Today I will be finishing my exploration of the financial, monetary and tax situation in the Union.
No storms over VAT hike in Germany. Accusations from certain economists against Germany for increasing the VAT rate (from 16 to 19%) are unfair and groundless, and have sometimes been bordering on the impertinent. We are even able to read that Germany is, in this way, responsible for exporting its problems to other Member States and that “it is as if Berlin had devalued the Deutsche Mark”.
The German rate is in fact lower than the European average. It was pegged to rates in most Member States and remains slightly less than that in Italy (20%) and France (19.6%). In no way did Berlin aim to reduce domestic demand or increase exports to other Member States. Instead, it sought to finance reforms while safeguarding the social acquis. Various surveys indicate that the new rate has not had a significant impact on either domestic demand in Germany (consumers did not attempt to pre-empt the higher VAT rates with a shopping spree in 2006, and the level of competition means that manufacturers have often managed to avoid passing on the rise) or on imports from other Member States. Certain initial analyses were unfounded or at least widely exaggerated.
The Euro in Slovenia, a quiet operation. The extension of the Eurozone to Slovenia went without any hitches as the authorities had done everything to prevent any slippage: price controls with measures to name and shame any unjustified increases or abusive rounding-off of prices (with the pro-active cooperation of consumer bodies); dual price displays (in the national currency and the Euro) since last March; and a consensus within the Unions to moderate wage demands. 93% of companies' preliminary indications revealed that they had not increased their prices during the transition. The Euro had also been very widely used in tourism and for purchases abroad, as well as for loans to enterprise; it was already “part of the Slovenian landscape”.
The authorities consider the transition to the Euro as the crowning glory of the European accession process, and polls highlight satisfaction, if not enthusiasm, from the business communities and the population in general, for this result and the prospects opening up due to the elimination of exchange rate risks and the expected expansion in foreign investment. It's a pretty nice riposte to people in other countries who are unaware of the advantages of the Euro.
Entry into the Eurozone is also expected to facilitate and speed up certain economic reforms that have been dragging. This little country of two million inhabitants, that has only existed for fifteen years, appears to be on the right track for the presidency of the EU in the first half of 2008 - the first of the new Member States to assume this responsibility.
EIB's role in EU external policy. The agreement between Member States on funding from the European Investment Bank in third countries until 2013 (EUROPE 9316) will enable the EIB to play an increasingly significant role in EU external relations. Amounts are increasing: €27.8bn, as opposed to €20.7bn for 2000-06. This is not a real budget because funding depends on the EIB's pooling of market resources and, above all, on the quality of funded projects. This last point is essential: only valid projects are maintained. This guarantees that waste and corruption do not gobble up resources, problems that too often undermine donor allocations and subsidies (even in some zones of the EU as well).
EIB president, Philippe Maystadt, indicated that the European Bank should maintain its rules on “conditionality” in the granting of loans, including those on human rights and good governance, despite the attitude of Chinese banks that pose no conditions at all. In his opinion, conditionality is beneficial in the long term for funding beneficiary countries, in Africa, as elsewhere, because it encourages and helps them to proceed to the domestic internal reforms that are needed. Maystadt even calls for international rules for conditionality.
Most external EIB funding goes to EU “neighbourhood policy” countries: Mediterranean countries, the Balkans, Southern Caucasus and the East. (ACP countries, as we know, benefit from a specific envelope). More modest but still significant amounts are reserved for Latin American and Asia. The range of interventions (with the possibility of having a stake in partner country companies via the FEMIP instrument) and their significance are well illustrated by the three operations concluded at the end of December in Egypt and Israel, as announced in EUROPE 9336.
(F.R.)