Saturday, September 04, 2004

Another threat to the new member states

Pervenche Beres, the new chairwoman of the European Parliament‘s economic and monetary affairs committee and a French socialist in real life, has issued another threat to the new member states.

She has said in an interview that France and Germany should block the next EU spending plan if the new East European member states do not “reform”, i.e. hike up their corporate tax rates. Her argument is logical enough as far as it goes.
“If all the businesses in these countries are leaving to settle in the new member states because there is a more attractive corporate tax, how can these countries go on financing solidarity in Europe?”
Being a French socialist and a eurocrat, it did not occur to her that there might be another solution to the problem. If the low corporate tax is more attractive then why not lower your own? Nor has it occurred to Mme Beres that if all EU member states have high corporate tax business will simply flee to other countries. Or will she then propose exchange controls and criminal penalties?

In itself the European Parliament together with its committees cannot do a great deal about tax rates except to huff and puff. But it is clear which way the wind is blowing..

Still, Ingrida Udre, the Commission-designate in charge of taxation, has said that she would defend the right of individual member states to control direct taxation, adding that before the European Union moves towards harmonizing corporate taxation, it should decide what the ultimate aim of that move should be.
“We have to analyze what the EU wants to achieve by harmonization – whether to improve the overall competition of the EU, to help countries with different development levels develop more cohesively or to achieve bigger investment inflow in one or the other EU country.”
This is a polite way of saying that the EU’s obsession with integration may well prevent inflow of investment. (At least I hope that is what Ms Udre saying.) There is also the undoubted argument that the new member states need the low corporate tax to develop fast after fifty years of economic stagnation. The trouble is the older member states need it, too, in order to develop after about a decade of stagnation.

So, the battle lines are drawn, with Germany, the paymaster, making unhappy noises.

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