Macron's Euro-Vision

 

 On January 1, when France takes over the presidency of the European Union, President Emmanuel Macron intends to take a lightning strike. With broad strokes and high ambitions, he outlined how he wants to rethink Europe and put it at the forefront of his own destiny, writes The European Conservative in a material presented without editorial intervention.

Macron's ambitions come with a common theme: more Europe. He wants a European army strong enough to "complement NATO" and capable enough to make Europe less dependent on America.

 The French president also wants a common European response to migration crises, a stronger presence at the EU's borders, a European civil service for young people and a new, more active EU economic role.

If there was one word that could sum up Macron's vision, it would be "Euro-nationalism." All his ideas point to a stronger European Union at the expense of nation states.

 Given Brexit, the recent controversy over the EU's centralized immigration policy and the rise of Eurosceptic parties in the last EU elections, it is doubtful how much support there can be for "more" Europe and "less" Member States. It is also important to remember that politics is just as much about bold rhetoric as it is about the results in essence: Part of Macron's Eurovision vision may be simply strategic positioning for the French presidential election in April.

 Given this, if Macron wins another five-year term and if his vision for Europe proves successful, he could have a significant impact on the continent's future. It is better to be careful with such bets: his vision of greater military independence is likely to run counter to NATO-focused foreign policy doctrines in Washington. Is Europe really capable of standing on its own two feet and taking on the responsibilities that American support has provided since the beginning of the Cold War?

 In time, President Macron and the EU will have to answer this question. Meanwhile, his vision of a more centralized Europe will run into a much more pressing obstacle to military expansion. According to One America News, Macron is not happy with the way the EU Constitution puts a fiscal shirt on member states. Through the Stability and Growth Pact, the Treaty on European Union limits government debt levels to 60% of gross domestic product and deficits to 3% of GDP.

 President Macron wants the EU to rethink these rules and discuss how they can be reformed. He sees the reform of budgetary rules as a tool to increase investment in the public sector, which in turn would lead to stronger economic growth and higher employment levels.

Macron's vision is understandable. Over the last 14 years, the overall economic growth of the current 27 EU member states has been below 3%. From 2014 to 2019, the last year before the pandemic-related economic halt, the EU economy grew at an average rate of just 2.1%. The eurozone is doing even worse, not even reaching 1.9% over the same period.

 At the same time, Macron's budgetary reforms are likely to defeat his own goal. Both economic theory and economic practice speak out against allowing European governments to take on more debt and increase government spending.

 The argument that government can develop the economy through debt is based on the conventional version of Keynesian economic theory. This suggests that when the government spends money in recession, the economy recovers faster than it would otherwise, producing an increase in tax revenues, so the government trades a budget deficit for a budget surplus. Over time, public finances balance.

 While conventional Keynesianism has strong support among both European and American lawmakers, it is less successful in the real world. There are many reasons for its failure, one being that each new deficit-funded spending package tends to increase government on a lasting basis.

It remains to be seen whether the pandemic packages presented by the EU will have the same result. As early as June this year, the European Commission announced a € 750 billion "recovery" package with a six-year spending rate. This money comes in addition to the incentives taken by the governments of the Member States.

 However, even if stimulus packages do not lead to a steady increase in spending, the scope for more debt among Member States is already limited. Virtually every European country had a budget deficit in 2020 that exceeded the limit imposed under the Stability and Growth Pact. Only Denmark has managed to de facto balance its budget, with a minimum deficit of 0.2% of GDP, while Sweden, with a deficit of 2.8% of GDP, has barely avoided violating the Pact's debt ceiling.

 These deficits came in addition to the long series of deficits before the pandemic, as well as the experiences of the Great Recession of 2009-2011. Pact. It was not until 2013 that the majority of EU countries again complied with the deficit rule.

 As a result of persistent deficits until 2019, 11 EU countries had public debt that exceeded the 60% limit imposed by EU fiscal rules outlined in the Stability and Growth Pact. Greece is ahead of all others with a debt-to-GDP ratio of 181%. They are followed by Italy with 134%, Portugal with 117% and Belgium with 98%. The debt ratio is 77% for the EU as a whole and almost 84% for the euro area.

 From one point of view, President Macron's ambition to reform the Stability and Growth Pact is welcome. The EU has now suspended the pact, allowing its member states to accumulate more debt while responding to the pandemic. However, fiscal rules are currently suspended only until 2022, which means that if no reform is carried out, the EU Commission may return to implementing them again in 2023. Many countries will lose out on implementing EU rules, such as Portugal stands out as a shining example.

 The consequences of such application are well known. During the Great Recession a decade ago, the EU, together with the European Central Bank and the International Monetary Fund, reacted sharply to the excessive budget deficits in several Member States. In return for promises to help them finance their debt, the EU-led Troika has forcibly enforced fiscal compliance with some target countries to put other economic goals, such as full employment, in the background.

 The consequences of such application are well known. During the Great Recession a decade ago, the EU, together with the European Central Bank and the International Monetary Fund, reacted sharply to the excessive budget deficits in several Member States. In return for promises to help them finance their debt, the EU-led Troika has forcibly enforced fiscal compliance with some target countries to put other economic goals, such as full employment, in the background.

 Greece and other countries, including but not limited to Portugal, Spain and Italy, have been forced to pursue serious austerity policies. It is assumed that higher taxes and cuts in government spending should push government budgets towards a possible balance, but in this way they can also cause chaos in the economy. The negative effects are usually more severe the more austerity policies rely on tax increases, but other things being equal, even cutting costs at constant tax rates can reduce economic growth and hence employment.

 In other words, if Macron wants the European economy to grow, he will have to protect the Member States from a new episode of austerity.