Public Goods in a federal Europe

Helena Kreuter, Michael Thöne,

Vision Europe / March 2021 / Policy Brieff, FiFo Bertelsmann Stiftung (publ.)

Abstract:
Europe should become stronger and more sovereign through the provision of more and better European Public Goods (EPGs). The European Union (EU) should take on more of the tasks to which it can lay claimby virtue of its size and function. Europe should become more European. In order to make goodthis claim, the Union more than likely will have to assumemore of the featuresof a cooperative federal state.Putting the concept of European commongoods intopractice requires one to spell outmore clearly the wayforwardand to knowhow these EPGscan then be set to work. The present paper addresses the following issues:first, the appropriate institutional framework for the introduction and provisionof European public goods; second, how best to phase inthatprovision within the European multi-level systemof governance. For this purpose, it uses two analogies.With the firstanalogy, we ask whether the EU as a sui generispolitical entity would not be better understood by beingexplicitly viewed as a co-existenceof federal state and confederation.The federal-state-like supra-national model provides a democratically and fiscally appropriate governance framework for the provision of new European public goods but places significant obstacles in the way oftheir introduction. The opposite is true for the confederation-like intergovernmental model:thisis poorly suited for the provisionof new European public goods but offers greater prospects for theirsuccessfulintroduction.Such considerations might suggest that additional EPGsare faced with their own "federal paradox". This paradox isnot insurmountable but must always be kept in mind.The second analogy compares the EU –especially its federal component–with the German model of coop-erative federalism or “administrative federalism”. Thiscomparison brings to the fore the issues and tasks that providing for EPGs involveswhen the legislative, administrative and financing competences may wellbe and are allocatedto different levelsof government.It thushelps to understand that many EPGs should not be provided by the EU alone.If one were to consider only the US-American-style federal state model for European federalism, few European common goods could be designed. In vertically cooperative federal states, on the other hand, the legislative, administrative and financing competences for certain public services arenot always entrusted tothe same level of government. This may entail connectivity problems. Nevertheless, an efficient allocation of tasksis createdprecisely forthe many instancesin whichthere are noEU administrative bodies locally and none should be contemplated. We develop a criteria matrix that serves as a guide for the tailor-made fiscal-federal design of a wide variety of EPGs.The most important prototypes of the vertical allocation of competences are presented by means of four illus-trative scenarios. In fine-tuning such a design, we pay particular attention to the centralfinancing of those European common goodswhich are administered locally by the Member States. This promising model is still quite fresh –and innovative–in federal practice.With a view tothe resurgent debate on the future financing of the EU, we also discuss the long-standing and contentious issue of justeretour. This issue symbolically and factually embodies one of the central hurdles that still distinguishes the supranational system of the EU from the "normal" top tierof a federal state. It will therefore only be solved consistently if key revenue instruments politically assigned to the EU are used to finance ser-vices with a visible European added value –i.e. genuine European common goods. The innovations in terms of EU taxes and commondebtoccasionedbyNextGenerationEU and the EU Recovery Fundopen up addi-tional possibilities here that would hardly have arisen without the great coronavirus crisis acting as an unwished-forcatalyst for European progress.