According to the latest statistics, the economic growth in the United Kingdom has reached 3% (annual rate) in the last quarter of 2013. This is the highest rate since 2007. For comparison, the French growth was 0.3% yoy (2013).
This little county on the shores of the Baltic Sea will become the 18th member of the Eurozone. That is well deserved since Latvia meets all of the Maastricht criteria. Its public debt amount to 40% of its GDP compare to 70% in Germany and 90% in the Eurozone. The maximum public debt rate should be 60% of GDP according to the EU. The Latvian budget deficit is at 2% of GDP, that is 1% lower than the required 3%. The Eurozone average is 4%. Let’s hope that, when entering the Eurozone, Latvia will keep its good standing.
Fortune has ranked the 50 most admired companies worldwide. Of course, Apple, Google, Amazon and Coca Cola are above all others. Among non-US companies can be found two German companies (BMW and Volkswagen), one Swiss (Nestlé), one from South Korea (Samsung) and one Irish (Accenture). But none are French… What’s up Mr. Monstebourg?
The European economy is under threat. But it is not by producing another treaty that it will be saved. In order to restore the trust required to produce economic progress, the states first must enforce the existing treaties, in particular the Maastricht rules on a 3 per cent deficit and a debt of 60 per cent of GDP. If you support this position, please send us a message by clicking on email@example.com
The intergovernmental treaty on the European Stability Mechanism already took this slippery slope some months ago by granting financial support to governments under certain conditions. Today the European Union would like to ratify the Stability Treaty, the coordination and governance within the Economic and Monetary Union to make governments commit to operating balanced or surplus budgets. While this is laudable, the result will be ineffective or even negative.
The Fiscal Compact (or TSCG) stipulates indeed that this rule will be considered as upheld if the signatory countries respect a structural deficit of 0.5 per cent of GDP at most, and automatic corrective mechanisms would be automatically triggered in case of overshooting. In fact, nobody really knows what the structural deficit is. It is possibly a balance the standard of which everyone chooses to his liking.
For evaluating this limit is likely to be complex and controversial. The structural balance is generally considered to be the public budget balance corrected by the effects of the business cycle. The structural balance is thus the hypothetical financial balance that would have been attained if the economy were growing at capacity. The idea is to identify a nil balance over the cycle, but it is not established that each cycle provides a neutral balance of its accumulated variations. Moreover, this definition supposes a potential GDP representing the supply that the economy is capable of sustaining over time without inflationist pressures. But the potential GDP is not directly measurable and is subject to various evaluations following international organizations and their respective methods.
Thus the Treaty offers no guarantee of a return to balanced budgets. Further, it does not even promise to be more respected than the Maastricht Treaty which was broken each time the member countries thought it compatible with their national interests. Already most states are looking to restore their budget balances through tax hikes, generally to no avail as they ignore the old rule that too many taxes kill taxes beyond a certain level. Unfortunately the TSCG will neither stop them nor discourage them to pursue this dead end.
The only way to get out of this crisis is by substantially cutting public spending, taxes and regulations combined with structural reforms to reducing the scope of government, thus creating more room for civil society and business, and solid growth perspectives.
If a new Treaty were to be considered, it should at most specify that the governments that do not stick to their commitments would be forced to leave. This would be a much stronger indication capable of restoring confidence.
Me Thierry Afschrift (Lawyer, Brussels), Mr Paul Beaumartin (business executive, France), Pr. Enrico Colombatto (University of Torino), Pr.Victoria Curzon Price (University of Geneva), Me Jean Philippe Delsol (Lawyer, France), Pr Jacques Garello (University of Aix-Marseille – France), Pr. Pierre Garello (University of Aix-Marseille – France), Mgr.Michel de Liechtenstein (business executive), Pr.Jiri Schwarz (University of Prague), Me Serge Tabery (Lawyer, Brussels), Nicolas Lecaussin (Director of development, IREF – Institut de Recherches Economiques et Fiscales).
Minimum sanctions for tax crimes, a cross-border tax identification number, an EU tax-payer’s charter and stronger common measures against tax havens are some of the measures proposed by the Commission in a recently edited press release.
It is not the first time that the Commission acts to facilitate the fight against tax fraud and tax evasion in the EU: the EU Savings Directive, by allowing Member States to exchange information on non-resident tax-payers, has already brought to the States’ pockets some €20 billion. The aim is now to update the Savings Directive and to present by the end of the year an Action Plan with specific measures that could be rapidly implemented to better fight fraud and evasion. In tandem, the Commission will also come forward with its initiative against tax havens and aggressive tax planning. According to EU officials, the size of the shadow economy and therefore of tax fraud is estimated to be nearly one fifth of GDP on average across Member States, representing nearly €2 trillion in total.
The French Cour des Comptes (National Audit Office) published this Monday a new report on public finances. Without surprise, the ambition to limit the budget deficit to 4.4% of GDP in 2012 is confirmed to be unrealistic. An extra six to ten billion euro would be necessary in order to meet this commitment, and this is without taking into account the new promises and expenses scheduled since François Hollande’s election. Meanwhile, the new financial Minister Pierre Moscovici, keeps claiming his profound hostility to austerity and budget cuts.
His intention is to fill up the gap with additional tax increases. You can read the report of the Cour des Comptes (in French) here.
Starting July 1, French taxpayers will have to pay an extra 2% on top of the “Generalized Social Contribution” that was so far set at 13.5%. This brings the new rate of the General Social Contribution on labor and capital incomes to 15.5%.
This “social flat tax” is to be added to the personal income tax or capital gains tax and to “specific” social contributions (unemployment insurance, health insurance, etc.) The move is easy to understand since these Generalized Social Contributions, together with the VAT, are the only way to quickly increase tax revenues for the government. In view of the state of public finances, we can bet that an increase in VAT will be next, probably in 2014.
The first significant policy move from the newly elected president is the repeal of part of his predecessor’s pension reform. As promised during the electoral campaign, President Hollande is bringing the legal age for retirement back from 62 to 60 years for those who started working at an early age. According to the French employer’s association MEDEF, this will lead to a 0.5% increase of the social contributions paid by employees.
Could it be that France is on its way to defy mathematics by trying to combine one of the highest level of life expectancy in the EU (81 years) with the lowest retirement age (60 or 62) while sticking to a fully pay-as-you-go system? So far, the socialist party sees no reason to worry. It insists that the cost of this reform is likely to be below initial estimation – it will weight down the French budget by only € 2 billion yearly, instead of € 5 billion. Strangely, this is considered as a “gain” by socialists and the media who apparently forgot that France don’t have that money and will therefore have either to borrow it, thereby increasing public debt, or tax it away from the private sector.
In an interview with the Guardian, Madam Lagarde says it is time for Greece to pay back and insists on the fairness of it – “Greeks have to pay taxes now and assume their past mistakes,” she says, adding that “As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time”. If her mathematics is somehow correct, she obviously doesn’t think about those who did not participate in the government’s wasting of money and find themselves today on the same boat with all the others.
She neglects as well the fatal incentives that were built in EU’s support to the “Greek economy”. It is regrettable that those lessons on the working of our modern democracies remained untold.
EU Parliament had been calling for a financial transaction tax (FTT) for nearly two years and, unsurprisingly, it has adopted last week the proposal drafted by the Commission. One of the arguments that prevailed in the debate that took place at the Parliament and resulted in the adoption of the financial transaction tax proposal was that “the FTT is an integral part of an exit from crisis. It will bring a fairer distribution of the weight of the crisis” (rapporteur Anni Podimata).
The EU follows therefore the general opinion prevailing in member States that increasing taxation is the best way out of the economic and debt crisis. This is neither very original nor very discerning, as we argued many times before (for example here, here and here).
The tax rates proposed by the Commission (0.1% for shares and bonds and 0.01% for derivatives) were considered suitable by the Parliament. Pension funds should be the only sector exempted from the tax. The adopted text adds to the Commission’s proposal an “issuance principle”, whereby financial institutions located outside the EU would also be obliged to pay the FTT if they trade securities originally issued within the EU. On the other hand, shares issued outside the EU but subsequently traded by at least one institution established within the EU would also be taxed. Moreover, the text links payment of the FTT to the acquisition of legal ownership rights, meaning that a buyer of a security who would not pay the FTT, would not be legally certain of owning that security.
The deadline for Member States to adopt implementing laws is 31 December 2013. Entry into force of these laws is scheduled 31 December 2014. Anticipating some difficulties, the Parliament decided that the tax should go ahead even if only some Member States opt for it. According to the reporter Anni Podimata, the “FTT will not lead to relocation outside the EU because the cost of this is higher than paying the tax”. This remains to be seen.