Press Release – The eurozone needs automatic sanctions
December 5th, 2011
The UK should support Germany in its push for automatic eurozone sanctions.
At the beginning of the latest make-or-break week for the eurozone, the biggest political fault line is between France and Germany on how to enforce greater fiscal discipline in the eurozone. President Sarkozy wants ‘political control’; Chancellor Merkel wants automatic enforcement by the European Commission and the European Court of Justice.
Phillip Souta, Director of BNE, said, “For the plan to be credible, Mrs. Merkel must have her way on common rules for all the eurozone’s members. France can only protect its ‘triple A’ credit rating – and save the tens of billions of euros that a downgrade would mean for its debt interest payments – by giving up its exceptionalist position.”
He went on to say, “It looks likely that Germany will not stop the European Central Bank from standing behind the euro if Mario Draghi so chooses, and that it will ultimately endorse some form of eurobond, however, the price it rightly demands is automatic sanctions enforced by the Commission and the ECJ.”
Phillip Souta concluded, “We are starting to see the final shape of the euro emerge. Mrs. Merkel wants the currency to be managed within the institutions of the EU27; Mr. Sarkozy within the intergovernmental 17. The UK has sensibly dropped talk of demanding powers back; now the Prime Minister should stand behind the Commission and the German Chancellor as they push for a rules-based solution to the crisis with the institutions of the wider EU27.”
Notes to Editors
- Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people
- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437.
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Event Summary – Reforming UCITS – Engaging with the UK
November 23rd, 2011
Gareth Shaw, Sven Giegold MEP, Francine Laqua and Julie Patterson
Regulation of financial services was once again under the spotlight during Business for New Europe’s recent event on UCITS, held in conjunction with the European Parliament office in the UK. The discussion focused on the future of the EU’s asset management industry and brought together Sven Giegold – the German Green Party MEP responsible for steering UCITS through the European Parliament as Rapporteur – Julie Patterson from the Investment Management Association and Gareth Shaw from consumer group Which?
Francine Lacqua from Bloomberg expertly chaired what turned out to be a lively debate on a very important piece of European legislation. The event was also well attended by representatives fromLondon’s business community.
Sven Giegold opened the discussion by noting that it was only right that he start his wide-ranging consultation on UCITS in London, given the British capital’s status as the ‘most important place’ for UCITS.
He made it clear that he saw the event as an opportunity to actively engage with interested parties and ensure that UCITS worked well for industry bodies, consumer groups and European citizens.
As a policy maker, his personal view was that UCITS should broadly be used to promote long term growth, but just how to achieve this was open to debate. Over the coming months, therefore, Mr Giegold said he would be posing questions on a range of issues including ‘Is there a need to create UCITS subsectors?’ ‘Should there be separation between UCITS and alternative funds? ‘Would insurance-based solutions work or should consumers assume all the risk when they invest?’ By addressing these issues, Mr Giegold asserted that the EU would inevitably be able to make progress on broader points over the role of ESMA, for example, and the significance of diverging taxations regimes.
Julie Patterson from the Investment Management Association followed Sven Giegold, firstly drawing a clear distinction between fiduciary industries and transactional ones. She said one of her primary concerns was that so many UCITS-related issues were ending with litigation, particularly as so many investors are ordinary European citizens. Developing this point, Ms. Patterson discussed the inherent tension with any legislation of UCITS – investors ranged from managed funds, with high levels of capital and the capacity to perform their own due diligence and risk modelling, to individuals risking a large portion of their savings. This reality means that rules designed to protect the consumer would necessarily be a thorny issue for some investors.
In her opinion, a lack of consistency has also been a major problem for the EU up until now – UCITS, she said, remained the only product which had been regulated for 30 years. Thus, any new regulatory frameworks should aim to correct the imbalance.
Gareth Shaw from Which? Bemoaned the ever-increasing complexity of ETFs and argued that many consumers did not understand the full implications of their investments. As a result, full disclosure was rarely enough – consumers needed better information to help them understand the sophisticated nature of their purchases. Although Mr Shaw liked the idea of an ‘insurance scheme,’ there was an implicit risk that taxpayers would be liable should things go wrong; an unacceptable situation and one which should be avoided. On the other hand, regulators had to be careful that they did not endanger UCITS through over-legislating – they remain a powerful brand, especially in Asia.
According to Mr Shaw, distinguishing between types of investments could be the most productive way to help consumers make better decisions about risk, perhaps through some kind of ‘complex’ and ‘non-complex’ labelling. Yet, he also noted that many ‘small’ investors were happy to take on extra risk, and in fact liked investing in complex products.
The event concluded with a Q&A session, during which attendees were given the opportunity to grill panellists on their positions over UCITS. Business for New Europe would like to thank all participants and attendees for their involvement, as well as the European Parliament for hosting and co-organising the event.
Tags: Regulation, Sven Giegold MEP, UCITS
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Press Release – European Commission is right to back eurobonds
November 23rd, 2011
BNE calls on eurozone creditor states to accept eurobonds as part of the solution to the euro crisis.
The Commission today is throwing its weight behind the idea of eurobonds as part of the solution to the sovereign debt crisis in Europe. Germany opposes such measures on the grounds that they would introduce unacceptable moral hazard and remove the market pressure needed for peripheral states to reform. The choice, however, may be between a combination of eurobonds and ECB quantitative easing or a breakup of the eurozone.
Phillip Souta, Director of BNE, said “It may be that the only way Germany and other creditor eurozone members can protect the euro is through radical measures such as eurobonds.”
According to estimates by the German Institute for Economic Research (DIW), this would cost Germany about €15 billion each year. Phillip Souta said, “This cost would be more than worth it to save the euro, the breakup of which would be a disaster for Europe.” He went on to say that, “German growth over the last ten years would not have been possible with the Deutschmark, which would have had much greater value than the euro, and choked off Germany’s export led recovery.”
Opponents of eurobonds argue that they would introduce an element of moral hazard, but euro bonds can be easily designed to mitigate those risks. One proposal – a variation of which will be included in today’s Green Paper from the European Commission – comes from Jacques Delpla of the Conseil d’Analyse Économique in Paris and Jakob von Weizsäcker, a fellow at Bruegel, a research organisation in Brussels. With this proposal, eurobonds would only apply to the first 60% of a member’s debt in a “blue bond” and with individual members being responsible for anything above it in a “red bond”.
Notes to Editors
Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people/
For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437.
Tags: eurobonds, eurozone
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In Depth: A Series on the EU’s Internal Market. [2] Delivering Value for Money
November 14th, 2011
By Morris Schonberg
The mood of governments across Europe, inflamed by the eurozone debt crisis, is unsurprisingly characterised by austerity. At present, the public purse is experiencing a myriad of pressures, such as fire-fighting the debt crisis, continuing to recapitalise systemic financial institutions and managing existing spending commitments made in better times.
In this climate, it is now more essential than ever that the State is able to maximise efficiency in public purchases and deliver the best value for money. Public markets remain among the largest and most important for many economic operators in Europe. In the EU, the purchases of goods and services by public bodies corresponded to around 19 per cent of EU GDP in 2009, amounting to over €2,100 billion.[1] Given the sheer size of public markets, cost-savings made in public procurement have the potential to make a real impact on the finances of EU governments and stabilise the economic outlook.
The European Commission recognised this when it finalised the Single Market Act earlier this year, including public procurement policy reform among the package of twelve priority measures to rejuvenate the EU’s internal market. The Commission plans to present detailed proposals for public procurement reform before the end of this year.
The current EU public procurement rules are meant to ensure the application of the EU’s internal market ‘freedoms’, the free movement of goods, persons, services and capital and the optimal allocation of resources they bring, in the specific context of public markets. In such markets, given the inherent advantages national incumbents may have in dealing with their own national public authorities and the danger of latent preference to ‘buy national’, additional effort is required to ensure a level playing field. This is where the framework under the public procurement rules comes in. The rules establish specific contract award procedures for public bodies to follow that ensure public purchases are made in a fully transparent and objective manner, without any discrimination on grounds of nationality. The public procurement rules ensure greater competition between commercial operators from different Member States and maximum value for tax-payers’ money.
The current EU public procurement rules, however, have not been wholly successful in opening up the EU’s public markets. Cross-border public procurement remains low – it is estimated that only 13 per cent of public contracts publicised in the EU’s Official Journal are awarded to operators from other Member States.[2] Whilst this figure may not necessarily reflect the competitive pressure that national operators may have been exposed to as a result of competition from operators from other Member States and the consequent price benefits, the figure is still strikingly low.
The European Commission is currently considering significant reform of the EU public procurement regime in two respects. Firstly, ‘modernisation’ and reform of the EU public procurement regime itself and secondly, developing a new external public procurement policy. Unfortunately, costs savings is amongst the Commission’s objectives for reform, other considerations are also animating the Commission’s proposals that may have the opposite effect.
The potential changes being mooted to the public procurement rules themselves are far-reaching. One possible reform concerns the scope of the public procurement regime itself. Currently the procurement regime is only applicable to certain types of public contracts with a value above certain specified financial thresholds for each type of contract. The broad idea is that the additional safeguards during the contract award process imposed by the public procurement regime, and the consequent additional administrative burdens for public authorities should only be applicable in the case of contracts that are of a sufficient value to merit cross-border interest in the first place.
In principle, the extension of the application of the public procurement regime to more public contracts allows for the possibility of greater competition but the administrative burden to public authorities in complying with the public procurement rules must also be taken into account. There is no sense in expanding the public procurement rules to more contracts where the cross-border interest may be too limited to justify these greater administrative burdens.
The scope of the public procurement regime must therefore be carefully considered and any change should be targeted and precise. In this sense, the Commission should be fully open to the possibility of lesser application as well as greater application of the public procurement rules in achieving the best result for the tax payer. The financial thresholds have not been reviewed since 2004 – when the current public procurement rules were introduced – nor has there been any effort to index the thresholds in line with inflation. Raising them may deliver more value for money.
Another aspect of the reforms represents particular cause for concern. In the current framework, public contracts may only be awarded on the basis of (a) the best-priced tender, or (b) the most ‘economically advantageous’ tender. Although the latter approach allows for the introduction of award criteria that relate to a wider range of policies, such as environmental protection, an important requirement is any such non-price criteria must ‘relate to the subject matter of the contract’ itself – for example, the characteristics of the goods/services to be purchased.
This limitation ensures that the actual goods/services that are being purchased themselves remain central and public authorities obtain the best value for money. Loosening the link may undermine this, allow for disguised discrimination against operators from other Member States, and result in the imposition of a whole variety of different societal requirements for each contract that may impede access by SMEs to public contracts. The additional complexity will also bring further administrative burdens for public authorities conducting public procurement. It is important that this change is fully resisted.
Some of the proposals for a new EU external public procurement policy are also of concern. While commercial operators from the great majority of countries are able to participate in public procurement tenders in the EU, commercial operators from EU Member States may find themselves excluded from public procurement in these third countries, due to protectionism.
The Commission wants to redress this imbalance and improve the access of EU commercial operators to third-country markets. One of the options being mooted is that public procurement in the EU will only be accessible to operators from countries with which the EU has concluded binding international agreements on access. Access to EU public procurement will be restricted for operators from countries with which there is no agreement and from which EU operators are excluded. According to the Commission, this may then grant the EU greater leverage in persuading these countries to open up their public procurement to EU operators.
Much will depend on the detail of any proposal, but it is clear that any initiative that may restrict economically-efficient third country operators from EU public procurement, may have a detrimental impact on competition in the EU and result in the tax-payer receiving less value for money.
Finally, while the public procurement rules and many of the reforms are directed at tackling obstacles to free movement and distortions of competition emanating from public activity, the tenderers themselves are one particular area of reform which could receive more attention in an attempt to combat anti-competitive behaviour by private parties,.
Why? Because did-rigging drives up prices for public contract at the expense of the public purse. Public markets in particular have features which arguably facilitate bid-rigging. Demand is inelastic and stable and the transparency during the tendering process which the public procurement rules ensure, stabilises any bid-rigging arrangements by allowing cheating on any illegal bid-rigging arrangements to be detected by the other participants and sanctioned by reprisals.
Further incentives to deter bid-rigging in the public markets may be created. While the European Commission continues to levy ever-increasing fines on those guilty of anti-competitive conduct, a more targeted solution in the public procurement sphere would be to allow a public authority to restrict operators guilty of bid-rigging in public contracts from its future procurement. Currently public authorities are only able to do this in respect of certain limited offences such as corruption and money laundering. However, it is anti-competitive bid-rigging which, in particular, results in higher costs being paid by the tax-payer. Any restrictions may be on a contract-by-contract basis or sector-specific and subject to self-cleansing, such as the implementation of a successful compliance programme.
During the current economic climate, the goal of delivering better value for money must be the paramount. Any reform proposed by the Commission should not stray from this objective.
[1] European Commission Staff Working Paper, Evaluation Report, Impact and Effectiveness of the Public Procurement Rules, SEC (2011) 853 Final, page i.
[2] Ibid., page 134. This includes both contracts awarded in direct cross-border procurement and indirect cross-border procurement where firms bid for contracts through their foreign affiliates or subsidiaries.
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Eurozone Crisis: A failure of policy not democracy
November 11th, 2011
By Tom Thatcher
‘The eurozone crisis is a failure of policy and not democracy.’ That was the message of BNE Chairman Roland Rudd when he appeared on BBC Radio 4’s Today Programme this morning.
Italian Senate, Photo from: Fare Salute
In recent days, however, the debate has tended to focus on the latter, with some commentators linking Europe’s current economic malaise with a perceived lack of accountability in EU decision making processes.
Others have even argued that the recent departure of Greek Prime Minister George Papandreou and apparently imminent departure of Italian Prime Minister further entrench this point. That both men are to be replaced with so-called ‘technocrats’ – experts in their fields but perhaps not natural politicians – may have given added impetus to this line of reasoning.
Yet such thinking distorts the reality of the Eurozone’s current predicament and even risks misrepresenting the fundamental basis of European representative democracy. The decisions of the Greek and Italian parliaments to choose new leaders without the need for elections, far from being illegitimate, have in actual fact served to demonstrate just why such systems work so well – deputies are able to act for the people, and at their behest, without the need for consultation on each individual decision.
Nor are these processes the Brussels-led, unchartered ones their detractors claim them to be; in Britain, both Gordon Brown and John Major became prime minister without needing to re-seek mandates from the British people on their right to govern, yet no serious observer could argue that Britain was fundamentally undemocratic when they came to power. To use a historical example, Winston Churchill did not call an election when appointed Prime Minister of Britain by King George VI in 1940 and nor was he expected to do so.
All three ultimately derived their right to govern from parliament.
The important distinction between unelected leaders and leaders governing with the consent of elected representatives – and by extension with the consent of the citizens – also applies to the group of officials known as the ‘Groupe de Franfort’ or for more eurosecptic commentators, ‘Europe’s Politburo.’
Amongst others, this informal group consists of French President Nicolas Sarkozy, German Chancellor Angela Merkel and President of the European Commission Jose Manuel Barroso and has been derided as an unelected body in which collective conspirators get together to work out how to do away with democracy.
In fact, it is nothing more than a forum for some of the most influential European leaders to come together and discuss implementation of co-ordinated eurozone policy, something which has been sadly lacking in Europe up until now.
The presence in the group of influential officials such as EU Commissioner Ollie Rehn and IMF chief Christine Lagarde can only help in this regard – after all, who would expect national executives to operate without civil servants or supranational bodies?
In its present state, what the Eurozone needs most of all is effective and wide-ranging policy reform. Elected representatives are clearly in the best position to do this and should therefore be supported rather than hindered in their efforts.
Posted in Economy, European Politics, Eurozone, Uncategorized | No Comments »
Press Release – EU referendum vote is a distraction
October 24th, 2011
The motion being debated today in the House of Commons on whether to have a referendum on UK membership of the European Union should fail for a whole host of reasons but two stand out.
Phillip Souta, Director of BNE, said “a referendum on our membership of the EU would be a huge distraction at a time of serious economic crisis. The government should be concentrating on jobs, competitiveness and growth. British business needs the government to be fully engaged in shaping European policy on a host of areas for financial services to pushing forward the single market.”
He went on to say that “calling for a referendum is the latest move by those who would have us withdraw from the EU. Seeing an electorate unwilling to support parties who would pull us out of Europe, they are resorting to tactics that put ideology first, and our economic and political interests second.”
Notes to Editors
- Business for New Europe is a coalition of pro-European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people/
- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437 for comment.
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Europe needs big bang to put some life into its economy
October 13th, 2011
By Phillip Souta
An economic big bang is the best way for European policy makers to restore confidence in their ailing markets. Yet the obdurate approach of some national executives to this policy puts its chances of success in doubt.
The German parliament’s ratification of much-debated European Financial Securities Framework (EFSF) legislation was clearly a positive moment for policy makers interested in Europe’s future economic well-being. Combined with the earlier ruling by Germany’s constitutional court, it means that legal challenges to the country’s role in bailouts are effectively a thing of the past, as long as the fund requires no further topping up.
Of course, the significance of this victory for eurozone solidarity must not be overstated. Other national parliaments have so far proved more rebellious than the Bundestag; Slovakian deputies, pointing out that their economy was smaller than that of Greece, refused to pass their own EFSF bill putting the entire project in jeopardy.
Assuming, however, that either Slovakia does eventually pass its law in some form or – more likely given the relatively small size of Slovakia’s contribution – eurozone members find a way around making Slovakia pay, there remains another problem with the EFSF in its current form; it is not sufficiently large to both bailout Greece and stave off contagion in other member states.
In response, the EU, national executives and the IMF need to take drastic measures to show that they are four-square behind the euro. A ‘Big Bang’ plan, reported to have been under discussion during a recent IMF meeting in Washington, would be the best way to demonstrate their resolve.
In purely economic terms, the plan is a sensible one – it foresees the implementation of three distinct policies to deal with the Greek sovereign debt crisis and its potential fallout.
Firstly, Greece would finally be allowed to default within the euro through a 50% haircut. Debts accrued through the issuing of government bonds would become manageable for the executive there, meaning that external actors – the IMF and the EU, for example – would be able to leave Greece to reconstruct its economy without ever-increasing pressure from markets.
Secondly, to minimize the risk of contagion from Greece affecting other markets, the remaining EFSF money – currently standing at some €250 billion – would be leveraged either through turning the fund into an insurer or, perhaps more likely, into a bank.
Clearly, this would be a bold step towards the establishment of common monetary policy, given that both the EFSF-bank and the EFSF-insurer options would require underwriting by the European Central Bank, meaning that ultimately they would need to be backed themselves. Nonetheless, it would allow the fund’s ceiling to be extended to some €2 trillion – more than enough to deal with current eurozone problems.
Finally, French and German banks exposed in Greece would be recapitalized with a massive injection of cash from their governments – a move which would not only keep these banks afloat but would give them the extra liquidity required to help jumpstart Europe’s stalled economies through increased lending.
Not all member states have been happy with this final action point; the French government has attempted to mitigate the risk of it having to bailout its own banks due to fears that such a move would endanger its own triple-A credit rating. At the same time, it is difficult to gauge the appetite of the German public for funding another bailout although at least this time they will be giving money to their own banks.
National executives will evidently be taking a calculated risk on the Big Bang rescue scheme. Yet it is clearly preferable to the available alternatives, most of which involve either continuing to pour money into Greece (which may not be possible, given how vocal opposition has been thus far) or allowing the country to default completely, potentially exposing themselves to a catastrophic economic fallout.
The Big Bang theory avoids these two extremes – putting a final price tag on buying the eurozone out of its economic malaise. It is up to governments to make sure they take this chance.
Posted in Economy, Euro, European Politics, Eurozone | No Comments »
Press Release – Cut the EU budget to boost the EU’s credibility
October 10th, 2011
BNE calls for radical shift in EU spending to promote growth; 10% EU budget cut.
As EU Ministers meet today to discuss the shape of the EU’s budget from 2014 – 2020, the argument is between those who want to increase spending or freeze it. No one has made a credible case for reductions yet, and a rebalancing of the budget towards growth. BNE is making that case with a fully costed alternative budget which calls for a 10% cut in spending.
Phillip Souta, Director of BNE, said “debates about the EU budget are stuck in a rut. The current budget is a relic of the past, and it needs radical reform. We believe we can save over €100bn for the EU and €10bn for Britain alone whilst spending more on long-term economic growth, and security and development in Europe’s neighbourhood.”
He went on to say that “the debate needs to change. It is inevitable that people will focus on the bottom line, but the content is more important. It is not anti-European to say we should do more with less. No one is making this argument, but with this alternative budget, that has now changed.”
Notes to Editors
- BNE’s publication “Rethinking the EU Budget: An alternative financial perspective for the Multiannual Financial Framework 2014 – 2020” is available at:
http://www.bnegroup.org/images/uploads/publications/files/BNE_-_Rethinking_the_EU_Budget.pdf
- Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people/
- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)79 4457 2351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437 for comment.
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The Wrong Time and the Wrong Place for an EU Tobin Tax
October 6th, 2011
By Tom Thatcher
A financial transaction tax may bring economic benefits in some circumstances, but it would be the wrong policy for the European Union at this time.
If Europe’s business community were worried about proposals for a Tobin Tax in August, by the end of September they were positively dismayed. Amid ongoing strife in the markets, Commission President Jose Manuel Barroso formally unveiled plans for a levy on all financial transactions to be imposed across the European Union. The issue became front page news almost overnight, and for the first time economists begun to seriously examine the effect an FTT might have if introduced.
Wikipedia: 30 St Mary Axe, home to many City firms
Certainly, there are no shortage of arguments in its favour and the raft of distinguished policy makers who have lined up behind it – not least in the European Commission – mean that the idea may at least be worth considering. Indeed, if one moves away from the inherently negative ‘banker bashing’ which has pervaded the debate thus far, it quickly becomes evident that there are some more rational aspects to calls for its introduction. Broadly, these more considered approaches have two distinct strands.
Firstly, there has been an increasingly influential lobby arguing that a transaction tax would help bring about more stability in European markets. According to this narrative, an inevitable side effect of the plan to charge a levy of between 0.01% and 0.1% on financial transactions would be a reduction in the appetite of traders for ultra short term computer generated trades, as an increased volume of trades would lead to both an increase costs and potential reduction in profit margin.
Given that these short-term trades are often responsible for greater market volatility, regularly spooking lenders and inducing panic for no apparent reason, this could be viewed as a positive step.
The second major argument in favour of a financial transaction tax focuses on the semantics of the phrase, as well as historical examples of the FTT in practice. Most observers thus far have assumed that a European Tobin tax would involve a straight forward surcharge on transactions, similar to that trialled disastrously by the Swedish government during the 1980s, during which time much of the country’s financial services sector decamped to London. However, other have contended that deductions could have more in common with Britain’s stamp duty – a toll paid for listing shares rather than buying or selling them.
It is worth noting that Britain has not only maintained its financial sector since introducing the tax in 1986, but has in fact expanded it – a sign that Tobin taxes need not necessarily be detrimental to economic development, depending on one’s definition of them.
These two arguments have been touted in some quarters as economic justification for a policy which is clearly both expedient and convenient politically for the Commission – imagine how much easier things would be for them if the EU had its own source of funding.
Yet neither argument really attempts to get to grips with contextual problems unique to the EU’s current predicament, a fact which significantly both diminishes their value and damages the logical foundations underpinning any future European Tobin tax.
As opponents of the FTT have always stressed, the major problem is not the concept of the tax itself but rather plans to introduce it exclusively within the European Union. Without the acquiescence and compliance of other G20 nations, there is a very real possibility that financial services companies will simply move out of the area altogether to avoid it. Aside from damaging the EU’s economy at a time when most member states can ill afford it, member states would still be susceptible to the same shocks caused by volatile markets as they are now, with the caveat that the largest markets would now lie outside their jurisdiction.
Moreover, although a ‘pay-per-listing system’ may have worked as a method of taxing financial services companies in London, the EU Commission has shown little appetite for introducing this kind of levy. Its official proposal explicitly states that the programme under consideration would involve a straight percentage deduction on all transactions, with the rate varying depending on the type of transaction being carried out. Debating the merits of stamp duty may therefore be an instructive exercise but it is also a redundant one in this case, given that a listings tax is not on the agenda.
There is, of course, a political aspect here too. At a time when support for the European Union seems generally to be on the wane, it seems imprudent to so obviously isolate Council members with large financial sectors. Although reports coming from Britain that the City of London would be forced to contribute up to 80% of the revenue generated by a Tobin tax seem to be exaggerated, the worries within various member states over the impact of a financial transaction tax are significant enough to be taken seriously. The Commission would do well to consider the potential consequences of its actions before proceeding further.
All this pales into insignificance, however, when compared with the final reason why the EU is not yet ready for a Tobin tax. The economic area is currently experiencing negligible economic growth rates almost without exception, a trend which seems set to continue at least in the short term. In such an environment, a financial transaction tax makes little economic sense, particularly when the Commission’s own impact assessment predicts that it could reduce the continent’s economic output by up to 1.8%. Fiscal consolidation only truly works if economies are able to grow at the same time – a fact which has been demonstrated by the ongoing trials of some EU member states, in spite of their austerity measures.
The financial transaction tax could risk upsetting this balance, no matter how much the Commission and some members of the Council want it to work.
It is simply the wrong policy for the EU at this time.
Tags: City, eu, eurozone, FTT
Posted in Financial Services | No Comments »
Conservative Party Conference LIVE Event Blog: Will Brussels Run British Foreign Policy?
October 6th, 2011
In partnership with Open Europe and the Centre for European Reform, Business for New Europe brought together a distinguished panel of speakers to discuss the role of Brussels in British foreign policy. The event was chaired by David Rennie, The Economist, and the speakers included Lord Hurd of Westwell, Secretary of State for Foreign and Commonwealth Affairs (1989-1995), Alexandr Vondra, Czech Minister of Defence, Gunilla Carlsson, Swedish Minister for Development Cooperation and the Rt Hon David Lidington MP, Minister of State for Europe, Foreign and Commonwealth Office.
Lord Hurd started the discussion noting that whilst member states continue to represent themselves as individuals in foreign policy negotiations there are, at the same time, strong cases of collective EU action, which is often under-reported. For example, Palestine is an example of where the EU has taken a specific stand and it is important to remember, Hurd emphasized, that these actions are exercised by Lady Ashton on the UK’s behalf.
There is a clear relationship between Brussels and Britain in the foreign policy domain; however, it is not a case of one against the other argued Hurd. He said that counties act on their own and countries act collectively at the EU level; in short, this dynamic in European foreign policy relations should not necessarily be viewed as a negative conflict.
Looking forward, Hurd hopes that unanimity is the key to dealing with any problems of EU-level foreign policy. Hurd suggests that it is useful to look back at the referendum and the advantages noted by Thatcher – most of all, it would undoubtedly help Britain speak with one voice along with Europe on global issues.
However, he recognized this is not particularly possible because – as Libya demonstrated this year – the EU faces the problem of a lack of unanimity. Indeed, the US may increasingly think that they can leave problems in the hands of the Europeans but the reality is that this poses a challenge which the EU and the UK are not particularly prepared for. The majority of Europe’s military operations are in the hands of Britain and France, Hurd argued that this is because both countries have a greater likelihood of intervention in comparison to their other EU counterparts. Plus, Europe has been too successful in demilitarizing Germany.
Russia is a key area that Hurd advocated joint EU activity, he said this was highly desirable. The UK should be cautious here because the reliance on Russian oil and gas is a concern. Hurd believes a non-EU level approach to Russia could be detrimental to the EU/Russia relationship and could further exaggerate the already-present worries about dependence. Despite clear national divergences on the issue – namely Germany – it is crucial he argued that EU member states operate together, with individual sectors working more closely and minor difference put aside; there are big possibilities here if the UK is willing to play its part collectively. Furthermore, Germany should not be encouraged to continue on an inward-looking path.
On a whole, Hurd concluded that there are many different disputes on foreign policy issues and he knows that progress is slow mainly because of the need for unanimity. However, he closed by saying that the potential of Europe acting together should not be underestimated – the potential of Europe acting together is great and has not yet been fully realised.
Gunilla Carlsson considered what is currently at stake in European-level foreign policy and argued that there is a need for Britain to be a positive force. She noted that whilst the UK and Sweden are both outside the eurozone, they remain dependent on stability, particularly because of significant trade links with eurozone countries. Indeed, Carlsson recognized that this demonstrates the self-interest of member states like the UK and Sweden but nevertheless its importance cannot be undermined. The EU really needs to stand united in order to be able to take on huge challenges; the peaceful stability of Europe is a strong example of this.
There is a need for greater cooperation because otherwise there is a clear risk of a weakened Europe developing, particularly as new global powers continue to emerge. Carlsson emphasized this by noting that China is a good example of an emerging international relation player but, on the other hand, the US – being in a bad shape currently – is another example a shifting military structure because their austerity measures have placed significant pressure on their arms sector.
There is no doubt, stated Carlsson, that there is an expectation that Europe will stand up for human rights and democracy, particularly in the Arab Spring. The worst thing that could happen in foreign policy is for a clear division amongst EU member states to emerge because for both the EU27 and individual member states, a successful EU foreign policy is something that will only work united.
Carlsson closed by emphasizing what she viewed as a key foreign policy issue for Europe – Turkish accession. It is not too late, she argued, for Turkey to join the EU and it must not be forgotten that enlargement is one of the greatest assets of the EU. Carlsson stated that there was a definite importance of Turkey in the UK – and indeed the EU – which must be more effectively recognized.
Britain has really served the EU in a good way she said and Sweden needs Britain to be a positive force in Europe, particularly taking a core role in the decision-making process on Turkey. Sweden takes a key interest in working more closely together with Turkey and has confidence in what the EU should continue to be about.
David Lidington outlined three key points about the relationship between Brussels and Britain on foreign policy. Firstly, Lidington sees European policy not as a substitute for UK foreign policy but as a tool to compliment and give further leverage; this is the general thinking behind the UK’s foreign policy he argued. In an EU context, Lidington said he recognized that statement is far easier for a British government to say than a smaller – perhaps newer – EU member state. He added that unlike other policy domains in the EU, foreign policy is strictly a matter where the unanimity rule still applies and this is why there are not common positions on issues such as Turkey and Russia.
Secondly, when the EU seeks to work together and have greater leverage as the EU27, rather than individually, it needs to have clear and limited priorities. The EEAS should not try and do everything but focus on specific programmes that it can do best and at full capacity, argued Lidington. Obama does have visible impatience with a US/EU summit and he put forward what he views as three collective priorities for EU member states in the foreign policy.
1. Working collectively to open up the Chinese market and reduce bureaucratic restrictions; more broadly, Lidington believes that securing global partners for domestic businesses is a shared goal for EU member states like France and Germany, and working together to do this would produce the greatest results.
2. Continue with the success of the European Neighbourhood Policy to build a new approach to European policy with greater leverage capabilities than before.
3. The EU should focus on what it is particularly good at – conflict resolution and conflict prevention. Lidington stated that Lady Ashton has done a really good job on Iran sanctions and emphasized that this was a particular achievement because neither Washington nor Tehran thought Europe was capable of delivering here.
Finally, Lidington concluded by looking at how you achieve the above institutionally. He argued that the UK and fellow EU member states must seek to influence the EEAS and ensure that their focus remains on collective responsibilities. Also, he stated that there is a collective obligation for EU foreign affairs ministers to work together more effectively and more frequently than they have in the past; Lidington said that he has already begun to observe the growth and habit of routine in consultations between foreign affairs ministers and this has made it possible to identify a common position more swiftly.
Alexandr Vondra agreed with Lidington’s view that strong alliances can be achieved and Carlsson’s view on the value of Turkish accession. On Turkey, Vondra elaborated that the reality of Turkish accession is that France and Germany will never allow Turkey in because firstly, it is larger than they are and the EU has never actually agreed to accession for a country of this composition. Also, countries seriously view Turkish accession as a competition issue and always will. The problem now is that Turkey is no longer oblivious to this.
Moving forward in terms of EU foreign policy, Vondra argued that the first priority is strategic and the second is operational.
Strategically, there are several important relationships, like those with US, Russia, Turkey and China. With US, for example, the EU is not in any better shape than it was ten years ago and with Russia, there was a promise that a bigger EU meant they would be able to defend interests better. In terms of the latter, the EU is now in a situation where it is facing a greater dependence on Russia than before and Germany is just likely to further exacerbate these concerns.
Operationally, the question is of ownership of the common interest and the difficulty is that the EU has created a dilemma amongst member states. Considering his own country, Vondra noted that if you are running a small diplomatic service you have a dilemma because you have a minimal number of skilled people and whilst you do not what to lose them to Brussels you cannot match the salary levels.
Vondra noted that the question of ownership applied throughout the foreign policy structures of the EU and specifically noted the EEAS here. As a result of a lack of ownership, it is not Brussels who runs the show but a small group of diplomats and these few are likely from the North; twenty years ago there was an east/west divide and today, the EU has a significant north/south divide. However, Vondra argued that there have still been success stories coming out of Europe, such as Iran.
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