Giving Brussels greater control of our national budget

Will sharing decision-making on national budgets with Europe solve the crisis? MEPs Edward Scicluna and Simon Busuttil give their views.

Nationalist MEP Simon Busuttil says Malta's fiscal discipline has served it well and other EU member states should be made to do the same.
Nationalist MEP Simon Busuttil says Malta's fiscal discipline has served it well and other EU member states should be made to do the same.

Europe's leaders' proposals for a stronger monetary union that will have overarching power over national governments' budget sound like a federalist's paradise.

EU President Herman Van Rompuy and Commission president José Barroso have unveiled a 10-year plan to create a European treasury, which would have powers over national budgets, and prevent future crises.

But for some critics, this attempt at making Europe a stronger political and monetary union is what has been happening all along, with no success. Not even the stability pact to keep deficits below 3% of gross domestic product (flouted first by its original proponent, Germany) kept the eurozone from the brink of implosion.

The crisis, with €1,000 billion from the European Central Bank made available to refinance major banks seeking bailouts, has set the stage for a greater, stronger and more federalist European Union.

But are national decisions about to be subsumed yet again to a centralized, EU budget office that will determine the way citizens' tax money is spent or not?

EU's vision for 'genuine economic monetary union'

  • Limits on the amount of debt member states incur
  • Annual national budgets can be vetoed if they mean a country exceeding debt limits
  • A European treasury office controlling a central budget and keep an eye on national ones
  • A European banking regulator and a common scheme guaranteeing bank deposits
  • Common policies on employment regulations and levels of taxation
  • Joint decision-making with national parliaments to give it "democratic legitimacy"

Edward SciclunaLabour MEP and economist Edward Scicluna does not sound surprised at the latest move to have a European budget office that will also have the power over national budgets.

"The €40 million cut in our budget dictated by the Commission is an indication that the Commission has already been given sweeping new powers earlier this year over national budgetary policy from the economic governance 'six-pack', which has now been embedded into national constitutional law by the fiscal compact treaty," the MEP says, referring to the budgetary cuts announced by Prime Minister Lawrence Gonzi back in January.

"The idea of a common EU Treasury is just a formalisation of this process," he adds.

"What we require to counterbalance the new powers given to the Commission is more democratic accountability and use of the 'Community Method' by both national parliaments and the European Parliament," Scicluna says, echoing Nationalist MEP Simon Busuttil who complains that the European project needs a deeper democratic investment before proceeding any further.

 Central Bank governor Josef Bonnici, who sits on the governing council of the European Central Bank, says the current proposals - which include a single European banking union and a deposit guarantee scheme - are still evolving but he acknowledges the political dimension of the proposals.

"Whether the centralisation of fiscal authority or instruments at the European or euro area level is appropriate or necessary depends mainly on the resulting incentives for sound fiscal policies, which are necessary in an economic and monetary union, and the overall effects on the euro area as a whole," Bonnici said.

Traditionally, the Central Bank has adopted the role of a critical observer of government expenditure even though Bonnici notes that Malta plans to bring government expenditure down to 2.4% of GDP in 2012. "However, the government debt ratio is above 70%. It needs to be reduced at the earliest opportunity, so as to give the government the room to manoeuvre if the need arises. The Central Bank has welcomed measures to curtail growth in current expenditure, as well as the proposals to strengthen domestic fiscal rules," he says, referring to the €40 million budgetary cuts.

But if Brussels is calling the shots on how national governments prepare their budgets, and even what corrective measures they take, is this fiscal sovereignty once taken for granted the price EU member states have to pay for the future of the single European currency?

Not so, says Nationalist MEP Simon Busuttil, who played a pivotal role in Malta's accession to the EU as the chief of the Malta-EU Information Centre back in 2003. Malta already pursues a policy of budgetary discipline so it suits Malta to know other euro countries are pursuing the same discipline and hopefully avoid another Greek tragedy.

"On similar lines we used to 'worry' about losing our 'right' to devalue our currency at the time of the adoption of the euro when, in fact, our currency was already pegged for years with the euro because it was in our interest to do so. So what loss or price are we talking about?"

Busuttil however says Europe's economic integration can only be underpinned by a stronger political union - if not a federalised, 'United States of Europe'.

This in itself means giving the European Central Bank a broader remit than just fighting inflation, Busuttil says. "More economic in nature. Such as the creation of employment or acting as a lender of last resort to protect the financial standing of EU countries particularly in relation to their debts and their borrowing costs, or issuing a common European debt or Eurobonds."

And that means that establishing a European Treasury would be part of it, with control over an EU budget that addresses the economic imbalances between EU regions. Busuttil envisages a stronger role for a central treasury that would dispense wealth across impoverished EU areas.

"Taxpayers in the richer EU regions would contribute more to the budget whereas those in the poorer ones would benefit more. And when the poorer ones become richer, it would be their turn to contribute."

As the MEP points out, Europeans already contribute in tax to the EU's financial framework, mainly from VAT payments on goods and services and other customs duties. Busuttil says the very notion of an EU tax that goes to a central EU budget is taboo, even though it already exists and it is dubbed "own resources" in member states' budgets.

But Busuttil says Europe's monetary union has so far failed to be rendered stronger with a stronger political union, with a directly-elected European Commission, greater powers to the European Parliament, and the fostering of a joint national and European sense of citizenship.

Instead, the single European currency hinged on the prospect that all member states keep their deficits and national debt below the established rules of the Maastricht criteria, and that this would create the necessary economic convergence without the additional requirements of a full economic and political union.

"Unfortunately recent events have showed that this did not quite work. Not because the rules were bad - they were common sense rules of financial management. But because one country after another started to flout them and there was no common discipline to prevent them from doing so."

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