Financial Transaction Tax and Eurobonds. Republic of Finland. Position Paper.

Model EU Summit, August 2012.
Eurobonds and Financial Transaction Tax
Finland – Position Paper

 

Introduction

 

How did the small, peripheral economy of Greece begin to threaten the world’s biggest economic area? The European Union’s sovereign debt crisis began with the economic and political gaps in governance, leading to the Greek budget deficit, Spanish and Irish liability depletion, and European responsibility for the bail out of its sovereign members. Sovereign debt illuminates the fault of member states in the downfall of national banks. Deregulated banks capitalized on risky investments, but lowered investment-failure reserves. Resulting in necessary bail-outs by national governments in 2008, the threat of EU member state economic collapse necessitated European Central Bank intervention.

EU intervention in once-sovereign banking affairs is the crux of current political debate. ECB austerity measures were issued in the form of a bail-out package known as the European Stability Mechanism. Essential to the ESM, are the binding regulations on bank reserves and the deleveraging process for repayment of the loans. It is in the regulation of the banks, that the EU is deepening from a monetary union to a fiscal union. But would a total fiscal union create liability for economically stable countries?

As banking sovereignty is stripped from the indebted countries, the EU seeks repayment and fiscal stabilization for the health of the common currency. Proposed measures to this effect include the introduction of Eurobonds and the Financial Transaction Tax. Eurobonds, as a mechanism to pool debt of countries, in the interest of maintaining the credit rating of the indebted countries, would increase the liability of economically stable countries. Shared responsibility for the downfall of specific member states is justifiably contentious. To mitigate the Eurozone retraction, and further regulate the risky investments of banks, the Commission proposed the FTT. Through taxing financial transactions, the Eurozone would theoretically gain revenue, at the cost of member state GDP. The FTT, like the Eurobond, is a deepening mechanism for fiscal unity, creating a shared responsibility for maintenance of the common Euro.

 

Finland

 

Relative to other economies of scale, the Republic of Finland maintains the best possible credit rating (AAA; by Standard and Poor, 2012.) and most consistent economic growth in the EU. As a welfare state, Finland is known for high taxes, high subsidies and responsible fiscal regulation. With a history of sovereign debt and national bank bail out in the early 1990’s, Finlands governance began regulation of the banking sector investments. Investment preference towards trade relations represents Finlands 41.4% manufacturing economy, and substantiates the interest in joining the Eurozone in 1995. Adoption of the Euro allowed Finland to expand their market without trade barriers, but has since seen depletion of European investment since the beginning of the sovereign debt crisis. To counterbalance inevitable GDP decrease, Finland increased foreign investment through trade agreements with Russia, and increasing outsourcing at a rate of 2.6% of the manufacturing economy per year.
Would the acceptance of responsibility through Eurobonds subject Finland to higher taxes, or a minimalized welfare state? Would the FTT negatively impact the large amount of foreign investment, forcing Finland’s large manufacturing sector to decline?

 

Finland and the Eurobond

 

The Republic of Finland recognizes the necessity for Eurozone stimulation and stability. Considering Finlands mitigation of sovereign debt crisis in the early 1990s, Finland feels that it is the responsibility of each member state to manage public finances through austerity measures of the EU. Apart from Estonia, Finland is the only member state to have met all fiscal requirements of the European Fiscal Compact. Finland denounces being punished for the poor governance of other member states, and considers the risky investment of sovereign credit towards poorly managed states to be an institutionalization of the banking sector mismanagement.

It is in this logic, that Finland supports tightened fiscal regulation of member states, in the form of a European Redemption Fund. Regulation over a long-term scale would incentivize and encourage debt-redemption rather than debt accumulation.

 

Finland and the FTT

 

Finland supports developing a plan for the implementation of the Financial Transaction Tax (FTT) because it is necessary to ensure available funds for any potential bank bailouts. Furthermore, the use of FTT would approximately generate €50-57 billion in revenue per year which would then allow banks to re-pay their debts for the 2008 financial crisis.

However, Finland is becoming skeptical of the possibility for the FTT and is carefully questioning the FTT’s ability to positively affect domestic economies. Finland is especially concerned about its neighbor’s (Sweden’s) negative experience with FTT during the 1980s, which caused futures trading volumes to fall by 98%, options trading to fall to zero, and bond trading to fall by 80% (http://www.economist.com).  In light of Sweden’s vehement opposition to the FTT, Finland is beginning to reevaluate its own stance for it and questions whether the FTT would indeed have a damaging impact on the development of Finland’s financial markets and economy comparable to the damages in Sweden.

 

 

Advertisements

Federalism; Paradoxically Power-Stripping?

Just a small assignment about what my position is. Awkwardly written a little.Image

 

Federalism in the European Union;

Is it the downfall of national sovereignty?

Erin Altman

01 August 2012

Abstract

After the Second World War, Europe’s daunting fear of further political and social turmoil began European political solidarity. It is the purpose of this paper to analyze more deeply the interconnected policies, which continually strengthen the legitimacy of the European Union.

Sections discussed treat the institution building and financial security aspects of colloquium sessions. Recognizing both the institutional and financial progress of the European Union will illuminate the progression of federalism[1]. It is through this analysis, that I will answer the question: Is the European Union a centralized or decentralized federalist institution?

 

Federalism in the European Union            Dr. Peter Hobbing – 16 July 2012

            Supranational structure of the European Union is essentially federalist. Federalism, is a system, wherein sovereignty is divided among actors under a central governing authority. Supranational structure of the European Union is essentially federalist. With the passing of the Lisbon Treaty in 2009, “necessary impetus”[2] was given to the EU, through the official addition of the European Central Bank (ECB), the separation of the EC from the CEU, and the creation of the External Action Service (EEAS). Each of these changes deepens the EU’s competency, through both centralizing and decentralizing European federalism.

Centralization of federalism occurs through the deepening of the European Union.  The Lisbon Treaty deepened the competency of the European Union, through legitimizing the ECB.  Obvious within its title, the ‘Central’ bank put further power within the EU. The ECB could predicate the total federalization of the European economic system.

            Decentralization of federalism is transversely a widening of the Union, with attention towards the national, transnational and outlying actors involved in EU politics. Enacted also through the Lisbon Treaty, the European External Action Service (EEAS) gives more power to regional influences, through a competence transfer between working groups and the EU. Post-Lisbon decentralization is also apparent through the instigation of the European Citizen’s Initiative, which widened the EU to a competency transfer from the smallest sovereign unit- the citizen. Could the bypassing of member state representation take a toll on national sovereignty? 

            “Brussels Basics” presented a wide explanation of the European Union’s multiple relationships of decentralized actors and centralized institutions. There seems to be an equality between centralization and decentralization of the EU’s structure. Next, I will begin to analyze the institutional progression of this structure.

 

 

 

 

Institution Building

Shengen Zone                        Peter Bosch – 27 July 2012

            Essential to the legitimization of the EU, the Schengen Zone defines the borders of EU membership, and allows free movement for all EU citizens, without border checks.[3] The constantly evolving geo-political nature of the Schengen borders create immense skepticism by member states, about internal security, terrorism and immigration. One example of Schengen insecurity is that of the Italian-granted residence permits for refugees from the Arab Spring uprisings. Ease of movement from Italy to other parts of Europe was problematic, creating skepticism about Schengen Zone purpose. Contention over border security hinges between two extremes;

Centralized preferences are apparent, through the sanctioning of countries who maintain internal border checks. Through discussion of Czech and German border checks that an audience member had experienced, Commission employee Peter Bosch asserted that it should always be reported, “…directly to the Commission, in the event of passport clearances on buses or trains.” This negation of national interest is based on the Schengen acquis, binding all member states to an open-border policy.

Decentralized opinion about Schengen acquis are focused on the “socio-reality of immigration threat.” It is in national economic interest to maintain sovereign border control, especially during times of immigration influx, like the Arab Spring.

            Because of heightened security awareness during the Arab Spring, the EU compromised with national interest, and gave specific allowances for internal border patrols. It is through this give-and-take, that national sovereignty is maintained under the federalism of the EU. Despite the EU having yielded to national interest of member states, there is an overwhelming centralization in the Shengen acquis, because of the EU’s control over what the member state can do with their own police force, in their own territory.

 

Criminal Justice            Anne Weyembergh – 18 July 2012           

            Territoriality plays a key role in the institutional strength of the EU. Judicial cooperation within the EU defines a significant part of EU internal security, institution building and human rights considerations. Internal security became a concern in the 1970’s, with a rise in terrorist groups who could not be tracked while moving throughout Europe. Specifically, the Baader-Meinhof terrorist group, compromised of a growing number of youth, was unable to track across borders without police cooperation. Because of this, the police liason group Trevi was formed.

            Trevi’s evolution in to the Schengen Information System in the 1990s was due to the increase in technology. Database systems allowed information to be kept at multiple locations, and shared with the Transborder Surveillance and Pursuit officers (TEU Art. 54). Technologic innovation leads to the question; Why should the EU be allowed to hold information on an offender from only one country?

Answered through a deepening of policy competency, the Amsterdam Treaty’s establishment of the Area of Freedom, Security and Justice limited informational capabilities of the police and EU ministers, to protect citizen data. 

            Centralization through the “judicializing of cooperation,” is underpinned by the deepening of police competencies, the legitimization of the European Judicial Network, and the introduction of the EUROPOL police force.

            Decentralization was not an effect of the judicial cooperation, because the intelligence powers of local authorities, and national ministers, were taken away under the Amsterdam Treaty.

            There is a significant gap in the competency of the EU’s “Substantive Criminal Law,” (which outlines EU definitions of terrorism and extradition) and the lack of a European Public Prosecutor’s Office. Prosecution of criminals is an issue held entirely by national sovereignty, without effort towards commonality in practices or legal definitions. Benefits to EU competency in judicial matters could include the improvement of prison systems, in both human rights and prison development.

 

            Institutional Development shows an distinct concentration of ‘centralized’ federalism. Representing a deepening of EU competency, institutional development does have elements of ‘decentralization,’ which are seemingly purposed for transparency between the EU and its citizens. National sovereignty seems to be respected, for the continuation of national support within the EUs institutions. Through further analysis of European financial security, it will become apparent if national sovereignty is respected during the current financial crisis.

Financial Security and Centralization
Economic Governance            Stan Maes – 23 July 2012

            Spurred by the breakdown of the Bretton Woods System in 1971, leaving the gold standard to be interpreted by individual nations, there was a divergence of European nations in fiscal and monetary policy. To rectify this convergence, the European Community set out to complete an Economic and Monetary Union (EMU). Arriving from the Delors Report, the European Central Bank (ECB) would be the sole institution for Monetary Policy of the European Union, reflecting the German Bundesbank and with currency based on the German Deutsch Mark.

            Overarching regulation of national exchange rates did not create fiscal union among member state banks. Through increased market access, due to EMU, deregulated national banks began making risky investments and decreasing their liabilities (reserves). This gap between governmental regulation and bank investment spurred the action of national governments to recapitalize their banks, while facing other problems such as increasing ‘housing bubbles’ and in the case of Spain, Greece and Italy, a lack of tax regulation.

            Centralization of the financial crisis occurred in 2010, when it was necessary for the European Central Bank to establish credit systems for the suffering economies, under a specific “deleveraging process”. ECB dictated obligations for previously private entities (national banks) stripped power from the member states, and banking sector. Beyond the banking sector, small businesses were dropped from loan contracts due to the ECB’s policy of “risk deleveraging,” (Restructuring Plan 2010)

            Decentralization happenedthrough widening of banking competency. Despite the ECB’s imposition of regulation, the ECB also brought in training mechanisms for the private banking sectors, and the national governments. This is not considered a “deepening” of banking competency, because it is interaction between the public and the private sector.

            An important factor to point out about the involvement of the ECB in national and private banking affairs is the implication this has on national sovereignty. Necessitation of member states to politically commit to ECB control, under the auspice of economic help, is seemingly inhumane. In the private banking sector, banks could always take assets, but never necessitate total financial control over the debtor. There is also a gap existing between the ECB’s priorities for bail outs, and the member state’s national interest. Germany’s self-sustaining trade market does not need Italy, Spain, or Greece, so why should the German government be taxed for the recovery of these countries? Dialectic between crediting countries and debting countries is seemingly facilitated by the ECB, which creates a neo-functional governance over the finance sector.

 

The United States of Europe                        Fielding – 27 July 2012

            EU policies and agendas are only legitimate through a ‘soft’ power. The EU is a polity based purely on the maintenance of security, and therefore, peace. Despite the External Action Service, the EU has not moved toward a military force. Despite having the largest collective economy in the world, the EU has not yet enforced a collective banking union. Opposite from a ‘hard’ power, who would work to influence the world economy, the EU seeks to the greatest extent, as a self-sufficient entity. Ironically, the centralized EU advocates for freedom from foreign policy related affairs, claiming it to be a peaceful and ‘sovereign’ body.

            Breaking from the idea of the United States, the EU’s member states did not formulate initially under the federation. Theoretical decentralization of the EU lies within the ultimate choice of membership as being up to the member states. Member states can choose to leave at any time, should they feel that their national sovereignty isn’t being respected.

            The availability for EU institutional change at any given time is an important thematic element for the history of, and the progression of, European fiscal viability. Unlike the US, which has preventative and preparatory policy measures, through the FDIC, the EU doesn’t have the breadth of experience as an entire entity to establish these mechanisms. Could the EU establish viable fiscal policy without risking the national sovereignty of member states? If the ECB pushed for unification of finance, would the member states accept?

            Centralization was posited by Fielding as a constant process of “muddling through”. Without mechanisms established to predict future situations that the EU may find itself in, the EU operates on a momentary resolution method. Furthering of centralization, with the deepening of European policy in all areas, is due to the kinesthetic type of political evolution. Reforms are made as need arises.           

 

 

 

 

Federalism in the European Union;

Is it the downfall of national sovereignty?

“To believe, you must begin with doubting.”

As a student of philosophy, I often find myself pondering about anything that is irrelevant. I am always trying to find cracks in the system, or flaws in the institution.

Euroskepticism is the way in which I will go about trying to save the European Union.

            Throughout this colloquium, I have been intrigued in the level of motivation, ambition and spirit that each speaker has. Employees of the European Union seem happy, seem intelligent and seem respectable.

I specifically really appreciated Anne Weyembergh, for her level of non-biased education of the topic. Her discussion encouraged me to think more deeply about the possible pitfalls to national sovereignty. 

Maybe independence isn’t the best way to accomplish goals.

            Through a constant questioning of if something was taking, or giving power to the people, I realized that the EU is a totally neutral actor, with extensive ‘decentralization’ programs, and a basis not in legitimate power- but legitimate trust.

Citizens are essential to the member states, the member states are essential to the EU, and the citizens benefit greatly from EU protection.

Soft power brings gradual results.

            Lacking a military or preemptive policy-making mechanism, the EU has had the opportunity to ripen.  Inward growth of policy, in the interest of making the EU more favorable by member states, is a seemingly more respectful and trustable route, than that of a hard and fast government.

 There is a ripening of European politics towards a fruition of federalism.

After this colloquium, I now believe that the EU will encounter a division of interest in the fields of: Judicial harmonization, Tax harmonization and Agricultural/ Bioeconomics.

I believe this, because of the amount of cultural relevancy surrounding legal systems, the amount of respect held among citizens for the EU, and the marginalization of post-Soviet enlargement nations.

Despite these unavoidable tensions, the European integration  process was one of the most sustainable and advantageous in the terms of innovation.

I still think that the EU is hegemonic.

            Yet, the federalization of Europe is impossible. The balance between centralized and decentralized federalism creates a dialectic, rather than a central power. 

I still do not think that the EU acts altruistically.

            The EU, as a soft power, may have underlying motivations, but they are not focused on foreign policy. The EU is a self-interested body.

Based on a foundation of sustainability in resources, leading to national (and European) security, the EU has timeless values that will continue to evolve because of difficult interactions, and the opportunities to creatively overcome them.

           


[1] Federalism, in this case, is a term used to describe a system, wherein sovereignty is divided among actors under a central governing authority.

[2] “Brussels Basics” slideshow. Dr. Peter Hobbing, Colloquium session. 16 July 2012.

[3] The Political System of the European Union. Simon Hix and Bjørn Høyland, 2011.