States on
divergent fiscal paths can test the flexibility of an empire-scale union,
particularly if it is relatively new and still developing. Simply having
different industrial/agricultural make-ups can put states at odds with each
other. That the richer states can use fiscal policy to become even richer,
while the policies imposed on poorer states may aggravate their fiscal conditions,
can mean that the economic distinctions between states can become an increasing problem in a federal system,
even given the allowances enabled by federalism itself (e.g., by the principle
of subsidiarity).
In November
2012, the governing coalition in the state of Germany agreed to changes to
social welfare programs—changes that can be interpreted as being in line with
the coalition’s electoral chances in the following year. According to the New York Times, “(t)he measures include scrapping an unpopular
quarterly medical fee, increasing spending to improve transportation
infrastructure and introducing a bitterly disputed child care subsidy. Over
all, they are expected to cost $3.9 billion a year.” The Times adds that state could well afford the cost at the time.
Meanwhile, the state of France was planning to cut payroll taxes that companies
must pay by 30 billion euros ($38.4 billion). Unlike the $3.9 billion additional
outlay by the German state government, the government in France sought to raise
consumption taxes to make up the difference (owning to the E.U. law on state
budget deficit limits). Even with respect to these two large states, the better
fiscal condition of Germany meant that it could prosper from it more than
France could, given its own condition as relatively limited fiscally. Even so,
both states had much more flexibility than the heavily-indebted states such as
Greece, Spain and Italy.
Whether to
improve social welfare or economic competitiveness, the two proposals in
Germany and France distinguish the two states from those that are heavily
indebted and subject to austerity strictures. For instance, the Greek
Parliament was voting at the time on yet another round of austerity measures,
that one worth $17 billion — equal to 7 percent of the state’s gross domestic
product. Whereas the social welfare spending and decreased business taxes could
be expected to result in more economic activity, the austerity could actually
contract it and even add to the government deficits. As the relatively rich
states could make efficacious use of their fiscal flexibility to become even
richer, the austerity measures in the excessively-indebted states threatened to
further aggravate their fiscal situs.
In short,
divergent paths were underway within the E.U. in 2012. At the big-picture
level, it can be asked whether the union itself, albeit as a federal system
allowing for differences among the states, could continue to be viable if its
states move further and further apart in terms of their respective fiscal and economic
conditions. There is a limit, in other words, to how much interstate diversity
a federal system can hold. The prospect of Turkey becoming a state, for
instance, makes this point rather transparent as it would have been only
natural for E.U. citizens to wonder whether the diversity within the union
would be too much for it to sustain. This is particularly salient because of
the extent to which the state governments hold power in the E.U. Government.
One means to
address the fiscal differences proposed in 2012 by the state of Germany and
other states is greater fiscal integration for states using the euro (with the
option for the other states too). In particular, additional federal
redistribution could mitigate the discordant fiscal policies of the states in
terms of differential economic results. The rich states would see a benefit in
the strengthened consumer markets in the poorer states. The additional
redistribution can be viewed as applying leverage to the benefit already extant
in the huge common market.
For this
proposal to see the light of day, its status as a track rather than as a “one-size-fits-all” remedy would have to be
stressed so the Euro-skeptic states do not sabotage the additional transfer of
governmental sovereignty from the states to the union. A drawback of the “fiscal
track” route concerns the free-rider benefit, whereby a rich state such as
Britain would not have to pay as part of the additional redistribution even
while being able to enjoy the benefit of the wealthier consumer markets in the
indebted states. Although this element makes the approach unfair to the rich
states within the track, the flexibility of the union to accommodate different
divisions of governmental sovereignty between the federal government and the
states is more valuable to the European project than making sure that each
competency is fair. In other words, “forcing” states like Britain and the Czech
Republic to greater fiscal integration (and thus giving up more sovereignty)
because it would be fair to Germany and France would contravene the political
ideology in the two Euro-skeptic states. Political pressure could build in them
until they eventually secede from the union.
In
conclusion, more of a balance in power between the state governments and the
federal government of the E.U., in a
flexible way, would preserve the union while mitigating the trajectory
wherein the richer and poorer states become increasingly at odds in terms of
their economic and fiscal interests. Even though one of the chief benefits of
federalism is its ability from design to
accommodate the unique conditions of the states, as an Italian scholar used to
repeatedly remark to me concerning “super-sized” America, “there is a limit to
everything.”
Sources:
Melissa
Eddy, “Changes
Are Approved to Ease Germans’ Costs for Welfare Programs,” The New York Times, November 6, 2012.
Gabriele
Parussini, “France
Looks to Halt Industrial Decline,” The
Wall Street Journal, November 6, 2012.
No comments:
Post a Comment