Next Chief Eurocrat A Big Statist

Historically, elections to the European Parliament have not attracted much attention, neither from the media nor from voters. I know out of personal experience – 19 years ago I actually ran for the European Parliament for a small Swedish party that was critical of the EU and wanted some common-sense reforms to the welfare state. We did not get that many votes… But it gave me my first insights into EU-level politics, insights that I have built on over the years.

Since I moved to the United States 12 years ago I have gained yet another perspective on the EU. For each new angle I view the EU from, I see yet more reasons to be critical of it. My most profound criticism has to do with the striking differences between the United States and the EU: those who claim that the EU is evolving into a “United States of Europe” are profoundly wrong. The EU is built as a traditional European nation state, which primarily means no clear distinction between the three branches of government and a big democratic deficit in terms of accountability of elected officials.

Without fundamental reforms in these two dimensions – horizontally by splitting the three branches and vertically by giving voters real opportunities to hold their elected officials accountable – it is very dangerous to expand the EU. As has been demonstrated repeatedly during the Great Recession, the EU is fully capable of being a destructive governmental entity already as it is today; with even more powers transferred to the Brussels Eurocracy, Europe is in some pretty deep trouble.

One way to find out just who bad things can get is to listen to the two men who are frontrunners for the job as chairman of the EU Commission. Some call it the “presidency” of the EU – but that would be to lend more democratic credence to the job than it deserves. Nevertheless, the chair of the EU Commission is a powerful position when it comes to determining what area of the European people’s lives the EU is going to barge into next. Therefore, let us take a listen to the debate between the two frontrunners, “conservative” Jean Claude Juncker and fanatically socialist Martin Schhulz. The debate was organized by Der Spiegel, the tragically anti-American German news magazine. Right off the bat, the debate actually gets into the issue of the EU’s glaring democratic deficit:

SPIEGEL: What would you do better as European Commission president than Jean-Claude Juncker?

Schulz: I would no longer seek political solutions solely through the EU’s institutional structures. I would open the Commission to the greatest degree possible. Brussels needs to stop interfering in every trifling detail. Whatever can be decided at the communal, regional or national level should be decided there. I am a man of parliament, a man of the people. Juncker is a representative of the executive.

Juncker: Nonsense. I am not a person who is only versed in the executive. I have always engaged extensively with the European Parliament and sought joint solutions on many issues. At the same time, it is in no way a disadvantage to understand the sensitivities and interests of the nation states on the European Council. I’m better at that than Martin Schulz.

Schulz, the socialist, has the backing of the socialist political momentum at the European national levels. After half a decade of crippling austerity policies, many Europeans truly feel the pain of welfare-state cutbacks. Since at the same time their taxes have gone up, they have been given no chance to move forward with their lives less dependent on government. Unfortunately, due to the complete incompetence of anything right of center in European politics, voters take the austerity policies behind the welfare-state cutbacks as a right-wing attack on the welfare state. This, together with the fact that austerity originates in Brussels and that the EU has strong-armed national governments into compliance, have driven scores of voters into the arms of the socialists.

Schulz the socialist knows what notes to play to capitalize on this surge. He knows that by portraying the Eurocrat establishment as out of touch with regular voters, he can come across as the man of the people. Whether or not he genuinely is that man, remains to be seen.

At the same time, riding on a wave of anti-EU sentiments is risky. The end result could be that the institutions that even leading socialists cherish, could be in jeopardy:

SPIEGEL: Europe is in a state of crisis. Turnout for the last election for the European Parliament was less than 50 percent. Why should people give you their votes?

Schulz: Election turnout will increase. The competition between Juncker and myself will help to ensure that. With the European Parliament in the past, voters had to cast ballots for an anonymous institution. Now, for the first time, it involves people. Personalization is the icing on the cake of democracy.

Juncker: It is true that Europe is currently in need of clarification and that EU detractors on both the left and the right are on the advance. People have to vote in order to prevent their breakthrough. It is great that Schulz and I are being supported as the main candidates for the largest parties in parliament in both the northern and southern part of the Continent. That is symbolic of European unity.

The most fundamentalist among Europe’s socialists, such as Greek Syriza or their Portuguese or Scandinavian peers, are staunchly against the EU – unless, of course, they can govern it and use it as a vehicle towards the advancement of socialism. This is the perspective in which to view what Schulz the Socialist says about increasing support for the EU.

This opens rather frightening perspectives on what the socialists could do with the EU if they got hold of its key power positions.

Speaking of democratic deficit, here is an interesting exchange on the design of what comes closest to being the executive branch of the EU:

SPIEGEL: In your opinion, should each EU member state be allowed to have a commissioner?

Schulz: This discussion is a thing of the past because EU leaders, including Mr. Juncker, decided on that in 2013, despite the fact that things had actually been envisioned differently. There are 28 commissioners and we have to live with that now. There are some European capitals that have even more ministers in their governments.

Juncker: I believe a smaller Commission would be more efficient, but I also understand the member states’ sensitivities. If you were, for example, to tell Ireland that it would no longer have a commissioner, then support for Europe would slip dramatically there.

SPIEGEL: So efficiency is being sacrificed for the sake of national sensitivities?

Juncker: It is not a question of sacrifice. We respect the interests of the individual member states, even if there are fewer people living in Ireland than in Germany. Nevertheless, I will continue to push for a more efficient Commission. We need reforms.

In  order to move the EU in a more democratic direction, voters must have the right to elect directly their executive-branch officials. Today the commissioners are appointed by the member state governments. It is as though the President of the United States was replaced with a board of 50 people, each one appointed by a state’s legislature or governor.

If there is ever going to be a chance to move the EU toward more democracy, there would have to be direct elections of an executive office. The question is if the national governments are willing to give up their control over who to appoint; being a Commissioner is a very, very well-paying job and so long as the national government controls the appointment, people who are craving the power and the money can sleaze their way through internal back-room deals and get the job.

And now for the toughest issue on the agenda:

SPIEGEL: The euro crisis showed that the coordination of budget and economic policies needs to be made a chief priority. Would the kind of European finance minister proposed by Germany’s Wolfgang Schäuble be the answer?

Juncker: At one point we intended to create the post of a European foreign minister. Everyone supported the idea, but when it came to committing, some governments were suddenly of the opinion that there are already enough foreign ministers. In the same way that the European foreign minister became the high representative for foreign affairs, after the election I would also like to see Schäuble’s idea of a full-time Euro Group president in the long term.

Schulz: I think Schäuble’s idea is good, but so far, a European finance minister is little more than a title. We don’t need a European Finance Ministry to assert fair taxation. There are large companies that make profits but pay no taxes. And when speculators make losses, taxpayers are forced to cover them. The consequence of this has been a dramatic loss of trust by the citizens. As president of the Commission, I would introduce a simple principle: The country where the profit is made is the country where the tax is paid.

Two revealing points made. Juncker says that he wants a full-time euro-group president. That is in effect the institution of a Treasury secretary for the euro zone. It sets the stage for euro-denominated bonds and other instruments of fiscal centralization for the euro zone. For practical reasons it would not work with countries that are not part of the euro zone, so this is as close as you will get to creating that coveted, centralized fiscal institution of a Treasury secretary.

On the ground, the consequences would be profound. Centralized fiscal policy for the entire EU, with 40-50 percent of the economy being run through government, means centralized austerity, centralized dictates on the design and generosity of entitlement programs… and centralized tax policy. That can only lead to bigger government.

The second point is made by Schulz who says that he wants to do away with the opportunity for businesses to base their operations in low-tax jurisdictions. This would basically eliminate large portions of the tax competition that currently takes place between states and other jurisdictions within the EU. The only winners are high-tax jurisdictions.

Notably, both Juncker’s idea of a Treasury secretary and Schulz’s desire to end tax competition will drive up taxes in the EU. Not a good outlook for an economy where GDP is barely crawling ahead.

Despite their overarching agreement that the EU needs higher taxes, the two gentlemen get into a bit of a squabble over details:

Schulz: I do not expect that the former prime minister and long-time finance minister of Luxembourg will subscribe to my tax policy beliefs. Luxembourg is an important financial center, but that cannot mean that we should have to continue making concessions.

Juncker: I have never given any more support to Luxembourg as a financial center than the German chancellors have to their automobile industry. However, I do agree that we need rules against tax dumping just as we do against social dumping. Europe needs to have a minimum basis of workers’ rights.

Schulz: But the Greek bailout wasn’t very social. As president of the Euro Group, you had significant influence on it, Mr. Juncker. If you travel to Southern Europe, you will notice that the people consider the EU to have been extremely unfair on this issue. On the initiative of the Social Democrats, the European Parliament voted by a broad majority last week to criticize the work of the troika in the crisis countries.

Juncker: I warned from the beginning of the Greek crisis about the kind of dramatic social consequences excessive austerity policies would have. It wasn’t just conservative governments that disagreed. When I fought against a lowering of Greece’s minimum wage in the Euro Group, it was ironically a few Social Democratic finance ministers who opposed me. That considered, I am very pleased about the fact that my nomination as the leading candidate for the European People’s Party has been supported not only by a Northern European party, Germany’s Christian Democratic Union, but also by a Southern European one, Greece’s Nea Dimokratia.

Well, if Mr. Juncker was so vehemently against the austerity policies, why was he unable to stop them?

A rhetorical question, for sure. But add together what these two gentlemen have said, and we get a very interesting scenario for Europe’s future. Regardless of who becomes the next chair of the EU Commission, it is going to be someone who wants to continue to centralize economic power, with in one case someone who wants to give the impression that he is doing the opposite. When the next recession hits, the two candidates would differ only in details how they would execute the next round of austerity policies to save the welfare state.

Kind of the fiscal-policy version of the difference between Communist and Nazi democracy: Communists execute dissidents with a bullet to the left temple while Nazis execute dissidents with a bullet to the right temple.

The bottom line, jokes about Communists and Nazis aside, is that very little is going to change in Europe after the May elections. Whatever changes will happen will favor more government and thus be at the expense of the private sector.

Caution: Economic Wasteland Ahead. Exit Now for The Route Back to Prosperity.