EU member states made a giant collective leap in July when they agreed to back EU borrowing of €750bn. There is far less harmony among capitals when it comes to the irksome job of paying the debts off.
In informal meetings in Berlin on Friday and Saturday, finance ministers held extensive debates about the need for new European Commission revenue lines (known in Brussels-speak as Own Resources) to repay the debts. But no sign of a consensus came into view.
The new taxes are particular priority for the European Parliament, which is discussing a “road map” in its dialogue with the EU’s German presidency.
The European Council’s July summit agreed to the creation of a new tax on non-recycled plastics in 2021 alongside aspirations for other revenue lines.
Agreeing high-level statements of intention is one thing; it will be far more difficult for member states to arrive at a unanimous accord on raising substantial amounts of revenue.
That’s partly because capitals jealously guard their tax-raising prerogatives. Dutch voters already dismayed by the commission’s recovery fund power grab, for example, would look askance at the idea of paying new taxes that are funnelled straight into Brussels’ coffers.
Making matters more complex, some of the new taxes on the table would be technically difficult to implement and would have widely differing impacts among member states, leading to splintered opinions among capitals.
A presentation to ministers in Berlin’s informal Ecofin prepared by Clemens Fuest of the Ifo Institute and Jean Pisani-Ferry of Bruegel on Friday laid out the options and revenue available.
The most achievable reform, they argue, would be an overhaul and expansion of the region’s Emissions Trading Scheme, which penalises heavy polluting industries.
Total revenues up to 2050 could in a “realistic scenario” approach €800bn and possibly even €1.5tn if the scope of the ETS is widened and fewer free allowances are handed out.
An expansion of the ETS system is a natural corollary of the EU’s ambitious carbon-reduction targets, which will be trumpeted by President Ursula von der Leyen in her State of the Union speech on Wednesday. Those will include an upgraded 55 per cent carbon reduction goal for 2030.
But the idea is divisive among member states, including eastern ones wary of hefty new penalties on carbon emissions. Widening the scope of the ETS to aviation, which is currently under consideration, would hit the beleaguered industry hard given the damage already wrought by Covid-19.
The commission is also working on an associated carbon border adjustment, which would aim to penalise carbon-intensive imports into the EU, protecting selected industries as the bloc undertakes its stately march towards carbon neutrality in 2050.
But the levy would have to be made compliant with World Trade Organization rules and overcome complex technical obstacles, including how to assess the carbon content of the relevant imports.
Other options will be even harder to bring to fruition. The EU has debated the introduction of a tax on financial transactions for years, but it is difficult to imagine one ever emerging from development hell.
In Berlin, French finance minister Bruno Le Maire renewed his push for an EU digital tax if international talks on taxing multinationals continue to falter. But such a measure risks inflaming trade tensions with the US and any takings for the EU would be extremely modest: the commission’s own estimates, published in May, put the annual yield at just €1.3bn.
Finance ministers are realising that it’s far easier to ramp EU debt up than to pay the billions back.
Chart du jour: localised lockdowns
The FT reports on how the Greater Manchester area — home to 2.8m people — has some of the worst Covid-19 case rates in Britain, but also one town that has managed to buck the regional trend. (chart via FT)
News round-up
Michel Barnier and Charles Michel chipped into an escalating war of words with the British government over its Internal Market Bill over the weekend. The FT reports on how the UK has seemingly signed up to tougher commitments on state aid in its promised Japan trade deal than those Boris Johnson is currently offering the EU.
The EU’s top diplomat Josep Borrell tells the FT that the continent’s neighbourhood is “engulfed in flames”.
Wolfgang Münchau thinks the “reflex” to impose Covid-19 lockdowns in Europe “is currently the biggest threat to western capitalist democracies”. (FT)
Europe’s role as a regulatory superpower is coming under threat as technology outpaces the wit of lawmakers. (NYT)
Coming up on Monday
Europe’s leaders dial in for the EU-China summit that was due to be held in Leipzig but which will be done over video conference this morning with Chinese president Xi Jinping. Ahead of the summit, Beijing has controversially announced a ban on all pork imports from Germany to protect its farmers from cases of African swine flu. (FT)
sam.fleming@ft.com; @Sam1Fleming
Source: Economy - ft.com
