German constitution, which dictates that all significant spending decisions must be taken or ratified by parliament. Living in a working federation Merkel is at home with what some American scholars call 'layer cake' government. The first layer is the Kreis or local community, proving public services like libraries and parks. The next layer is the province, or land, with an elected government. The Bundesstaat, or federation, exercises national responsibilities.
It is conceptually easy for German thinkers to envisage another layer, a 'European Federation of Nation States' – nations because of the powers reserved to the lower layers and tightly circumscribed in the top layer. This puts Merkel into the kind of dilemma analysed by her compatriot Friedrich Hegel (1770 -1831). He examined the processes of thesis and its antithesis, resolved by synthesis. What is Merkel's synthesis? She wants binding rules on public finance throughout the eurozone. In national budgets, democratically voted on, the deficit must be a fixed low percentage of gross domestic product and the cumulative government deficit must also be a low number. This financial discipline is to be enforced by penalties for breaches.
And here is the rub. The system implies a central controller who watches revenue and spending and intervenes to warn and if necessary to penalise. The controller must be independent of the controlled – in other words, supranational. It is an easy step to take the system further and institute ex ante control. Before the national budget is presented, the controller vets the proposals and imposes changes. The national parliament would be expected, or required, to endorse them. But all this is fraught. The basic task of a parliament is to 'vote supply' and its vote is the key to the political doctrine of the party elected to rule .
There is a collision between central oversight and a national authority. In Hegelian terms, the synthesis is to shift the budgetary decision to the centre - which implies a eurozone fiscal federal authority. Given the significance in national government of the power to tax and spend, and the policies which flow from spending decisions (and vice versa). This would be a stepping stone to a "federation of the nation states" of the single currency area, or ultimately of the European Union. Through a glass darkly, this seems to be what the German government is talking about. But it is technocratic bunk or 'unsinn". Democracy rests on checks and balances. Who controls the controllers - as the Romans used to say.
Angela Merkel grew up in East Germany. She knows all about central control. A trained scientist, she uses straight line thinking without cant. As leader of a coalition government, she understands the murky world of compromise. Merkel has two priorities. She wants to keep the eurozone afloat, since it is one of the sources of German export success. She also wants to protect the German taxpayer against any legal or moral obligation to transfer resources to underperforming economies in the single currency area.
In this, she has the backing – when she takes it - of the German constitution, which dictates that all significant spending decisions must be taken or ratified by parliament. Living in a working federation Merkel is at home with what some American scholars call 'layer cake' government. The first layer is the Kreis or local community, proving public services like libraries and parks. The next layer is the province, or land, with an elected government. The Bundesstaat, or federation, exercises national responsibilities.
It is conceptually easy for German thinkers to envisage another layer, a 'European Federation of Nation States' – nations because of the powers reserved to the lower layers and tightly circumscribed in the top layer. This puts Merkel into the kind of dilemma analysed by her compatriot Friedrich Hegel (1770 -1831). He examined the processes of thesis and its antithesis, resolved by synthesis. What is Merkel's synthesis? She wants binding rules on public finance throughout the eurozone. In national budgets, democratically voted on, the deficit must be a fixed low percentage of gross domestic product and the cumulative government deficit must also be a low number. This financial discipline is to be enforced by penalties for breaches.
And here is the rub. The system implies a central controller who watches revenue and spending and intervenes to warn and if necessary to penalise. The controller must be independent of the controlled – in other words, supranational. It is an easy step to take the system further and institute ex ante control. Before the national budget is presented, the controller vets the proposals and imposes changes. The national parliament would be expected, or required, to endorse them. But all this is fraught. The basic task of a parliament is to 'vote supply' and its vote is the key to the political doctrine of the party elected to rule .
There is a collision between central oversight and a national authority. In Hegelian terms, the synthesis is to shift the budgetary decision to the centre - which implies a eurozone fiscal federal authority. Given the significance in national government of the power to tax and spend, and the policies which flow from spending decisions (and vice versa). This would be a stepping stone to a "federation of the nation states" of the single currency area, or ultimately of the European Union. Through a glass darkly, this seems to be what the German government is talking about. But it is technocratic bunk or 'unsinn". Democracy rests on checks and balances. Who controls the controllers - as the Romans used to say.
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