Germany’s hard line and the UK’s stance could be pivotal when the time comes for decisions
THE EUROPEAN Council has recently had to hold a number of special meetings to sort out differences between member states about how to handle the Greek crisis and associated problems. Last Thursday week’s meeting sought to draw the threads together on these issues, to smooth over Franco-German disagreements, and to set the agenda for further work to be done between now and its next meeting in October.
It was also David Cameron’s first such meeting as British prime minister. He was conciliatory, going out of his way to appear constructive, and seeking to reassure his European partners that he would not be too troublesome a member of the council. Other heads of government must already have been relieved that Cameron finds himself leader of a coalition government, allied to a strongly pro-European party, and that in this role he has felt able to pull back from some of the Eurosceptic positions that he had felt it necessary to adopt before the election. Nothing seemed to arise at this meeting that was controversial from his point of view, but we shall not know how co-operative or otherwise the new British coalition government will be with its EU partners until substantive issues arise for decision, probably at the October European Council.
Commission proposals based on a report by former Italian finance minister Mario Monti, on a new strategy for the single market, will be considered at the second-next European Council meeting in December. Some years ago at a meeting when Monti was a member of the European Commission he made it clear in response to a point I had raised that our low corporate tax level was not an issue. Discussion of his report later this year could, however, reopen the question of a common tax base, a suggestion about which our Government has some worries that may or may not be prove justified.
This council meeting did not relieve the concerns of German chancellor Angela Merkel’s partners about her hardline attitude on several issues. As member states endeavour to cut their borrowing rates to 3 per cent of GDP, she seems anxious to cut them even further, to one-third of 1 per cent. Moreover, she has also been advocating treaty changes that would introduce new penalties for euro zone states that act in financially irresponsible ways. Such penalties could include cutting off payments to offending member states – or even suspending their voting rights at council meetings.
Whatever may be the theoretical merits of these ideas in the case of states which have found themselves in such financial difficulties, it is quite unrealistic to expect national parliaments – or in our case a national electorate – to vote for treaty changes involving such drastic penalties. In any event, before new disciplinary measures can be usefully discussed, it will be necessary to devise a better system for evaluating the fiscal performance of member states. That with which the European Commission has been lumbered can produce misleading results, because it does not differentiate between member states with more or less open economies.
In this connection this European Council meeting has confined itself to saying that both the preventative and corrective arms of the Stability and Growth Pact should be strengthened, with “sanctions attached to the consolidation path towards the medium-term objective”. We will not know what this means until the task force chaired by Herman Van Rompuy reports definitively to the October European Council.
A new provision introduced at this European Council meeting is one relating to competitiveness, which – in view of the fact that during the past decade Ireland seems to have suffered more than any other member state in this respect – is of potential interest to us. The council’s conclusions propose that a scoreboard be developed “to better assess competitiveness developments and imbalances” and that “an effective surveillance framework be also developed, reflecting the particular situation of euro area member states” be developed. If something of this kind had existed a decade ago, it might have inhibited our Government from destroying our competitiveness.
The results of all this work being initiated is to be reviewed at the next European Council meeting in October.
Two significant financial proposals are also included in the European Council conclusions. The first of these records agreement that member states should “introduce systems of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk”. However, the council goes on to say that in this context “issues of level playing field and cumulative aspects of various regulatory measures should be carefully assessed” – a qualification designed to meet Irish concerns lest our banks, already the hardest hit in the union, be overburdened with such measures to the point where they become unable to fulfil their role in extending credit.
The other major financial proposal involves the EU leading current efforts “to set a global approach for introducing systems for levies and taxes on financial institutions”. This will be discussed at today’s G20 meeting in Toronto, but it has been reported that such a tax will be opposed by, among others, Canada and Australia. A problem here is that there does not appear to be any clarity about the use to be made of additional revenues raised in this way.