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In the era of populism old ideas are being rolled out again. One of them is the concept of basic income, which has recently been circulating in many political debates in various member countries and international conferences, including Davos and the World Economic Forum’s annual meeting this year. Many variations of basic income are on the table, and some have even been translated into electoral promises, for example Five Star’s late proposal on Citizens’ income.

Finland’s former government actually ran a pilot project on basic income, whereby 2,000 people across Finland were paid a tax-exempt income of 560 euros for two years. Participants were unemployed, and no other conditions were required to receive the payment.

The pilot project received much more enthusiasm from outside Finland than within Finland itself. The main reason might be that while outside Finland the pilot project was taken as an indication of structural change to the whole social welfare system, in Finland the project was really seen as just a test, mainly launched to realise a long-standing objective of the Prime Minister’s Centre Party.

The first set of results came out more than a month ago. While more specific studies are yet to be published, these results indicate that while people receiving the income were happier, the income did not have an impact on the employment status of the test group.

In Finland, reactions have not been enthusiastic. Heikki Hiilamo, Professor of Social Policy at the University of Helsinki, has commented on the preliminary results of Finland’s basic income experiment, noting that effects on the labour market were minimal, and survey results demonstrating that basic income recipients had better subjective well-being are questionable.

These results indicate that while people receiving the income were happier, the income did not have an impact on the employment status of the test group.

Taking the results into account, it is not surprising that with the Finnish parliamentary elections taking place in just two weeks’ time (on 14 April), and with other reforms taking centre stage of discussions, the basic income topic has faded away totally from the electoral debate. Indeed, while many parties initially made proposals they called ‘basic income’, after it was pointed out that these proposals do not really respect the basic definition, the label was dropped.

Reflecting on the results of the basic income experiment, Finnish politicians Juhanna Vartiainen and Asmo Maaselkä  pointed out that basic income is not suitable for a developed country like Finland, especially if it happens to be of large geographical size. Basic income is not able to equalise the cost of living in different parts of the country in the same way as income support can, nor does basic income adapt to the situations of different families.

Basic income would possibly suit countries with low levels of basic security and a low cost of living with a lot of low-skilled work not requiring higher education, i.e. developing countries, not countries in Europe.

Introducing real basic income would mean radical reform of labour market structures

In addition, basic income cannot be debated without speaking about compatibility with labour market structures, starting with incentives for the labour market to target specific groups, such as young people without qualifications. 

In order to ensure that getting and applying for a job would remain attractive, the society-wide labour contracts would need to be rethought if basic income were introduced, as would the minimum wage and the prohibition of zero-hour contracts, for example.  This was obviously not done in Finland due to the temporary nature of the experiment, and the results speak for themselves: there was no boost in the integration of people into the job market.

If the cost neutrality of introducing basic income is taken as a guideline, the problem of basic income to the political left becomes obvious. Already existing support, allowance and regulatory structures which have been dear to the left would need to be erased. As an example, the Finnish Social Democrats (SDP) oppose the basic income.

The entry of basic income into Finnish political discussions appears temporary based on what we can see from the current debate. However, the debate around basic income is useful; complex social support systems and overlapping unemployment benefit schemes need reform and simplification in most European countries.

The need for simplification most likely means that in many countries some variation of a universal credit system will be debated, but as UK’s experience with the universal credit system shows, simplification of multi-layer system takes a lot of effort.

In a similar way to Finland’s political debate, many proposed models will be called ‘basic income’, but in reality represent only some variation of it. Pure basic income will hardly be introduced in European countries, but simplification of our current social and unemployment allowance systems is absolutely needed.

Tomi Huhtanen Economy Elections EU Member States Jobs Social Policy

Even in polite conversation, the subject of gender equality and women’s rights generally evokes an emotive response that often veers into wider subjective judgements about identity, values and society. Ironically – and there are countless ironies when considering these issues – these discussions generally get mired in fruitless arguments about the end result of gender inequality (such as the gender pay gap) rather than seeking to tackle the underlying causes (education, childcare and work-life balance to name but a few).

There are three primary misunderstandings which are contributing to the vacuous nature of much contemporary political debate on gender issues. First, and perhaps the most common misconception, is to think that gender equality only concerns women. The fact is that gender equality is often viewed – by both men and society – as a feminist issue only. This is why it is crucial to explain that gender equality concerns us all.

Recent Martens Centre research illustrates the importance of gender equality in a growing European economy. The paper identifies four strategic policy actions to help tackle the structural rigidities that facilitate gender inequalities. These are:

• the promotion of better work-life balance
• embedding equality in national tax systems
• tackling gender stereotypes through education
• understanding the benefits of long term investments for long term gains in terms of equality policies

The paper also clarifies that it should be the EU’s responsibility to focus on setting the overall strategic objectives that need to be attained, but the implementation of specific gender policies should be tailored towards the institutional, economic and cultural framework of each country and should be implemented at national level, in line with the principle of subsidiarity.

Second, it is important that men take an active part in this debate and are not viewed as the “enemy” by proponents of gender equality principles. The emotive reaction of those experiencing inequalities often seeks to frame the issue as a clash of genders: “us” versus “them”. But actually, the move towards greater equality needs men and women working together and sharing the same goals.

Equality should not be seen as a victory for women over men’s “predominance”. It should be seen as a crucial achievement of a society that is more reflective of the daily challenges facing tens of millions of European families.

The third misconception is that gender equality issues are a prerogative of the Left and as a result centre and centre-right political forces should avoid seeking to replicate or support this “progressive” agenda. Yet, such a view places perceived political imperatives before combatting issues impacting most severely upon traditional centre-right voters, namely hard-working Middle-Class families.

Centre and centre-right political forces can and should mark their distance from the leftist, radical approach by promoting a set of concrete, achievable policies aimed at reducing inequalities for the benefit of our economies and societies.

To name a few examples: designing a tax system and maternity-paternity measures that encourage both spouses to work, securing access to affordable and good-quality childcare, promoting projects and initiatives in schools aimed at fighting gender stereotypes and, last but not least, enforcing the prevention and sanctions against any discriminations, misconducts and abuses in the workplace and in any other environments.

It should be remembered that gender equality issues go beyond the partisan/ideological discourse and concerns every political actor which is supposed to give precise answers to people’s needs and demands.

Gender equality is one of the core principles of the EU. This is set forth in, for example, Article 2 of the Treaty of the European Union. Gender equality is, at its core, concerned with developing a society which rejects discrimination based on gender, without denying or undermining the importance of traditional customs or rules. 

The European Peoples Party (EPP) is a party based on core Christian-Democratic values of solidarity, respect of human dignity, equality and justice. The challenge, therefore, is not so much to embrace gender equality issues, but rather to transform our political rhetoric into political action. Action that will have a beneficial and lasting impact, not just upon women, but for Middle Class families throughout Europe and for our societies at large.      

Margherita Movarelli Eoin Drea Centre-Right Jobs Macroeconomics Social Policy Society

In 2007, Kofi Annan—then Secretary General of the UN—called the twenty-first century “the era of NGOs’. We think Mr Annan had little idea of how true his statement would prove to be, but probably not in the ways he imagined.

Annan referred to the importance of NGOs in policymaking, in mobilising public opinion and in holding power to account. In contrast, in the second half of 2018 NGOs – manifestations of civil society that are independent of the state – are increasingly becoming tools of political struggles. This concerns both relations between countries and the domestic situation in EU countries.

Several narratives on NGOs are emerging. The European centre-right, in contrast to its statist opponents on the left and right, believes in self-organisation of society and in the non-profit sector. A vibrant civil society and NGOs that can operate freely, are part of every liberal democracy.

However, this does not mean that civil society is on par with democratically elected institutions, as some Greens and leftists would have it. We also do not believe that governments have an obligation to finance every NGO, regardless of its professed principles and beliefs. At the same time, democratic governments should not impede NGOs’ work through punitive measures, legal discrimination and public bullying.

This is especially important, not only in view of the upcoming election to the European Parliament, but also in terms of a viable long-term outlook for democracy and transparency in the EU.

Starting with the international context, most of the European centre-right is aware of the normative and political threat that comes from the world’s authoritarian regimes. A new report on ‘sharp power’, developed by the Washington-based National Endowment for Democracy, documents the use by Russia and China of registered organisations that are linked to lobbying efforts on behalf of their mother countries.

Although these organisations are nominally independent, they are directed and financed by governments (a Martens Centre study published in 2016 looked specifically at Russian ‘government-organised non-governmental organisations).

What is more contentious, is narratives that cover domestic NGOs. First, governments in countries such as Poland, Hungary and, to some extent, Romania have been targeting the non-profit sector (often privately-funded) as an enemy of the ‘real people’ and the white and Christian European civilisation. The vocabulary used against these NGOs bears a strong resemblance to communist-era propaganda against any democratic opposition. For Christian Democracy and the wider centre-right, conspiracy theories inspired by the dark 1930s should be out of the question.

Second, NGOs have been active around immigration and asylum, often at the EU’s external sea and land border. Organisations such as Médecins Sans Frontières and countless others have been rescuing people drowning in the Mediterranean Sea. During the refugee crisis of 2015-16, other NGOs were often the only entities to feed and shelter refugees stranded the Western Balkans.

Things become really complicated when looking at the activities of humanitarian NGOs that signed up to save the lives of shipwrecked migrants in the Mediterranean, but end up being little more than ferry services straight from the Libyan coastline to Italy. Their refusal to cooperate with the Italian government has led to an open and largely unresolved conflict, resulting in ships being impounded.

NGOs in the immigration and asylum context have to be evaluated case-by-case, and though many perform important humanitarian tasks, some are clearly in contravention of EU and member state law. For example, activist organisations such as the ‘No Border’ network are openly violating the legal order of EU member states.

A third, and completely different, narrative about the NGOs exists in relation to the use of EU funds by organisations that campaign against the EU’s interests, sometimes openly spreading false information. The Martens Centre has highlighted political communication campaigns orchestrated in Germany and Austria by green and left-wing political parties, and associated civil society organisations, against a vital EU interest in concluding the Transatlantic Trade and Investment Partnership Agreement (see also here). These concern go hand-in-hand with concerns over inequity, fragmentation and a lack of transparency in financing from the EU budget. 

What should be the line of argument for the centre-right?

Europe’s conservative, Christian Democrat and liberal forces should insist on the NGO financial and lobbying transparency, whether the lobbying is done for autocrats, business interests or charitable purposes; but they need to refuse Russia-style punitive transparency, the only goal of which is harassment of activists.

The centre-right parties should insist on clarity and a level playing field in EU and government funding for NGOs. They should reject those NGO campaigns that blatantly distort the facts. There is no obligation for the EU to finance organisations fundamentally opposed to it.

Europe’s centre-right should discuss how NGOs influence public discourse and which methods are used to this aim, but it should firmly object to government centralisation and control of the independent sector. All this because subsidiarity, our cherished principle, is also about letting society govern itself.

Vít Novotný Roland Freudenstein Development Human Rights Social Policy Society

Tax policy is central to national democratic policy making, and tax issues feature more and more prominently in EU level discussions too.

For citizens – who are also taxpayers – taxes are everywhere and ever-increasing, impacting every aspect of their daily lives, including trivial things such as purchasing cigarettes, alcohol or gasoline. In recent years an increasing number of legal instruments have been adopted both at Belgian and European level, in order to strengthen the transparency of citizens’ revenues and thus further increase their future tax burden.

For states, taxation is deemed to be vital to guarantee the proper functioning of basic public services. However, it should be noted that despite levying increasing taxes, Western European countries are unable to reduce public debt, while often cutting the financial means of key public sectors such as justice, defence and public infrastructures. The real ability of high tax regimes to truly reduce inequality is also questionable.

In such a context, how is it possible to justify such high taxes to citizens? For many, the easiest way  out is indignation about tax scandals that are revealed on a regular basis – be they ‘Lux Leaks’, ‘Panama Leaks’ or ‘Paradise Papers’. These scandals present an opportunity to take steps to enforce tax transparency both at national and European/international level.

Few see that they should also represent an opportunity to rethink the purpose and efficiency of current taxes. In Austria, young ÖVP leader Sebastian Kurz  appears to be one of them, as he declared that he wants a ‘lean state’ in Austria, with reduced intervention and taxes.

Efficiency is a key principle to make tax levies acceptable to the population in future. In a recent book on the ethical aspects of taxation, the German philosopher Peter Sloterdijk reminds us that in Queen Victoria’s time a tax levy of 3,33 % was already seen as problematic.  

Tax efficiency and tax justice are key to maintaining social cohesion within the population of the European member states. They raise important questions, which need to be scrutinised in relation to the subsidiarity principle. At European level in particular, a crucial question is how to balance a high degree of innovation and competition within the Euro area and tax harmonisation.

A certain degree of tax coordination – for example with the exchange of information – is welcome and necessary in order to fight against tax fraud and tax evasion. But should tax coordination in specific areas automatically lead to tax harmonisation or even to tax uniformity?

Unsurprisingly, high-tax countries dislike tax competition. However, the experience of VAT – a tax that is almost completely harmonised at European level – shows that tax harmonisation in Europe automatically leads to higher tax rates. As a general rule, harmonised tax legislation mandates a minimum tax rate, but never a maximum tax rate, which means member states are free to introduce higher tax rates.

Furthermore, it is doubtful whether imposing harmonised tax rules can be seen as ‘fair’: every European country has its own features and sources of income. In fact, the truth is that tax harmonisation can be regarded as a convenient fig leaf for high-tax jurisdictions, enabling them to hide their need to undertake economic and fiscal reforms. It is designed to hinder the flow of capital and jobs from high-tax countries to low-tax ones. Tax competition, on the contrary, stimulates the efficiency of states that are ready to embrace a reformist agenda.    

True, both tax competition and tax harmonisation have their own advantages: tax competition is deemed to promote economic growth and efficiency in the public sector, whilst tax harmonisation is expected to reduce firms’ compliance costs and strengthen transparency.

The best scenario would be a European Union where investment decisions in any country are not merely determined by tax considerations, but also by other criteria such as the country’s social environment (in terms of education, health care, public infrastructure, environmental protection, etc..).

European countries would compete to offer the best environment to potential investors, not just tax advantages, which in turn will benefit to the local population. Governments should devise policies that put tax competition at the service of the common good, not initiatives that curb it for the advantage of high tax jurisdictions. 

Gaëtan Zeyen EU Member States Macroeconomics Social Policy

Last week’s Social Summit for Fair Jobs and Growth, also known as the Gothenburg Summit, was a success. Commission President Jean-Claude Juncker obtained the endorsement of the Heads of State and Government to his proposed Pillar of Social Rights, while the Swedish presidency promoted at the European level a theme that is at the heart of the Swedish model back home.

The EU has started a difficult process of reflection on how to reorganise itself as a successful multilevel union in the next decade. It is therefore only natural that its possible future role in social policies should be carefully considered. I would like to make three points which seem to have received little attention in the debate so far.     

The EU welfare we already have 

First, in anything but name there is already an embryo of EU welfare, albeit a very dysfunctional one. The Common Agricultural Policy makes up around 40% of the EU budget, and in essence it is a programme of income support to farmers explicitly designed to grant them a safety net. The ground for this policy to be so sizeable – in fact the ground for it to exist at all, at least at the European level – is far weaker than it was fifty years ago, but here we are.

The Common Agricultural Policy is in essence a programme of income support to farmers. 

Cohesion policy – another big item in the EU budget – is strictly speaking not a welfare programme, as it addresses inequality between regions, as opposed to individuals, but it has redistributive effects. It has financed many worthy projects in the EU’s poorest regions – sure, many unworthy ones too – but it seems to have miserably failed to foster convergence.

Then there is the European Social Fund, which is modest (10 billion) but it exists, and that’s its main merit. It would be useful to see these programmes as elements of EU welfare – perhaps suboptimal and in need of reform – but to be included in an overall debate on social Europe.  

The two fundamental weaknesses of the European Pillar of Social Rights

Second, there is now a European Pillar of Social Rights (EPSR). Its twenty principles are structured around three broad goals – equal opportunities and access to the labour market, fair working conditions and social protection. A scoreboard will be used to assess the relative performance of Member States (MSs) against these principles under the European semester, providing a solid governance framework to encourage the achievement of the set goals.

As with many similar EU ideas, it is interesting and well-structured. As with most similar EU ideas, it suffers from at least two fundamental weaknesses. To begin with, there is a clear abuse of the rhetoric of rights, sadly common to so much contemporary public policy.  

What does it exactly mean to say, for example, that ‘young people have the right to continued education, apprenticeship, traineeship or a job offer of good standing within 4 months of becoming unemployed or leaving education’?

Or that ‘everyone has the right to timely and tailor-made assistance to improve employment or self-employment prospects’? Whose obligation is it to grant those rights? And who’s going to enforce compliance if, for example, a young person does not receive ‘a job offer of good standing within 4 months’?

When words still meant something, every right had a correlative obligation. 

When words still meant something, every right had a correlative obligation which was legally enforceable and backed by public powers. This is clearly not the case anymore. Now declarations of wishes and desires whose realisation is largely beyond the reach of public authorities are solemnly proclaimed as ‘rights’, inevitably fueling popular and populist anger when it becomes clear that they cannot be enforced.  

The second weakness of the pillar is all political. As the inglorious Lisbon strategy and the – admittedly more glorious – Europe 2020 strategy, the EPSR is largely made up of non-binding commitments by MSs within what was once called an Open Method of Coordination (OMC), i.e. a soft governance system that tries to foster convergence through peer pressure, benchmarking and supranational monitoring.

True, the EPSR will be more institutionalised than previous instances of OMC, but the essential political point is the same: once more the EU is committing to a grand vision of something – social Europe in this case -, without having the slightest control over the means and initiatives necessary to deliver it, which largely remain in national hands.

If there is any success, it will be a national success. If there is no progress, it’s the EU that will have proved to be ineffective. Nothing new under the sun – well, the clouds – of Brussels.

It’s subsidiarity, stupid!

There is a final, important point that deserves close scrutiny. Bluntly put: I suspect that arguments for social Europe are ultimately bound to be arguments for harmonisation – possibly for total harmonisation – and against subsidiarity. 

To illustrate my point, let me take the one piece of European welfare that seems to make most sense in the EU context: a federal unemployment insurance scheme. This sounds very plausible and sensible, as it would provide much needed automatic stabilisers in a very suboptimal currency area constantly exposed to asymmetric shocks. But, as always, the devil is in the details. Unemployment is not only a function of the economic cycle but also of domestic policy factors. As long as national policies differ, any federal unemployment insurance scheme is bound to subsidise bad policies in countries with high unemployment, at the expense of countries with good policies and low unemployment.

As with many similar EU ideas, the EPSR is interesting and well-structured. As with most similar EU ideas, it suffers from at least two fundamental weaknesses. 

The only way to eliminate the differentiation created by domestic policy choices is – logically enough – to eliminate domestic policy choices, i.e. to progressively harmonise social and labour market policies through binding benchmarks at the European level. Unsurprisingly, such benchmarks were supported for the long-run by the five presidents’ report of 2015 and featured as one scenario – perhaps the favourite scenario? – of the recent Commission’s reflection paper on the social dimension of Europe.

To summarise: social Europe deserves to be seriously discussed in the context of the future of Europe debate. When doing so, let’s remember to include in this discussion EU social policies that already exist, as well as to go beyond mere symbols and rhetoric.

Most importantly, let’s remember that in a union of states that wish to retain their identity and policy differences, arguments for social Europe cannot be made on purely technocratic ground. They must be assessed against an overriding commitment to subsidiarity.

Federico Ottavio Reho Education Growth Jobs Social Policy

Many European countries are currently facing serious challenges related to weak public finances and political populism. This article suggests that the ageing phenomenon has been a major contributory factor to both of these problems. The European welfare states were created in a period of favourable demography, and it has now become politically much more difficult to keep them fiscally sustainable because of the ageing population and the associated deterioration of the dependency ratio.

The rational policy response to ageing is to increase the labour supply by trimming unemployment benefits, increasing retirement ages and encouraging employment-based immigration. It is precisely such policies, however, that have eroded the support for traditional political parties and created a fertile ground for nativist populism. Thus, the European welfare arrangements may turn out to be politically unsustainable, even if it were theoretically possible to ‘rescue’ them with stringent and fiscally conservative economic management.

Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.

Juhana Vartiainen Jobs Populism Social Policy

In 1819 the French intellectual Benjamin Constant pronounced his famous speech on ‘The liberty of the ancients compared with that of the moderns’. He argued that ancient men had no freedom as individuals, but only as members of the body politic. On the contrary, modern men living under representative government had limited political sovereignty, but many more individual freedoms.  

His speech hinted at a profound difference between the ancients and the moderns. But what would he say if he could observe western societies now, after almost two centuries during which the liberty of the moderns revealed all its potential?

At the time of Constant’s writing, personal freedom was embedded in an intricate structure of family, community and church ties that mitigated it with ‘natural’ duties towards one’s elderlies, relatives, children, neighbours and ancestors. In a word, one’s community. These duties were not enforced by the external coercion of the law, but by the inner force of moral upbringing and by the external force of social conformity.

As a result, the freedom of the moderns was not exactly equivalent to the liberal principle of non-interference: it flourished within a complex ecosystem of moral obligations towards specific people; it was therefore as much about our negative obligations not to interfere with other people’s lives as about our positive duties towards them, which often compel us to restrain our natural desires and leanings for a higher good.

Under this conception, the emphasis was on self-mastery, moral discipline and social duties, not on leaving other people alone. In the Anglo-Saxon conservative tradition, this concept is referred to as ‘ordered freedom’, but it existed, with slightly different variants, in pretty much all traditional societies across the Western world, and it owed much to Christian moral teachings. 

On the contrary, the contemporary conception of freedom tolerates little in the form of specific duties towards specific people. It tends to replace them with abstract duties towards abstract entities that do not require our direct effort as individuals but require us to call on politicians and bureaucrats to do something about it, to plan things better at the highest possible level, often the world level. That’s one root of the modern obsession with global poverty, while charity at home stagnates or is comfortably delegated to inefficient welfare bureaucracies, or with the environment and global warming.

The fashionable moral causes of our age have all in common that we do not have to take direct responsibility for their solution, our moral obligation is discharged by the mere preaching and campaigning. They are the kind of causes you can comfortably support from your sofa, writing tweets full of moral indignation during the break of the movie you are watching, and getting plenty of likes on them.

Thus, in a strange twist of western values, what progressives usually consider supreme ‘moral engagements’ are in fact the end point of a complex process of moral irresponsibility. This process, in turn, finds one of its causes in our dis-embeddedness from the organic communities that were the traditional ecosystem of individual morality across the western world.

There is perhaps something we can do to revive this ecosystem in the 21st century, but it may require measures that many would consider too far-reaching. They imply a progressive but radical reversal of the 20th century trend that saw more and more personal and social responsibilities taken away from individuals and voluntary organisations and handed over to state bureaucracies.

Societies are complex, adaptive structures, and there is no doubt that their resilience and resourcefulness have been hugely damaged by over a century of servitude to the state. The disease is chronic in  the old Europe, where the march towards centralisation was most radical and people have become accustomed to believe that, far from being themselves ‘society’, they have a claim on ‘society’ – to be enforced by the State – for all sorts of things that morally responsible individuals used to see as their main duties in life: providing for themselves and their families, educating their children, taking care of their elderlies, saving for their old age and, very importantly, getting organised to support the neediest in their community through charities and churches.

I would not be surprised if, in the political conditions of the coming decades, there arose a great scope for a virtuous revision of the tasks of government in order to de-bureaucratese our systems and reintroduce choice and ownership at the individual, family and community level. The concrete ways to do so will have to be studied in details.

But there certainly are interesting possibilities, such as the rigorous application of voucher systems in health and education, which would re-empower parents, private organisations and churches in educational choices as well as in the direct management of schools. Home schooling could also be encouraged under certain conditions.

The progressive withdrawal of the state from the universal provision of social security (most notably pensions) should also be envisaged. People could be gradually re-empowered to keep more of their incomes and save for themselves and their families privately and freely, with the state stepping in only in extreme circumstances of need. In a nutshell, people could be encouraged to re-take control of their lives as responsible moral beings with specific social duties that cannot be delegated or outsourced because they are the essence of community life.   

A strong intellectual commitment to shifting public opinions on these issues will surely be needed. But I believe we can convince people that this societal model is the healthiest, as it is based on the principles of freedom and genuine moral responsibility, not on the realities of bureaucratic coercion and that grotesque caricature of moral solidarity that is the modern welfare state.

These developments would no doubt be very challenging. But in times of economic stagnation, overblown public debts and social disintegration we may soon come to regard them as ultimately beneficial. It is not implausible that even Benjamin Constant would give us a like on this. 

Federico Ottavio Reho Ethics Social Policy Society Values

Now that the wrangling about quotas for refugees among the member states of the Union is over (for the time being), and Europe is more focused on regaining control of our external borders, it’s time to look at some of the more long term questions concerning our identity.

Most of Europe’s leaders agree that the current wave of migrants coming to Europe will change our societies. Some express fears (that Europe will lose its Christian identity), others hope (that more diversity will make us more tolerant, less nationalist, more open). Others are simply skeptical whether the sudden influx will be easy to manage without bringing our societies near breaking point.

Let me first deal with two notions that I reject. The first one claims that the sheer fact that migrants come from a different culture and embrace a different faith, will put European civilisation in jeopardy. The other one says that a massive influx of people from other cultures automatically makes us better people because diversity is always good: the more multicultural our identity, the better we will become. Both notions are deeply mistaken.

The fatalists claiming that European civilisation has now signed its own death warrant, might want to take a look at examples of successful integration in counter-intuitive places, such as the Vietnamese in the Czech Republic whose second generation is melting beautifully into Czech society. They are neither white, nor to any significant extent Christian.

But on the other hand, the starry-eyed multiculturalists have a hard time defending the growth of parallel societies, in which the central values of our constitutions (equal rights for men and women, freedom of expression and faith etc.) are systematically disregarded: in places like Parisian suburbs, parts of Birmingham or Berlin-Neukoelln.

All this brings us to the central long term challenge of the current wave of refugees, many of whom are here to stay for a long time: Integration. Looking back at different European strategies over the past five decades, none can be called fully successful. That has many reasons, but one of them is that too often, efforts to effectively integrate migrants have not been made, either because we denied that we are facing (and for demographic reasons, even need) immigration, or because insisting on values was somehow smacking of Western imperialism.

It’s time to take a fresh look. Germany’s debate in recent weeks shows that. Germans continue to be more than willing to shelter those whose lives are threatened. But integration has become one of the hottest topics of German politics, thanks to the refugees. A whole group of politicians from the CDU and the Greens is now openly talking about migrants’ obligation to integrate. As wobbly as it sounds, and as hard as it is to enforce this, it will nevertheless have to become an indispensable part of ‘Willkommenskultur’.

Public administration, social services, schools and civil society: they will all have to incorporate a much stronger emphasis on the central values of Western societies when dealing with migrants. This has to happen from day one of the asylum application process. Material success must be clearly and openly linked to successful integration. That means improving access to the labour market as much as a more intensive effort to explain our constitutions and the rights and obligations of citizens. Countries like Canada, Australia or the United States have some useful lessons ready. We should not be shy to use what is applicable to Europe, while knowing full well that we cannot copy 100 %.

Angela Merkel’s ‘Wir schaffen das’ (We’ll manage) should not only refer to the immediate challenge of sheltering hundreds of thousands of people. It should also refer to the challenge of integrating many of them into a modern, open society. The stakes are enormous: if we manage this, the reward will be a younger population, possibly even a completely new link to Middle Eastern countries, as we already have forged new links to Turkey and the Western Balkans in recent decades.

But if we fail, this could still ruin social cohesion, and bring Europe down for good. The question is not whether Europe in 20 years will have fewer Christians and more Muslims. The question is whether we will still be an open society. If that is what we want to be, we need to get serious about integration now.

Roland Freudenstein Immigration Integration Migration Social Policy Values

There is an ongoing debate about budget cutting in the world today, because revenue coming in is not matching the promise Governments made to their people of availability of pensions, unemployment support and health services.

This problem is particularly acute in countries whose populations are getting older faster, like Finland and Germany. Who would suffer most if crude, across the board cuts in Government social spending were made? The table below, which appeared in a recent OECD report, shows some surprising results.

In some countries the top fifth of income earners are the biggest beneficiaries of social supports in the form of cash payments from Government! In fact, France, Italy, Austria, Portugal, Ireland and Spain give a higher share of their cash social supports (pensions, unemployment and disability supports) to the top fifth of their population than to the bottom fifth. 

In contrast, Sweden, the UK, Finland, Belgium and the US give more to the bottom fifth. The share of cash benefits paid to households in the lowest income fifth of the population is highest in Norway and Australia at 40%, compared to around 10% in Mediterranean countries and 5% in Turkey. In these latter countries, social transfers often go to richer households, because these benefit payments are often related to a work-history in the formal sector and often concern pension payments to retired workers. Earnings-related social insurance payments also underlie substantial cash transfers to the top income fifth in Austria, France and Luxembourg.

Perhaps the most striking thing about this chart is that the average OECD country distributes almost exactly 20 per cent of cash benefits to both the top and bottom fifth of the income distribution. Some governments do less “social spending” in places where the private sector fills in the gap, particularly when it comes to pensions and health insurance. In the Netherlands, Denmark, the US and the UK for example, private pension payments are worth about 5% of GDP each year, while American spending on private health insurance is worth nearly 6% of GDP.

Some countries spend more on those of pension age, others spend more on those of working age

There are interesting contrasts in where the money goes. Pensions paid by government are 5.3% of GDP in Ireland and 5.6% of GDP in the UK, but they are 13.8% of GDP in France, 14.8% in Greece and 10.6% in Germany.

In contrast, income support  by Government for those of working age  are 8.3% of GDP in Ireland, as against  just 4.7% in France, 5.1% in the UK, 3.8% in Germany and a mere 3% in Greece (notwithstanding the country’s high unemployment).

In Ireland’s case, it is worth noting that 40% of the unemployed who receive income support from government are long term unemployed (i.e. more than a year out of work). The OECD has said that their skill levels are inadequate to the modern economy, which is a big long term concern. The longer people are out of work, the harder it is for them to get a job. I heard one person describe the experience of long term unemployment as worse than losing a spouse.

Meanwhile, the number claiming various forms of illness benefit has increased by 47% in the last 14 years from 150,000 to 220,000. This is surprising in light of the improvements in spending on health services in Ireland in recent years. Health spending as a percentage of GDP is 8.6% in France and 8% in Germany as against 5.8% of GDP in Ireland, which is below the OECD average of  6.2%. But health spending is rising in Ireland and the  National Competitiveness Council  says that since 2001 Ireland has had the fastest rate of inflation in health insurance costs of 17 Euro area countries.

These contrasts make it harder to devise a common policy for the Euro area

These contrasts between countries make it harder to devise a common economic policy, even for the countries who share the euro as their currency. They lie behind some of the arguments about immigration in the European Union and the accusations of “welfare tourism”. These accusations are mostly wrong

For example, a recent study in Germany showed that the average immigrant to that country pays 3,300 Euros more in taxes and social contributions than he/she takes out in benefits. In fact immigration yields a 22 billion euro surplus to the German taxpayer. Yet 66% of Germans believe immigrants are a burden! The same applies to the UK.

In countries where government spending goes to the well off, one can expect well placed interest groups to be particularly effective in resisting changes or reductions in expenditure.

Another conflict of interest will be between households with high debts, who are finding it hard to meet their obligations, and households who have made significant savings over the years and who wish to protect the value of those savings. Household debt, as a percentage of household disposable income, is 326% in Denmark, 288% in the Netherlands and 230% in Ireland as against 58% in Poland, 90% in Austria and 94% in Germany.

For example, a policy that favoured low interest rates and inflation would benefit the debtors, but hurt the savers. The savers would also have an interest in protecting the value of the bonds issued by banks, companies and governments in which their pension and insurance funds are invested. Debtors, on the other hand, would be more relaxed about “burning “ these bondholders.

These genuine differences of interest need to be brought out into the open because there are reasonable concerns on both sides of the argument.

John Bruton Economy EU Member States Social Policy

In What Money Can’t Buy, world renowned American political philosopher and Harvard Professor, Michael J. Sandel bravely takes up the challenge of trying to answer one of the fundamental questions of human history: what money should and should not buy.

Skipping the usual elaborate introduction, Sandel begins by illustrating how modern society has become a global marketplace where nearly anything can be purchased for the right price.  Sandel presents a collection of examples to strengthen his case.  For instance, so called ‘concierge doctors’ in the US now offer their services for annual fees ranging from $1,500 to $25,000. A move made possible by the fact that standard doctor’s appointments in the US often have to be hurried affairs because of the low reimbursement rate offered by insurance companies to primary care doctors for routine appointments. Those who are willing to pay the amount can count on “absolute, unlimited and exclusive access to your personal physician.” The drawback, of course, is that it’s unfair to those who are not part of the happy (wealthy) few.

Sandel continues by illustrating that as a result of this ‘marketisation’ of society, people are often happy to pay off the moral obligation to adjust to social norms if they can.  For example, introducing a fine for parents who came late to pick up their children from a nursery school did not reduce the number of late-arriving parents, but actually doubled it. The parents treated the fine as a fee they were willing to pay. Picking up a child therefore becomes a market relationship with the teacher/school.

Market reasoning however, has no objections to these notions of unfairness and moral obligations. It relies on the thought that free markets contribute to societies’ well being by allocating the goods to the buyers who value them most highly, based on their willingness to pay. Sandel concurs to a certain point, but argues that market reasoning is incomplete without moral reasoning. He argues that when market reasoning is applied to more morally charged issues such as love, friendship, sex, education, health or environmental protection, it is not plausible to assume that everyone’s preferences are equally worthwhile. Some of these goods, he feels, should be excluded from the exchange-value logic or else they will eventually lose their value. The essence of this argument can be traced back as far as Aristotle. In that sense, Sandel’s analysis offers an easy-to-read update of some classical held ideas.

Although written in 2012, the topic remains relevant in the current ‘collaborative consumption’ society in which (private) people with limited resources connect to those with under-used assets in need of some extra cash. Virtually everything is up for sale and we all become small entrepreneurs on the side. Accordingly, society slowly transforms in a fully fledged business industry. Not that there’s anything wrong with entrepreneurship, the economy thrives on it, but the more extensive this ‘collaborative consumption’ becomes, social gatherings will more and more revolve exclusively around possible commercial transactions.

In an era of increased consumption, Sandel’s well written analysis of how money has infiltrated our lives offers a differing view.  A point made especially relevant in the aftermath of arguably the worst economic crisis since the 1930s. His main argument that we should decide what values should govern the various domains of social and civic life is a strong one; market rationality has become dominant to a point where respecting social norms is at stake.

The main problem of the book is that the vast majority of the examples of commodification he presents, are American. This harms the universality of his argument. Another obstacle for the book to become an undisputed classic (like some of his previous works) is the sheer volume of these examples; it does not leave ample room for a thorough analysis.

Interesting, Professor Sandel is himself also for sale. For an extraordinary amount, he will show up for a lecture to talk about what money can’t buy!

Barend Tensen Development Ethics Social Policy Society Values

In many countries occupational plans are being reformed from Defined-Benefit (DB) to Defined-Contribution (DC) designs. In a Netspar discussion paper Lans Bovenberg and I explore the case of the Netherlands (http://ces.tc/1qEHH2K), which features a particularly high ratio of occupational pension assets to GDP. Most occupational schemes are DB-funded and the value of assets in these schemes amounted to about 170% of GDP in 2013. This implies that unanticipated shocks in financial markets and longevity require large changes in pension contributions in order to shield pension rights in DB-plans from these shocks.

Therefore, Dutch occupational defined-benefit plans suffer from a number of serious weaknesses, including ambiguous ownership of assets, back-loading of benefits, and lack of tailor-made risk management. In particular, an intergenerational conflict may emerge about not only the ownership of capital in the fund but also the investment profile. These potential intergenerational conflicts are especially serious in the Netherlands due to the large stocks of wealth that have been accumulated. We will therefore focus on Dutch occupational pension plans and the need for reform. Our discussion may be of interest also to other countries who are transforming their DB-plans into DC-plans.

To address these weaknesses, we propose collective individual defined-contribution plans that are actuarially fair. These schemes maintain important strengths of collective schemes, such as mandatory saving, collective procurement and pooling biometric risks. At the same time, they eliminate intergenerational conflicts about risk management and distribution through transparent individual property rights and tailor-made risk profiles.

Our proposal also eliminates the implicit pay-as-you-go elements through back-loading and thus creates the familiar transitional problem associated with a move from pay-as-you-go financing to funding. Therefore, our proposals address this issue head on by grandfathering some of the implicit pension rights in the old system in order to protect the transitional generations. In the paper, we show that this transition burden can be dealt without a substantial temporary increase in contributions, if the transition is accompanied by lower administrative and investment costs.

Raymond H.J.M Gradus Social Policy Society

A spectre is haunting us – the spectre of ‘pikettyism’. Originated in France, it draws its strength from a book by economist Thomas Piketty whose work on the historic trends of capital inequality has bridged the gap between academic research and a mainstream audience. His central finding – that inequality will continue to rise underpinned by a disproportionate concentration of wealth in relatively few capital owners – has particularly delighted the progressive establishment in the US, with Paul Krugman and Joseph Stiglitz throwing all their weight behind Piketty and making his study into the economic sensation it became. The risk now is that socialist governments in Europe will embrace this seemingly new rationale for supporting increased taxation and government intervention in the economy.

Piketty is convinced that, if left unchecked, the dynamics of capital accumulation will produce a level of inequality incompatible with our democratic societies. His diagnosis borrows a great deal from the ‘iron laws’ that periodically appeared in nineteenth century economics to predict the catastrophic outcomes of capitalism’s contradictions. His therapy seems little more than a nostalgic update of the confiscatory fashions embraced by most governments until the late 1970s, when top marginal tax rates and inheritance taxes were often above 80%. A century-old theory combined with policies of the 1960s seems hardly a new frontier of progressive economic thinking. In fact, the only policy innovation of the author is a proposal that he himself does not hesitate to define utopian: a progressive global tax on capital enforced through a high level of international coordination. My impression is that such proposal is worse than utopian: it is mistaken. And so are most policy prescriptions in Piketty’s book.

To begin with, Piketty has a very unrealistic view of capital. He identifies capital as all ‘nonhuman assets that can be owned or exchanged on some market’ and treats any income from capital, be it interest, dividends, profits, royalties or other, as a form of parasitic rent. This makes him blind to the fundamental entrepreneurial dimension of capital investment and accumulation in a free society. In a market economy, capital is not just stockpiled so as to produce certain returns automatically: it must be employed productively in activities that are successful and add value to the economy. Piketty’s theory has no place for market competition and entrepreneurial profit, possibly the two most important factors in a market economy. Furthermore, the optimal degree of government control of national income comes out of Piketty’s book as a purely technical problem, so that the author sees ‘no reason why a country cannot decide to devote two-thirds or three-quarters of its national income to taxes’.

Unfortunately, there are excellent reasons why even a far lower threshold has proved to be unsustainable in the past. Incidentally, these happen to be the reasons why a wide consensus in favor of a dramatic reduction in the size and scope of government emerged since the late 1970s. The simple truth is that government is too often inefficient in its regulatory, economic and welfare interventions. It invariably operates by establishing bureaucracies based on centralized control which grant all sorts of privileges and special protections. In fact, ‘rent-seeking’ by special groups has been long recognized as one of the main drivers of the growth in government spending. Piketty’s view of government officials is as idealized as his view of capitalists is demonized. The mundane truth is that both tend to be self-interested individuals acting in accordance with the incentive structure they face. While competition in the free market acts as a balancing force that tends to align individual incentives with social welfare, no such mechanism exist in government.

The moral implications of Piketty’s argument are even more questionable. The obsession of some economists with fighting income inequality is highly misguided. We accept market freedom because it creates a ‘society of incentives’ where everybody can make the most of his talents and innovative abilities and reap the full benefits of them. The rules of this game imply that some of us may get much richer than others and should have the right to freely employ their wealth and bequeath it to whomever they like. Income inequality is the price we pay in order to make our societies more dynamic and innovative, ultimately to the benefit of everyone. Extensive taxation and redistribution may make our incomes more equal, but it will not make any durable contribution to reducing overall levels of poverty.

Instead, the virtues of market freedom are unfolding before our eyes and they have been lifting millions of people out of poverty and deprivation in the last decades. Today’s China is characterized by striking and extreme inequalities. Are we really to conclude that the miserable equality of pre-capitalist China was preferable because it did not offend the social sensitivity of progressive economists? It is no chance that Piketty is completely silent about the economic miracle that has reawakened entire continents after centuries of stagnation and decline. He is too obsessed with widening income inequality in the West to care about poverty reduction in the East and the South. However, it seems to me that the most meaningful moral issue is not by how much my neighbor grew richer than me in the last years, but how many fewer people are starving in the world. To my knowledge, there is no government program of income redistribution that ever contributed to this objective anywhere in the developing world.

Like it or not, it has been economic policies traditionally labelled as conservative that were the most progressive in their effects. In the past generation, the most ambitious leaders of the centre-left (Clinton, Blair, Schröder) were courageous enough to recognize this simple lesson of history and turn their back on the old-fashioned policies of the past. Is it pure chance that their more traditional successors were never capable of repeating their landslide victories in recent years? Piketty’s theories may well be able to win over the nostalgic leaders of the European left, but I have the impression that we can still count on the electorate to look past his simplistic solutions and focus on real policies that will make our societies more productive and prosperous in the long run.

Federico Ottavio Reho Development Economy Social Policy Society Values

In recent times, there is no shortage of people who check data and figures used by politicians in their electoral pledges. In this post I would like to carry out some kind of ‘theory checking’ regarding certain economic claims of anti-European leaders. In many cases, these claims have been found to be utter non-sense in economic theory since the time of Adam Smith, who is not exactly the most recent student of economics. Let us take, for example, the opposition of Marine Le Pen, leader of the French National Front, to trade liberalisation and her ceaseless calls for an ‘intelligent protectionism’ behind national frontiers.

Now, it turns out that no such thing as ‘intelligent protectionism’ has ever existed beyond the confused fancies of its upholders. ‘It is the maxim of every prudent master of a family’, Adam Smith wrote almost 240 years ago, ‘never to attempt to make at home what it will cost him more to make than to buy. […] What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom’. In fact, the argument for free trade between states parallels the argument for interpersonal exchange within a state. They both depend on individuals freely deciding whose products meet their preferences best and thus directing societal resources to their most effective use. Who can possibly make that decision better than them?

Equally puzzling is the opposition of Eurosceptics to the free movement of persons within the European single market. It gets particularly entertaining when put forward by people who like to brand themselves as ‘classical liberals’, such as UKIP leader Nigel Farage. The dreams of this valiant orator seem to be haunted by hordes of Bulgarians and Romanians on the verge of invading the UK. Here again, the facts are known and there is no need to recap them (http://bit.ly/SAbLO1). The theory is more interesting. Labour is a factor of production, so there is a market for it. The bigger this market is, the higher the chances will be of an effective match between the demand and supply of labour. Within the European single market, the most effective match is sometimes likely to imply the utilisation of cheap labour, for example from new member countries, whose wages are still significantly lower than in Western Europe.

Why shouldn’t entrepreneurs buy from ‘foreigners’ what it would cost them more to buy from nationals, Adam Smith would ask? Because by pursuing their own economic profit, someone may answer, they will depress national wages and destroy national jobs. However, that’s not what economic theory predicts. If production costs decrease thanks to cheap labour, in the medium run prices in the affected industries will tend to fall relative to other prices, thus increasing people’s purchasing power and effective demand. This is likely to create new jobs, not destroy them, and to bring about a more effective use of societal resources. We can expect society at large to be better off, not worse off. It must be stressed that it is the entrepreneurial lure of profit that tends to bring prices down and make them converge towards the marginal costs of firms. Therefore, if competition is absent or insufficient in national markets, there is no way in which this virtuous spiral can be triggered. This conclusion is quite significant: the initial argument against the free movement of persons becomes an argument for more competitive national markets.

Let me consider for a moment the other usual objection against the free movement of persons, namely that it encourages ‘welfare shopping’, as they call it, in the EU. In other words, people are thought to resettle in countries where they can enjoy high welfare benefits and live a parasitical life off state finances. As above, I will put aside facts and focus on theory. If EU citizens take up jobs anywhere in the Union and contribute to public finances as much as nationals of the host state are we really to argue that they should be discriminated against just because of their nationality? I doubt that even the most hardline Eurosceptics would put forward such an argument.

The assumption must then be that they will not take up jobs and pay taxes, but simply stay idle and enjoy benefits for which nationals of the host country are paying. However, even if it were true, that is no argument against the free movement of persons either. At best it points to shortcomings in the way national benefit systems are structured and it should be addressed by redesigning them. After all, a system under which one, either national or not, can live for a long time off the public purse inevitably discourages everybody to actively look for jobs. That may be as true of some non-national EU citizens as of some unemployed citizens of the host country, who do not contribute to public finances either and may well remain unemployed for the same opportunistic reasons. Therefore, there would seem to be no reason for discriminating against foreigners as such.

My understanding is that any discrimination in the provision of welfare benefits based on nationality would hamper the working of the common market for labour, which represents the most powerful microeconomic justification for the free movement of people. For that market to work properly there must be no difference between the incentives to take up jobs for nationals and non-nationals from EU countries, except those inevitably implied by such issues as physical distance and language barriers. Only in this way can we be confident that the matching between demand and supply of labour will tend towards the best use of societal resources on the continent, and that competition will spread the benefits of this process to the highest number.

Federico Ottavio Reho Eastern Europe EU Member States Migration Social Policy

The cost of health service is going to rise a great deal in coming years.This is due to the ageing of the population and to the cost of medical treatments at the end of people’s lives. Rising incomes in society also lead to higher expectations of health services and higher pay costs within the health service. Advances in medical technology make better treatments available, but these treatments are often costlier than the (less effective) treatments they replace.

POLICY CHOICES MAKE A DIFFERENCE

But there are choices that can be made. For example, on certain assumptions, a McKinsey study suggested that the cost of the health service in Ireland in 2040 could range between 10% of GDP and 18%, depending on policy choices. In the UK the range is between 11% and 14% of its GDP, and the range in the US is between 24% and 26%.

SO DO OUR OWN DECISIONS ON USING THE SERVICE

What can be done to contain costs? I saw a report of a British NHS report on Accident and Emergency visits which suggested:

+ one million of the 5.2 million annual visits to A and E were avoidable
+40% of patients who visit A and E are discharged needing no treatment at all
+ 50% of Ambulance call outs could be managed at the scene without going to hospital
+ 20% of GP consultations could be dealt with by self care or a visit to a pharmacy

These statistics suggest that there is plenty of room to encourage people to learn more about looking after their own health. The challenge is to devise policies that incentivise this in a responsible way.

John Bruton Economy Social Policy Sustainability

Jürgen Matthes, co-author of a new CES study on public finances and growth talks about how to counter the dangers of self-defeating austerity and the four objectives that have to be taken into consideration when implementing smart fiscal consolidation measures.

Jürgen Matthes Crisis Growth Macroeconomics Social Policy Sustainability

The financial transaction tax (FTT) has been in the limelight ever since the European Commission President, José Manuel Barroso, presented his proposal to the MEPs in Strasbourg in his ‘state of the Union’ speech (28/09/2011). In the current economic turmoil, this proposal revives an old debate and adds more food for thought to the general discussion on European economic governance.

The proposal will have to be approved unanimously by the 27 Member States at the Council of Ministers, following the opinion of the European Parliament. The FTT raison d’être is twofold: on the one hand, it is meant as a fair contribution from the financial sector to the cost of the economic crisis or, in other words, a way to make banks and similar institutions pay their share of the burden of adjustment; on the other hand, the proposal is expected to reinforce EU’s internal market by preventing financial speculative activities and competitive distortions from happening.

By introducing a FTT first at EU level, the measure is also projected to set up the appropriate grounds to eventually work on a similar tax at global level. The proposal has wide support from European citizens (65% according to the latest Eurobarometer) and has been fostered by the French-German axis. For this reason, critical voices speak about a ‘political’ proposal, while questioning its viability from an economic standpoint. Most of the criticism has come so far from Sweden and the UK. One of the main arguments put forward by the detractors of the proposal is its potential negative side-effects on the economy, namely the relocation of the financial institutions, the resulting loss of competitiveness and, eventually, the possibility of clients bearing the burden of the tax. Swedish economist Anders Aaslund has recently criticised the proposal recalling Sweden’s experience with the so-called Tobin Tax back in the 1980s. According to Aaslund, the revenue of the tax amounted at the time SEK80 million, while SEK1.5 billion was foreseen.

Furthermore, most of the securities market left the country as a reaction to the tax. A similar situation is foreseeable, in his opinion, with the security trade abandoning the EU. For that reason, the Swedish government is expected to reject the proposal and, always according to Aaslund, the Nordic and Baltic governments in general would reject it too. The UK’s opposition to the FTT is perhaps more difficult to explain, particularly if we take into account that there is already a sort of financial transaction tax in place in this country. However, according to some studies, the so-called Stamp Duty Reserve Tax actually exempts more than 70% of the total UK stock market volume from the tax. This situation would change with the introduction of a FTT at European level. Besides this economic argument, internal politics are likely to be an influential factor for the rejection of the proposal, mainly because the introduction of the FTT would mean a step towards more of the EU’s own resources. Other voices, such as the one from the European Central Bank President, Jean-Claude Trichet, do not criticize the idea of having a FTT per se, but emphasize the fact that it should be applied everywhere in the world. If not implemented at global level, the proposal would have disrupting effects on the economy, he asserts. In spite of the above mentioned criticism, the Commission proposal has the strong support of the European Parliament, as well as with the backing of French and German leaders.

When defending the FTT, there are many arguments to point out. Firstly, the proposal has the support of the majority of the European citizenry. Secondly, it is regarded by the Commission as a first step to a global transaction tax, this being the ultimate goal, which will probably be introduced in the next G20 meeting as a subject for discussion. Thirdly, the proposal addresses the financial services, which have benefited so far from preferential treatment when it comes to taxation compared to other sectors (financial services are, in general, exempted from paying VAT). Fourthly, it will only affect transactions on financial instruments between financial institutions, in other words, it will not be detrimental to private households or SMEs. Fifthly, the tax rates will vary from 0.1% and 0.001% depending on the product – this would be the minimum for Member States to implement – therefore not representing a threat for financial institutions and therefore an incentive to relocate. Sixthly, the tax is expected to raise revenue of approximately €57 billion per year, a part of which is meant to go directly to the EU Budget, thus reducing the Member State’s GNI-based contributions. What can be the expected outcome of the FTT proposal? As already mentioned, it is highly improbable that it will make its way through a Council deciding unanimously. It is more probable, however, that the FTT would begin its journey within the eurozone, as suggested already by some, like the Belgium Finance Minister Didier Reynders. Nevertheless, the approval of every country from the eurozone cannot be taken for granted either, since there is speculation that The Netherlands and Spain – two countries with powerful banking sectors – would be reluctant to approve the proposal. Another option would be a selected team of countries willing to participate under enhanced cooperation procedure but, in such a scenario, the ambition of having a universal FTT would be far from realized.

Banking Business Economy Social Policy