The risks posed by EU enlargement

Chancellor Gerhard Schroeder has issued a veiled warning to the 10 states joining the European Union on 1 May that Germany would not fund their EU development projects, if they insisted on radical tax cuts.

“Things have got to be fair. The new member states cannot orient their tax policies in a one-sided manner to investment decisions of business,” Schroeder said in an interview with Deutsche Presse-Agentur dpa.

The Chancellor is under growing pressure from members of his Social Democratic Party (SPD) and trade unions to take a hard line over companies shifting operations from Germany to central and eastern Europe to take advantage of lower taxes and wages.

There is unease in Berlin over a wave of tax cuts among future EU members. These cuts have been led by the centre-right Slovakian government of Mikulas Dzurinda, which has slashed corporate and private taxes to 19 percent.

German officials grumble that most of western Europe cannot afford to reduce taxes below 30 percent.

*quote1*Berlin is the EU’s biggest payer and contributes more than 20 percent of the bloc’s EUR 100 billion annual budget.

Most of these funds are for infrastructure projects and farm subsidies.

German officials fear tax cuts by the new members will destroy the revenue base needed to restore their often creaking infrastructure – and that Berlin will be asked to foot the bill.

“It cannot be that Germany … has to finance unfair tax competition against itself,” warned Schroeder.

He underlined that new members would have to secure a fair part of the financing for their own economic build-up to keep EU aid within “reasonable limits”.

He gave no indication of what these limits should be or the levels of tax cuts Germany would accept.

The EU will expand to 25 members on 1 May when it admits Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Cyprus and Malta.

Turning to the running of the EU, Schroeder said the expanded Union should allow smaller groups within the bloc to move at varying speeds on key projects.

This, the Chancellor noted, was already reality given that only 12 of the current 15 members belong to the eurozone and not all states have joined the Schengen Agreement allowing travel without passport controls in parts of the bloc.

“In areas necessary for pushing forward integration, we want to look for pragmatic ways … which will allow a group of member states to forge ahead,” said Schroeder.

But the Chancellor was careful not to mention creating any sort of an elite EU core or “Kerneuropa” as Germans call it. He also did not refer to a “two-speed Europe”, a term which rankles some leaders who interpret it as meaning a two-class EU.

There have been differences over this between Schroeder and German Foreign Minister Joschka Fischer, who is more outspoken in rejecting Kerneuropa, in a bid to placate smaller EU members.

Some EU leaders were alarmed earlier this year when Schroeder organised a Big Three meeting in Berlin of EU heavyweights Germany, France and Britain.

*quote2*Italian leaders expressed fears of a new “directorium” seeking to run Europe.

This was rejected by Schroeder, British Prime Minister Tony Blair and French President Jacques Chirac, who insisted different groups of EU countries met all the time to discuss key issues.

Reacting to moves by German expellees who view Poland’s EU membership as a means of regaining lost properties, Schroeder said such issues must not be allowed to harm bilateral ties.

“My firm conviction is that the good relations with Poland must not be burdened with painful questions of the past,” Schroeder said.

A “Prussian Treuhand” group has been set up to seek restitution of properties in the former German states of East Prussia, Pommerania and Silesia, which are now parts of Poland. The group plans to bring a lawsuit against the Polish state in the European Court of Human Rights and possibly class action lawsuits in the United States.

About 15 million ethnic Germans were dispossessed and expelled from eastern Europe after the Nazi German defeat in 1945. Up to two million people died or were killed during the expulsions, German sources say.

April 2004

DPA

[Copyright Expatica 2004]

Subject: German news, European Union enlargement, Gerhard Schroeder