Juncker’s Euro Army: A Weapon of Mass Distraction?

Commission President Juncker has advocated a European army in an interview with German newspaper Die Welt:

“"Eine solche Armee würde uns helfen, eine gemeinsame Außen- und Sicherheitspolitik zu gestalten und gemeinsam die Verantwortung Europas in der Welt wahrzunehmen", sagte Juncker. Mit einer eigenen Armee, so der Luxemburger weiter, könnte Europa glaubwürdig auf eine Bedrohung des Friedens in einem Mitgliedsland oder in einem EU-Nachbarland reagieren. So könne man Russland den Eindruck vermitteln, "dass wir es ernst meinen mit der Verteidigung der Werte der Europäischen Union".”

“”Such an army would help us to shape a common foreign and security policy and to take the common responsibility of Europe in the world seriously,” said Juncker.  With its own army, the Luxembourger continued, Europe could credibly react to threats to the peace in Member States or in the European Neighbourhood.  That way Russia would be given the impression “that we take the defence of EU values seriously.”” [Own Translation]

Given that the interview was mostly focused on the Eurozone crisis and economic questions, it was strange of Juncker to raise the issue of a European army, which isn’t exactly on anyone’s agenda at the moment. Member States already co-operate on defence to some degree through the European Battlegroups, and co-operate on common missions such as Operation Atalanta, which tackles piracy off the coast of Somalia.

Integrating defence is obviously a sensitive issue, and there is a lot that can be done in co-ordinating research, earmarking troops for joint battlegroups for peacekeeping missions, and a better division of labour. However, a Euro Army is a mad fantasy without a greater level of democratic coherence in the EU and a better consensus on how to act on foreign policy. I daresay everyone realises this, and Juncker knows this, so the EU army remark comes across as a silly distraction, even if it’s one that can effectively generate headlines.

Taking out the Troika

The vilified Troika – the group consisting of the Commission, ECB and IMF that oversees the implementation of the bailout programmes – should be replaced, Juncker said in his election mission statement. The full quote was (PDF, page 8):

“In the future, we should be able to replace the ‘troika’ with a more democratically legitimate and more accountable structure, based around European institutions with enhanced parliamentary control both at European and at national level.”

The revival of this statement probably points to how Juncker feels the Greek negotiations should go. Debt forgiveness is too controversial and divisive (and Greece appears to be less fixed on it now), but a change in debt terms and a replacement of the Troika system would be a big win for Syriza that might be sellable to the rest of the Eurozone. Merkel has poured cold water on the idea of replacing the Troika, and Spain has also reiterated that solutions are in the gift of the Eurozone states acting together, not the EU institutions. Still, it could be an element to Eurozone negotiations if they successfully manage to attain a Europe-wide, as well as Greek, focus.

So what would replacing the Troika mean?

Replacing the Troika raises a lot of questions. First, the IMF is part of the Troika – if it’s replaced by the EU institutions in some form, then what happens to IMF support (and Member State contributions to it)? Would it be replaced by a Eurozone Monetary Fund which would in turn be part of the IMF system?

A bigger question is what greater democratic accountability would look like. Simply replacing the Troika with, say, a joint European Parliament and national parliament committee to review implementation or to hold the relevant EU official/commissioner to account would be problematic. If the budget and debt rules are already set and the allowances for public investment already built in, then what is it that MEPs and MPs would bring to the process? Decisions about implementation should remain with the national parliament, which would leave the EP little to do if the overall direction is already part of the rules.

Such democratic scrutiny would be helpful, however. By analysing the situation and flagging issues, it would make the process more responsive to the country’s needs. The European Parliament, which has voted through funds for crisis-hit countries for specific purposes, could better target such money as a result. But the money that the EU provides directly would be small. There would still be a sense of bilaterial contracts between creditor and debtor states and the sensitivity over implementing rules, loaning money and negotiations would remain. In this sense the German position – that the Troika is an instrument to help the Eurogroup assess programmes and decide how to proceed – has a point.

And this leaves out the power and influence of the ECB, which it gains from being the only European actor with the financial firepower and authority to act decisively – and ask for its conditions to be observed.

Replacing the Troika is not just about getting rid of some hate figures; it goes to the heart of how the Eurozone is run, including the unanswered question of fiscal union.

Commission Work Programme 2015

The Commission’s Work Programme for the year is just 5 pages (opposed to the usual 30 or so pages), due to the efforts of Commissioner Frans Timmermans to whittle down the amount of legislation to be and to focus on political priorities. The Programme covers 11 areas:

-          A New Boost for Jobs, Growth and Investment;

-          A Connected Digital Single Market;

-          A Resilient Energy Union with a Forward-Looking Climate Change Policy;

-          A Deeper and Fairer Internal Market with a Strengthened Industrial Base;

-          A Deeper and Fairer Economic and Monetary Union;

-          Trade: A Reasonable and Balanced Free Trade Agreement with the U.S.;

-          An Area of Justice and Fundamental Rights Based on Mutual Trust;

-          Towards a New Policy on Migration;

-          A Stronger Global Actor; and

-          A Union of Democratic Change.

These wordy headings consist of most of the document. While aiming to show the legislative and political priorities of the Commission, it empties the document of a lot of its traditional content (no anti-alien measures here). The priorities are pretty much what you would expect from a Union beset by crises (in fact and in political confidence) over immigration, energy security and the Eurozone. Interestingly, the internal market proposals include a capital markets union and a labour mobility package that references “abuse” of social security systems, which should please London.

The most interesting priorities from an institutional perspective are an inter-institutional agreement on law making (it appears that Timmermans is concerned over how many proposals are “pre-agreed” in triologue – and wants to have more transparency and debate over proposals) and a mandatory Transparency Register (very much a live issue).

Will Juncker’s Investment Fund really create 1.3 million jobs?

The Commissioner for Jobs and Growth, Jyrki Katainen, has claimed that the €315 billion European Strategic Investments Fund will create 1.3 million jobs. Katainen said the projects the Fund invests in in will be in line with EU policies – highlighting developing technologies and the EU’s digital networks programme.

While this all sounds very good, some in business and the media are skeptical that the €315 billion will even be raised. The main concern is that the public seed money for the Fund, which will take the first hit before any private investors, is simply too small to be leveraged by private investment to the magic €315 billion goal. Initial public investment of €21 billion is supposed to achieve a multiplier effect of 15 times to reach the target (PDF). Indeed, it’s hard to not to feel that the Commission’s chart, showing where the money is supposed to come from, is plagued by asterisks and fine print.

The truth is that there is very little money available for the Fund from the public sector in the first place. Germany refuses to put more money into it and the EU’s budget, itself being cut, cannot afford much more. This may be all that’s possible. How the funds will be targeted is still a big issue - despite Katainen's assurances that the decisions will be "non-political", there was a scheme for Member States to "buy" influence with the Fund if they contributed more to it. The Visegrad countries of Poland, Hungary, Slovakia and the Czech Republic are planning to lobby hard for a sizable share of the investment. Will this skew the focus of the Fund away from potentially more economically valuable or job-rich investments?

The Fund is recognised by all as being far from a magic bullet for the continent’s economic woes, but it could provide a much needed, if minor, economic boost. 1.3 million jobs is almost certainly over-optimistic, but until we know what the projects are, it’s hard to gauge how effective it will be - can it reach anywhere near that number?

Juncker, Confidence votes and Parliamentary battles

The Juncker Commission easily survived this week's motion of censure in the European Parliament, with 461 against, 101 for and 88 abstentions. The motion was brought by a Euroskeptic bloc of the Europe of Freedom and Democracy with support from Front national (a particular point of controversy in the UK where UKIP said that they would not sit with FN in the Parliament but are working with them on this high-profile issue), on the basis that Juncker is unfit to lead the Commission in the light of the damaging Luxleaks scandal.

A majority of the EPP, S&D, ALDE and the Greens rejected the motion (the European Conservatives accounted for most of the abstentions) - the parliamentary majority that backed Juncker and his Commission so recently and after facing down the Council to put him there is unlikely to unseat him so readily. It would also be a very panicked response to ditch Juncker before the competition investigations (and perhaps one of the Parliament's own) is complete.

While the motion was at least in part a cynical ploy by the Euroskeptics - to paraphrase ALDE leader Guy Verhofstadt - it was important to have this debate in the European Parliament. No-confidence votes are held in many national parliaments every so often, particularly where there's a scandal affecting the head of the executive, so miffed Europhiles shouldn't take it too personally. After all, just having the debate is a reminder that in the case of the Commission, the Parliament can not only giveth, but also taketh away...

Juncker and the Luxembourg Tax Scandal

Last week it came to light that there were serious tax avoidance practices in Luxembourg that allowed companies to funnel profits through the Grand Duchy in order to avoid paying tax in the countries the profits were generated.  After avoiding commenting on the scandal for a week the “cool” Commission President Jean-Claude Juncker has denied that he was involved in anything illegal in Luxembourg, and says that everything was done in “compliance with national legislation and international rules that apply in this matter”.

The new Commission President was prime minister of Luxembourg for 19 years (as well as finance minister for most of that time), so the denial is hardly going to silence his critics. Juncker himself said that he was politically responsible for what happened throughout Luxembourg during his time in office. In an extraordinary debate on tax avoidance in the European Parliament, Juncker admitted that “there probably was a certain amount of tax avoidance in Luxembourg, as in other EU countries. We find this everywhere in Europe because there is insufficient tax harmonisation in Europe”.

The International Consortium of Investigative Journalists is releasing 548 “comfort letters” (effectively private tax rulings that clarify for specific companies on how their corporate tax will be calculated) between 2002 and 2010 which Luxembourg provided to corporations for favourable tax treatment. The investigation that Juncker’s own Competition Commissioner Vestager will be looking into is whether or not Luxembourg’s support for these corporations through the tax system amounts to illegal state aid (earlier in October the previous Commission launched an investigation into the taxation of Amazon in Luxembourg). In the case of the FedEx Corp, the ICIJ found that Luxembourg agreed to tax only 0.25% of FedEx’s non-dividend income that flowed through the country through its tax arrangements.

There are two aspects to this: whether comfort letters for specific companies constitute illegal state aid (and the extent to which Luxembourg was using these), and the extent to which there is legal tax avoidance through tax competition. Europe has gone through years of austerity and it is politically poisonous to have tax avoidance at such levels where companies are only paying 0.25% corporation tax through certain Luxembourgish tax arrangements. If illegal state aid is found, then it will dramatically increase the pressure on Juncker.  If no illegal state aid is found then there could still be significant political damage – “how could such practices be allowed to continue?” would be the question in most Europeans’ minds.

In the European Parliament Guy Verhofstadt, leader of the Liberals, proposed setting up a special investigative committee into tax evasion by the Parliament, saying “This is also a clear case where we need more Europe – to set up common tax compliance legislation and a convergence code not general harmonisation, because we don't know at what level to harmonise.” Such an investigation would require the backing of the Economic and Monetary Affairs committee and would probably look into the various ways companies limit their tax bills. Juncker wouldn’t have any say in such an investigation as it would be purely run by the Parliament.

This scandal is so toxic because it has a highly political idea of tax fairness at the heart of it. Juncker will probably be able to hang on in office if there are no or only limited infringements on state aid rules, but the first political Commission would be politically stunned if it could not properly address the tax avoidance issue. The Commission President has already stated that Commissioner Moscovici will “initiate proposals for an automatic exchange of information regarding national tax rulings”, but Junker, and the Commission, needs to go further.

Tax is a sensitive issue, and it would be difficult to bring Member States along with even mild proposals on tax systems, but Juncker needs to display political initiative by pushing forward on tax transparency and by articulating a position on corporate taxation in the EU. Juncker's political Commission could very easily be undone by politics and his own record as Luxembourg's premier - if he's to survive, Juncker has to show that his Commission can take a political lead that will address citizens' concerns on tax fairness.