Downward debt spiral: Corona will be paid for by Europe’s next gen

Chennai

The EU Commission president has really taken the plunge with the gigantic draft budget she has proposed for the next seven years. It will be interesting to see what remains of it after the 27 member states have had their say. Its mixture of rescue packages and reform budgeting must gain their unanimous approval. There will be some tough negotiations over the coming weeks, in particular over who will get how much from the bulging coffers, and on what terms.

Ursula von der Leyen claims that she discussed this urgent anti-crisis plan with all the governments and did not encounter any fundamental opposition. That may be because, in order to pay for their reconstruction fund, the Europeans have hit on a financial trick that places the burden not on the taxpayers of today, but on future generations. The EU wants to borrow 750 billion euros, with repayments to start only in 2028, and for these to be in installments spread over up to 30 years.

The repayment is to be financed by new taxes, or “own resources” of each of the member states as they’re called in EU jargon. The EU itself cannot raise taxes. However, up until now, the EU member states have always prohibited the EU Commission from collecting significant quantities of their “own resources.” Own revenue and own taxes equate to power, and this is something the member states don’t necessarily want to hand over to Brussels.

Who will foot the bill
In order to raise the money to pay off the instalments from 2028 onwards, von der Leyen is proposing vague taxes on plastic waste, carbon dioxide and climate-damaging imports from third countries. In fiscal policy terms, that’s wishful thinking. Ultimately, it will be the member states who have to service these debts – and thus, of course, in the final analysis, it will be European taxpayers who will pay.

The plan may also be not really to pay back the debt that the EU – in contravention of its treaties – now, for the first time, wants to take on, but simply to refinance it again and again, constantly putting it off, as states in general tend to do.

For EU members, the debt plan – for which the states don’t have to commit own resources, just guarantees – is the most elegant solution, as it means the burden won’t fall on national budgets at this point in time.

And so the problem is shifted into the future. In view of the economic crisis triggered by measures to combat the coronavirus, it’s understandable that the EU is considering this solution. But the Commission and the member states should be honest about what they’re doing, and not pretend that the debts could one day be paid off with some vague form of taxation. That way, the name Ursula von der Leyen has given the economic programme – “Next Generation EU” – would also make more sense. It’s the next generation in Europe that will pay for the crisis of today. In addition to the billion-euro shortfalls in national budgets, they’re getting the EU’s debts, too – and, if all goes well, a few sensible investments. For the EU itself, though, nothing better could happen – because debt binds people, and states, together. Withdrawing from a future community of joint liability, a debt union, will be almost impossible, as it would be so expensive. The EU will therefore have a sort of guarantee of its continued existence.

— This article has been provided by Deutsche Welle (DW/dw.com)