Schroeder warns new EUmembers on tax dumping
30 April 2004
BERLIN – German Chancellor Gerhard Schroeder demanded Friday that an enlarged European Union harmonise national taxes and revived proposals for a two-speed Europe on the eve of the bloc’s historic admission of 10 new members.
“The future of our nation cannot be stuck in a merciless struggle over low wages and low taxes,” said Schroeder in a speech to parliament.
The German leader, who has repeatedly criticized future European Union (EU) states for slashing tax rates, vowed he would “fight for harmonisation of direct taxes” in all EU members.
An EU tax corridor with a maximum high and low tax was needed to prevent “tax dumping” from harming countries like Germany, he said.
German corporate taxes are currently 38 percent – the highest in the EU – compared with 15 percent in Latvia, 16 percent in Hungary and 19 percent in Poland.
Making sure this message got through, Schroeder repeated it in an interview published Friday in the Wall Street Journal and Germany’s Handelsblatt newspaper.
The Wall Street Journal summed up the stance by saying: “Schroeder laid out a rough welcome for the 10 countries entering the European Union Saturday: don’t count on the continued financial generosity of Germany if you engage in unfair tax competition.”
Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Cyprus and Malta all enter the EU on Saturday. The new European Union will have 25 members.
Chancellor Schroeder has in past weeks made veiled threats that new members cannot expect EU subsidies to rebuild infrastructure if insist on cutting taxes to lower levels than the wealthy old member states such as Germany.
But in a new and tougher line from Berlin, Economics and Labour Superminister Wolfgang Clement flatly threatened to cap aid from Brussels for the new members if they did accept tax corridors.
“If central and east European countries say they can’t accept tax harmonisation then a country like Germany … will ask if structural aid should continue at its current levels,” said Clement in an interview with the Financial Times Deutschland newspaper.
Germany is the EU’s biggest paymaster and contributes over 20 percent of the bloc’s annual EUR 100 billion budget – most of which goes to farm and structural aid.
Opposition Christian Democratic Union (CDU) leader Angela Merkel criticized the German government’s stance and said Berlin needed to get its own highly complex tax laws in order before criticizing new members.
“The first thing we have to talk about is a new tax law in Germany,” said Merkel to applause from opposition benches.
Turning to another controversial EU issue, Schroeder renewed calls for a two-speed EU if reaching unanimity on tax, foreign and security policy proved difficult in a 25-member Union.
“I regard the instrument of enhanced cooperation as sensible…,” said Schroeder. The term “enhanced cooperation” is EU jargon for one group of countries moving faster than the rest of the EU on a major issue.
Germany and several other founding EU members have mooted the idea of a “hard core” of states pushing ahead further and faster with integration. Such a core already exists given that not all EU states have joined the eurozone or the Schengen agreement which eliminates border controls between some EU states.
But many future EU members worry that formally endorsing such a two-speed Europe would create two classes of EU membership.
Stepping back from trade issues, Schroeder hailed EU enlargement as the achievement of a historic goal sought by the continent since Europe’s division in 1945.
“The dream of many generations of Europeans will become reality – Europe is finally overcoming decades of painful division,” he said.
“An historic mission has been accomplished,” concluded the German leader.
Meanwhile, German President Johannes Rau said Friday in Warsaw on the eve of Poland’s entry to the bloc would end the great division of the European continent.
“For Germany and Poland this begins a completely new chapter in our neighbourly relations,” Rau said, speaking as the first German head of state to a joint session of the Polish parliament or Sejm.