There are difficulties and there is no point trying to hide them. Nonetheless, we should not forget that implementation of eurozone economic governance represents a radical transformation of the EU. Exclusively highlighting the divergences (which are real enough) and obstacles (inevitable) means failing to recognise the scope and importance of this ongoing development and forgetting that it is a very recent turning point indeed. For how many years was Jacques Delors effectively isolated when he denounced the imbalance between the monetary and economic arms of the EMU? The decision made by eurozone heads of state and government introduced economic governance from 25 March last and was greeted by almost general incomprehension. This column was the only one to immediately define this development as, “historic”. Afterwards, everything moved quite quickly and what now appears as largely acceptable to all, is, in itself, a gigantic leap forward. This week's Economy/Finance Council conclusions are quite clear: they confirm the complete reform of the regulatory framework, the demand to manage the economy in common and the objective of making the financial sector accountable for the costs of its behaviour. This is a revolution.
Inevitable divergences. In this context, why should we be surprised that divergences exist between member states and different political forces? They need to be taken into account but they should also be considered as part and parcel of a framework that just a few months ago would have appeared like a dream, but which are now actually operational measures that have been taken or are being elaborated to primarily eliminate or at least control, the most dangerous financial behaviour and instruments and remove the speculation that is most damaging to the real economy. It is not only European legislation that is going in this direction but also national preventive measures, even when they raise a number of questions and concerns, such as the suspension in Germany of shortselling of certain categories of bonds, while awaiting the Community rules that Michel Barnier had announced for October.
The way in which the whole economy functions is involved. It should also never be forgotten to what extent the ongoing transformations go beyond the strictly monetary and financial domain to cover, in practice, the whole of the economy. Yesterday, this column touched on certain positions taken by the main political groups at the European Parliament and yesterday's plenary session debate also confirmed the comprehensive character of expectations and divergences of the different political currents. Going beyond the technical aspects, these divergences focus on two fundamental points: a) the risk of budgetary rigour making economic recovery impossible (the European Parliament is divided and our publication yesterday and the day before yesterday reported on this matter); and b) the necessity of making the pace with which budgetary deficits are reduced “more reasonable” and the trend (not always admitted) to consider that this reduction could be accompanied by a considerable fall in the value of the euro (which is what the US is afraid of).
Tax questions again in the news. Discussions about financial policies have thrust a subject that is considerably linked to it back to the surface again: the imbalance between wages and profits in the national distribution of wealth. According to recent statistics, in the EU, wage earners account for 90% of the working population but only have a 57% share of the wealth produced. The rest goes to the remuneration of capital (shares, part of the corporate profits that go to the CEOs and bonuses etc.). The main objective, therefore, of tax reform should be to align corporate income tax on income tax at work. European veterans point out that the increasing imbalance between wages and corporate revenue was flagged up around fifteen years ago by Jacques Delors and further developed by Mario Monti, in their respective responsibilities at the European Commission. Another dimension of taxation that rose to the surface and which can no longer be ignored is that of harmonising taxes on corporate profits. Previous attempts to harmonise just a basic level of taxation floundered (the former European commissioner for taxation was fiercely opposed to it) but the question will keep on resurfacing because “fiscal dumping” in the single currency zone is increasingly considered as being intolerable.
It is quite natural that we should think the task force presided by Herman Van Rompuy, which holds its first meeting this Friday, will include tax questions among the subjects that it will discuss.
(F.R.)