French President Emmanuel Macron accused the “Frugals”, i.e. the Netherlands, Austria, Denmark, and Sweden (during the last European Council summit, Finland also joined this group) of “acting like Brexit Britain.” Dutch Prime Minister Mark Rutte had demanded a smaller proportion of grants – handing out money without having to repay it – instead of loans awarded by the EU Coronavirus Recovery Fund as well as oversight by the EU’s institutions over the use of funds. In my last piece for this blog, I had made the case that the “Frugals” fulfill an essential role in the European Council, counteracting the incentives by Southern European member states that seek to spend EU funds without control.
By every observable standard, the five “opposition countries” have not been successful. The European Union has still ended up with the biggest multi-annual financial framework since its creation, with grants awarded to countries while having a very loose understanding of what “controls” over funds really mean. Adding to that, the European Union is now taking up mutualized debt obligations, meaning it is using the fiscal discipline of some member states to pay for the fiscal irresponsibility of others. Most disconcertingly, it does this with the implied misconceptions that somehow citizens in Italy are worse off than those in Finland or Germany, when there is actually little evidence to bear this out.
Meanwhile, in the European Parliament, parliamentarians have rejected the budget proposal, and thereby sent the Council back to the drawing board — their opposition comes for all of the wrong reasons. EU supporters on all sides are asking for an even larger budget, with more spending for EU health infrastructure, EU youth programs, or EU climate action. The resolution of the European Parliament was adopted with an overwhelming majority, leaving one inevitable fact: there is no real opposition to massive EU spending going forward.
It would be great news if Macron’s accusation towards the Netherlands and its allies was true, however. Apart from the promising fiscal discipline of The Hague, the occasional good tweet out of Vienna, and the vague threat out of Stockholm, the Frugals have shown to be toothless in this last summit. Whatever happens in the coming months, we can expect that mounting media pressure will only soften the approach of this opposition force.
The United Kingdom had always been a mitigating influence on the grandiose ideas of the Council, which diverge so much from the initial concept of the European Communities. When the European Union was set to take control of Europe’s fiscal policy framework in 2011 with the European Fiscal Compact, the UK vetoed the bill. More significantly, the UK was instrumental in stopping an EU financial transaction tax as well as the concept of Brussels generating its own income stream via EU taxes, or the idea of mutualized debt obligations.
The attentive reader will note that without the opposition of the UK – and this is without it even having left completely – the EU has decided on the largest budget in its history, introduces its first tax in January next year, brought a digital tax, carbon border tax, and the financial transaction tax back to the table for 2021, and funds most of the COVID-19 Recovery Fund through mutualized debt. Adding to that, the European Commission is cracking down on competitive tax policy in countries like the Netherlands, Ireland, or Luxembourg, and threatens the remaining veto powers in the European Council.
The European Union is steadily becoming the organization that some of its ideologues always wanted it to be. It has effectively exploited the Coronavirus crisis for its own benefit, and even though the budget is delayed, the move for greater power is already achieved. With no palpable opposition in sight, it’s about time that the “next Brexit Britain” makes itself heard in the Council. We’d all be better off.
This article was first published by Austrian Economics Center.
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