[A-List] EU integration struggles: tax harmonisation

["Michael Keaney" <michael.keaney@xxxxxx>]

I once had a high regard for Oskar Lafontaine, former SPD leader and briefly
finance minister until resigning from Schröder's government in January 1999.
His resignation was greeted with glee across the right wing press, which had
portrayed him as "the most dangerous man in Europe" and "Red Oskar". The
publication of his book, "The Heart Beats on the Left" was therefore a real
let-down. Most reviewers bemoaned its trivial score-settling, but what was
most revealing to me was its introductory section reassuring the reader
that, far from dismissing the "Third Way", Oskar in fact was very much
appreciative of the insights of Giddens, Blair and Schröder and, contrary to
whatever impression he might have given, he was broadly sympathetic with the
project. Oh dear. Well, as with 1990's German elections, Oskar lost the
battle but won the argument (something friend Mandelson doesn't seem to
appreciate in his brown-nosing piece forwarded earlier). Lafontaine it was
who pointed out the structural stress of reunification, especially after
Kohl ruled that 1 Ostmark = 1 Deutschmark. The Bundesbank made sure that the
rest of Europe paid for that decision. But it was not what the triumphalist
electorate wished to hear in 1990, as the "father of Germany" (self-styled)
painted a picture of glorious reunification at little cost. Fast forward to
1998 and Oskar was again causing trouble by stating the obvious, this time
that European integration, in order to succeed, would, of necessity, require
tax harmonisation. In Britain this went down like a lead balloon and was not
so popular elsewhere either. Oskar had also upset "Dim" Wim and co. at the
ECB because he was demanding lower interest rates (deja vu). Hence the joy
at Oskar's resignation after only a few months in office. His replacement,
Hans Eichel, was a model of fiscal propriety compared to the reckless
tax-and-spend old-style Keynesianism supposedly embraced by Oskar. But in
fact Oskar was merely stating what most people, from "moderniser" to
conservative, believe to be true now -- that the stability & growth pact is
a hindrance to growth and that for the EU to develop further it must develop
a stronger centre, part of which must include the harmonisation of taxes
across the board. Well wouldn't you know it, but it has taken a French
conservative to resurrect the obvious...


Giscard says tax harmonisation on EU agenda
By Daniel Dombey and George Parker in Brussels
Financial Times: November 11 2002

Valéry Giscard d'Estaing (pictured) expects tax harmonisation to appear in
the draft constitution being drawn up by the convention on the future of
Europe.

Mr Giscard d'Estaing, who heads the convention, also warned that countries
failing to ratify the draft constitution could end up outside the European
Union.

The former French president identified a growing consensus within the
convention for scrapping the national veto on fiscal issues that could
distort the EU's internal market.

The proposal will be strongly opposed by Britain and Ireland. Both countries
have insisted they will not abandon their veto on tax matters.

The idea, which is endorsed by a majority of a convention working group on
the economy, would allow the EU to set minimum levels of corporate tax and
ensure that value added tax did not diverge greatly from one country to the
next.

However, it would not affect the right of each member state to levy taxes on
personal income, wealth or property.

"There's a strong current in the convention in favour of making certain
fiscal questions settled by qualified majority voting," Mr Giscard d'Estaing
said.

"There's acceptance of a certain harmonisation. I believe that we will
propose a solution to move to a system for taxes that are definitely
connected with the market."

Mr Giscard d'Estaing also set out his strong views on what should happen to
those countries that fail to ratify the proposed new EU constitution.
Speaking to the Kangaroo group, a body that favours more economic
integration in Europe, he said non-ratifiers would exclude themselves from
the EU, but could have economic ties to the union.

"The probability is that of 25 or 27 member states [after EU enlargement] 23
would accept [the constitution] and two or three will refuse," he said. "We
have to abrogate the [EU] treaties that exist. If a country says that it
does not like the new treaty, there's no existing structure for them to
cling to, they cannot seek refuge in the old agreement.

"We should say: you can maintain an economic role, but you can no longer be
in this political system. That will be the consequence of refusal."

He said that such countries would play a similar role to members of the
European Free Trade Association, which have a free-trade area with the EU,
and cited the micro-state of Liechtenstein, with a population of 30,000, as
an example.

Mr Giscard d'Estaing's convention is expected to produce its final draft
constitution next summer. It will form the basis of a new EU treaty. which
has to be negotiated by all member states, and could be signed in late 2003
or early 2004.