15th Aug 2022

Economic guru calls for tax harmonisation to save single market

  • Former commissioner Mario Monti advocated a compromise economic model at the Brussels Economic Forum on Thursday (14 May) (Photo: European Commission)

A compromise deal between the EU's 'Anglo-Saxon' and 'social market' economies is the best way to secure Europe's future economic strength and social stability, says former EU competition commissioner Mario Monti.

Speaking at the Brussels Economic Forum on Thursday (14 May), an annual meeting point for some of the globe's most influential economic policy makers, Mr Monti added that the current crisis provided an excellent opportunity to secure such a deal.

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"To avoid frustration in both groups of countries resulting in resentment against Europe generally and the single market specifically, the EU should, in my view, grab this chance that was not there one year ago," he said.

The Anglo-Saxon economies of the UK and Ireland, together with many new member states, have in the past voiced their frustration with continental countries such as France for failing to comply with single market rules, such as competition and state aid requirements.

Conversely, countries that provide greater social benefits often begrudge the low-tax, low-spend countries for their long-standing opposition to any form of tax co-ordination.

They argue that low corporate tax regimes such as that seen in Ireland constitute little more than a race to the bottom, promoting companies to base themselves where taxes are lowest and subsequently denying other governments the vital tax revenues necessary to support their social objectives.

To reconcile the two sides says Mr Monti, the EU should propose a strategic pact with two chief components.

"The first would be a renewed binding commitment to the single market, including strengthened enforcement mechanisms and initiatives with deadlines to implement the single market in areas where it is still lacking," he proposes.

The second measure would consist of a limited system of tax co-ordination between member states.

French Socialist MEP Pervenche Beres, chair of the parliament's influential economic affairs committee, later told EUobserver that the current discussion was reminiscent of the debate surrounding the Bolkestein services directive leading up to the European elections in 2004.

"If nothing is done [to harmonise member state tax regimes], the sustainability of internal market logic as it is currently built will be less and less," she said.

A question of sovereignty

Securing a deal on taxation at the European level requires a unanimous decision by member-state governments, some of whom hold their sovereign right to set tax levels as absolutely sacrosanct.

The Irish government is currently seeking a legal guarantee to ensure the Lisbon treaty does not weaken its control over the area.

However Jacques de Larosiere, a former governor of the Bank of France and chairman of a EU high-level group on financial regulation, also called on governments to co-operate while speaking at the Brussels Economic Forum.

His group's recent report says the EU's current supervisory committees on banking, insurance and securities should be beefed up with new powers, enabling them to force national regulators to intervene when financial organisations such as large banks take on too much risk.

Like Mr Monti's proposal on taxation, this would require a handover of national powers to supranational structures.

"If, in 2009, Europe is not able to surmount its differences and get together on this modest compromise then forget about it," said Mr Larosiere.

Member state willingness to adopt pan-European solutions will shortly become evident.

At the end of this month the commission will come forward with concrete proposals for a European supervisory framework, largely based on the Larosiere report.

A few weeks later at the June European summit, EU leaders will then decide whether the proposals will make it into EU legislation or are destined to join the multitude of other reports gathering dust on a commission shelf somewhere.

"The image of Europe is that we can't agree on anything," warns Mr Larosiere. "If we can get our act together we will have much greater credibility."

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