The euro’s founding father has warned that Europe’s latest plan for an EMU-wide finance ministry is a dangerous attempt to smuggle through political union, and breaches the basic tenets of modern democracy.
Professor Otmar Issing, the chief architect of monetary union through its early years, said it would be “dangerous” to transfer control over tax and spending to the EU federal level before full political union has been established first on democratic foundations.
Such a quantum leap in the constitutional structure of Europe – effectively the creation of an EU superstate, with a parliament comparable in power to the US Congress – is unthinkable in the current political atmosphere.
It would require referenda across Europe, and a two-thirds majority in both houses of the German parliament. “The chances of political union are close to zero,” he said, speaking at the Ambrosetti forum of world policymakers on Lake Como.
If Europe were to jump the gun and force the pace of integration, this would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life. “It is hard to see how it could be given democratic accountability,” he said.
Prof Issing, a towering figure in the pre-EMU Bundesbank and the European Central Bank’s first chief economist, said control of budgets must for now be left to national government and sovereign parliaments that are genuinely answerable to their own peoples. “Political union cannot be obtained in the European Union by the back door. It is a violation of the principle of no taxation without representation, and represents a wrong and dangerous approach,” he said.
Prof Issing was making a clear allusion to the American Revolution and the events that led up to the English Civil War in the 1640s, two great struggles triggered by a monarchical assault on the parliamentary power of the purse. The early democracies of Europe were all rooted in legislative control over spending.
The proposals for an EMU finance ministry emerged in a paper by the heads of the Commission, Council, Parliament, Eurogroup, and ECB in June, a document known as the “Five Presidents Report”.
It will start with an advisory European fiscal board and a strategic investment fund with enhanced powers, clearly a finance ministry in embryo. It will graduate towards a “euro area Treasury” from 2017 onwards, anchored in the EU treaties.
The report says that the new machinery will be established on a “lasting, fair and democratically legitimate basis”, and is in many ways a soul-searching admission that the EMU project has gone badly wrong, leading to bitter divisions.
Yet critics warn that the EU is once again putting the cart before the horse. They point to the same fundamental errors that have led to perma-crisis in monetary union and spawned populist revolts across much of the EU.
Prof Issing has always been open to an authentic United States of Europe similar to the US federal democracy. What he objects to is a deformed halfway house where supra-national bodies take decisions behind closed doors.
The euro may survive “for a period” under its current structure, but it will break apart if the principles of monetary union are permanently violated. “Pacta sunt servanda (Agreements must be kept),” said Prof Issing.