Convergence towards EU standards in Fiscal and Taxation Policies
Lessons learned from the Euro in the light of a fiscal and taxation union
By MEP Gerolf Annemans (ENF-group)
Honoured Members of the National Parliaments,
Dear Colleagues of the EU Parliament,
Honoured invited experts,
Honoured Civil Servants from the EU Commission,
Ladies and gentlemen,
It’s a pleasure, for me, to be here in Sarajevo, by having the possibility to participate in this Inter-parliamentary Conference on ‘Economic Governance and Job Creation in the European Union and in the Enlargement Countries’. Needless to say, it’s an honour for me to speak in front of you, in front of this outstanding group of EU-connoisseurs.
In the next few minutes I will give my broader view on the general topic of this conference. More specific I will expand on the EU fiscal policy and taxation policy, and I will elucidate on my personal standpoints on harmonization policy and EU-standards, that I will share with you this afternoon.
Let me start by stating that the main topic, as well as the specific discussion-subjects during this conference, are important and well chosen, for at least two reasons.
First of all, we are still facing an economic crisis in many countries on the European continent, and more specific in the member states of the Economic and Monetary Union, the eurozone. The sovereign and private debts are still enormous (many member states are having a debt ratio above 100% of their annual Gross Domestic Product (GDP), a phenomenal army of people is still running out of work (especially younger adults. In Greece and Italy 50% of the young ones are jobless and the labour market situation in the Southern Countries in general is still very problematic). Also the growth rates in most of the EU-countries are still far too low, to safeguard our welfare and social protection systems on the longer term.
I also noticed that some of the ‘enlargement-countries’ are facing difficulties as well these days. In many nation states the HICP inflation rates are way too high and also the budget deficits are raising.
So, to be short: having discussions on macro-economic issues in a time of economic distress is expedient, also because we need on this continent more economic growth, more innovation and more job creation, and I would say qualitative job creation, to overcome this recent economic crisis.
Secondly, in the European Parliament, I am a member of the Committee on Economic and Monetary Affairs, and, besides this, I am also one of the shadow rapporteurs on the current Taxation Report in the Taxation Committee on Special Rulings. This committee, on this moment dealing with tax evasion and tax fraud, evolved out of the LuxLeaks Scandal. So, this specific topic on EU fiscal policy is also well chosen by the organizers of this inter-parliamentary conference.
Now, let me start by narrating a bit about the economic foundations of the European Union and the Monetary Union. Decades ago, the European Union was called the EEC, which stands for European Economic Community. The aim of this regional organizational structure, installed in 1958, was to bring more economic integration and economic convergence between the nation states on this continent. It’s important to understand that the EEC was rather a confederalist economic project, instead of a political federalist system. The creation of an internal market for goods and services (and people), was the crucial element, in this entire EEC-project.
Later, by entering into force in 1993, the Treaty of Maastricht paved the way for a monetary union on the European Continent; the general idea was to create one single currency in the entire European Union. But, this Maastricht Treaty laid down several criteria for member states, together with the Stability and Growth pact. Theoretically, it was necessary for the would-be member states of the monetary union, to fulfil those ‘euro-convergence criteria’, before they could enter the euro club.
Examples of those criteria were the exchange rate stability, the consumer index inflation, which should not exceed the HICP reference value, the government budget deficit, which may not exceed 3% of the GDP, and the GDP to sovereign debt ratio, which might not exceed 60% of the GDP.
In reality, the vast majority of the eurozone-member states joined the club without fulfilling the fiscal criterion, consisting of the government debt criterion (60%/GDP) and the deficit criterion (3%).
If the European Union is facing, during the last years, a severe euro crisis, it is due to the fact that the fundamentals – to create a successful monetary union – were never fulfilled.
With all my respect, this discussion point during this inter-parliamentary conference is called ‘convergence towards EU standards in fiscal and taxation policies’, and this is a rather cynical subtitle, because, even the countries – who are already member of the European Union and the Monetary Union – were nearly never fulfilling those economic convergence standards. As a consequence, in my opinion, it’s a bit strange to ask from the so-called ‘enlargement countries’ to comply in the future with those EU-standards and so called “structural reforms”.
In 2006 already, economists of the European Central Bank, wrote in a Working Paper about the fiscal convergence in the European Union. I will take one short quote out of this working paper from July 2006: “As far as fiscal policies are concerned, and at the time of writing, these euro commitments imply that further progress needs to be made in a number of countries before they can apply to enter the euro area”.
We are almost 10 years further. Was there a remarkable improvement in this domain? A recent research report of the European Central Bank (ECB), which was published last summer, gives us the answer. The report concluded that there was – in the last decade – no convergence at all in the monetary Union. The macro-economic differences – like the growth rates but also fiscal convergence – between the member states that are using the euro currency, were even expanding.
The main analysis and problem the eurozone is facing today may be clear. But what to do? The problem is clear, the question which is raised is very simple, but the answer is rather difficult. How do you create convergence on economic issues, fiscal policy and taxation policy?
Does the European Union, and more specifically the Monetary Union, need a strict set of outlined rules, for example on fiscal constraints? The EU installed rules on debt and deficits, but in the end, nearly nobody was complying with those rules. So, today, there are only two possibilities of choices that can be made. Either we are evolving towards a federalist and supranational European Union, in which a European government will decide, starting from the actual Common Consolidation Corporate Tax Base (CCCTB) till – in the end – on all taxation and fiscal policies.
Or, we opt for a system in which nation states are working together with each other on economic issues, in a more confederalist logic.
As a rather eurocritical politician, I prefer this second choice. But, I want to emphasize that this confederalist logic is no free lunch, it is not a free rider circus. Not at all! It will rather be the opposite! It will be the solution and will end the free riding problem, the EU is facing today.
What is happening nowadays? The Economic and Monetary Union and European Union is coming up each time -in the framework of the “structural reforms” – with a set of rules, on budgetary policy, infrastructure, pensions and in the future also on taxation policy. Indeed these days, the basic foundation is created in the European Parliament to install a kind of fiscal union. But, in reality, nearly no countries are following these rules, as happened in the case of the euro. When the house was on fire in Southern Europe (in Greece and Cyprus), we created a EFSM-fund, an ESM-fund, and the European Central Bank started buying sovereign debt bonds…
All those ad hoc ‘solutions’ were indirectly and directly conflicting with the ‘no bail out’ rule. So we were breaking other rules, after countries were breaking another set of rules… We can’t go on with this crazy situation.
We have to learn, and take the right lessons, from this euro failure. So, towards convergence on EU-standards on fiscal and taxation policies, my personal point of view is very clear:
I truly believe the budgetary standards in the monetary union have failed completely.
– secondly I am in favor of the internal market in Europe for goods and services, and I am convinced that an economic internal market could bring economic growth and economic progression for the peoples in all European nation states.
– I am in favor of economic agreements on a bilateral and intergovernmental level;
– I am in favor of more transparency and the exchange of information on, for example, fiscal rulings between multinationals and member states, to combat tax fraud and close loopholes;
but I do not believe we need a new set of rules on tax issues – like we had rules on almost all monetary aspects in the euro system.
I do not believe that tax competition between member states is an infringement on the proper working of the internal market for goods and services; So, I clearly say ‘no’ to any European supranational tax system in the future with for example minimum corporate tax rates;
– For this reason I am sceptic about the ongoing discussions in the European Parliament on taxation policy within the European Union.
It is my humble opinion, it is my strong believe that the European Union was, and still is, going way too fast in her attempts to bring harmonization and convergence in too many areas. A lot of those attempts to harmonize have failed in the past.
According to me, the European Union needs to focus on the internal market for goods and products. The EU as an Economic European Community, an economic trading region, in which the enlargement countries in Eastern Europe will – hopefully – participate in the future.
I represent the people in the European Union that consider the way EU-institutions push through their strategy is in fact an attack on the nation state.
And my advice to you all would thus be that you should be aware that you did not so recently regain your independence from communist reign to hand it over now so easily to another superpower in a superstate.