June 2021 will appear in the annals of the EU as one of the crucial moments in the budgetary and fiscal history of the community club. Brussels hopes to carry out the first joint debt issue this month to finance the recovery fund, a step that marks a before and after in the design and execution of the common budget. The EU also launched the first European prosecutor’s office this month, charged with prosecuting crimes against the club’s financial interests. And the European Parliament finalizes the approval of a directive that will force large companies to detail their tax bill country by country, an exercise in transparency with which they hope to close the legal holes through which tens of millions of euros in taxes escape . Experts disagree on the long-term consequences of all these changes. But they agree that Europe is entering a new fiscal era.
The European Union is entering this new stage behind the launch of the recovery fund and the push from the US and the G-7 in favor of a corporate tax that ends tax havens. Expectations in the face of the ongoing revolution are enormous in all capitals, both in those in favor of taking advantage of the recovery fund to create an instrument of permanent fiscal rebalancing and in those who fear this tremendous jump and are fighting to avoid it. The G-7 agreement to propose a global corporate tax rate of at least 15% also raises concerns for EU partners with lower tax rates.
The department of Paschal Donohoe, Irish Finance Minister and chairman of the Eurogroup, seems aware of the looming battle and last Thursday published a independent study on the future of the European economy and the euro zone after covid-19. The report, which does not reflect the position of your government or the Eurogroup, concludes that the unprecedented measures taken to alleviate the pandemic crisis “will mark the future of European integration for years to come.”
Federico Fabbrini, professor of European law at Dublin City University and author of the report commissioned by Donohoe, is convinced that “the NGEU recovery fund [Next Generation EU] it constitutes a paradigm shift for the European Monetary Union because it lays the foundations for a true European fiscal capacity ”. Fabbrini believes that although the fund has been designed on a temporary basis “there will be great pressure to maintain it beyond the pandemic.”
From this June until the end of 2026, the European Commission will issue debt worth around 150,000 million euros a year to finance the fund. Brussels has already selected a first batch of 39 banks (Santander and BBVA among them) to facilitate bond auctions and seek the widest possible network of investors. This same Tuesday, the Commission organizes a teleconference with potential investors to present future issues and assert their credit credentials (triple A with the Fitch rating agency; Aaa with Moody’s, and AA with Standard & Poor’s).
The Commission’s unprecedented foray into financial markets will generate a huge debt pool shared by the 27 EU Member States, which will have until 2058 to repay it. Guntram Wolf, director of the Bruegel study institute in Brussels, considers that the new fund “represents a great step for the Union because it sets a precedent”. But Wolf warns that it is “a specific instrument, created only for this crisis, both in legal and political terms.” Eulalia Rubio, researcher senior from the Jacques Delors study center in Paris, points out that “it will mark a before and after, but it is still not possible to say whether or not it will be the embryo of a future European Treasury.”
The director of Bruegel recalls that its legal basis is Article 122 of the Union Treaty, which allows financial assistance from the EU in the event of “natural disasters or exceptional events”. Wolf believes that from the political point of view the fund is also a flower of a day, because the resistance of the partners opposed to its creation could only be overcome “because we were facing the biggest recession in the last 100 years”. Once the crisis is overcome, the possibility that the 27 unanimously agree to extend or extend the aid is considerably reduced.
Analysts agree, however, that the instrument will set the tone for EU intervention in future crises. “If it becomes a positive experience, one that contributes to reforming, modernizing and revitalizing the economies of the European partners, in the future the political class will recover this tool if another occurs. shock economic, ”predicts Guntram Wolf. Bruegel’s director considers that this anti-crisis instrument is more convenient than a permanent transfer of resources, “which would not be viable or desirable, neither from the political or economic point of view.”
Rubio adds that if it is successful, “the repercussions will also be felt in the structural funds, whose management will evolve towards the Next Generation EU model, based on incentives for reforms and investments.” The Jacques Delors researcher also predicts that the amortization of the fund will reopen the debate on corporate taxation, already put on the table internationally by the US administration of Joe Biden with a proposal for a minimum tax rate of 15%. of companies that was endorsed last Saturday by the finance ministers of the G-7.
In principle, the 27 governments have agreed to create new taxes to amortize the fund and thus prevent the recovery plan from causing a reduction in community budgets. Since January of this year, a tax has already been applied that will force each State to contribute to the European coffers at a rate of 0.80 euros per kilogram of non-recycled plastic waste. In a matter of days or weeks, the Commission will also present a draft tax on imports of steel, aluminum, cement or electricity from countries where production generates excess CO₂ emissions. And in 2024 a tax could be introduced for the financial sector.
Rubio predicts that those rates, even if all are approved, will not generate enough resources for the size of the debt the fund will leave behind. “The debate on corporation tax will have to be raised, which is where the money is, and it will probably be necessary to advance in harmonization and in the fight against unfair competition,” says the researcher.
Brussels is already taking a first step with the agreement reached last week between the Council and Parliament for a directive that will oblige large companies that operate in the single market, whether European or not, to detail their invoicing and tax invoice in each country of the Union, as well as its accounts in jurisdictions classified as “non-cooperative”, that is, tax havens.
But future changes could be so far-reaching that Federico Fabbrini’s report predicts that “the support of the new fiscal powers of the EU will require adequate constitutional adjustments.” At stake, warns the Dublin professor, will be the democratic legitimacy of a new architecture of the euro zone that begins to include decisions on debt and taxes. Fabbrini believes that the newly opened Conference on the future of Europe it offers the framework to initiate deliberations that could lead to a profound reform of the European Treaty.