French News Online - Money Section

Unifying the EU Tax System?

The two Finance Ministers pictured
after the historic Franco-German call for a unified tax system

Will Europe Move Toward a Single Tax System
As France and Germany move closer to aligning tax policy how long before the rest of the EU follows suit?

According to Les Echos, emphasising President Nicolas Sarkozy·s call for ·fiscal convergence·, Germany and France have taken the first steps to coordinating their tax policies.In the UK of course, there is long-standing opposition to this grand plan but residents of France, EU citizens and expats alike, should be aware of which way the wind is really blowing.

Recently and for the first time ever, German Finance Minister Wolfgang Schäuble joined a meeting of the French Cabinet and at the end of it, he and his French counterpart Christine Lagarde, issued a joint statement on fiscal integration. Earlier in March 2010 Christine Lagarde had attended a German Council of Ministers meeting for similar exchanges. Their moves follow a call by President Sarkozy for deeper economic integration. He said: "The convergence between our fiscal systems is an essential element in our economic integration and the deepening of the European internal market".

The two countries · effectively the drivers of the EU train · say the next step will be a review of fiscal systems with regard to where tax falls and by how much: in France, social charges account for 42.8% of GDP, against just 39.5% in Germany. The Schäuble/Lagarde joint communiqué says they signed a letter containing proposals to strengthen EU budgetary discipline rules (this refers basically to the 3% cap on budget deficit set out under EU Stability and Growth Pact (SGP) rules and suspended when the US/UK banking crisis sparked a global meltdown two years ago).

Political Sanctions
The ministers seek more political sanctions where there has been ·gross non-compliance· with the SGP deficit cap by any member state. Reactions to the Franco-German move have been muted with the exception of the usual and expected disdain emerging from London.

Jacques Garello director of the French think tank IREF wrote in Le Figaro on 24 July: "Governments in Paris and Berlin have adopted the principle of tax convergence, stressing the beneficial influence this could have on growth in Europe and the health of the euro. It has already been agreed (by EU member states) that tax competition is harmful. A tax war among EU member states would be suicidal, and economic governance of Europe is unthinkable as long as taxes remain a matter of national sovereignty." However IREF, an independent policy research institute, is no uncritical supporter of the move: "While we could well imagine that a fresh convergence could gain acceptance, this, we believe, will be in favour of lower taxes and less government intervention. Competition offers a process of harmonization that is far more effective than any illusory sovereign or European decree. To achieve true convergence, nothing beats tax competition", it writes 11 Aug 2010 on its website..

Adding further fuel to the debate the jointly-run foreign affairs website of the German and French governments — has published a paper entitled “French-German European Economic Government” .

Among other points made it says: “The sustainability of the single currency can only be achieved through greater economic policy coordination. The coordination and monitoring instruments that underpin stability and major economic policy guidelines… should be better articulated while remaining formally separate.”.

A European tax?
Meanwhile and in a related development, debate is underway about raising more money from tax, for Brussels, even though the move has not been well received. Initial reaction to the idea from French minister Pierre Lellouche, secrétaire d’Etat français aux Affaires européennes, was hardly encouraging. He told Agence France Presse news agency: “We think this idea of a European tax is completely inappropriate. Any additional tax at this time, is unwelcome, rather what we all need now is much greater emphasis on savings.” However the Eurocrats are pursuing the idea and Polish commissioner in charge of the EU budget, Janusz Lewandowski, has now suggested an EU levy on the financial sector has the best chance of winning support. This was after France had joined the UK and Germany to oppose mooted plans for creating an EU tax. Mr Lewandowski was shot down after he initially floated the idea in the German press.

Carbon Trading
But according to EUobserver website he told the Polish press agency, PAP, 10 August: “Talking about EU own resources and something with the shape of a European tax is extraordinarily unfashionable. But I see a tendency, that it is possible in terms of public opinion to defend a tax on financial transactions or another form of tax on the financial sector. It would even be popular.” The debate continues on the Robert Schuman Foundation website: acknowledging that no national parliament is willing to accept the principle of a “European tax”, the foundation (created in 1991 as the main French research centre on Europe) suggests that increasing the portion of VAT collected by each member state and contributed to the EU central pot, would probably be the easiest solution. Another might be the raising of EU eco-taxes on polluting vehicles and industries. Here however its carbon trading/greenhouse gas emission tax scheme enters very choppy waters. For not only are greenhouse gas emission taxes controversial but their entire basis has been called into question after the debacle during the winter this year, that suggests the “science” behind global warming is defective, distorted and even unscrupulously manipulated for partisan purposes. (Try James Delingpole’s blog at the UK’s Daily Telegraph for some of the more trenchant sceptical views on global warming, or “climate change” as it was hastily re-baptised: here, here and here).

U.S. is Bankrupt
Related Post: The global financial crisis may no longer be on the front pages of the newspapers but anyone who thinks it has gone away is burying their heads in the sand. The seminal upheaval in the global economy caused by the reprehensible and irresponsible behaviour of Wall Street and City bankers and complicit Washington and London politicians, is a long way from resolution. “The U.S. is bankrupt and we don’t even know it” says Laurence Kotlikoff, professor of economics at Boston University in this oped piece for Bloomberg’s financial wire.

Might it All Collapse?
Related Post: Finally for those whose French is proficient Liberation newspaper’s Jean Quatremer, a law lecurer at Paris X-Nanterre and journalist covering European affairs for the paper, blogs on Coulisses de Bruxelles, UE (Brussels Scenes) about three possible scenarios for the future of Europe in the wake of the global crisis, the Greek tragedy, the controversial EU bailout and the ongoing weakness of the euro. Might it all collapse he asks? Read it here and if your French isn’t quite up to it, well try Google's machine translator for a rough idea.

Story: Ken Pottinger
editorial@french-news-online.com