The Reconstruction of European Politics

As it stands, the anti-EU parties’ enthusiastic embrace of Russian President Vladimir Putin, with his profoundly anti-liberal economic and social policies, may well be the only thing working in the established political families’ favor. But it does not have to remain this way. With a new political vision shaped by current trends and imperatives, Europe can create an effective political system fit for the twenty-first century.

Such a vision, like all of Europe’s most effective conceptions, would be a blend of French and German ideas. France is currently gripped by the massive success of economist Thomas Piketty’s book , which analyzes how inequality rises in the absence of exceptional levels of economic growth. The book’s message – a call to address rising inequality and a plea for stronger economic growth – has strong policy implications. But Pikettism does not require income taxes, so much as wealth taxes.

The idea of using a wealth tax to overcome Europe’s debt crisis also has considerable support on the eastern side of the Rhine River, but for different reasons. Germans remain worried that they will be called upon to bail out the over-indebted governments of southern Europe. Such a transfer of public debt would be unfair, Germany contends – not least because high levels of public debt are often accompanied by higher levels of household wealth than in northern Europe. , made by the Bundesbank, seems to support a wealth tax.

In fact, a wealth tax could spark economic activity and growth. Empty houses and uncultivated fields – a common feature of southern Europe – represent a relatively secure investment that does not cost much, owing to low property taxes. A higher tax rate would spur owners to sell, leading to the restoration and improvement of land and buildings – effectively acting as a large stimulus package.

Given that a wealth tax would be used primarily to pay down high levels of existing public debt, it would be applied in the context of the individual member states. Its basis in real estate means that it would not depend on a precarious attempt to tax a mobile factor of production. And presenting the tax as a one-off levy to address the legacy of bad policy in the twentieth century would ensure that it did not deter future economic activity.

The upcoming European Parliament election could be the wake-up call that pro-EU parties so desperately need. Fortunately for them, there is a compelling way to combine the fundamentally French concern about the dangers of inequality with the fundamentally German concern about excessive public debt. That is why property and wealth taxes are likely to become the foundation of a new political alignment in Europe.

Harold James is Professor of History at Princeton University and a senior fellow at the Center for International Governance Innovation.

Copyright: Project Syndicate, 2014.