EU Commission Paper Suffers From Bias

The European Commission recently presented a reflection paper on the deepening of the economic and monetary union. In the paper, the Commission calls for the introduction of new financing instruments for the eurozone, the establishment of a new stabilisation budget as well as for more effective governance of economic policy by means of a European Treasury and a European Monetary Fund. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW) in Mannheim, offers his view on the proposals:

“The Commission's paper has some interesting ideas, but it suffers from bias. It interprets the crisis in the eurozone first and foremost as a problem of lack of demand-management. The issue of lack of competition is indeed referred to abstractly; the Commission, however, shies away from specifically naming the most important structural problems. The call for a decisive cutback on excessive labour market regulations and tax burdens detrimental to growth is completely absent. Instead, the paper suggests mandatory convergence towards high social minimum standards. This is the exact opposite of what many crisis economies need.

The remarks concerning public debt are also not balanced. The paper calls for more discipline in the market for banks, but not for states. The justifiable demand for an end to the regulatory privileges given to government bonds is discussed with scepticism. Instead of responding to this demand, however, the paper even suggests new regulatory incentives for ‘Sovereign Bond-Backed Securities’. By adopting such a strategy, the Commission is making it easier for nations to run up debts for no good reason. Overall, this reflection paper is likely to further fuel fears in Northern Europe that solidarity and generosity among the Member States is coming at the expense of national accountability.”

For further information please contact:

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail heinemann@zew.de