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Towards a Union in the Union

Summary:
After the Italian elections and Trump’s commercial antics one might well feel depressed and be tempted to use Europe to play the same silly game of introverted assertion of identity – strengthening immigration laws and ramping up protectionist measures. In so doing, we would be forgetting two key points. One: contrary to what we sometimes hear, the rise of European populism is not explained by any flood of immigrants. The truth is that the number of migrants entering the UE was much higher before the financial crisis (1.2 million per year between 2000 and 2008). The numbers then collapsed (500,000 per year between 2008 and 2016) whereas the geo-political situation would have demanded greater openness. If we had not made serious mistakes in managing the economy, provoking a further

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Towards a Union in the Union

After the Italian elections and Trump’s commercial antics one might well feel depressed and be tempted to use Europe to play the same silly game of introverted assertion of identity – strengthening immigration laws and ramping up protectionist measures. In so doing, we would be forgetting two key points.

One: contrary to what we sometimes hear, the rise of European populism is not explained by any flood of immigrants. The truth is that the number of migrants entering the UE was much higher before the financial crisis (1.2 million per year between 2000 and 2008). The numbers then collapsed (500,000 per year between 2008 and 2016) whereas the geo-political situation would have demanded greater openness. If we had not made serious mistakes in managing the economy, provoking a further recession in 2011-2013, and an explosion in unemployment in Southern Europe, then Europe could have been– and still could be – more open, and we could have avoided the abandoning of our responsibilities and relying on the camps in Turkey to manage the refugee crisis. Those responsible for the rise in populism are those who implement these ill-timed austerity policies and not the migrants and the people who support them.

Two: the American trade sanctions, stupid as they are, are merely symbolic gestures enabling Trump to differentiate himself from the Democrats and to surf the nationalist wave at little cost. At the core of Trump’s programme are the hundreds of billions of dollars spent on the tax reform adopted in December, and which aim to considerably reduce the taxation on company profits and the income and wealth of the richest taxpayers. The threat to the world today is not a trade war but a social war, conducted by means of aggressive policies of fiscal dumping which benefit the wealthiest and the most mobile. This nurtures the sense of abandonment felt by the working classes and leads to the impoverishment of the public sector: public capital is becoming negative in all the rich countries, which means that the holders of private assets not only own all the public assets (schools, hospitals, etc.) through their holdings in financial assets, but they also have drawing rights on future tax revenues.

A good example of this type of transfer is demonstrated by recent events in France. The government began by giving the wealthiest a fiscal bonus worth 6 billion Euros per year, and then offered to sell them Aéroports de Paris for 8 billion Euros. It would have been simpler just to transfer the property free of charge.

This development in inequality is far from new; it began with the policies of liberalization in finance and trade introduced as from the 1980s with no coordinated implementation of new instruments of regulation and taxation. On paper, the solution is simple: the current path of globalisation has to be changed by stipulating that all international treaties should contain, and be conditional on, binding rules for the promotion of equitable and sustainable development (minimal rates of taxation, limits on carbon emission, etc.). This raises no technical problem; the only difficulty is that each individual country felt too small to denounce the treaties in force on its own.

Confronted with this global challenge, Europe has a special responsibility: it has been constructed as a free trade area with no fiscal rules in common and it has made an appreciable contribution in the race to the lowering of corporate taxation (which the United States is simply following today). Everything flows from the European requirement of unanimity rule in the area of taxation which nothing seems to be able to shake.

The only solution is that France, Germany, Italy and Spain (which together represent more than 75% of the population and the GDP of the Euro zone) finally set up a strengthened political and fiscal Union within the European Union, open of course to all the members, but one which nobody can block. The problem with Macron’s proposals is that they are vague: there is talk of the Euro zone budget, without any mention of the composition either of the Parliament responsible for voting this budget, or of the taxes capable of funding it.

Along with Stéphanie Hennette, Guillaume Sacriste and Antoine Vauchez we have suggested the creation of a new European Assembly by the countries who wish to join, based on elected members of national Parliaments, in proportion to their respective population and groups. This European Assembly would be responsible for adopting a budget for investment in the future (training and research, renewable energy), sustained by a common corporate tax (to which could be added a common tax on the highest incomes and fortunes).

The proposal is not perfect but does have the virtue of existing. By choosing to rely on national Parliaments, we recognise the fact that the French Assemblée nationale and the German Bundestag are not ready to surrender their fiscal power. Above all, we de facto transform national parliamentary elections into European elections. National elected members will have to state what they intend to do in the European Assembly and will no longer be able to complain about Europe and shift problems onto Brussels.

In order to reassure German opinion, we could add a clause guaranteeing that each country would benefit from expenditure equivalent to its contribution in tax. The aim is not to organise transfers between countries but to build a social and democratic public body which will enable the regulation of globalisation.

Let’s put everything on the table and advance! Our collective incapacity to discuss the Europe which we would like could mean that the populists and Trump supporters of all kinds win their biggest victory.

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Thomas Piketty
Thomas Piketty (7 May 1971) is a French economist who works on wealth and income inequality. He is a professor (directeur d'études) at the École des hautes études en sciences sociales (EHESS), associate chair at the Paris School of Economics and Centennial professor at the London School of Economics new International Inequalities Institute.

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