The real challenge facing the EU is not tax harmonisation but the slow paceof economic reform, argues John Bruton.
This newspaper reported yesterday that, along with others, Irish representatives blocked a move towards EU tax harmonisation in the Working Group on Economic Governance of the Convention on the Future of Europe. This could have come about if the group had recommended the introduction of majority voting on tax.
As one of the Irish representatives, I took this position because it has not been shown that tax harmonisation is needed to create an open and free market in Europe.
Proponents say they want tax harmonisation to counter what they call "harmful tax competition or serious internal trade distortion".
The terms "harmful" and "distortion" are entirely subjective and would be wide open to abuse by political majorities who might want to force their inefficiencies and policy failures on to the shoulders of others through a requirement for minimum rates of taxation.
The real economic challenge facing Europe today is not one of tax competition, but of the slow pace of economic reform. Long after the 1992 deadline for the creation of an internal market, significant amounts of internal market legislation have not been transposed into national law, with Greece, France, Austria, the UK and Germany the worst offenders (in that order).
The public procurement (Government purchasing) market has not been opened to competition; on average only 15 per cent of such national purchases are openly advertised in Europe and in Germany only 5 per cent.
The situation in the energy and gas sectors is equally bad. As far back as 1955, European leaders agreed at Messina that the then yet-to-be-formed Common Market would seek to create a common market in energy. That was 1955. By 2000, 70 per cent of the electricity markets of France, Portugal, Greece and Ireland were still closed to outside competition, and the situation was almost as bad in Italy, Belgium and the Netherlands.
Last March, France agreed a deal at the Barcelona Summit to open up its electricity market, but it is now trying to back down on this deal because of strikes by public sector workers.
Europe's labour markets are not working. At one and the same time, and often in the same places, there are 13 million unemployed people alongside acute labour shortages in many sectors.
This failure to match supply and demand has nothing to do with "harmful tax competition" or "internal trade distortion", but everything to do with political inability at national level to tackle archaic legislation.
This failure of political will is undermining the strength of the euro.
The Growth and Stability Pact, governing excessive budget deficits within the eurozone, does need to be revised. It should exempt a reasonable amount of borrowing for infrastructure with a financially measurable economic return from the deficit limits, and it should differentiate between high- and low-debt countries.
But any reputable pact should be enforced on all states, large and small, in a uniform way. This is not happening. Ireland was rightly reprimanded in 2001 by EU ministers for an excessively expansionary pre-election budget. But France, Germany and Italy are now escaping any such reprimand for much more serious transgressions.
The problem here is that the Stability Pact is being interpreted by ministers, who will tend to act on an opportunistically political basis, rather than by the EU Commission, which could be expected to act on an economically objective basis.
The most disappointing aspect of the Economic Governance Working Group's report, which is to be debated in the Convention this week, is that it did not reach an agreement that the Commission, not the Council of Ministers, would have the power and responsibility in future to make a formal proposal under the excessive deficit procedure, rather than mere recommendations.
What Europe needs now is a comprehensive economic reform package. This should consist of a temporary countercyclical relaxation of the deficit and interest-rate regime, conditional on irrevocable and specific commitments by individual countries to the liberalisation of their internal labour, energy and other markets.
John Bruton TD, a former Taoiseach, is a member of the Economic Governance Working Group of the Convention on the Future of Europe