The French economy minister Emmanuel Macron is calling for the euro zone to be modified into a transfer union, with a powerful single economic government in Brussels. A transfer union means richer euro-zone states subsidizing poorer ones, and there are three elements to the proposal.
First, member states should make more money available for a euro-zone budget. Mr. Macron does not say how much money, but the more, reportedly, the better. Second, an economic government should be introduced, which pushes through reforms and allocates transfers. Third, a euro-zone parliament should be established for the countries belonging to the euro zone.
How would this transfer union function? For one, there should be debt relief for the currently highly indebted nations, Mr. Macron argues. Otherwise, he says, economic recovery would be impossible. The minister also wants long-term transfers to poorer nations. He is furthermore calling for a form of insurance, or transfers, benefiting countries experiencing sudden crises.
What is to be made of it? The recommendation has considerable shortcomings. First, it is incomplete. A central challenge for the euro zone is the handling of overly indebted nations. Only credible insolvency proceedings can prevent the costs of excessive debt from being shifted to other countries. A transfer union institutionalizes this shift of debts and invites new debt excesses.
It is presumably a coincidence that Mr. Macron’s recommendation would increase France’s influence.
Second, Mr. Macron does not want the budget for the economic government to be financed through taxes, which would be unpopular, but, for the moment, with new debts. That would conceal the costs of the transfer union until the mountain of debt takes the upper hand. Then the taxpayers would be presented with the bill. Deceiving citizens in this way is not the right path.
Third, Mr. Macron conceals the fact that countries such as Ireland or Spain are in the process of overcoming the crisis, even though they had to pursue a tough austerity course.
Fourth, there is already a lot of solidarity. The poorest member nations are receiving transfers at the level of between 2 and 5 percent of their gross domestic product from the E.U. budget. The countries affected by the debt crisis are getting considerable relief through low-cost loans.
Calling for funds for additional transfers is unrealistic, in light of the already very high tax burdens in the euro zone. It can only work by shifting expenditures from the national to the European level. There is the potential there for gains in efficiency, especially in the areas of defense and foreign policy or in the area of transportation and energy networks. But these are not redistribution policies.
Fifth, there remains the question of whether Brussels would be compatible with the principle of subsidiarity and would be accepted in the member nations if it managed economic policies through an economic government. One could argue that the economic government would be democratically controlled by the euro-zone parliament.
Nevertheless, many member nations would be concerned about being overruled, especially if the economic government concentrated on redistribution.
It is interesting to look closer at the majority ratios in this parliament. It would have 492 members, with 247 seats being necessary for a majority. Countries with below-average economic power would have the incentive to push for more distribution.
If you take GDP per capita as the basis, these countries would have control of 219 seats. France has the lowest economic power of the remaining countries. France would get 74 representatives, and therefore have a crucial role when it came to votes.
It is presumably a coincidence that Mr. Macron’s recommendation would increase France’s influence. The representatives will also not necessarily vote by nationality. But it is debatable if the “payer” nations should get themselves in this configuration. The already existing conflicts over distribution would worsen.
Despite these objections, it is gratifying that Mr. Macron is driving the debate over the future architecture of the euro zone. The euro zone will only overcome the current crisis if conflicts of interest and diverging ideas are discussed openly.