Leaked plans for an EU austerity machine

December 14, 2017

The French president Emmanuel Macron has been pushing the case for ambitious reforms of the eurozone, and the EU, proposing a separate EU budget (shifting spending from member state national budgets upwards to an integrated EU budget), an EU finance ministry and a European monetary fund for the eurozone (to act as permanent mechanism to assist member states who get into financial difficulty). It was always unlikely that such a plan would be supported by Germany who would be the main provider of funding for such a scheme.

Now a document leaked by the French newspaper Libération (Google translation here) has revealed that Commission President Jean-Claude Juncker has sided with the conservative German position by offering an alternative and draconian plan for Eurozone reforms. The essence of the proposed plan would be to bring to the entire single currency zone the same sort of program that was imposed on Greece. In the account of Yannis Varoufakis of his time negotiating with the Troika (‘Adults In The Room: My Battle With Europe’s Deep Establishment’) he claims that Wolfgang Schäuble explicitly told him that his ambition was to ‘bring the Troika to Paris’. Schäuble’s views are those of the conservative right and centre in Germany which views the design of the single currency as deeply flawed, an unfortunate and dangerous concession forced out of Germany in return for allowing reunification, and in need of urgent and deep reform. The aim would be to remodel the entire Eurozone along German lines, in particular France.

A document leaked by the French newspaper Libération has revealed that Commission President Jean-Claude Juncker has attempted to appease the most conservative of German politicians by offering draconian Eurozone reforms. These, in summary, would amount to the entire single-currency area being subjected to the same model that Greece has been labouring under since its first memorandum with the Troika. Greece was in many ways an ‘austerity laboratory’ which helped to test and generate methods which the German conservative block would like to be exported to the rest of the Eurozone.

The key proposals in the Junker paper are:

  • A rejection of the Macron idea of an integrated ’eurozone budget’ as the first step towards fiscal union. The idea of fiscal union is detested in Berlin because it implies that revenue would flow, via the European budget, from Germany to poorer member states. Instead Junker is proposing a ‘budget line’ which, being part of the EU budget, would be dependent on an agreement by all 27 members, 8 of which do not have the Euro and would not be keen to share their money with those who do. This would insure that the ‘budget line’ would be small and would not be permanent either, but would take the form of aid, shared in the event of a serious economic crisis, and only in return for structural reforms (essentially austerity measures). So rather than a pan-EU fiscal union which could support a pan-EU social union the Junker proposal would create a mechanism for policing spending across the EU and for forcing ‘reforms’ on those that get into fiscal difficulty.

  • Junker proposes that the requirement for all member states to run a “balanced budget” is made a fundamental principle of European law, thereby limiting the “structural deficit” of Member States’ budgets at 0.5% of their GDP. This would make a reality the “Troika in Paris” scenario, Wolfgang Schäuble’s long-term plan and the reason why Greece was transformed into a neoliberal experiment.

  • That the European Stability Mechanism (ESM) would be transformed into a European Monetary Fund (EMF), with the ability not only to impose austerity programs, but also to restructure (cancel, extend repayment periods, lower interest rates) public debts. Its operation would remain governed by the rule of unanimity of the States that compose it.
    All of the above proposals would see even more power over public spending being passed upwards to the EU level, without any commitment to an EU level social union, and which would be managed by the same essentially non-democratic and non-transparent mechanisms currently in place. In the Junker plan the European parliament would be granted a consultative role in the nomination of the head of the EMF and could interrogate her or him behind closed doors, but would have no power over whether the above proposals are implemented. Power will remain, as always, with national governments operating via the secretive and non-accountable diplomatic mechanisms of the EU. By passing even more power over public expenditure away from democratically elected national legislatures an absolutely essential arena of political struggle would be reduced to an arena of rules and administration with no room for the normal partisan politics or discourses traditionally enjoyed at the national level. In essence a new and powerful pillar of depoliticised technocracy would be created.

    These Junker proposals will probably never be implemented, but they are being tabled to block the Macron Agenda and are a reminder of the power of conservative (German led) block in the EU and its influence over the Commission. I do not believe that fiscal union or social union will happen in the foreseeable future, and without a social union the mechanism of the single currency and the single market will continue to socially polarise the European Union, continue the deep erosion of the social democratic parties of the EU and foster support for populist national movements.

    The tragedy of the EU is that after the disastrous wrong turn at Maastricht and plunge into reckless monetary union it can no longer go forward or go back.

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