Is the European Union a fully democratic institution? While the discussion on this topic is still open, one important tool to promote democracy is certainly the European Citizen Initiative: a law that gives the possibility to one million European citizens to present a proposal that the European Parliament has to discuss.
Some political groups of the European Federalists are now proposing a “New Deal For Europe”, a proposal aimed to push investments in the real economy of the European Union and achieve a higher growth rate. An article published yesterday on The International Post Magazine explains why the ND4E is a good proposal and why it should be adopted. Here, I will be arguing the opposite.
The main sector of investment should be, according to the proposal, the digital infrastructure sector and of scientific research. Up to this point this proposal seems to be really good and reasonable. However, there is a really trivial funding problem. The proposal should be financed using a European VAT, a Carbon Tax and a Taxation on the Financial Transactions because the political goal here is also to find new forms of funding for the European Union Budget.
The Federalists always say that the Union should collect its own taxes, and not rely on the Member States contribution any longer. This could be a good purpose for those who want to create the United States of Europe, but the majority of these funding tools is simply too far from the people’s understanding, with the exception of the European VAT. However, imposing such tax would only have a recessive effect: increasing the VAT another time would depress consumption with a highly unfair tax. It Is an unfair tax because it does not take into account levels of personal income and since the ‘80s VAT has been increasing in all the European countries.
On the other hand, the Carbon tax is one of the most obscure and controversial taxes discussed in the political debate. Just like the cartoon character Bugs Bunny, the Carbon Tax recurrently emerges from a new whole in the ground in different and funny ways, which makes it impossible for pragmatic people to take it seriously. First of all, in a European Union that is facing increasing deindustrialization, the idea of a tax that is going to hit such an important sector could be not so brilliant. There are also proposals for the emission of CO2 certificates, that industries can buy and sell in a stock exchange. This is fascinating theoretically because it deals with the problem of pricing the pollution itself as a damage. The point is the real capability of control by public authorities on the level of pollution a company is making. There are many practical ways to escape from it, which make it impossible to say that such a tax is really going to work properly. If we think about the huge problem of industrial toxic waste and how it has been managed and supervised by the public authorities, we can easily understand how difficult it could be to monitor something that disperses in the air like CO2. Of course this would be a big increase in business for auditors and consultants and perhaps this itself could push the economy, as Keynes teach; but I would not be so confident. Probably, throwing money from an helicopter could be a better stimulus for the economy.
About the Tobin Tax: it’s really difficult to make a list of all the weak points of adopting it. This kind of tax is only going to reduce the number of transactions in the market, reducing the liquidity available and increasing the volatility. Stock fluctuation could be higher and speculation more profitable. That is because this tax is not going to hit the very big players that can have some additional information or a huge fire power to dominate the market, but the High Frequency Trading and the small private trading volume that are both vital for the markets functioning and both gain on a high number of low margin operations. In addition, if only a state in the world doesn’t adopt the Tobin Tax, it will be totally ineffective. In fact the adoption of this tax by France brought in the state treasury only 200 million euro over the forecasted 2 billion, and in Italy the amount of money raised was a poor 285 million euro in a year. All countries seem far from the overall 30 billion Europe had forecasted to earn.
The problem of Europe is that we leave its politics to the Federalists, people aiming at the dream of a unified Europe as their first goal. Even if one of the main problems for Europe is the excess of burocracy, they are making a highly burocratic proposal, trying to speak to the people with the language of the European Commission instead of trying to demonstrate that the EU could simplify its rules and improve the efficiency of national economies.