Towards a Federal Europe: The Impact of a Genuine Economic and Monetary Union on Markets & Citizens (Part II)
FEBRUARY 2, 2014 BY DURHAMEUROPEANLAWINSTITUTE
The first DELI LLB Conference was held on the 21st January in the Hogan Lovells Lecture Theater, Durham Law School. The conference, entitled Towards a Federal Europe: The Impact of a Genuine Economic and Monetary Union on Markets & Citizens, encompassed a broad range of topics including some which stand at the intersection between European Law and economics. Organized by undergraduate students from Durham University, the conference included presentations by two honorary guests as well: Dr Pierre Schammo and Professor de la Feria, who discussed the Single Supervisory Mechanism , and Tax Policy, respectively. The conference was truly a unique opportunity for students and academics alike to combine their knowledge and passion for European Law.
The European Single Supervisory Mechanism
Dr. Pierre Schammo centered his presentation around the Single Supervisory Mechanism (SSM) in a Genuine Economic and Monetary Union. SSM is a pillar of the banking union that concerns banking supervision. Under the SSM, supervision of significant banks – not all banks – is transferred to the European Central Bank (ECB). The ECB will only directly supervise “significant” banks in the Eurozone; other banks will be supervised under national authorities acting under the authority of the ECB. The criteria for determining whether a bank is “significant” is still somewhat ambiguous, yet factors that will determine this are (amongst other things) the bank’s size and cross border activity. Therefore the ECB will have to prepare itself and its monetary policy to assume this role as supervisor of banks. The institutional break-up of the ECB will consist of a governing council, the members of which will be solely Eurozone countries; and a supervisory board consisting of all members of the SSM. Certain non-Eurozone countries have expressed their concerns over this governance structure, which leaves them out of the decision-making process.
The impact of the SSM has been two-fold. The European System of Financial Supervision, set up in 2011 in light of the financial crisis, has aimed to improve the implementation of EU rules at a national level. Also set up in 2011, the European Banking Authority (EBA) is comprised of all members of the EU. It is unclear thus far how well the ECB and the EBA will work together, and how well their cooperation will work in practice. Non-SSM members like the UK have expressed concerns that they will, also for this reason, be sidelined in the EBA, and as a result have called for the implementation of certain safeguards, including new voting and consensus requirements. Finally, the currently strained relationship between the ECB and national governments demonstrates a lack of trust between the two entities, questioning how well they will collaborate in the future. Dr. Pierre Schammo’s presentation was both enlightening and illuminating in regards to this current issue.
The second honorary speaker, Professor Rita de la Feria, focused on Tax Policy in the Economic and Monetary Union. She commenced her presentation by explaining the reasons for using tax policy in the context of the economic and financial crisis, namely: ensuring fiscal consolidation, promoting economic growth, and guiding economic behavior.
During this period, there were clear tax policy trends: VAT rates have increased an average of 2% in Europe since 2009; increases in the higher bands of the personal income tax in various countries, like France, and a decrease in personal tax credits; introduction of financial taxes to increase revenue and guide behaviour; heightened attempts to combat tax avoidance, fraud and tax havens; and decrease in corporate income taxes, in order to attract foreign direct investment, like in the UK.
The EU’s role on tax policy has primarily been enforced by the European Commission and the Council, and to some extent, the Court of Justice of the European Union. Significant amounts of legislation have been passed regarding VAT, although there has been very limited legislation on income taxes.
The lack of EU legislation on tax issues is directly connected with unanimity voting. Giving-up unanimity, however, is risky for Member States: there is a limited availability of other macro-economic instruments within the European Monetary Union, namely no possibility to alterinterest rates or exchange ratesat national level; giving-up unanimity may mean that Member States will always end up with a tax policy that is detrimental to their economy.
Thus determining the EU role on tax policy remains difficult, or, as Professor de la Feria has termed it, “a chicken and egg problem.” The open-endedness of Professor de la Feria’s presentation was both thought provoking and captivating.