Inside Juncker’s ambitious economic vision for a more integrated Europe

Watching European Commission President Jean-Claude Juncker’s ‘State of the Union’ address to the European Parliament in Strasbourg Wednesday morning, it is clear that EU debate has never been livelier, more ridiculous or more interesting. At moments resembling a one-man show, the address saw Juncker speak for over 70 minutes in three languages, engaging in some back-and-forth banter with heckling Eurosceptics, and an Italian MEP invade the floor wearing a Merkel mask in a stunt that had something to do with migration.

The stunt was telling, as the current migration crisis has exacerbated tensions throughout the European Union, most noticeably with the United Kingdom and Hungary. With makeshift borders along the Italy-France border and Denmark’s new border controls, the Schengen zone looks more fragile than ever. Britain wants a “new deal” with the EU, and the latest Greece debacle has officially called the unofficial Brussels doctrine of ever-greater integration into question. Indeed, the takeaway line in Juncker’s speech was that the state of the European Union is “not […] good”. “There is not enough Europe in this Union. And there is not enough Union in this Unions,” the Commission President stated repeatedly.

Despite so many open challenges to EU governance, Juncker went on the offensive in his Wednesday address, and while much ink has been spilled on his migration remarks, the issue du jour, less has been said on his defence of the Commission’s ambitious vision for greater economic – and political – integration. Here are the five main pillars of the new European economy according to Brussels’ top bureaucrat:

1. A €315 billion investment fund

“The crisis is not over. It has just been put on pause,” Juncker warned after reeling off the EU’s dour unemployment statistics. Languid general growth and marked differences in economic performance between EU states shows that the EU must “recreate a process of convergence” based on a two-tier approach of investment and greater economic union. The former will be tackled through the creation of a European Fund for Strategic Investments (EFSI), a joint project between the European Commission and the European Investment Bank (EIB) that aims at increasing EU investment back to pre-crisis levels (investments in Member States have dropped by around €430 billion since 2007 – see chart).

EU Investment Chart

The idea behind the EFSI is that the main reason for today’s weak investment levels is low investor confidence and that the general uncertainty in global markets has weakened private investors’ risk-bearing capacity. The EPSI seeks to strengthen investors’ capacity by providing funding for European projects in the form of subordinated debt, a sort of cushion that protects subsequent private investments if anything goes wrong. According to the EU’s calculations, one euro of funding in subordinated debt generates 15 euros in private investment. Therefore, the EPSI, which has a €21 billion endowment (€16 billion from the EU budget and €5 billion from the EIB) can be expected to generate €315 in total investment over the next three years.

2. A tighter banking union

Perhaps the most poignant symbol of the single currency falling apart during the Greece negotiations was the millions of Greek residents pulling their euro-denominated savings out of banks in fear of a Grexit. In order to ensure that this doesn’t happen again, and to avoid the necessity of capital controls, Juncker proposes what he calls a “common deposit guarantee system”, an EU-wide programme that would “ensure that citizens’ bank savings are always protected up to a limit of €100,000 per person and account”. As Juncker noted in his speech, there is “no consensus” on this programme as of yet (which is a nice way of saying there is fierce disagreement – Germany has already reportedly taken the plan as a “declaration of war”) and further details will be presented “in the weeks to come.”

On the macro level, Juncker also argues for a “Euro Area Treasury” that would be built on the European Stability Mechanism with a credit volume of €500 billion (“a firepower that is important as […] the IMF”). Once referred to as part of the “quantum leap” in European integration that the single currency will necessitate by European Central Bank President Mario Draghi, the Euro Area Treasury would allow the EU to deal with economic shocks better than institutions on the national level could.

3. One voice for the Euro

“How is it possible that the euro area, which has the second largest currency in the world, can still not speak with one voice on economic matters?” In negotiations with other financial institutions on the global stage, the euro needs a unified voice, argued Juncker, adding that the most logical choice for this role would be the President of the Eurogroup, currently Jeroen Dijsselbloem who may or may not be the most hated man in Greece.

Dijsselbloem Cover

4. An end to tax avoidance within Europe

In one of the speech’s more ironic moments, the former Prime Minister of Luxembourg argued for a “more effective and democratic system of […] fiscal surveillance,” stating emphatically, “the country where a company generates its profits must also be the country of taxation”. The first step towards accomplishing this would be to adopt the Common Consolidated Corporate Tax Base (CCCTB), first proposed by the Commission in 2011, which would allow companies to file a single tax return for the whole of their activity in the EU. The idea is that this would simplify compliance on the company’s side while also allowing for greater transparency over exactly how much tax a company is paying.

5. A fair pan-European labour market

The EU principle that possibly creates the most tension in the UK, and is fodder for Eurosceptic MEPs like Nigel Farage, is the free movement of European citizens. While Juncker was predictably firm in his affirmation that he would not call into question free movement – one of the “four freedoms of the Single Market” – for the sake of keeping the UK in the EU, he did acknowledge the “risks of social dumping.” According to Juncker, the “key principle” of free movement within the EU should be “the same pay for the same job at the same place”, which would be ensured through the creation of a “European pillar of social rights.”

How exactly the creation of this “pillar” will stop some EU citizens from offering their services for a lower price than others is not mentioned in the speech, which may go to show the Commission’s resolution to leave free movement untouched despite the furore it incites in some corners of the Common Market.

In sum, the biggest takeaway from Juncker’s State of the Union speech is that, rather than waving the white flag in response to mounting euroscepticism, the Commission is doubling down in its push for greater integration. Debates on Europe will only get more heated in the foreseeable future.

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