The Hungarian Government has published its priorities for the Presidency of the European Union – and they have in mind a very political Presidency with a rather ambitious programme for the next six months.
This is the first time Hungary has held the rotating Presidency position since it became an EU member six years ago and Budapest is determined to make it a success. With the help of Spain and Belgium, both of which were Presidency office-holders in 2010, Hungary has put in a lot of planning and preparation for their big break on the European stage.
Hungary is the eager new kid, showing signs of impatience with the lack of any real progress made by the Council over the last 12 months. In the first half of 2010, Spain was distracted by the fall-out of the financial crisis – and tried to run the Presidency from Madrid rather than send civil servants en masse to Brussels. Belgian civil servants didn’t need to leave home for their Presidency during the second half of 2010 but they had no Government in place to report back to. So while it may not have been an annus horribilis for the EU (it has had worse years), 2010 has been a little pedestrian as far as policy achievements are concerned. Without Mr. Herman van Rompuy at the helm, it would have been hopelessly directionless. The dynamic Hungarians hope to change all that.
While Presidencies are required to push the European interest, they inevitably reflect the national priorities of the office-holder. Hungary will be no exception. The priorities reveal a particular emphasis on issues that have pre-occupied them at home in the hope that there will be a European solution where national measures have failed.
Security of energy supply, the environment, and ethnic minorities and immigration are big priorities for Hungary.
Hungary is vulnerable to severe gas supply disruptions and so will use the opportunity of the EU Presidency to score some quick wins on security of supply. Budapest wants the EU to establish a truly common energy market and has scheduled a special Council meeting on energy on 4 February.
The toxic chemical mudslide which emanated from the Ajka resevoir in western Hungary in October and polluted the Danube river affected 5 European countries. The Hungarians see this as a cross-border issue that requires EU leadership and have prioritised progress for an EU Strategy on the Danube as well as a wider EU water policy.
Hungary has been criticised for the treatment of Roma and the country was offended when France sent hundreds of Roma back to Central Europe. The EU Presidency will include new initiatives to ensure better integration of migrants. Similarly, immigration into the EU – and within the EU - is high on the agenda. Hungary promises a better migrant flow management and will want to secure the accession of Romania and Bulgaria to the Schengen system of free movement. Hungary is also strongly in favour of Turkish membership of the EU and this will set it on a collision course again with France and Austria, which are resolutely against the idea of Turkish membership.
The draft Presidency programme has some very lofty ambitions. The priorities of jobs and growth will be the most pressing on the EU agenda. There will be some tough negotiations on the macroeconomic surveillance mechanism and on European economic governance. The Hungarian Presidency will start on the actual implementation of the EU 2020 strategy. They will work on the Single Market Act in the hope of stimulating job creation and growth through new legislation on taxation, counterfeiting and a revision of the Small Business Act. They will also hope to secure a deal on legislation for a common European patent which has dogged the Belgian Presidency. It will be up to the Hungarians also to make a success of the European External Action Service – the EU diplomatic corps - which has suffered teething problems over the last 12 months.
Hungary also wants to salvage something from the wreckage of the Copenhagen summit on climate change last year. The low key Cancun negotiations are flagging and the China-US bilateral talks have squeezed out the EU as a driving force on climate change policy.
Regardless of its grand ambitions, Hungary will have to prove it is a steady pair of hands and that it can be trusted to steer the EU’s 27 member states through some very difficult decisions. The signs are that it will not be so compromising. At a time when views are deeply polarised on the size of the EU budget, the Hungarians seem indifferent to the austerity pressures to EU spending from the UK and Germany. Speaking earlier this week at the London School of Economics the Hungarian Foreign Ministry Janos Martonuyi said, "I don't think it is time to discuss about percentages and figures. First let's discuss policies, let's discuss substance, and thereafter of course we can look into the financial resources and the possible [...] ceilings or caps as far as the financing of individual policies is concerned," He wasn’t speaking on behalf of the Council, of course, but nevertheless, Mr Martonuyi and his government colleagues will soon have to learn the difference between what Hungary can do in its national interest and its role in leading the European interest.
Friday, December 10, 2010
In Defence of Rompuy-Pompuy
It’s been a full year since Herman Van Rompuy started his term as President of the European Council. On 19 November 2009, Van Rompuy was chosen unanimously by the European Council, at an informal meeting in Brussels. He took office on 1st December 2009 – the day the Lisbon Treaty came into force – and his term runs until 31st May 2012. He has spent his first twelve months trying to carve out a distinctive role for himself – not easy when the Commission President Jose Barroso is on his second term - and demonstrates his experience with such a strong command of the EU’s internal affairs. And as he tries to present himself to the world as the EU’s international statesman, he is constrained by the so-called High Representative, Baroness Cathy Ashton, who represents both the Commission and the Council to the world. It is no wonder Mr Rompuy is already being written off as a lame duck President. His task looks impossible.
And yet, despite these limitations and against all the odds, Mr Rompuy is making his mark. The best way to judge his record is to measure his achievements against the expectations of the treaty that created him. The European Parliament will (and does) exploit the opportunities that the Treaty presents to them and the European Commission is pleased with a smoother decision-making system that was promised to them, it is the European Council – representing 27 Member States governments – that needs to prove more than most that the Lisbon Treaty does what it says on the tin; namely create better conditions for inter-governmental co-ordination, traditionally a weak-spot under the 6 month rotating presidency system. If Mr Van Rompuy can co-ordinate the Council and reconcile the national interests of 27 different governments, then he will have done not just what the Treaty requires him to do, but also prove to us that the Treaty can get the EU motoring again, particularly at a time of financial crisis and a mounting pressure of protectionism.
On Mr van Rompuy’s elevation, he was ridiculed in the British press as a non-entity. While some had been expecting a figure with an established international status, like Tony Blair – some-one who could stop the traffic; Mr Rompuy, they said would find it difficult to hail a cab. UKIP MEP Nigel Farage MEP caused a storm when he told Mr Rompuy that he had “all the charisma of a damp rag and the appearance of a low-grade bank clerk". The Sun newspaper simply called him Rompuy Pompuy.
The tensions between the two European Presidents are often clear enough. In most cases, the territory that has been carved out between them, is unambiguous. The Council President represents the EU abroad in foreign policy and security matters. The Commission President takes the lead role in climate change. But on energy policy, which is both a security and commission policy area, they have to agree between them who will take the floor. Both Mr Van Rompuy and Mr Barroso were present at the G8 and G20 meetings.
The Lisbon treaty was supposed to have resolved the old question of Henry Kissinger's – “when I want to phone the EU, whom do I call?” The answer wasn’t clear to President Obama as he stood between Mr Van Rompuy and Mr Barroso for the official photo-call at the EU-US Summit in Lisbon on 21st November. But the EU is (for good reason) complex and it would be disingenuous to pretend that it can be led by one person alone.
To even try and answer Mr Kissinger’s question is to ignore the dynamics between the EU institutions. These dynamics have changed a lot in the 12 months, post-Lisbon. The Council’s position vis-à-vis the Commission is stronger but it still relies heavily on the Commission. Mr van Rompuy led a task-force to propose ways of strengthening economic governance for Eurozone members – something that the Commission would normally feel responsible for. The Commission, in response pressed ahead with its own proposals, because it feared that the Council’s measures would be half-hearted. In reality, Mr Rompuy knew he would need to rely on the Commission to initiate new legislation. While this caused some friction between the two institutions, it served to demonstrate that the Council is willing to be pro-active when it needs to be. It did so again last month when the Commission was told to go back to the drawing board over its budget plans. The Council, led by Mr Van Rompuy, made it clear who was running the show.
It has taken President Barroso some time to adjust to the new power-sharing arrangements but he is now thinking more creatively about how he could work with Mr Rompuy to get what he wants from member state leaders. He also needs Mr Rompuy to help him deal with a European Parliament which has become much more strident and demanding after being bestowed with a wider scope of competences under the Lisbon Treaty. MEPs are becoming frustrated with an increasingly cautious Commission. As long as this directs their fire towards President Barosso, then President Van Rompuy is safe.
The Lisbon Treaty has changed the power landscape of the EU in just the last twelve months – and it is to Mr Van Rompuy’s credit that he has not become a victim of it. Instead, he has put the Council back in the game – at a time when neither Germany nor France are providing any effective leadership to the EU. And while he may have ruffled some feathers over at the Commission, he is credited for the way he has deftly handled any inter-institutional fall-outs. MEPs admire the way he has insisted on taking the European interest; something that had been missing at the Council which had normally followed the national interests of its most powerful members. Of course, Mr Van Rompuy has not been perfect. His low profile does not nearly match the importance of his position and he can do more to show he is a safe pair of hands (for instance, instead of adding to the sense of alarm and despair of the Euro-crisis by saying that the entire EU will disintegrate if the Euro fails, he should have kept a cool head and looked beyond the short term troubles). He is after all, supposed to provide the EU with a long term perspective – an important part of the equation when member state governments will always have an eye on the next election. The Lisbon Treaty’s objective for the President of the European Council was for some-one to provide strategy and stability. He needs still to demonstrate he can fulfill these goals. But the Lisbon Treaty is already proving to be the life-line that the EU needed. And President van Rompuy can certainly take some well-earned credit for that.
And yet, despite these limitations and against all the odds, Mr Rompuy is making his mark. The best way to judge his record is to measure his achievements against the expectations of the treaty that created him. The European Parliament will (and does) exploit the opportunities that the Treaty presents to them and the European Commission is pleased with a smoother decision-making system that was promised to them, it is the European Council – representing 27 Member States governments – that needs to prove more than most that the Lisbon Treaty does what it says on the tin; namely create better conditions for inter-governmental co-ordination, traditionally a weak-spot under the 6 month rotating presidency system. If Mr Van Rompuy can co-ordinate the Council and reconcile the national interests of 27 different governments, then he will have done not just what the Treaty requires him to do, but also prove to us that the Treaty can get the EU motoring again, particularly at a time of financial crisis and a mounting pressure of protectionism.
On Mr van Rompuy’s elevation, he was ridiculed in the British press as a non-entity. While some had been expecting a figure with an established international status, like Tony Blair – some-one who could stop the traffic; Mr Rompuy, they said would find it difficult to hail a cab. UKIP MEP Nigel Farage MEP caused a storm when he told Mr Rompuy that he had “all the charisma of a damp rag and the appearance of a low-grade bank clerk". The Sun newspaper simply called him Rompuy Pompuy.
The tensions between the two European Presidents are often clear enough. In most cases, the territory that has been carved out between them, is unambiguous. The Council President represents the EU abroad in foreign policy and security matters. The Commission President takes the lead role in climate change. But on energy policy, which is both a security and commission policy area, they have to agree between them who will take the floor. Both Mr Van Rompuy and Mr Barroso were present at the G8 and G20 meetings.
The Lisbon treaty was supposed to have resolved the old question of Henry Kissinger's – “when I want to phone the EU, whom do I call?” The answer wasn’t clear to President Obama as he stood between Mr Van Rompuy and Mr Barroso for the official photo-call at the EU-US Summit in Lisbon on 21st November. But the EU is (for good reason) complex and it would be disingenuous to pretend that it can be led by one person alone.
To even try and answer Mr Kissinger’s question is to ignore the dynamics between the EU institutions. These dynamics have changed a lot in the 12 months, post-Lisbon. The Council’s position vis-à-vis the Commission is stronger but it still relies heavily on the Commission. Mr van Rompuy led a task-force to propose ways of strengthening economic governance for Eurozone members – something that the Commission would normally feel responsible for. The Commission, in response pressed ahead with its own proposals, because it feared that the Council’s measures would be half-hearted. In reality, Mr Rompuy knew he would need to rely on the Commission to initiate new legislation. While this caused some friction between the two institutions, it served to demonstrate that the Council is willing to be pro-active when it needs to be. It did so again last month when the Commission was told to go back to the drawing board over its budget plans. The Council, led by Mr Van Rompuy, made it clear who was running the show.
It has taken President Barroso some time to adjust to the new power-sharing arrangements but he is now thinking more creatively about how he could work with Mr Rompuy to get what he wants from member state leaders. He also needs Mr Rompuy to help him deal with a European Parliament which has become much more strident and demanding after being bestowed with a wider scope of competences under the Lisbon Treaty. MEPs are becoming frustrated with an increasingly cautious Commission. As long as this directs their fire towards President Barosso, then President Van Rompuy is safe.
The Lisbon Treaty has changed the power landscape of the EU in just the last twelve months – and it is to Mr Van Rompuy’s credit that he has not become a victim of it. Instead, he has put the Council back in the game – at a time when neither Germany nor France are providing any effective leadership to the EU. And while he may have ruffled some feathers over at the Commission, he is credited for the way he has deftly handled any inter-institutional fall-outs. MEPs admire the way he has insisted on taking the European interest; something that had been missing at the Council which had normally followed the national interests of its most powerful members. Of course, Mr Van Rompuy has not been perfect. His low profile does not nearly match the importance of his position and he can do more to show he is a safe pair of hands (for instance, instead of adding to the sense of alarm and despair of the Euro-crisis by saying that the entire EU will disintegrate if the Euro fails, he should have kept a cool head and looked beyond the short term troubles). He is after all, supposed to provide the EU with a long term perspective – an important part of the equation when member state governments will always have an eye on the next election. The Lisbon Treaty’s objective for the President of the European Council was for some-one to provide strategy and stability. He needs still to demonstrate he can fulfill these goals. But the Lisbon Treaty is already proving to be the life-line that the EU needed. And President van Rompuy can certainly take some well-earned credit for that.
Friday, November 26, 2010
The Euro: Why we are all in it together
The European bail-out package for the Irish economy this week seems to have failed in its ultimate objective of containing the threat to the Euro. The buzz-word in Brussels is “contagion” and some serious commentators believe that a full-blown currency crisis is now unavoidable as the markets, having done their worst to Greece and Ireland, now turn on Portugal, Belgium and even Spain. Such widespread contagion in the Eurozone could make the single currency unsustainable and the Euro, as we know it, would not survive another two years.
The unthinkable could still happen. The Euro could disintegrate under the relentless pressure of the markets – its weaknesses now so ruthlessly exposed. However, Germany will not allow it – and so long as Germany will shore up the single currency, the Euro will survive.
And yet, Germany has some responsibility for the latest contagion threat. Chancellor Angela Merkel insisted on a permanent crisis mechanism that included provisions for an “adequate participation of private creditors” - meaning future rescue packages might involve a write-down of existing debt – increasing the risk for private bond investors.
This only served to spook the markets, leading to increased borrowing costs for weaker Euro-zone markets. The German government faces increasing pressure to drop the idea and instead extend the European Financial Stability Facility (EFSF) beyond 2013. A permanent rescue and resolution mechanism would provide stability and good governance for the Eurozone.
The Achilles heel of the Euro has been the “no bail-out” clause of the Eurozone’s stability and growth pact – something that the German Finance Minister, Wolfgang Schäuble acknowledged in a speech in Berlin on 5th November. He said that Europeans could not see how far financial integration would go when the no bail-out clause was signed. UK Chancellor, George Osborne’s decision to a bilateral loan to Ireland demonstrated the extent of the exposure of UK banks to the Irish economy. So, the UK – a non-Eurozone country – is as financially integrated to Euro-zone economies as Eurozone countries are to each other. Euro or no Euro, financial integration is now so advanced that contagion is a threat to weak markets in or out-with the single currency area. As David Cameron is fond of saying in these difficult times, we are all in this together.
While it is true to say that Ireland has been constrained by the Euro and the European Central Bank in how it can adjust to worsening economic conditions, it was never the Euro that brought the country to its knees. The mistakes Ireland made were the same as those that ruined Iceland which like the UK is not a member of the Eurozone.
While the reasons for Ireland’s problems differ from Greece, another Eurozone member – the former was guilty of stoking a housing boom and the latter of profligacy and unsustainable indebtedness - they are both guilty of being irresponsible Eurozone members. Germany will want to ensure that Ireland and Greece change their ways. Greece is already winning praise for the way it is introducing new austerity measures. However, Ireland’s budget could go out of the window if – or rather once – a new Government is elected in January.
Reports of the Euro’s death are somewhat premature. The forecast for growth in the Eurozone is higher than it is for non-Euro countries like the UK. It is also worth keeping in mind, the reason for why weaker economies are struggling so much is because the Euro is so strong – and they can’t devalue to become more competitive internationally. Last week, I raised the prospect of a common corporate tax as a consequence of the EU bail-out of the Irish economy. For some, this was a little far fetched – but no more far fetched, I would argue than a complete disintegration of the single currency. The truth is the Euro needs closer economic governance if it is to survive in its current form. If Germany succeeds in putting in place a rescue mechanism, the Euro will survive; if there is closer co-ordination of national economies, the Euro will prosper. As they say; what doesn’t kill you, makes you stronger.
The unthinkable could still happen. The Euro could disintegrate under the relentless pressure of the markets – its weaknesses now so ruthlessly exposed. However, Germany will not allow it – and so long as Germany will shore up the single currency, the Euro will survive.
And yet, Germany has some responsibility for the latest contagion threat. Chancellor Angela Merkel insisted on a permanent crisis mechanism that included provisions for an “adequate participation of private creditors” - meaning future rescue packages might involve a write-down of existing debt – increasing the risk for private bond investors.
This only served to spook the markets, leading to increased borrowing costs for weaker Euro-zone markets. The German government faces increasing pressure to drop the idea and instead extend the European Financial Stability Facility (EFSF) beyond 2013. A permanent rescue and resolution mechanism would provide stability and good governance for the Eurozone.
The Achilles heel of the Euro has been the “no bail-out” clause of the Eurozone’s stability and growth pact – something that the German Finance Minister, Wolfgang Schäuble acknowledged in a speech in Berlin on 5th November. He said that Europeans could not see how far financial integration would go when the no bail-out clause was signed. UK Chancellor, George Osborne’s decision to a bilateral loan to Ireland demonstrated the extent of the exposure of UK banks to the Irish economy. So, the UK – a non-Eurozone country – is as financially integrated to Euro-zone economies as Eurozone countries are to each other. Euro or no Euro, financial integration is now so advanced that contagion is a threat to weak markets in or out-with the single currency area. As David Cameron is fond of saying in these difficult times, we are all in this together.
While it is true to say that Ireland has been constrained by the Euro and the European Central Bank in how it can adjust to worsening economic conditions, it was never the Euro that brought the country to its knees. The mistakes Ireland made were the same as those that ruined Iceland which like the UK is not a member of the Eurozone.
While the reasons for Ireland’s problems differ from Greece, another Eurozone member – the former was guilty of stoking a housing boom and the latter of profligacy and unsustainable indebtedness - they are both guilty of being irresponsible Eurozone members. Germany will want to ensure that Ireland and Greece change their ways. Greece is already winning praise for the way it is introducing new austerity measures. However, Ireland’s budget could go out of the window if – or rather once – a new Government is elected in January.
Reports of the Euro’s death are somewhat premature. The forecast for growth in the Eurozone is higher than it is for non-Euro countries like the UK. It is also worth keeping in mind, the reason for why weaker economies are struggling so much is because the Euro is so strong – and they can’t devalue to become more competitive internationally. Last week, I raised the prospect of a common corporate tax as a consequence of the EU bail-out of the Irish economy. For some, this was a little far fetched – but no more far fetched, I would argue than a complete disintegration of the single currency. The truth is the Euro needs closer economic governance if it is to survive in its current form. If Germany succeeds in putting in place a rescue mechanism, the Euro will survive; if there is closer co-ordination of national economies, the Euro will prosper. As they say; what doesn’t kill you, makes you stronger.
Friday, November 19, 2010
How the Irish Bail-out could mean an EU Business Tax
Ireland this week finally accepted the offer of an EU bail-out to halt a contagion spreading across the Euro-zone like wild-fire. Spain and Portugal are also vulnerable to a knock on the door from the man at the IMF and all the stops are being pulled to prevent them going the same way as Ireland and Greece. But the crisis does not begin and end with the PIGS (Portugal, Ireland, Greece and Spain). The banking crisis threatens to engulf the entire Eurozone to the point where it could wipe out the ten year old currency.
This is a crisis that is too good to waste. For Europhiles, the bail-outs present a unique opportunity for an unprecedented fiscal convergence and closer co-ordination of tax rates between Member States – the holy grail of the more ardent euro-federalists.
EU Commission officials joined the IMF and the European Central Bank in a fact-finding trip to Ireland this week to work out just how much Ireland needs to borrow to bail out its banks and perhaps even service the public debt which severe austerity measures have failed to correct. The final figure could be around €90bn.
The Irish Government is expected to announce further austerity measures of around €15bn next week and a 2011 austerity budget will be put to the Dail on 7th December. However, the cuts will not be enough to restore confidence. Germany is putting pressure on the Irish to raise its corporation tax, which at 12.5% is much lower than many other EU economies.
For Ireland it is too heavy a price to pay for a bail-out that they have only accepted with great reluctance.
Elmar Brok, a senior CDU Member of the European Parliament told a party congress in Karlsruhe; "Ireland has two options to consolidate its budget – cut expenses even further or increase taxes like the corporate tax rate,"
This is not the helpful budgetary advice it seems. Mr Brok’s concern is not really about how best the Irish Government can raise its income. He, like his political colleagues in Berlin, have long been concerned about the effect that the low rates of corporation tax in Ireland has had on the German economy. Germany has seen companies re-locate to Ireland thanks to highly competitive tax rates.
It is not just Germany that has seen an opportunity to attack Ireland’s corporation tax – but the UK too.
Britain is poised to help in the bail-outs – either bilaterally, or as part of a European mechanism. British banks reportedly have around $150 billion of exposure to Irish debt.
But the UK too has been a victim of the low rates of Irish corporation tax – and would welcome an increase being part of a European bail-out deal.
For its part, Ireland says the corporation tax rate is non-negotiable; not least because it offers the country its best chance to grow its way out of the crisis. The Irish European Minister Dick Roche bluntly told reporters that "it (corporation tax rates) is certainly not up for negotiation.”
This is hyperbole. It is, of course, up for negotiation. The austerity measures have stalled growth in the economy and the Irish need to look at where they can increase tax receipts. Moreover, the EU member states that have lost out to the advantage that Ireland had in attracting corporations to its shores, will insist on it.
Tax competition has been a sacred cow for EU member states. As member states have increasingly harmonised standards to ensure a level playing field in the single market, tax was the only area left where they could really compete with each-other. Outside of Value Added Tax, where minimum levels and exemptions are agreed at EU level, the European Union has very limited competences for tax policy.
This could all change. Although it may seem far-fetched to assume that the financial crisis could lead to a common corporation tax – particularly since it would require unanimity among all Member States, the terms of debate have changed since the bank bail outs. Low corporation taxes are increasingly seen as an unfair advantage -when each Member State’s economy is so intrinsically linked with each-other and fiscal transfers across the Eurozone are seen as a natural response to asymmetric shocks to the Euro. So rather than more protectionism and the disintegration of the Euro, could the banking bail-outs, in fact result in an EU tax policy that sets common rates for all business operating in the single market?
This is a crisis that is too good to waste. For Europhiles, the bail-outs present a unique opportunity for an unprecedented fiscal convergence and closer co-ordination of tax rates between Member States – the holy grail of the more ardent euro-federalists.
EU Commission officials joined the IMF and the European Central Bank in a fact-finding trip to Ireland this week to work out just how much Ireland needs to borrow to bail out its banks and perhaps even service the public debt which severe austerity measures have failed to correct. The final figure could be around €90bn.
The Irish Government is expected to announce further austerity measures of around €15bn next week and a 2011 austerity budget will be put to the Dail on 7th December. However, the cuts will not be enough to restore confidence. Germany is putting pressure on the Irish to raise its corporation tax, which at 12.5% is much lower than many other EU economies.
For Ireland it is too heavy a price to pay for a bail-out that they have only accepted with great reluctance.
Elmar Brok, a senior CDU Member of the European Parliament told a party congress in Karlsruhe; "Ireland has two options to consolidate its budget – cut expenses even further or increase taxes like the corporate tax rate,"
This is not the helpful budgetary advice it seems. Mr Brok’s concern is not really about how best the Irish Government can raise its income. He, like his political colleagues in Berlin, have long been concerned about the effect that the low rates of corporation tax in Ireland has had on the German economy. Germany has seen companies re-locate to Ireland thanks to highly competitive tax rates.
It is not just Germany that has seen an opportunity to attack Ireland’s corporation tax – but the UK too.
Britain is poised to help in the bail-outs – either bilaterally, or as part of a European mechanism. British banks reportedly have around $150 billion of exposure to Irish debt.
But the UK too has been a victim of the low rates of Irish corporation tax – and would welcome an increase being part of a European bail-out deal.
For its part, Ireland says the corporation tax rate is non-negotiable; not least because it offers the country its best chance to grow its way out of the crisis. The Irish European Minister Dick Roche bluntly told reporters that "it (corporation tax rates) is certainly not up for negotiation.”
This is hyperbole. It is, of course, up for negotiation. The austerity measures have stalled growth in the economy and the Irish need to look at where they can increase tax receipts. Moreover, the EU member states that have lost out to the advantage that Ireland had in attracting corporations to its shores, will insist on it.
Tax competition has been a sacred cow for EU member states. As member states have increasingly harmonised standards to ensure a level playing field in the single market, tax was the only area left where they could really compete with each-other. Outside of Value Added Tax, where minimum levels and exemptions are agreed at EU level, the European Union has very limited competences for tax policy.
This could all change. Although it may seem far-fetched to assume that the financial crisis could lead to a common corporation tax – particularly since it would require unanimity among all Member States, the terms of debate have changed since the bank bail outs. Low corporation taxes are increasingly seen as an unfair advantage -when each Member State’s economy is so intrinsically linked with each-other and fiscal transfers across the Eurozone are seen as a natural response to asymmetric shocks to the Euro. So rather than more protectionism and the disintegration of the Euro, could the banking bail-outs, in fact result in an EU tax policy that sets common rates for all business operating in the single market?
Friday, November 12, 2010
Row over Euro Bailout Scheme could lead to a Treaty Referendum
Could we get our referendum on the Lisbon Treaty after all? After nine bad-tempered years in the making – and the many contortions of the major political parties to avoid any chance of a referendum, there is again a real prospect of the Treaty being subjected to a popular vote.
And it is not the work of the British Conservatives that has re-opened the debate - but the Germans.
German Chancellor Angela Merkel is determined to make changes to the Lisbon Treaty to factor in a permanent mechanism that would bail out Eurozone countries in trouble - even if it means galvanising the anti-Lisbon lobby into one last push for a referendum.
It’s still not clear whether adding a permanent mechanism to the Treaty would require ratification from each of the 27 Member States. The Commission is hoping that it can be adopted by a “simplified” procedure (invoking Article 48 of the Lisbon Treaty). This procedure allows for the adoption of minor surgical changes.
It is not an option, either, to go ahead with a bailout mechanism without any treaty change at all. Germany has insisted that any bailout mechanism be enshrined into the Treaty - otherwise it would be contested by Germany’s Constitutional Court.
A report from the think tank Bruegel published this week (9 November) says that any mechanism for financial stability will require a broad revision of the EU treaties.
It was at Deauville, before the October Council where Merkel persuaded the French President Nicolas Sarkozy to support her plans for establishing a permanent fund after Germany was exposed to a hefty 100 billion Euros contribution to the Greek bailout.
A permanent rescue mechanism would be activated in a possible future Greece-type scenario, where “the stability of the euro as a whole is under threat”.
Notwithstanding any prospects of Treaty referendums, the whole initiative is at risk from the markets which have so far reacted negatively.
Bond-holders are being asked to bear a greater risk and cost in case of a bailout in order to protect the taxpayer. This in turn would, as the President of the European Central Bank Jean-Claude Trichet fears, drive up borrowing costs for the most indebted countries. Ireland is at risk of going the way of Greece after news this week that its borrowing costs are being ramped up. Nevertheless, Merkel is adamant that the risk does not fall on the taxpayer.
Frau Merkel also wants to introduce tougher sanctions to deter more feckless members of the Eurozone from running large deficits in the first place. This would either be a loss of voting rights or of EU funding.
This did not go down well in Bulgaria the EU’s poorest country. Prime Minsiter Borissov said; "I would support [the proposals], but let's first discuss the mechanism. Imagine that you have a 3.5% or 4% deficit, and the sanctions include freezing of EU funding. The country would not solve its deficit problem: it would sink even deeper"
The new rules would the UK which has opted out of the EU, but the UK would nevertheless support Germany’s attempts to bring greater rigour to Eurozone deficit control.
The next Head of State summit will take place on December 16-17 where it is expected there will be some form of agreement on the whether the Treaty needs to be changed and whether it would need to be ratified again. The Commission on the other hand will deliver its own proposals on new EU budget rules amending the Eurozone’s original Stability and Growth Pact in December.
Berlin believes that all 27 member states, including the UK – and not just the Eurozone countries should be subjected to the new budget deficit regime to give the single market as a whole the stability it needs. Paris, on the other-hand is reluctant for the Eurozone countries to take decisions that would affect all 27 member states.
The bail-out debate has opened a whole pandora’s box of contentious issues and the EU will have to tread carefully if it is to avoid creating a split in the Eurozone between the deficit sinners and the deficit saints. And it is the cohesion of the whole of the European Union – and not just the Eurozone – that is at stake. If the bailout mechanism does trigger a treaty change and even a referendum, the Euro-sceptics will have their chance to strike.
And it is not the work of the British Conservatives that has re-opened the debate - but the Germans.
German Chancellor Angela Merkel is determined to make changes to the Lisbon Treaty to factor in a permanent mechanism that would bail out Eurozone countries in trouble - even if it means galvanising the anti-Lisbon lobby into one last push for a referendum.
It’s still not clear whether adding a permanent mechanism to the Treaty would require ratification from each of the 27 Member States. The Commission is hoping that it can be adopted by a “simplified” procedure (invoking Article 48 of the Lisbon Treaty). This procedure allows for the adoption of minor surgical changes.
It is not an option, either, to go ahead with a bailout mechanism without any treaty change at all. Germany has insisted that any bailout mechanism be enshrined into the Treaty - otherwise it would be contested by Germany’s Constitutional Court.
A report from the think tank Bruegel published this week (9 November) says that any mechanism for financial stability will require a broad revision of the EU treaties.
It was at Deauville, before the October Council where Merkel persuaded the French President Nicolas Sarkozy to support her plans for establishing a permanent fund after Germany was exposed to a hefty 100 billion Euros contribution to the Greek bailout.
A permanent rescue mechanism would be activated in a possible future Greece-type scenario, where “the stability of the euro as a whole is under threat”.
Notwithstanding any prospects of Treaty referendums, the whole initiative is at risk from the markets which have so far reacted negatively.
Bond-holders are being asked to bear a greater risk and cost in case of a bailout in order to protect the taxpayer. This in turn would, as the President of the European Central Bank Jean-Claude Trichet fears, drive up borrowing costs for the most indebted countries. Ireland is at risk of going the way of Greece after news this week that its borrowing costs are being ramped up. Nevertheless, Merkel is adamant that the risk does not fall on the taxpayer.
Frau Merkel also wants to introduce tougher sanctions to deter more feckless members of the Eurozone from running large deficits in the first place. This would either be a loss of voting rights or of EU funding.
This did not go down well in Bulgaria the EU’s poorest country. Prime Minsiter Borissov said; "I would support [the proposals], but let's first discuss the mechanism. Imagine that you have a 3.5% or 4% deficit, and the sanctions include freezing of EU funding. The country would not solve its deficit problem: it would sink even deeper"
The new rules would the UK which has opted out of the EU, but the UK would nevertheless support Germany’s attempts to bring greater rigour to Eurozone deficit control.
The next Head of State summit will take place on December 16-17 where it is expected there will be some form of agreement on the whether the Treaty needs to be changed and whether it would need to be ratified again. The Commission on the other hand will deliver its own proposals on new EU budget rules amending the Eurozone’s original Stability and Growth Pact in December.
Berlin believes that all 27 member states, including the UK – and not just the Eurozone countries should be subjected to the new budget deficit regime to give the single market as a whole the stability it needs. Paris, on the other-hand is reluctant for the Eurozone countries to take decisions that would affect all 27 member states.
The bail-out debate has opened a whole pandora’s box of contentious issues and the EU will have to tread carefully if it is to avoid creating a split in the Eurozone between the deficit sinners and the deficit saints. And it is the cohesion of the whole of the European Union – and not just the Eurozone – that is at stake. If the bailout mechanism does trigger a treaty change and even a referendum, the Euro-sceptics will have their chance to strike.
Thursday, November 11, 2010
Barnier's Single Market Act - A Defining Moment for the EU?
Listening to Michel Barnier, the Commissioner for the Internal Market at the European Parliament yesterday, got me thinking. Are we about to witness the start of a new phase in the growth of the single market?
The ambition is big enough. The Commissioner spoke of the proposed Single Market Act as a motor for deeper and closer integration, sweeping away the structural barriers that have frustrated the development of the internal market over the ways. The new Act would re-launch the single market, he said. It would be our best hope for growth – adding 4% to the EU’s GDP annually. It would bring about a realization of a genuine single market in transport and energy, both important growth areas, if they weren’t being hamstrung by national protectionism.
I have no doubt he is right to conclude that market integration will help the economy grow – and help Europe become more competitive globally. But the Vision Thing will require a lot of vested interests being tackled and a lot of sacred cows being slaughtered. For instance, a key component of the Single Market Act is tax co-ordination – sensitive at the best of times. Some Member States, understandably, believe that tax differentials can give them a fair competitive edge against European trading partners – and that it doesn’t stop them from being good members of the internal market.
The Single Market Act could prove to be one of the big landmark events in EU history. But looking at the evidence so far, I’m not so convinced. I’ve seen the Services Directive, which was launched by the Commission to a great fanfare, fizzle and become a shadow of the revolutionary turning point in the single market it was meant to be. Besides the Commission’s workplan for single market measures in 2011 looks particularly lacklustre – a bit more so-called Smart Regulation measures, some new initiatives on debt recovery, a common consolidated corporate tax base, an airports package and maybe something on VAT. Despite the big talk, the Commission is still quite hesitant.
There are nevertheless some big plans for a digital single market which the Belgian minister for Economy and Reform, Mr Vincent van Quickenborne emphasized at the same event in the European Parliament yesterday.
Michel Barnier’s speech on the Single Market Act is not quite up there with Paul Henri Spaak’s address to the European Parliament in June 1961 and the Single Market Act cannot match the defining moments of Jacques Delors’ “Completing the Single Market” White Paper 25 years ago. But perhaps it can be comparable to the 1997 Single Market Action Plan – a programme of objectives to give a boost to a flagging ideal. Of course, it all depends on political will and political leadership. Delors, Mitterand and Kohl – and yes even, Lord Cochfield and Mrs Thatcher, could offer the leadership required in 1985. Tony Blair and Gerhardt Schroeder led the way in 1997; who can give the single market the leadership it needs if it is to go to the next level?
The ambition is big enough. The Commissioner spoke of the proposed Single Market Act as a motor for deeper and closer integration, sweeping away the structural barriers that have frustrated the development of the internal market over the ways. The new Act would re-launch the single market, he said. It would be our best hope for growth – adding 4% to the EU’s GDP annually. It would bring about a realization of a genuine single market in transport and energy, both important growth areas, if they weren’t being hamstrung by national protectionism.
I have no doubt he is right to conclude that market integration will help the economy grow – and help Europe become more competitive globally. But the Vision Thing will require a lot of vested interests being tackled and a lot of sacred cows being slaughtered. For instance, a key component of the Single Market Act is tax co-ordination – sensitive at the best of times. Some Member States, understandably, believe that tax differentials can give them a fair competitive edge against European trading partners – and that it doesn’t stop them from being good members of the internal market.
The Single Market Act could prove to be one of the big landmark events in EU history. But looking at the evidence so far, I’m not so convinced. I’ve seen the Services Directive, which was launched by the Commission to a great fanfare, fizzle and become a shadow of the revolutionary turning point in the single market it was meant to be. Besides the Commission’s workplan for single market measures in 2011 looks particularly lacklustre – a bit more so-called Smart Regulation measures, some new initiatives on debt recovery, a common consolidated corporate tax base, an airports package and maybe something on VAT. Despite the big talk, the Commission is still quite hesitant.
There are nevertheless some big plans for a digital single market which the Belgian minister for Economy and Reform, Mr Vincent van Quickenborne emphasized at the same event in the European Parliament yesterday.
Michel Barnier’s speech on the Single Market Act is not quite up there with Paul Henri Spaak’s address to the European Parliament in June 1961 and the Single Market Act cannot match the defining moments of Jacques Delors’ “Completing the Single Market” White Paper 25 years ago. But perhaps it can be comparable to the 1997 Single Market Action Plan – a programme of objectives to give a boost to a flagging ideal. Of course, it all depends on political will and political leadership. Delors, Mitterand and Kohl – and yes even, Lord Cochfield and Mrs Thatcher, could offer the leadership required in 1985. Tony Blair and Gerhardt Schroeder led the way in 1997; who can give the single market the leadership it needs if it is to go to the next level?
Monday, November 8, 2010
French-British Defence Deal could provide a breakthrough for
“Sovereignty is not isolationism”; so said French President Sarkozy when he signed a historic agreement with UK Prime Minister on defence co-operation.
The deal between the UK and France aims for quite some far-reaching measures that will pool the defence capabilities of both countries for the next 50 years.
David Cameron was keen also to assure the media that the UK would not be restricted in making strategic defence decisions by pooling resources and capabilities with the French.
Does this new entente cordiale mark a step towards a deeper EU defence policy, or does it in fact create a pragmatic alternative that would in reality preclude any closer EU-level co-operation?
Britain and France are the two largest military spenders in the EU and therefore form the essential pillars of any EU defence ambitions. The two governments account for almost half of all military spending in the EU. However, both have a very different approach to EU defence policy. France, only recently a full member of NATO, have traditionally been enthusiastic about an EU role in defence; the UK have been careful to pick and choose areas for more EU co-operation, preferring to develop a leading role for itself in NATO.
When US Secretary of State, Hilary Clinton came to Brussels last month, she implied that impending cuts to the UK defence budget would only undermine the usefulness of the UK within NATO – and as a military ally of the US. The UK Government, nevertheless, pressed on with stringent cuts to its defence budget.
The Strategic Defence and Security Review (SDSR), which the UK Government issued on 19th October, foresees significant cuts in military capabilities with 8 percent cuts to the defence budget over the next four years
The budget cuts are the main reason for the UK’s decision to enter a pragmatic bilateral relationship with France.
The UK-France deal includes the creation of a joint expedition force, the shared use of aircraft carriers as well as cooperation for the maintenance and spare parts of strategic airlift capabilities. What has been deemed as ‘modest’ combined efforts on the safety and effectiveness of both countries’ nuclear weapons are also part of the deal.
An emergency deployment force will have 5000 service-men and women from each country, with land, sea and air components and with commanders rotating between UK and France.
Some of this makes good practical sense for both parties –. The UK won’t have its second carrier until 2020 but once it does, the French can use it as an alternative to the unreliable “Charles de Gaulle”.
The extent of nuclear cooperation established by the deal underscores the will to retain absolutely independent nuclear capabilities, maintaining mutual secrecy of the strength of the French ‘force de frappe’ vs. the British submarine ballistic missile force.
However, Strategic airlift continues to be a problem for Europe which it is only now dealing with the new Airbus A400M, already late in schedule, set to be delivered only in 2012
A recent centre for European reform paper says that “London must invest the same political energy it has devoted to France towards exploring additional savings with other European countries.
Certainly the SDSR, has opened the possibility of closer defence co-operation with Germany, Italy, the Netherlands and Spain.
The SDSR says that the EU has a role to play in “promoting security and prosperity”.
That the SDSR does not see bilateral co-operation on defence operations and capabilities as an alternative to a fully-formed EU defence policy is striking – not least because its principal author is Defence Secretary, Liam Fox, an ardent Euro-sceptic who was, in opposition, keen to seethe UK withdraw from the European Defence Agency and openly opposed a stronger foreign policy that would result from the Lisbon Treaty.
That does not mean the UK Government has not been critical where it believes European military operations have failed. The EU mission in support of security sector reform in Guinea-Bissau and the military training mission for Somali security forces has raised eyebrows in the Foreign Office. But the UK wants to keep the EU’s military deployment in Bosnia-Herzegovina
Notwithstanding some highly effective EU military programmes, EU defence policy has been stagnant, on the whole, since the Iraq war. The success of the France-UK deal could provide the EU with an impetus to further develop EU co-operation on defence and security. The so-called Common Security and Defence Policy still falls short of any workable EU-wide decision-making capacity.
However, that is to assume the France-UK deal will work in practice. In 1998, both countries signed the St Malo defence accord which was within the NATO framework. Just five years later, it was forgotten as France became the UK’s biggest critic for going to war with Iraq.
The deal between the UK and France aims for quite some far-reaching measures that will pool the defence capabilities of both countries for the next 50 years.
David Cameron was keen also to assure the media that the UK would not be restricted in making strategic defence decisions by pooling resources and capabilities with the French.
Does this new entente cordiale mark a step towards a deeper EU defence policy, or does it in fact create a pragmatic alternative that would in reality preclude any closer EU-level co-operation?
Britain and France are the two largest military spenders in the EU and therefore form the essential pillars of any EU defence ambitions. The two governments account for almost half of all military spending in the EU. However, both have a very different approach to EU defence policy. France, only recently a full member of NATO, have traditionally been enthusiastic about an EU role in defence; the UK have been careful to pick and choose areas for more EU co-operation, preferring to develop a leading role for itself in NATO.
When US Secretary of State, Hilary Clinton came to Brussels last month, she implied that impending cuts to the UK defence budget would only undermine the usefulness of the UK within NATO – and as a military ally of the US. The UK Government, nevertheless, pressed on with stringent cuts to its defence budget.
The Strategic Defence and Security Review (SDSR), which the UK Government issued on 19th October, foresees significant cuts in military capabilities with 8 percent cuts to the defence budget over the next four years
The budget cuts are the main reason for the UK’s decision to enter a pragmatic bilateral relationship with France.
The UK-France deal includes the creation of a joint expedition force, the shared use of aircraft carriers as well as cooperation for the maintenance and spare parts of strategic airlift capabilities. What has been deemed as ‘modest’ combined efforts on the safety and effectiveness of both countries’ nuclear weapons are also part of the deal.
An emergency deployment force will have 5000 service-men and women from each country, with land, sea and air components and with commanders rotating between UK and France.
Some of this makes good practical sense for both parties –. The UK won’t have its second carrier until 2020 but once it does, the French can use it as an alternative to the unreliable “Charles de Gaulle”.
The extent of nuclear cooperation established by the deal underscores the will to retain absolutely independent nuclear capabilities, maintaining mutual secrecy of the strength of the French ‘force de frappe’ vs. the British submarine ballistic missile force.
However, Strategic airlift continues to be a problem for Europe which it is only now dealing with the new Airbus A400M, already late in schedule, set to be delivered only in 2012
A recent centre for European reform paper says that “London must invest the same political energy it has devoted to France towards exploring additional savings with other European countries.
Certainly the SDSR, has opened the possibility of closer defence co-operation with Germany, Italy, the Netherlands and Spain.
The SDSR says that the EU has a role to play in “promoting security and prosperity”.
That the SDSR does not see bilateral co-operation on defence operations and capabilities as an alternative to a fully-formed EU defence policy is striking – not least because its principal author is Defence Secretary, Liam Fox, an ardent Euro-sceptic who was, in opposition, keen to seethe UK withdraw from the European Defence Agency and openly opposed a stronger foreign policy that would result from the Lisbon Treaty.
That does not mean the UK Government has not been critical where it believes European military operations have failed. The EU mission in support of security sector reform in Guinea-Bissau and the military training mission for Somali security forces has raised eyebrows in the Foreign Office. But the UK wants to keep the EU’s military deployment in Bosnia-Herzegovina
Notwithstanding some highly effective EU military programmes, EU defence policy has been stagnant, on the whole, since the Iraq war. The success of the France-UK deal could provide the EU with an impetus to further develop EU co-operation on defence and security. The so-called Common Security and Defence Policy still falls short of any workable EU-wide decision-making capacity.
However, that is to assume the France-UK deal will work in practice. In 1998, both countries signed the St Malo defence accord which was within the NATO framework. Just five years later, it was forgotten as France became the UK’s biggest critic for going to war with Iraq.
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