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6th Jun 2020

Merkel deals blow to EU tax idea

  • Ms Merkel has been a key decision maker in Europe's recent efforts to stave off crisis (Photo: consilium.eu)

German Chancellor Angela Merkel has said she is opposed to the concept of EU tax-raising powers, dealing a major blow to such ideas, proposed only last month by the European Commission.

Ms Merkel's comments, delivered during a one-day working visit to Belgium on Tuesday (2 November), carry particular weight as Berlin is the largest net contributor to the EU budget.

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"I am against the introduction of an EU tax," she told journalists, laying down a marker for the imminent debate on the EU's next multi-annual budget when the current spending period expires in 2013.

In October, the commission proposed a list of potential EU fund-raising mechanisms in an attempt to reduce the acrimony of the impending squabble, traditionally characterised by member-state insistence on receiving a 'juste retour' for their contributions to the Brussels coffers. "We need to find a way out of this," EU budget commissioner Janusz Lewandowski told MEPs when presenting the package in Strasbourg.

For their part, the euro-deputies have made agreement on next year's annual EU budget dependent on member state willingness to discuss the 'own resources' issue.

An EU-wide sales tax, a financial sector tax and an EU energy tax were among the ideas in the commission's recent budget review, but member states have traditionally considered tax-raising powers as the preserve of national governments.

Two decades ago, national contributions to the EU budget, based on gross national income (GNI), represented roughly 10 percent. Now they amount to roughly 70 percent as takings from EU customs duties and farm levies have declined.

Eurozone crisis mechanism

During her visit, Ms Merkel also defended Berlin's push to make investors bear some of the losses under a permanent crisis fund being set up for debt-stricken eurozone members that run into difficulties in the future. The current €750 billion back-stop mechanism agreed in May expires in 2013.

European Central Bank President Jean-Claude Trichet had voiced his criticism of the idea during a summit of European leaders in Brussels last week, warning that a debt-restructuring component could lead banks to raise the rate of interest they demand when buying sovereign bonds from weak governments, potentially leading to a fresh wave of turmoil.

"I don't believe so," said Ms Merkel when asked if the debate itself would increase the likelihood of a government calling for aid. "We're talking here, in an explicit manner, of a mechanism we want to introduce after 2013."

"Nothing is changing for the current umbrella, which covers the entire eurozone and Greece. Everyone knows it is in place until 2013," she added. "What we are doing now is speaking about the future, and this must be possible."

As the main guarantor of bonds issued under the current rescue mechanism (the €440-billion 'special purpose vehicle' component), Berlin is keen to reduce its role in any permanent crisis fund, arguing that the taxpayer should not be forced to shoulder all of the costs.

But Germany's dominant role in determining how the EU tackled the Greek and eurozone crises has led to growing questions over the country's ambitions inside the bloc.

On Tuesday, German finance minister Wolfgang Schauble said Berlin had no intentions of leading the EU, but added that the German government was anxious to renew its "pacemaker" role with France.

"I have a sceptical view of a kind of general German leadership because the term 'hegemony' has bad associations in the light of our history," he wrote in the Frankfurter Allgemeine daily.

Commission breaks taboo on 'own resources'

The European Commission has proposed a list of potential methods to enable the EU to raise its 'own resources' in future, citing the need to end current wrangling over member state contributions to the Brussels budget.

Vestager hits back at Lufthansa bailout criticism

Commission vice-president in charge of competition Margarethe Vestager argued that companies getting large capital injections from the state during the corona crisis still have to offset their competitive advantage.

German court questions bond-buying and EU legal regime

The German Constitutional court ordered the European Central Bank to explain its 2015 bond-buying scheme that helped eurozone stay afloat - otherwise the German Bundesbank will not be allowed to take part.

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