The comments made in this column last week about the most recent informal European Council and the European Commission responses to the crisis left out three aspects from the discussion. Some participants did, however, mention these aspects in the backdrop to the conference. These include:
1. Tax harmonisation, the forgotten chapter. Tax havens and bank secrecy were broadly discussed in some of the positions taken and also figure among the subjects for negotiations at Community and global levels. On the other hand, the specific dossier on corporate tax harmonisation in the EU was only raised indirectly. The subject was discussed at great length in the 1990s, particularly on the initiative of Jacques Delors, as president of the Commission, and then by Commissioner Mario Monti. In an informal economy and finance ministers' meeting, the latter raised the problem of how the results of growth are distributed: free movement of capital led all member states to become tax havens to a certain extent, in an effort to attract deposits from nationals from other member states; the taxation of capital dwindled and was compensated by a tax on labour. This resulted in an imbalance in sharing out the fruits of growth which benefited those owning the capital, to the detriment of the workers. Jacques Delors denounced fiscal competition between member states to attract business and continued his fight after leaving his post in Brussels. He carried out his battle by denouncing this kind of competition as a mortal danger to the common market and by pointing out that competition should be between companies and not between member states.
Some economists have not forgotten the Delors lesson. They believe that either genuine harmonisation is indispensable or at least coordination of taxation on the most mobile factors of production such as capital or the most skilled groups of workers. If a European public loan is decided, it must, in their opinion, be subject to a tax policy framework. This would be the price of solidarity.
2. Possible support for eurozone countries experiencing difficulties. Some countries in the Euro-zone (Greece and Ireland, in particular) are among the member states most hard hit by the financial crisis and are confronting higher interest rates in an effort to fund themselves, even though this involves the single currency. The Community authorities, with the European Commission and the European Central Bank (ECB) at the head of them, have clearly pointed out that they do not believe that these countries are in any danger of meeting their commitments. Both President José Manuel Barroso and Commissioner Joaquin Almunia indicated that if needs be, intervention in the eurozone is possible but they refused to indicate what kind of action or the methods for executing it could be. In a conference, Mr Almunia stated: “You can be sure that there is a solution and you can be sure that it is not very smart to talk about it in public…We have the intellectual, technical and economic resources to tackle a crisis scenario but by definition, this is not something to speak about publicly (EUROPE 9853). The following day, in a reply to a question at the press conference, Mr Barroso said: “We are currently examining the options possible and I believe that we have the instruments to tackle all possible outcomes”. (EUROPE 9854). The banking community and several commentators responded to this and this column will be returning to the matter later.
3. A prime minister against discouragement. One of the participants at the informal summit responded to the general mood of despondency. We may well ask ourselves if certain economic players are exaggerating matters in an effort to grab as much as possible in public subsidies (EUROPE 9854). Belgian prime minister, Herman Van Rompuy, warned against conjuring up any exaggerated disaster scenarios and emphasised that the economic crisis is “amplified by subjective elements such as responses made by economic agents”. Other positions of this nature would also be desirable.
I would like to point out for the record that President Barroso confirmed that the Commission would not be proposing any Euro bonds because most member states were opposed to them and no formal proposal exists in this sense. He also considers that this is not the right time to be discussing possible amendments to the rule requiring two years' prior participation in the European Exchange Mechanism in order to join the euro. This appears to imply that this specific condition might at some stage be modified, whereas the other conditions for joining the eurozone are non-negotiable.
(F.R./transl.rh)