A “New Deal” for Europe?

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by Nicholas Hager

newdeal4europeWhile the specter of Euroskepticism still resonates in the European Parliament, a coalition of left-leaning politicians, working under the auspices of the European Citizens’ Initiative (ECI),  has issued a challenge to skeptics and the cynics of the European project, proffering what it has dubbed a “New Deal for Europe.” The coalition’s plan boasts that it would not only “[create] sustainable development and employment,” but that it would also help “boost the European economy and…create new jobs” in the process. In its manifesto, the coalition highlights the tenuous, almost apocalyptic, position the EU currently occupies, arguing that, while the Union has served as “a model [of peace] for the entire planet,” it “is [now] at risk” because European citizens have succumbed to the allure of the simple answers that the forces of entropic nationalism provide. To combat this, the manifesto entreats its readers to “think in new ways” to solve the intractable problems of Europe, but many of its proposals end up being little more than a permutation of policies that have contributed to the EU’s current predicament. Because of this, it is worth pondering whether this so-called “New Deal” can live up to its billing. 

This “New Deal” is an ambitious, two-pronged social and civic investment program which aims to invest in myriad public goods such as renewable energy and infrastructure while also working to cultivate Europe’s future by[developing a] knowledge society and [creating] new jobs especially for youth.” It is supported by 111 MEPs, and counts both current Parliament President Martin Schulz and former Parliament President Josep Borrell among its proponents. Digging more deeply into the, at times, cheerfully optimistic proposal, however, it becomes evident that its authors have weaved policy proposals which are, unfortunately, predicated upon little more than wishful thinking.

For example, the proposal suggests that the “European budget should be financed entirely by its own resources,” which sounds sensible until it asserts that this money, as well as the additional resources needed to finance its new projects, will be largely raised by implementing a “carbon tax, [a] tax on financial transactions, and the new European VAT [Value Added Tax].” This is a flawed approach for several reasons. The primary reason is the fact that the Eurozone economy — which is on the mend, but by no means out of the woods — currently occupies a precarious position. New data have revealed that the German economy, the Union’s economic stalwart,is performing at its weakest level since [the beginning of Europe’s double dip recession] 2012,” and Portugal failed to meet investors’ mediocre expectations for a 0.2 percent decline in prices, falling a disappointing 0.7 percent instead. If that were not enough, Russia’s stand-off with the West also casts a long shadow over the EU’s ability to restore its economy.

An enduring political argument is that by unburdening businesses from supposedly unnecessary expenditures – for example, by lowering corporate taxes – governments can empower the private sector to drive a country’s economic growth. A recent study by Economist Laurence Kotlikoff at Boston University is paradigmatic of this philosophy as it argues that “eliminating…corporate income tax…can produce rapid and dramatic increases in U.S. domestic investment, output, real wages, and national saving.” There is also evidence to the contrary, but regardless of which side of the debate is correct, the notion that lower taxes drive growth can still have powerful and tangible political effects. In the U.S., Papa John’s CEO John Schnatter attained brief infamy for his stance that the Affordable Care Act – which requires employers to offer health insurance to full time employees – would force him to cut employee hours and raise prices; other business leaders have adopted the same mantra, arguing that additional costs would prevent the company from “[building] more restaurants [and hiring] more people.”

While it is important to distinguish American attitudes toward taxation from those of their European counterparts, there is precedent for similar private sector opposition in the EU. So it is certainly plausible that European corporations would make similar calculations about the proposed emissions tax and could view layoffs and hiring freezes as a viable way to offset the new costs. The blithe assertion that the tax would have no effects other than raising revenue and creating a more “sustainable” economy discounts the possibility of opposition based on perception – whether those are correct or not. Urging the imposition of this kind of tax, just as the European economy is stabilizing, indicates a profound disconnection from political and social reality.

Aside from granular issues of policy, it is unclear that such a package of policies will find adequate support. The “New Deal” will undoubtedly face opposition from Euroskeptic coalitions in the European Parliament, who will attack it as yet another expansion of the Brussels bureaucracy and another step toward European federalism. But it is also likely to face opposition from states themselves. The UK, already edging toward an exit from the Union, may take an additional EU tax as an excuse to finally sever ties. Moreover, not all economies within the EU are capable of absorbing the potential damage equally. Greece appears to finally be on the road to recovery, but it could easily backslide if handcuffed by such a proposal. The outlook is even more dismal for some other member states. “New Deal” advocates argue in the proposal that these programs are necessary to implement at the supranational level because “national programs,” which are rarely coordinated, “are an appalling waste of resources.” This seems intuitively true, given the variability that is possible even within national bureaucracies, but there is also ample evidence of Brussels’ difficulty in implementing Union-wide policies that are attentive to national and sub-national nuances. It may be difficult to convince the European public that not only must the EU be responsible for this grand undertaking, but that it is also capable of doing so.

Likewise, Germany’s steadfast commitment to austerity – in spite of evidence that it has caused theeurozone…[to drop] to zero growth…[and Germany itself to become a] victim of its own…refusal to invest” – could stand in the way of the proposals’ plans to encourage government expenditure. Even if it did not strongly oppose the “New Deal,” austerity is hardwired into EU law via the Stability and Growth Pact (SGP), which disincentivizes spending by national governments and is certain to serve as a basis for contesting the “New Deal” mandates. That said, the “New Deal” would appear to accord with the broad tenets of the SGP’s successor, the Euro Plus Pact, but it is not clear whether this will be enough to help the proposal overcome the myriad political and institutional obstacles it is likely to face.

With that all of that said, the European “New Deal” is indeed buoyed by the need to invest and many of its worthwhile provisions should certainly be pursued. Europe is believed to be in relative decline, and geopolitical contests in its neighborhood threaten to weaken its standing in the world. Therefore, if the EU hopes to persevere and emerge from the current crisis better equipped to face these challenges, taking steps to secure its future by investing in both its physical and human infrastructure will be crucial. Likewise, developing an ecologically sustainable economy and solving the current unemployment conundrum should be prioritized. But, as we have seen, the “New Deal’s” theory-driven proposals are quite difficult to dovetail with the current economic and political realities of Europe. If the “New Deal” is to fulfill its promise to launch the EU into a new era of prosperity, its proponents must first give it the chance to succeed. Only by assessing their proposals more pragmatically – with an eye toward implementation – paring their objectives down to those which are most crucial, and modifying them to become simpler to operationalize, can this “New Deal”  live up to the legacy of its namesake.

Nicholas Hager is an Intern at the Streit Council. Photo credit: New Deal for Europe (no changes were made to this image)

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