All stick for Europe’s citizens – where are the carrots?

Vegetable marketUpdate 13/05/2014. Belgium has just reduced the VAT on domestic electricity from 21% to 6%! (must be an election approaching ..).

It is interesting listening to the UK’s Conservative backbenchers tub-thumping about the need for the Prime Minister not to give away powers to Europe (meaning the EU institutions). Frankly I feel that they are on a loser.

David Cameron has a thankless task these days. He has to try and keep his rebellious backbenchers happy. While at the same time attending European summits in which Chancellor Merkel in particular has strict instructions from her own tribe. The Germans are fed up with bailing out Europe’s weaker economies, and will have no truck with any kind of further protection for the financial institutions.

Like almost everyone you speak to in Europe these days, they blame the banks for the crisis that has caused the present stagnation (I could call it a recession, but telling that kind of truth simply makes me even more unpopular!). With little sympathy for the financial sector, pleading special measures for the City of London cuts no ice.

France and Germany appear determined to go ahead with a plan to protect the euro which will involve if necessary a two-speed Europe. And there have already been clear warnings to London, to the effect of minding your own business if you are not a euro-member.

The irony of the situation is that there are clear dangers in the path being taken, mostly to do with a lack of democratic accountability for all the other members of the Euro club, especially the smaller nations. If the measures being pushed through by France and Germany bring greater levels of austerity for citizens across Europe (and they could well do so), they risk alienating the EU institutions, and the idea of the EU itself, from the general population even further.

Popular feeling in favour of a Tobin (or Robin Hood) tax on financial transactions, as supported at present by France and Germany, will help a little to assuage public opinion on spreading the pain of austerity. Perhaps the best path for Mr Cameron in such a situation is to make the best of a bad job and go along with it, yet try to limit the damage resulting. I think that few people would support an FTT (financial transaction tax) that feeds funds to Brussels; they might however support one in which the taxes are ploughed back into the national economies.

Yet perhaps the most important question that our political leaders should be answering right now is, where are the carrots? All the measures we hear about so far are pushing Europe in the direction of ever greater austerity. All European leaders say that they want growth, but none seem to be serious about creating the conditions for it.

The UK’s VAT level is now 20%. Ireland’s VAT has just been put up to 23%! Belgium has laboured under a VAT level of 21% for years, with one result that large numbers of people regularly cross the border into Germany for major purchases. Do the politicians really believe that VAT at such levels will create growth? I cannot imagine so, when it is clear from talking to ordinary businesses that high VAT is a stranglehold on turnover. Europe’s economy depends hugely on its SMEs, we hear. Yet the region’s SMEs are struggling with levels of taxation that make expansion difficult if not impossible.

What I would like to hear from our political leaders these days is less about the importance of the financial sector, the problems of Treaty change and the need to ensure Europe’s democratic accountability. These things are important, but they pale into insignificance alongside the need to get serious about encouraging European growth. It doesn’t need any complicated measures, simply reduce the rate of VAT.

(and in case you are wondering, this piece was not prompted or supported by any business or governmental organisation whatsoever …).

© Philip Hunt, 2011.

Leave a Reply