/Thomas Piketty: Willing EU countries should spearhead fiscal union

Thomas Piketty: Willing EU countries should spearhead fiscal union

The time has come for bold fiscal and political integration in Europe, French economist Thomas Piketty said Tuesday.

Faced with pressure from financial markets on the one side — which could risk another sovereign debt crisis — and angry voters growing impatient at a non-transparent Brussels on the other, the EU must move toward fiscal integration or risk a catastrophic reckoning, Piketty said in a wide-ranging interview with POLITICO’s Brussels Playbook.

The author of “Capital and Ideology,” a 2019 book that details the impact of various policies on inequality, including in the EU, issued an impassioned plea for democratic reform.

“The fact that we still have today these eurozone meetings … behind closed doors … I know people in Brussels are accustomed to this and think this is the only way to organize things. But this is a disaster. This is exactly what makes everybody hate Europe. And this will have to change.”

He also said that opposition from Germany and the Netherlands should not discourage France, Italy and Spain from issuing joint debt, known as eurobonds or corona bonds, as a way to tackle the fallout from the coronavirus crisis.

“The structural problem with the eurozone is that the rule of unanimity for all budgetary matters is something that does not work and will not work” — French economist Thomas Piketty

“It is perfectly possible for two countries, or three and four countries — France, Italy, Spain — to create corona bonds,” Piketty said about European answers to the crisis, and thus “mutualize interest [rates].”

Piketty insists in his book that issuing joint debt shouldn’t be characterized as debt pooling, as EU countries wouldn’t pay back each other’s debt, and denounces the political climate that has made policy debates around eurobonds a non-starter for years.

Multispeed Europe advocate

While he would prefer that all eurozone countries move toward fiscal integration together, Piketty warned that it had become clear this would not be possible, because countries such as the Netherlands and Luxembourg would always block common taxes or debt.

“The structural problem with the eurozone is that the rule of unanimity for all budgetary matters is something that does not work and will not work,” he said. To break the impasse, a group of willing countries should “develop a separate decision-making mechanism, through majority [voting], through also more transparent and open decision-making.”

Piketty slammed the Dutch government for its bargain-basement corporate taxes, which he warned was nothing but a fiscal race to the bottom. “There is a lot of work showing that this kind of attitude, to steal, basically, the tax revenue of other countries, is not constructive. If we all do that —what do we do?”

Rather than fueling inequality by competing aggressively with each other, European countries should move toward joint taxation and democratic governance.

Asked whether such a multispeed approach would not risk a break-up of the eurozone, Piketty said Europe had more to fear from rocketing interest rates in countries such as Italy — which threatened to delay the recovery and propel the EU into another debt crisis — than from asymmetrical fiscal or political integration.

He pointed to the Franco-German treaty of Aachen, which created a joint parliamentary assembly, as an example of closer political integration between two EU countries that had not undermined the functioning of the wider bloc.

“What we’ve learned is that it is perfectly possible for two countries, or three and four countries … to create some separate decision-making body without breaking from the European Union.”

Coronavirus risks fueling nationalism

Piketty warned that the pandemic could “lead to a reinforcement, a return to the nation state, to borders” — which far-right parties such as Marine Le Pen’s National Rally will be only too willing to exploit in France’s regional elections next year.

“After every epidemic in history one of the first reactions is to say, ‘Let’s protect ourselves from strangers, from everybody else.’ In France, the extreme right … will play this card of saying return to borders very strongly.”

Piketty’s analysis at times echoed Nobel laureate Joseph Sitglitz, who warned that globalization would exacerbate inequalities if left unchecked.

Piketty also slammed French President Emmanuel Macron’s tax policy — which in his book he says has “striking similarities” to that of U.S. President Donald Trump — pointing out the almost simultaneous suppression of the country’s wealth tax, which benefited the richest, and an increase on the country’s fuel tax on environmental grounds, which disproportionately hit the poorest. The latter sparked outrage and triggered the Yellow Jackets movement.

On a more positive note, Piketty said the coronavirus would likely lead to a boost of healthcare systems and “strong public infrastructure” more generally, pointing out that “three years ago in France, the president was saying … there is is no ‘magic money’ for hospitals … And now suddenly the magic seems to operate.”

Pay more taxes or lose everything

Piketty’s analysis at times echoed Nobel laureate Joseph Sitglitz, who warned that globalization would exacerbate inequalities if left unchecked.

“If we don’t change quite fundamentally the way we organize relations within Europe, and more generally in the way we organize globalization — basically you cannot have free trade and free circulation of capital without any common taxation, without any common objective to reduce inequality, without any common and verifiable targets,” Piketty said.

“If you look at who approved of the European Union in the Brexit referendum or in the French [2005] referendum … in pretty much every referendum you can see that only the top [in terms of] human and financial capital, who benefit from the mobility, approve of it,” he warned.

“And all the bottom groups are against it. And at some point we have to take this warning seriously. The idea that we just need to better explain what the European Union is doing, and everything will improve suddenly … I don’t think this is realistic.”

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