Europe’s dog in the nighttime
To see why, it is worth recalling that the SGP’s original rules were judged “stupid” by one former Commission president (Romano Prodi), because the singleminded pursuit of a deficit below 3 percent of GDP could be inappropriate during recessions. That argument was accepted, and the SGP was supposedly rendered more “intelligent” by, for example, permitting budget deficits to be adjusted for the economic cycle, adding medium-term objectives for expenditure, and introducing escape clauses.
The reason for this additional levy is that a few weeks ago the UK’s Office for National Statistics announced, proudly, that it had discovered that the country’s gross national income (GNI) had been much higher than previously assumed, not only in 2013, but also in all previous years. Including the revisions for the 2002-12 period, the difference comes to about 350 billion pounds ($560 billion).
Because every EU member state is obliged to contribute about 1 percent of its GNI to the Union’s budget, the United Kingdom’s data revision had to lead to a back payment of billions of euros. But British Prime Minister David Cameron’s government has declared that it does not intend to pay money that “the European Commission was not expecting and does not need.”
These two cases — the dog that should have barked but did not, and the dog that barked for no reason — threaten the EU’s fundamental workings, which are based on a clear rulebook enforced vigorously by a strong Commission. Juncker’s Commission risks losing its authority from the start if the rules can be bent or broken to accommodate the larger member states’ domestic political priorities.
The Commission must regain political and intellectual leadership and make its choice: either explain why the SGP rules must be followed even now, in the face of deflation, or agree with those who argue that the current environment calls for a fiscal stimulus. It cannot avoid taking sides by insisting publicly on austerity rules but then acquiescing when member states break them.
Leaders in member states have to play their part as well. Pandering to populists may be attractive in terms of shortterm electoral gains, but the long-term cost in terms of credibility, both their own and that of the European Union, will be very high.