EU Summit Steps Closer To Fiscal Harmonisation

by Ulrika Lomas, Tax-News.com, Barcelona

18 March 2002

At the beginning of the EU's Barcelona summit this weekend Lionel Jospin, the French prime minister, introduced proposals for more tax harmonisation in the European Union and enhanced budget co-ordination in the 12-nation eurozone.

In his call for harmonisation of corporate taxes, Mr Jospin said the completed introduction of the euro and the EU's impending enlargement made tackling unfair tax competition indispensable. Predictably, Tony Blair, the UK prime minister, rejected the call for more tax harmonisation.

However, Jospin's calls for "genuine" co-ordination in advance of national budgetary policies, an annual debate on economic policy co-ordination at the EU's spring summits and agreement on an aggregate budget deficit figure for the eurozone to complement the single monetary policy were more warmly received.

Plans to step up economic policy coordination by euro zone countries will be studied by EU leaders at their spring summit next year, according to a communique drawn up at the Barcelona meeting. The leaders noted in their conclusions that the euro zone is a "monetary union under a single and independent monetary policy and decentralised but coordinated fiscal policies".

They said there is a need to make further progress in a number of ways, including "reinforcing existing fiscal policy coordination mechanisms within the euro group.

"In this regard the European Commission will present proposals to strengthen economic policy coordination ahead of the spring 2003 EU council," the communique said.

German officials said they objected to the idea of advanced co-ordination of national budgets because it smacked of the long-held aspirations for an "economic government" for the eurozone, although they conceded that Gerhard Schröder, the German chancellor, knew that greater EU integration required more co-ordinated policies.

The communique said that leaders also reaffirmed their commitment to balance their countries' budgets or put them into surplus by 2004. "This means, in particular, that in expansionary phases growth dividends should be fully reaped," it said.

"Member states could make use of discretionary fiscal policy if they have created the necessary room for manoeuvre," it said in a reaffirmation of the commitment under the EU stability and growth pact.

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