THE STATE OF THE EUROPEAN UNION REPORT. Europe in a period of transition

THE FISCAL EFFORT TO COMBAT COVID-19: EUROPE AND THE UNITED STATES 67 Even with the limitations resulting from the unfin- ished nature of the European federal project, it is neces- sary to stress the importance of the European Union in this crisis, not only in terms of the volume of fiscal sup- port made available to its Member states (about 3.8 per cent of GDP in direct spending measures, and around 6.8 per cent in measures to facilitate liquidity) but also for its role in guaranteeing a balanced recovery, primarily by ensuring that the European Recovery Plan benefits those countries that have been hardest hit by the crisis and which have a limited capacity for fiscal action. It is also important to note the mechanism selected to channel federal fiscal efforts – the issue of European debt to be repaid via future pan-European taxes, thus avoiding the need to increase national deficits, and granting Member states more margin for manoeuvre throughout the crisis. The current situation highlights the need to estab- lish European debt as a permanent resource, not just as a crisis management tool but as a means of financing the ordinary budget and meeting global challenges such as combatting climate change, and the green economic transition. Creating federal debt would give rise to a per- manent common treasury and tax system. Given that Member states are reluctant to cede fiscal powers, combined with the ideological aversion of the “frugal” countries to any step in this direction and bearing in mind that the creation of new taxes re- quires unanimous support in the Council and from all 27 national parliaments, it will not be easy to achieve this goal. However, during the current crisis the Mem- ber states have managed to avoid raising national taxes thanks to European solidarity, and this could provide an incentive for the subsequent development of European taxes to fund a permanent counter-cyclical instrument. Moreover, European debt is a safe euro-denominated asset which it would be illogical to discontinue after it has been amortised. Instead, a new political, institutional and constitu- tional balance will need to be struck as, in accordance with the current provisions of the Treaty of Lisbon, the Council is the only body with the power to approve debt issues (article 122) and the financial resources of the EU (article 311). The European Parliament does not play any role regarding the former, and is only con- sulted with regard to the latter. However, its consent is required for the multi-annual budget. This means that the European Parliament is relegated to a secondary position with respect to income but has a major influ- ence on spending. The dependency on national vetoes is not only inef- ficient but also reveals a democratic imbalance. If debt were to become a a standard means of funding, and European income combined direct contributions from na- tional budgets with pan-European taxes on cross-border activities (for example, the tax on financial transactions, digital services or CO 2 , or even the allocation of ECB profits to the EU’s resources), then citizens should be assured of representation on these matters. Progress to- wards full federal political union is therefore necessary, accompanying the incipient financial and fiscal union, enabling the European Parliament, directly elected by Europe’s citizens, to participate fully in the design and approval of EU spending and income. The Conference on the Future of Europe represents a unique opportunity to resolve these issues, opening the door to treaty reform and progress towards a full, federal political union. Bibliography Anderson, M. et al. : Economic Developments in the Euro area and the United States in 2020 , Banco Central Europeo, 2021. Available at: https://www.ecb.eu - ropa.eu/pub/economic-bulletin/focus/2021/html/ ecb.ebbox202102_01~922a4dfa85.en.html#:~:- text=By%20the%20end%20of%20the,and%20 the%20US%20employment%20recovery Bureau of Economic Analysis: Gross Domestic Product, 2021. Available at: https://www.bea.gov/data/gdp/ gross-domestic-product Bureau of Labor Statistics: Consumer Price Index, 2021. Available at: https://www.bls.gov/cpi/