Recovery Fund under attack / 1: this is why it is against the EU Treaties
We left a very skeptical Draghi . Possible on only one federal way out: the middle ground of the Recovery Fund . Yet he is not comforted by it. And why?
An article by the Rome correspondent of Handelsblatt responds directly to Draghi: the Eurobond would be contrary to the Treaties, by virtue of the prohibition on mutual assistance between States ( 125 Tfeu , non – bailout clause ). We find a much deeper argument in the same newspaper in an interview with Professor Matthias Herdegen: he says the Recovery Fund is against the Treaty and invokes four articles: 311, 122, 125 and 126. Let's proceed in that order.
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Article 311 – The Recovery Fund (Ngeu – Next generation EU ) is the child of the decision 2020/2053 relating to the system of own resources. In turn based on the 311 Tfeu , which reads:
“The Council , acting in accordance with a special legislative procedure, unanimously and after consulting the European Parliament , adopts a decision establishing the provisions relating to the system of the Union's own resources ”.
That the Union budget is at stake is made clear by the involvement of Parliament ( 289 Tfeu ).
Herdegen argues that the expression own resources excludes debt. In fact, the Treaty states: “the budget, without prejudice to other revenues, is financed entirely through own resources” ( 311 Tfeu ); but the same article also defines own resources as the “ necessary means ” for the Union “to achieve its objectives and to carry out its policies”, therefore also a financing; indeed, elsewhere we expressly speak of " financial means " ( 323 Tfeu ). Another possible constraint is that "in the budget, income and expenses must be in balance" ( 310 Tfeu ) but, even here, revenue can well be understood as a loan, not necessarily a revenue. The third is that the Union "must ensure that expenditure can be financed in compliance with the multiannual financial framework" ( 310 Tfeu ), but the latter "aims to ensure the orderly development of Union expenditure within the limits of its own resources ”( 312 Tfeu ) and, therefore, once again funding is enough.
Herdegen's misfortune is that 311 continues giving the Council and Parliament the power to " establish new categories of own resources or suppress an existing category". What makes this article an atomic weapon. Therefore, "this decision enters into force only with the approval of the member states in accordance with their respective constitutional rules". This is normal, as a unanimous vote ratified by national parliaments is equivalent to a Treaty change. Indeed, our decision 2020/2053 on the system of own resources creates the new power of the Commission, "the Commission is given the power to borrow on the capital markets on behalf of the Union ". A power that did not exist before and that has now been created thanks to the activation of the atomic clause.
Thus, it makes no sense to ask why the power of the commission is "exceptional and temporary", why the fund is established "on an exceptional and temporary basis", why states are subjected to "an extraordinary and temporary increase" in their contributions, why the latter are limited in time to the "period immediately following the crisis", so that the granting of loans must end "at the latest at the end of 2026", so that the repayments must be completed "at the latest by 31 December 2058". The answer is not, because the Treaties provide for it … but, because this is how the Member States have agreed unanimously .
Therefore, it does not even make any sense to ask (as the Germans do) whether the Treaty grants the Union the power to borrow. In the same way, it makes no sense to ask why the Union has never gone into debt so far: if they had not done so, it is only because they had not wanted to do it.
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Article 122 – The second German attack point is connected to the 122 Tfeu , which allows the EU Council (ie the Member States) to "decide on the appropriate measures to the economic situation ", as well as to "grant financial assistance of the Union to the Member State concerned in difficulty due to exceptional circumstances beyond its control ". The article continues by clarifying that it is the money of the Member States: "the President of the Council informs the European Parliament about the decision taken", where, if the Union budget was at stake, the Parliament would not only be informed .
Pursuant to this article, the SURE ( Support to mitigate Unemployment Risks in an Emergency ) was established. In fact, the regulation 2020/672 that establishes it, continuously repeats that the instrument is "temporary" and available only as long as the Covid lasts and this "in line with the legal basis for the adoption of this regulation". And then it clarifies how, even if it is true that it is the Commission that gets into debt and grants the loans, it does so in the face of "counter-guarantees" granted to it by the Member States, as if it were a conduit . Furthermore, guarantees of a not exorbitant total amount (25 billion in total, 6.3 from Germany ) and three-quarters lower than the maximum value of the exposure (100 billion).
Well, for the purposes of internal political propaganda that we will see, the German CDU / CSU has an interest in making people believe that the Ngeu is also constituted on the basis of the 122 Tfeu , in imitation of the SURE: in doing so, it underlines that it is an exceptional instrument and linked exclusively to Covid . Many have fallen for it: a possible explanation is that they too prefer the SURE model. However, it is a blue pencil mistake. It is to them that Herdegen speaks, when he explains: “the assistance clause in article 122 of the Treaty is not a basis available to the EU to be able to obtain money outside the budget” and that is enough for him.
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Article 125 – A third German point of attack is linked to the non-bailout clause : "The Union does not respond to or accept the commitments undertaken by the administrations … of any Member State … Member States are not responsible for or take over from commitments of the administration… of another Member State ”( 125.1 Tfeu ). Consistently, the decision 2020/2053 on the system of own resources excludes that the NGEU can finance "operational expenditure", while the regulation 2021/241, which establishes the mechanism for recovery and resilience, is based on the power of the Union to act also “through funds for structural purposes” ( 175 Tfeu ) and speaks of a “ sui generis contribution” aimed at financing “the objectives of the reforms and investments established in their plans for recovery and resilience”, therefore approved by the Union. And if they have nothing to do with Covid , never mind . In short, the Union does not respond to or accept the commitments undertaken by the administrations of any Member State , exactly as the Treaty prescribes.
But things are not that simple. Herdegen wonders: “if a country fails to make its payments to the EU budget, the others should intervene with additional payments . This obligation is incompatible with the non-bailout clause , ie the sole responsibility of the Member States for their debts ”. Of this, he "is particularly annoyed". And not wrongly.
In fact, of the 750 billion of the NGEU , up to 360 billion can be used to provide loans and, therefore, are repaid by the Member State that borrowed them… but it may be that the latter does not pay. Likewise, the remaining 390 can be allocated to non-repayable transfers to Member States (in the EU budget they are recorded as "expenses") and, therefore, must be covered by the Member States themselves … but it may be that one or more of these last do not pay. In both cases, the non-payment is covered by the remaining Member States: in proportion to their GDP, as well as up to the maximum annual additional charge… but for each of the years up to 2058. And without having to renew one's consent, that is, on first request.
In legal terms, the Member States offer a joint and several liability guarantee, with the benefit of division and enforceable at first request : each Member State is obliged to the part due by it. But, if one of the Member States does not pay, each of the remainder is obliged, for such non-payment, in proportion to its share. And this is actually contrary to the no-bailout clause .
To Herdegen's objection, some respond with the practical argument that all member states always pay their share to the EU . A German would respond to these with the following remark. The States have agreed to undertake to pay to the Union budget, every year until 2058, an annual additional maximum equal to 0.6 per cent of their GDP: multiplied by the 37 years that the commitment lasts, it makes a total of about 3,000 billion euros (22.2 per cent of GDP, being the EU's GDP 13,500 billion euros; taking into account inflation, the German Court of Auditors calculates more than 4,000 billion) … against a maximum volume of the Ngeu equal to only 750 billion. This abnormal difference is defined by the Union as "a sufficient margin between payments and the own resources ceiling to ensure that the Union is able – in all circumstances – to meet its financial obligations, even in times of economic recession ". Germany alone has pledged to pay an additional maximum amount of 789 billion… that is, more than the entire maximum volume of the Ngeu .
In short, if it is true that everyone pays a lot , then why was Germany asked to guarantee the entire Ngeu alone ? On the 125 Tfeu, Herdegen is right.
Herdegen's argument is so good that it caught the attention of Mario Draghi. Let's see how. The only alternative to joint and several liabilities with the benefit of the division would be the union taxes. And the decision 2020/2053 relating to the own resources system provides, in fact, "a new category of own resources based on national contributions calculated on the basis of non-recycled plastic packaging waste". But the proceeds are not enough. Thus, the decision continues, "the Commission will present proposals relating to a carbon adaptation mechanism at the border and a digital levy … the European Council has invited the Commission to present a revised proposal on the EU emissions trading system , possibly extending it to the aviation and maritime transport sectors… the Union will work on the introduction of other own resources, which could include a tax on financial transactions “. Words to the wind because all these new taxes would be considered by the United States as new trade tariffs and would trigger retaliation. Draghi intervened here, when, in the Senate and in the Chamber, he announced that the Biden presidency would show "a certain what openness, a certain availability" towards "a global and consensual solution on international digital taxation"; to then add, in a press conference after the European Council, that this is "something … very important … a big change". That is, we'll talk about the Ngeu when we understand how to finance it. He is not flawed for lack of realism.
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Article 126 – Herdegen says that “the Maastricht rules are broken by the reconstruction fund. The debts of individual states are no longer counted in their debt / GDP ratio, on the contrary this is one of the objectives of the entire year “. By implicitly invoking the violation of 126 Tfeu : "if the ratio between the public deficit and the gross domestic product exceeds a reference value … if the ratio between public debt and gross domestic product exceeds a reference value … the Commission prepares a report … etc ".
We already explained in Atlantico in April that, from the beginning, Rome's real purpose is to avoid accounting for a direct loan (as would be the one of the Mes) in the public debt. Replacing it with an annual fee, in deficit but not in public debt. In the manner of how businesses that refinance a mortgage (on the balance sheet) with a debt leasing (off balance sheet) do. It is not a question of federalism , therefore, but of accounting optimization .
We added how easy it was for the Germans to answer that accounting optimizations have short legs: Eurostat could still redevelop leasing as debt and reconsolidate it in the great book of Italian public debt. In fact, the Bundesbank asked for it in December and the Bundesrechnungshof in March.
Even on the 126 Tfeu, Herdegen is right. And his argument is destined for sure success in Germany where, for years, the Union has been accused of guilty laxity in the application of tax rules.
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And that's not all – On all this, the Federal Constitutional Court of Karlsruhe (an old acquaintance of ours) fell on March 26 with a suspension order . Reminding everyone that, even if the Ngeu were in compliance with the Treaties (which it is not), it should also be in compliance with the German Basic Law. And, there, things are even worse for Brussels. As we will see in the next article.
The post Recovery Fund under attack / 1: this is why it is against the EU Treaties appeared first on Atlantico Quotidiano .
This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL http://www.atlanticoquotidiano.it/quotidiano/recovery-fund-sotto-attacco-1-ecco-perche-e-contrario-ai-trattati-ue/ on Sat, 03 Apr 2021 04:01:00 +0000.