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The new members fight back

Posted by Helen Tuesday, September 07, 2004

Both the Czech and the Slovak Finance Ministers have come out fighting against Nicolas Sarkozy’s suggestion that countries with lower business taxes should not receive structural funds. (see Skinning a cat).

"It seems that Mr Sarkozy wants to find a way of punishing countries which successfully implemented necessary reforms, favourable for the whole European Union," said Slovak Finance Minister Ivan Miklos.
The Slovak Economy Minister Pavol Rusko added:
"This initiative is nonsense and comes from pure populism from French politicians. Instead of implementing reforms that require political courage, they begin to interfere without any basis in the internal affairs of other countries."
The Czech Finance Minister, Bohuslav Sobotka, is also indicating his opposition.

The Commission maintains that it has no plans to harmonize business taxes and a spokesman for the German Finance Ministry has made a somewhat contradictory statement. In the first place, they do not agree with the French suggestion; in the second place they will continue to work with France to achieve a standardization of corporate tax rates.

Naturally, one takes the side of the new members. Clearly, lower corporate taxes is a good idea and tax competition is an even better one. The EU should not harmonize taxes as that is another step towards political and economic integration and because they will undoubtedly harmonize at the higher, uncompetitive and economically unsound level.

But one cannot help wondering at the thought processes of the Slovak ministers. Did these people not realize that once in the EU they will lose the right to untouchable internal processes? They were warned often enough.

Furthermore, what about those structural funds? The East Europeans are boasting (and their boasts are trumpeted by many free-marketeers on both sides of the Atlantic) of having more sensible, robust, competitive policies and economies. Yet, somehow, they assume that these policies and economies will be fuelled by what can only be described by old-fashioned socialist redistributionist taxes. A fault in logic or a very admirable capacity of believing several different and conflicting things at once?

An informal meeting of EU Finance Ministers will take place on September 10 and this issue will be discussed. Look out for cuts and bruises on participants as they come out.