Economy and Finance

The Covid-19 pandemic raises several crucial questions, including the capacity of our systems to respond to existential events. Volt France has taken advantage of this period of containment to develop a series of proposals to draw lessons from this crisis for a more sustainable Europe better prepared for future challenges. This document summarises our economic and financial proposals.

We are currently paying a terrible price for our slow response to this pandemic and for our neglect in building and maintaining essential infrastructure in France and across Europe. But let's be honest: Covid-19 is just a taste of what's to come. Climate change knows no borders. There will be no vaccine. And no matter how much toilet paper we stockpile, we cannot confine ourselves to our homes as the only response to climate change. The Covid-19 pandemic is a warning and an opportunity for our societies to take the necessary steps to adapt. To start acting instead of reacting. To act in a broader, long-term perspective. To give the European Union the means to flatten a CO2 curve that will take not weeks, but years to overcome. Volt France wants to contribute to this effort and present a set of ideas for a future Europe that connects, coordinates and allows France and the Member States to get back on their feet while preparing for what lies ahead.

The state of affairs

While some countries are beginning to ease Covid-19 restrictions, France has passed most of its containment - this is a good time to reflect on the current situation, what has brought us to this point and how we see the future. The fallout from this pandemic will be felt for a long time and rebuilding an economy will provide its share of mistakes that we can avoid repeating as well as opportunities to adapt to these new circumstances. We believe that financial and fiscal policies are the keystone of this reconstruction. So, having taken stock, it is crucial to answer these questions: What role can the European Central Bank play in enabling national governments to act, how can we finance an economic recovery and what should be the priorities for investment?

1. A resilient society - marked by inequalities

Although we are currently isolated from each other and like to think of ourselves as individualistic, our societies have shown a great capacity for adaptation and resilience. Solidarity is not an empty word, with thousands of associations and initiatives across France trying to take care of those most affected by Covid-19. But while this extraordinary wave of solidarity is clearly visible, it will only mitigate the effects of the inequalities that persist. Their causes are deeply rooted, such as poor educational funding for pupils and students from socially disadvantaged backgrounds, inadequate education that requires them to wait six generations to move from minimum to average income. With the economic impact of the pandemic, looming unemployment, school lock-in and financial uncertainty, inequalities will only worsen in the coming years - this is where governments must step in and provide financial security, employment, training and education opportunities.

2. An economy reduced to the essentials

Covid-19 has exposed our economies as they are: fragile systems of fragmented supply chains linking low-cost production to places where the environmental tax is outsourced with the least effort. Economies without a safety net financed by ever-increasing debts are bound to collapse - if not by this pandemic, then by global conflict or climate change. Containment has also shifted multiple perceptions, such as the realisation that our systems depend on the everyday workers we are only now applauding, or that remote working will be more than an asset for some of the population. Too much has been lost to return to normal and too much is at stake to continue as we have in the past. This pandemic has put people and planet before profits. The post-Covid-19 economy should be built on this premise.

3. Governments are challenged

Across Europe, national governments were slow to respond and have been chasing the pandemic ever since, scouring the world for protective equipment and screening while trying to increase hospital capacity to cope with the wave of patients to be treated. Let us not forget that the French public health crisis management institution and its strategic stockpile were considered wasteful and therefore dissolved to the equivalent of a just-in-time stockpile management system. The same principles have been applied to the public health system, creating the same fragile production chains that have crippled our economy. Our essential public services - from education and public transport to broadband internet access and health - should not be run on the basis of profitability but should be accessible to all and have crisis prevention and management plans, which is not the case today.

4. European institutions at a crossroads?

This crisis has also taught us that the European institutions, which have neither a significant budget nor the capacity to act quickly because they decide by unanimity, are a shadow of their former selves. They make excuses while their Member States unilaterally close their borders instead of cooperating. Covid-19 has shown not only the shortcomings of the European Union, but also why it is vital to have a Union that is more than a single market that rewards successful economies at the expense of others. This pandemic knows no borders and until we start cooperating and coordinating our efforts to overcome Covid-19 at European level, we will continue to be confined - perhaps not in our homes, but certainly in our heads and within our national borders. We need European institutions with the mandate and the means to act on supranational issues, be it Covid-19 or climate change. Let's start with the means and find ways to finance a fair and sustainable recovery.

The European Central Bank - thinking outside the box

Even before Covid-19, negotiations for the Multiannual Financial Framework - the 'EU budget' - were at a standstill for the equivalent of 1% of EU GDP, or around €200 billion per year. And, although in times of crisis, the reluctance of several Member States to engage in a common project such as Eurobonds remains strong. Why is the European Central Bank (ECB) not stepping in? It has ignored - "whatever it takes" - its 2% inflation target in the past by providing almost €2.6 trillion of liquidity to support the banking sector during the financial crisis. While supporting the introduction of a temporary solidarity instrument such as Coronabonds to combat and recover from the effects of the pandemic, Volt France also has a longer-term perspective. We believe that the ECB should assume its independence and play a more "direct" role. We propose:

1. Direct financial support to citizens, companies and institutions

Relaunching a new economy means direct investment, job creation and ensuring that our health and social security systems are strong across Europe. Since the crisis of 2008, the ECB has provided support to banks and financial institutions. Buying government bonds held by them has generated liquidity that has driven stock and asset prices to record highs instead of being invested in business and job growth. While recognising that direct purchases of national government bonds - for example in exceptional circumstances such as Covid-19 - would require changes to the EU treaties, Volt France would like to see the ECB prioritise and financially support the real economy directly this time. If banks are to be involved, they should only act as agents of the ECB who are not exposed to any credit risk. This can take the form of direct ECB purchases of corporate bonds and even direct support, as member states do in some countries.

2. ECB should provide debt relief to Member States

In the course of its QE programme, the ECB has purchased massive amounts of government debt. As the ECB is owned by the 27 Member States, they technically own their own debt. A one-off debt waiver on government bonds (e.g. a 25% waiver per country) would be an emergency solidarity measure benefiting first and foremost Italy and Spain, which are also the most affected by Covid-19. It would reduce Member States' debts, give them room to manoeuvre and invest in economic recovery. During the economic recovery, the ECB could consider making annual allocations of funds to Member State governments based on the number of people residing in each country and their level of dependency. Credited directly to national central banks, this exchange of national debt for reserves would allow for further debt reduction based on solidarity criteria (allowances for the elderly or sick, allowances for migrants). Distributions should be conditional on the respect of several criteria:

• Compliance with deficit rules, except for essential public services (health, education, internet/4G coverage and public transport) which, because of their essential character, would be excluded from the government deficit rules. In return for this exclusion, the public deficit rules will be raised.
• Establishment of an effective health risk prevention policy by each Member State
• Full respect for the rule of law and fundamental rights

3. ECB should finance EU institutions in the short term

Until more sophisticated means of financing are put in place, the ECB should provide the equivalent of 2% of the EU's GDP over six years or at least €250 billion a year to the European institutions. This will make the EU institutions financially independent and make endless negotiations obsolete. However, nothing will prevent the member states themselves from providing the EU institutions with a much more substantial budget, such as the 300 billion annual budget currently under discussion, which will serve as leverage for a 1,000 billion envelope that can be distributed using a mix of grants as well as regular and possibly perpetual loans - until a compromise is found again. Until then, the EU institutions remain paralysed.

4. EU and ECB should coordinate the establishment of reconstruction banks in Member States

Resilience must also be measured in financial terms. As economic recovery will require large-scale investment, we propose that the EU - in cooperation with the European Investment Bank and the Council of Europe Development Bank - should take the opportunity to ensure that all Member States have national reconstruction banks (such as the French BPI or the German KfW). It must be ensured that these institutions are able to provide direct assistance and accountability to citizens and businesses if necessary to protect them from "too big to fail" risks in the next financial crisis.

5. Impose strict rules for the rescue of companies and financial institutions

Like the Glass-Steagall Act, we propose to return to a strict separation between commercial and investment banking. We need a stable financial system that can support sustainable and essential investments rather than chasing pure profits. The commercial bank could serve this purpose while providing the necessary infrastructure and local expertise, for example when providing direct government support to local companies, which should explicitly include oversight to prevent dividend payments or share buybacks until government support ends.

A European tax system for a real independence of the European institutions

The main problem of the European institutions remains their dependence on national governments. This is reflected in their inability to respond quickly to Covid-19 and - in the absence of a proper budget - to act and help its Member States. With 70% of the EU budget made up of Member State contributions, national governments exert their influence on the EU, often to the detriment of the general interest. In order to be able to play an active role in health crisis management and in managing the climate crisis, the EU must introduce independent sources of funding, including taxes levied at EU level. We propose :

1. A European corporate tax

Over the past 20 years, corporate tax rates have continued to fall under the pressure of unbridled tax dumping between countries and to the detriment of the general interest. As a result, companies are no longer contributing to the public interest at the level they should. It is necessary to raise taxation on the profits of European companies for the benefit of the European Union.

A European tax based on the Common Consolidated Corporate Tax Base (CCCTB) should be levied on multinationals to adjust their effective tax rate to the EU average. As the EU average serves as a lower threshold for corporate taxation, it would reduce the incentive for multinationals to shift their profits to lower taxing Member States and thus prevent competition on corporate tax levels to the detriment of all. Equivalent taxation for non-EU multinationals could be introduced on the basis of their profits or income, whichever is more appropriate as a tax base. In the long term, a separation of employment income from capital income could be considered, with low mobility employment income being taxed at national level and the EU being responsible for taxing capital income in order to finance itself.

2. A solidarity surcharge

A solidarity surcharge was used to help finance the recovery of East Germany after German reunification. A similar idea at the European level, imposed on capital gains and unearned income during the Covid-19 pandemic and economic recovery, could serve a similar and lonely purpose. Combined with a reduction in tax exemptions, tax evasion and tax avoidance, it would provide the European institutions with additional funds for investment in the most affected Member States.

3. An expanded ETS and a carbon tax for a sustainable economic recovery

The EU ETS, introduced in 2005, was the first system of its kind in the world and still has many shortcomings. We propose a more rigid system with a more ambitious reduction path, the phasing out of free allowances and a price corridor based on the French CO2e tax. While this measure is being implemented, an EU-wide carbon tax can help raise the funds needed for a sustainable economic recovery after Covid-19. Based on the French model (€65.40 in 2021, €205 in 2030), it would respect national tax authority (no double taxation) and use border carbon adjustments and carbon footprint declarations to maintain a level playing field between EU and non-EU countries.

4. Incentives for green and sustainable investment

200 billion per year and should be stopped in order to free up much needed funds for sustainable infrastructure upgrades in the context of economic recovery, investments in green R&D but also carbon dividends paid to citizens to compensate for rising energy costs. In addition, the EU could introduce an obligation for European pension funds to direct part of their assets to officially approved Green Deal activities, with a risk-free guarantee of a minimum net return to encourage the transfer of capital to green investments.

Priorities for economic recovery

The economic fallout from Covid-19 is often compared to the Great Depression of the 1930s. While hopefully not as bad, many of the original New Deal strategies for jobs and economic recovery can also provide guidance on how we might overcome the current crisis. With some prescience, the EU already announced its "Green New Deal" in January for the next ten years. Covid-19 has now put the focus on the actual implementation of this ambitious project for the immediate future. The Green New Deal foresees investments of €100 billion per year for the next ten years. Volt France proposes to use these in the following ways:

1) Building the green infrastructure of tomorrow

Des fonds devraient être mis à disposition pour rendre la création de béton, d'acier et de produits chimiques climatiquement neutres. Les prochaines années verront des investissements importants dans la modernisation des infrastructures pour qu'elles soient neutres sur le plan climatique et nous devrions exiger que les ressources utilisées dans ces projets d’investissements publics le soient également. Le volume des projets ainsi que les incitations financières devraient faciliter la modernisation des installations de production.#Funds should be made available to make the creation of concrete, steel and chemicals climate neutral. The next few years will see major investments in upgrading infrastructure to be climate neutral and we should demand that the resources used in these public investment projects are also climate neutral. The volume of projects as well as financial incentives should facilitate the modernisation of production facilities.

2) Developing an industry for the rehabilitation of residential buildings

Poor insulation in residential buildings is both a waste of energy and a strain on household incomes, especially in France. In order to double the number of buildings renovated each year to meet the climate targets of the Paris Agreement, we need incentives to develop a real industry and the jobs that come with it around building rehabilitation - from thermal insulation to replacing the last oil and coal heaters. Covid-19 threatens many businesses and jobs - boosting insulation is an area where the government should step up its efforts.

3) Simplifying regulation for renewable energy and decentralised grid investments

We need to both prepare the electricity grid and develop renewable energy sources for the day when fossil fuels have to be abandoned. This requires simplification of competition laws for renewables at European and national level, further expansion of renewables as well as incentives to further reduce dependence on fossil fuels, including nuclear power in France.

4) The transition from agribusiness to agriculture

Ensuring food autonomy and moving towards more local and sustainable agriculture must go hand in hand with a general reform of the Common Agricultural Policy. The consequences of Covid-19 offer the opportunity to finance the transition from monoculture to environmentally friendly practices such as perennial and polyculture farming systems, which build up topsoil and reduce the need for fertilisers, pesticides, insecticides and diesel.

5) Towards a sustainable transport infrastructure

Investment in transport as part of the economic recovery plan must focus on low-carbon transport and on creating a real alternative to road and air transport. Long distance and high speed lines, night trains, and the use of multimodal - with convertible wagons for passenger and freight transport at off-peak times - will be Volt France's priorities. Covid-19 is an opportunity to offer free passenger transport on the regional TER network with revenue from freight transport offsetting the shortfall.

6) Creating a resilient economy

It will be necessary to determine which industries are essential to be reintroduced on the European continent (one thinks of course of the food and pharmaceutical industries). Funding must be provided to companies working in these areas to remain competitive as the virus has shown how much we depend on these companies in these exceptional circumstances. There should be a new form of social contract that takes into account and properly rewards the risks that everyone, from health workers to supermarket staff, faces all the time. 

7) Government employment programme

With unemployment at an all-time high across Europe in the wake of Covid-19, an EU-based work-progress-administration type institute could provide jobs for the unemployed. Not competing with private companies, it could cover a wide range of activities, from business to services to culture. It would also be an opportunity to tackle the unsustainable levels of youth unemployment in the Member States and to ensure that everyone on the continent has a job and a guaranteed minimum income.

8) Social security on the way to a universal basic income

With a large proportion of the working population in France and Europe affected by Covid-19, the idea of a universal basic income with a European social security scheme is beginning to emerge. As our current economic model has failed to provide opportunities for a sometimes large part of the population, Volt France believes it is time to seriously discuss a universal basic income as a way to help Member States address the unemployment created by the pandemic, the economic downturn and, in the longer term, the irreversible transformation of the labour market. Volt France sees universal income not as an instrument of charity but as an instrument of dignity. Paid to all citizens without any criteria to be met to obtain it, it would ensure that everyone has a minimum standard of living and would extinguish all suspicions and frustrations leading to the explosion of populism in some countries.