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Tuesday, March 30, 2010

Setting the record straight on regulation

In case anyone has yet to see it, Open Europe has today published a new report detailing the cost and benefits of regulation introduced in the UK since 1998. Since last year's study on the same topic we have analysed an additional 320 of the Government's impact assessments, bringing the number of IAs analysed in total above 2,300.


It's not the easiest subject to traverse for those unfamiliar with the inner workings on regulation and deregulation initiatives, which is perhaps why it seems to have led to confusion in some quarters over what the report actually is.

The European Commission, for one, gave their response to our study in the Telegraph saying:

"The Open Europe study lacks rigour and is intentionally misleading. The headline figures suffer from a methodological bias. It confuses stocks and flows, it suffers from double-counting, it does not consider what repealing EU regulations would imply either in terms of foregone benefits or alternative regulatory costs."


An intriguing response. The Commission appears to have read only the first sentence of our press release and nothing of the actual report. That's a shame because:
  • We presented three sets of figures, the cumulative cost of regulation, the annual cost of regulation and benefit/cost ratio of regulation. The Commission only responds to the first figure.


  • The cumulative cost, or a cost of the 'stock' of regulation, measures the entire cost to the economy since 1998, which is £176 billion. The EU is responsible for 71%, or £124 billion of that cost. We explained that £176 billion is equivalent to 12.6% of the UK's annual GDP, and roughly equivalent to the country's budget deficit. This does not mean that the £176 billion cost of regulation occurs in one year, as we make clear, and the comparison to the budget deficit and GDP is illustrative and designed to relate a large figure to something most people are familiar with. In particular it's a useful reminder that regulatory policy deserves as much scrutiny as budgetary policy, as both have a significant impact on the economy. We can see why the Commission doesn't like that thought. We're note sure what the Commission's remark about 'double-counting' refers to.

  • In the report, we do address the counterfactual , i.e. the costs that would have occured in absence of EU regulation. This is indeed an interesting discussion - one that the Commission would do well in seriously engaging with. We accept that many regulations - but certainly not all - would exist in national law also in the absence of the EU. However, and this is crucial, while the framework of laws may still exist at the national level, a whole range of prescriptive requirements that go with it would not. We give examples in our report.
  • Additionally, knowing the source of regulation is vitalling important, both in terms of practically amending the law if so desired, and in terms of political accountability. Not knowing the source of the laws massively undercuts citizens' ability to hold policymakers to account. I.e. if I'm not happy with my energy bills rising as a result of regulation, who should I blame? The answer is far from straightforward.

  • The annual cost of regulation measures the cost to business and the pulic sector arising from red tape in any given year (from existing and new regulation). We consider this to be a more useful measure than the cumulative cost as it allows us to look at trends. The Commission doesn't seem to address this figure, which is surprising. Particularly as it shows that the EU proportion of the total cost has gone down over the last three years (at 59% in 2009, compared to a 72% average), which could be a sign of the EU's 'better regulation agenda' beginning to pay off...
  • But the most interesting figure is the benefit/cost ratio, showing the benefits of EU and UK regulations relative to each other. This figure is not being addressed by the Commission either. The ratio makes clear that for both EU regulations and UK regulations the benefits outweigh the costs, but UK regulations areo n average 2.5 times more cost-efficient than EU laws. This is also true in the areas where the EU and UK regulate the same parts of the economy (for example, social policy and environment legislation). This is what the Commission really should be trying to respond to if they’re concerned with relative benefits.
Additionally, a spokesman from the Department for Business said:

"The figures presented in this report are out of context as they take little or no account of the wider economic benefits that regulation can deliver. European regulation has helped open up new markets for UK business across Europe and provided important new rights and protections."
Again, we acknowledge that regulations come with benefits, and that EU laws, for example on public procurament or energy 'unbundling', can have a positive impact on the economy. The problem is that EU regulations too often are mistargeted, overly burdensome and decided at the wrong level of policy-making in the first place. That's what we're addressing.

The Department for Business added that its "Forward Programme", which details the regulations planned for next year, shows that EU regulation will only make up 31% of the total cost. The discrepency is explained by the fact that the forward programme doesn't take into account any of the existing regulations generating costs to businesses and the public sector - our estimate does.

And closer inspection of the Government's "Forward Programme" reveals that the economic impact of many of the EU regulations due to come into force next year have yet to be quantified (24 to be exact). Some are also very important, such as the proposed establishment of the EU's three new financial regulators - which could have a massive impact on the City of London. True, there are also many domestic regulations yet to be quantified but, as we have seen in previous years, a high EU proportional cost can just as easily be attributed to just a few extremely costly regulations as several put together. So, essentially, it is too early to tell until all the costs are quantified.

Interestingly, former Dutch EU Commissioner Frits Bolkstein today reaches some similar conclusions to those we spell out in our report. Writing in Belgian daily De Standaard he calls for the size of the Commission to be reduced to 12. He explains his reasoning:

"A proposal to grant independent women the right to pregnancy leave. Both in the Netherlands and Bulgaria, shouldn't we decide on that ourselves? The European Commission has apparently learned nothing from the Nos in France and the Netherlands...Under Barroso the Commission has become a presidential system. Now there are 27 Commissioners. Power is with the President and his Chief de Cabinet. The Chief of Cabinet has more power than many Commissioners. Discussions within the Commission don't mean anything any more."

"What do Commissioners want? They want to get into the picture with initiatives, smart or not...The only way to stop the stream of useless initiatives is to reduce the number of Commissioners to what is necessary to steer the EU. I think a Commission of twelve capable people is enough."

Monday, March 29, 2010

How many presidents does it take to change a...

Following the infamous "Obama snub", the ‘EU as global power’ project has suffered another humiliating dressing down this week. This time the reality check comes from the Director-General of the World Trade Organisation, Pascal Lamy, who, in his frustration with the shambolic organisation of the EU representation has set out some guidelines as to how the member states should behave at future WTO meetings:
“If one European takes the floor on one topic, and then another European takes the floor on the same topic, nobody listens. Nobody listens because either it’s the same thing and it gets boring, or it’s not the same thing and it will not influence the result at the end of the day….So the right solution, if I may, is at least to make sure that they speak with one mouth. Not one voice—one mouth—on each topic on the agenda. That would be a great improvement.”
More than a little patronising and far from the “unified EU voice” that those supporters of the Lisbon Treaty suggested. Gideon Rachman, reporting from the Brussels Forum of the German Marshall Fund on his FT blog, has offered an insight into how the EU is actually viewed by American diplomats:
“In the lobby of the conference hotel, I just bumped into some official Americans who had been to see senior people at the commission. They had delicately raised the question of which of the two European 'presidents' would represent the EU at future international summits. 'Oh that’s all settled,' they were told, 'they’re both going.' With enormous self-restraint, the Americans apparently refrained from laughing out loud, or banging their heads against the wall. Meanwhile European officials still maintain, with a straight face, that the Treaty has 'simplified' Europe's structures.
Which pretty much sums it up.

Wednesday, March 24, 2010

EU 'solidarity' in action

As details of a possible bailout plan for Greece, which could emerge from tomorrow's EU summit, are leaked, it is becoming clearer that 'solidarity' for some EU leaders is not a one way street.

And we are not necessarily referring to German demands for renewed fiscal discipline in exchange for financial aid to Greece.

Instead, Reuters is reporting that France and Germany are trying to land plum defence contracts from Greece. Under the headline "Broke? Buy a few warships", the article reports that, in an unexpected twist to the Greek debt crisis, France and Germany are pressing their beleaguered neighbour to buy six frigates, 15 helicopters and up to 40 top-of-the-range Rafale fighter aircraft (pictured), even as the country struggles to get its public finances in line.

The article quotes an advisor to the Greek PM George Papandreou saying: "No one is saying 'Buy our warships or we won't bail you out', but the clear implication is that they will be more supportive if we do what they want on the armaments front".

Possibly not the kind of solidarity that Mr Papandreou had in mind when he said he was expecting EU solidarity.

Tuesday, March 23, 2010

Not playing along

Following its succesful campaign to pressure Ireland into signing the Lisbon Treaty, the EU elite now seems set on an even bigger task: forcing Germany to accept a bailout plan for Greece. A range of selcted EU leaders hope that Germany will give in at the EU summit later this week.

So far, Chancellor Angela Merkel has (at least in public) resisted EU pressure to open her purse. She has even been forced to instruct her Finance Minister Wolfgang Schäuble to calm down a bit, as Herr Schäuble has proven a bit too enthusiastic about signing up to a Greek rescue plan.

Interestingly, Handelsblatt today reveals that Schäuble's proposal for a European Monetary Fund - which would serve as a long-term solution to the eurozone's woes - was not checked with Merkel beforehand, which apparently now has created a rift between the two. Go figure.

Apart from the split within the government itself, the country's central bankers also seem to have a bit of a beef with the politicans in charge. Througout modern German history, the Bundesbank and the Federal Ministry of Finance have often clashed, and the Bundensbank is certainly not making life easier for German politicans at the moment.

In its monthly report, the Bundesbank pointed out that it is not within the IMF's mandate to help countries to finance their excessive budget deficits. "The IMF's mandate stipulates that it may only use its foreign-currency reserves to bridge short-term balance of payments deficits", the bank claimed.

Given the stakes (a Greek default), publicly resisting an IMF solution (which would be the least painful option for all concerned in our view) seems a bit risky. The Bundesbank must be very confident that Greece will manage to cut its budget deficit, despite not being able to devalue because of its euro membership, and despite not being able to recieve affordable loans (since that's not within the mandate of the IMF, according to the Bundesbank's logic).

Is it implicitly advocating the solution which involves voluntary bilateral loans from eurozone member states? Or maybe it has a different solution in mind? Interestingly, the Bundesbank also pointed out yesterday that it saw the expulsion of a eurozone member as fully possible, since the Lisbon Treaty neither mentions such an option nor excludes it...

Axel Weber, who is now head of the Bundesbank, deserves credit for his boldness (but we're not sure his high profile will help his bid to become the next ECB President).

With an internally split Government, a more assertive Bundesbank and with the meticulous judges at the Karlsruhe court waiting in the wings, this plot is certainly thickening.

Does anyone still believe that Germany is a unitary actor in EU affairs?

Friday, March 19, 2010

Left waiting

It seems that the lack of scrutiny for Parliament since the Lisbon Treaty came into effect is not restricted to the SWIFT agreement.

Documents from the European Scrutiny Committee point that three additional measures have been limited to only four weeks scrutiny time because of the failure of Ministers to deposit the relevant documents with the Committee.

Two different agreements on the sharing of passenger-name records (with the US and Australia), and an extradition agreement between the EU and Iceland and Norway have both seen their scrutiny time cut short in January.

The Committee points out that this "contravenes the undertaking in Baroness Ashton's statement on JHA opt-ins that the Government will place an Explanatory Memorandum before Parliament 'as swiftly as possible and no later than ten working days after the publication of the proposal.'"

Maybe the relevant department took a holiday on 17 December, when the Memorandum was due to be deposited, but that doesn't explain why they failed to do so until 19 and 20 January respectively. While these measures are not as controversial as SWIFT, it would be nice to see the Government adhering on all these proposals to the assurances it made on Parliamentary scrutiny when it was ramming the Lisbon Treaty through.

This is important stuff, as it strikes at the very heart of national democracy and scrutiny in the wake of the Lisbon Treaty (which, on the whole, reduces the role of national parliaments in EU decision making).

A shame so few people are paying attention.

Wednesday, March 17, 2010

We've been here before


The Spanish EU Presidency yesterday decided to shelve a vote on the proposed AIFM Directive on hedge funds and private equity due to "a last-minute intervention by Gordon Brown", according to the FT. The talks apparently stalled on British concerns over the protectionist elements of the Directive, which could see barriers put up to non-EU funds trading in the EU.

We have estimated that the industry contributed €6.1 billion in tax revenues in the UK alone and €9.2bn overall - an amount that could be under threat if a flawed directive is passed. We have also consistently warned that the protectionist provisions entailed in the proposal would cut off offshore managers and funds from the EU market. This will have at least two negative consequences: less choice and value for money for EU investors (including pension funds and charities) and less capital for European firms struggling to rebalance their books in the wake of the economic downturn. Therefore, the British Government's focus on the protectionist dimension is in principle welcome.

The FT reports that Paris "agreed to defer a vote" in order to avoid appearing to inflict "a defeat on Britain". A vote could have been forced on the UK because this Directive will eventually be decided by qualified majority voting. The question is will anything have changed when ministers next look at the Directive in either May or June.

There are also worrying parallels with what happened with the Temporary Agency Workers Directive in 2007. Then, as today, the FT reported that Brown had "personally intervened to defend Britain’s flexible labour market" and delay agreement on the Directive when it looked as though the UK would be outvoted. However, within a year the UK had been out-foxed and was forced to accept the Directive with only minor concessions. In addition, the UK almost lost its separate opt-out from the EU's 48 hour cap on the working week, entailed in the Working Time Directive, as a horsetrading deal involving the two Directives came dangerously close to backfiring at the hands of the European Parliament.

The Government will no doubt portray yesterday as a victory. And although the postponement of the finance ministers' vote on the proposal leaves UK negotiators, the industry, investors and others with some extra room to find allies and bolster the case for a radically amended Directive, today's developments provide no guarantee that this is going to be straightforward. A vote in the Council is now expected at the finance ministers' meeting on May 18th, meaning that for the time being all eyes will be on the European Parliament (whose economic committee will vote on a draft proposal on April 22nd). The key for MEPs is now to resist protectionist urges.

The postponement of the Council vote also adds another dimension to what already is a very complex amendment process. The British general elections will take place on May 6th, meaning that should the Conservatives win, they will be faced with a major showdown in Brussels after less than two weeks in office.

Whether this is a good or a bad thing for the fate of the AIFM Directive depends on a number of factors, including how much energy and political capital a Conservative government considers it can spend on this (the Tory treasury team is not short of challenges as it is); and how willing European partners are to give concessions to a Conservative government early on, in order to secure its future constructive engagement in EU affairs. This, in turn, depends on what a Conservative government is willing to concede in return, i.e. future concessions on agricultural spending, social legislation and so forth. In Brussels, as ever, nothing is free.

One thing is for certain, this is not a good time for the UK government to let its guard down on the AIFM Directive. Indeed, we've been here before.

Thursday, March 11, 2010

Nightmare Lisbon Treaty

Today, the Lisbon Treaty has been in force for 100 days. The result? A more democratic and open EU? A Union which voters have an easier time understanding and identifying themselves with? Simpler and more 'streamlined' institutions? Not quite.

On it's 100th day in force, the fundamental flaws of the Lisbon Treaty - which many of us warned against - are beginning to hit home around Europe.

Le Figaro has an article in today's edition (not online) bashing the confusing institutional set-up created by Lisbon. The article notes,

Did the authors of the Lisbon Treaty fool themselves? A hundred days after the birth of the 'newly formulated' union, Europe is struggling to make its voice heard, and the confusion – 'cacophony' according to Jose Manuel Barroso – has increased at the top.
The article goes on to say that "the twenty-seven had hoped to end what we in Paris call institutional navel-gazing", but quotes an unnamed Commissioner saying, "The treaty has not simplified life; it has complicated it and wasted a lot of energy”.

Strong stuff. It goes on along the same theme,

Coincidence or not, the disorientating climate idealism at Copenhagen, the withdrawal of Barack Obama from a planned [EU-US] summit and…the attacks against the euro coupled with the collapse of Greece, all add to the gloom.

The double mess-up surrounding Catherine Ashton and the European diplomatic service adds to the disenchantment… In Brussels and beyond, lawyers and diplomats concede that the inventors of the Treaty were mistaken in its institutional mechanics. Even if the EU was at its best, its foreign policy would still be jammed today.
And on Tuesday, FT Deutschland featured an equally critical leader with the headline "Nightmare Lisbon Treaty”. It argued,

Europe has its celebrated Lisbon Treaty, its new constitution. However the Union has not become simpler for outsiders. What an anticlimax. The Member States fought long and hard for the treaty. So many thought that it would allow Europe to reach decisions faster, become more democratic and appear more united to the rest of the world. However, three months after the agreement came into force, the euphoria has evaporated. The EU Commission under Jose Manuel Barroso, the Parliament and the member states are fighting over their powers. This is because the treaty revolves around Brussels - those affected by it are finding this out little by little.

Taking a swipe at German Chancellor Angela Merkel, it noted:

Even as early as the middle of December, Chancellor Angela Merkel was certain that now the EU could concentrate all its efforts on the big, political challenges. 'Instead of being concerned about ourselves, we can now tackle the challenges and problems of our time' said Merkel. This has turned out to be only a pious wish. A new phase of navel-gazing has effectively begun, the institutions are having a go at each other; everyone thought that they would have more influence over Europe....The losers are becoming more and more evident. The Foreign Ministers were the first ones..."
It conluded quoting a "high-ranking member of the Council", saying "A lot of the Ministers fought for the Lisbon Treaty, but did not read it properly."
We rest our case.

Tuesday, March 09, 2010

Threat or opportunity?

The German-led calls for an IMF-style bailout fund for the EU have caught most people on the hop, including the French, and the lack of detail suggests that the practicalities are only now being worked on inside the German Finance Ministry.

French officials have said that there are two fundamental issues still up for debate: whether the European Monetary Fund would cover only the eurozone or all of the EU's 27 member states, and whether the EU treaties should be amended to create the fund. Plainly, there is a long way to go before the EMF gets off the ground and the current debates are highly speculative.

But as far as the first question goes, if the proposed EMF were to include all 27 member states, rather than just the eurozone, this would obviously have significant implications for the UK as British taxpayers would be asked to underwrite other EU governments’ debts. It would also draw the UK into a system of EU 'economic government' that would potentially give the EU greater powers to interfere in monitor the Government's handling of the economy.

For both of these reasons, any UK government is likely to stay well clear of any participation in the EMF.

The second issue, over whether an EMF would require treaty change, is far from clear but there are a few hypothetical scenarios.

Paris appears cautious about any proposal for an EMF that would require treaty change. French Finance Minister Christine Lagarde reportedly said that "Other avenues should be explored" that are in line with the existing Lisbon Treaty. This suggests one of those creative legal EU solutions which confuses everyone (possibly involving the Lisbon Treaty's ratchet clause which allows for amendment of the Treaty without it being considered an actual treaty change).

However, Chancellor Angela Merkel yesterday made it clear that she thought that the creation of a bailout fund would certainly require changes to the EU treaties. "Without treaty changes we can't form such a fund," she said. And given that it would amount to a breach of the current 'no bailout' rules in the treaties, it is hard to argue with her.

Commentators are already suggesting that new EU treaty negotiations would present both Labour and the Conservatives with big problems. Gordon Brown promised MPs that after Lisbon there would not be any institutional changes in the next Parliament:

I can confirm that, not just for this Parliament but also for the next, it is the position of the Government to oppose any further institutional change in the relationship between the EU and its member states. [Hansard, 22 October 2007]

Similarly, the Conservatives announced last year that they would give voters a referendum on future transfers of power to the EU.

However, depending on how this plays out, an EMF that didn't include the UK could actually present the UK with a sizeable bargaining chip, particularly a future Conservative government. Treaty change would require the Government's consent, whether the UK is involved in the EMF or not. In other words, this could be an opporunity for an incoming Conservative government.

The Conservatives have said they want to renegotiate areas of the UK's membership, notably opt-outs from costly EU employment regulation and intrusive justice and home affairs legislation. In addition, an incoming UK Government has a lot of work to do on the EU budget and the single market issues, including financial legislation.

There is possibly a deal to be done here – the Tories could say "if want to go ahead with the EMF and closer economic integration of the eurozone you need to give us something that we want in return." In Cameron's own words, it would be the ideal opportunity to argue and demonstrate "that European integration is not a one way street and that powers can be returned from the EU to its member countries".

The tricky issue is of course that the Conservatives' promised - or at least are now percieved to have promised - that any siginficant treaty change leading to further integration would trigger a referendum in the UK. And the establishment of an EMF would be a big change, as it would create a whole new EU institution and a lender of last resort at the EU-level. This, in turn, is a clear step towards fiscal federalism, regardless of whether the UK takes part.

At the same time, if not involving Britian at all, the argument can be made that it does not involve a transfer of powers from the UK to the EU per se. Indeed, if put in the right context, it could be presented as a method of regaining powers from the EU, by taking the creation of EMF 'hostage' in EU negotiations.

The critics were quick to say that Cameron's policy was unrealistic and undeliverable, but if the proposal for an EMF gains speed he may be presented with an early opportunity to prove them wrong.

If all the pieces fall into place, he should take it.

Monday, March 08, 2010

Merkel backs IMF-style fund for eurozone

More news on the eurozone front this weekend as we learned that France and Germany are preparing plans for an IMF-style European Monetary Fund (EMF). German Finance Minister Wolfgang Schäuble has said he will "present proposals soon" for a new eurozone institution that has "comparable powers of intervention" to the International Monetary Fund.

Schäuble has today received backing from his Chancellor, Angela Merkel, who said, the EU's current tools "are not sufficient." She added, "The European Union must be able to respond to the challenges of the moment" and if establishing an EMF required revising the EU treaties it would be a price worth paying becasue "we’re saying we want to solve our problems ourselves."

However, it seems that the German government may meet strong resistance from the German political and economic establishment. Juergen Stark, a German Executive Board Member at the European Central Bank, has chosen to write in tomorrow's edition of Handelsblatt that "Such a mechanism would not be compatible with the principles of the monetary union". He has also warned that "public acceptance of the euro and the European Union would be undermined."

Stark's column argues that establishing an EMF would risk over-politicisation and further increase the eurozone's susceptibility to 'moral hazard' or free-riding from certain member states. "
Countries which have not abided by the rules, which profit unilaterally from the euro, without taking their duties seriously, should not be rewarded," he writes.

Given Merkel's obvious unwillingness to sign up to any Greek bailout, such public support for the EMF proposal is a little surprising. Given that Germany would be the biggest contributor to such a fund, surely it amounts to a very similar thing: a German guarantee for the eurozone.

Certainly one to watch...


Friday, March 05, 2010

The Karlsruhe factor

As riot police today were forced to use tear gas against violent crowds in Athens protesting against further Greek spending cuts to narrow the country's budget deficit (and save the eurozone), we recieved another reminder of German opposition to any cross-border rescue operation.

Travelling to Germany today to meet with German Chancellor Angela Merkel, Greek PM George Papandreou insisted that Greece is not seeking money from the EU. According to Le Monde, German Economic Minister Rainer Brüderle said in response: "Papandreou has said that he doesn't want a cent. In any case, the German government will not give a cent".

Meanwhile, German daily FAZ looks at another obstacle to a Greek bailout: the German Constitutional Court. Based in Karlsruhe, this Court is very much the X-factor in EU integration, as evidenced by the extrordinarily sceptical ruling it delivered on the Lisbon Treaty. Apparently, a spokesperson for Angela Merkel has let it slip that the Chancellor privately fears that a bailout would provoke the country's Constitutional Court to take action, possibly blocking the whole operation. It's article 32 of Germany's "Law on the Federal Constitutional Court" (Gesetz über das Bundesverfassungsgericht) that is the sticking point.

This article says that,

In a dispute the Federal Constitutional Court may deal with a matter provisionally by means of a temporary injunction if this is urgently needed to avert serious detriment, ward off imminent force or for any other important reason for the common weal.

In plain English, a bailout operation of Greece could become Karlsruhe territory. Specifically, the Court could interevene against what it considers a breach of the law - in this case the EU Treaties' ban on bailouts and extending credit lines to other member states.

Former federal judge Paul Kirchhof is quoted by FAZ saying that "If parliaments and MPs feel that their rights have been violated, they can appeal to the Constitutional Court." Based on such an interpretation of Article 32, notes FAZ, the Karlsruhe judges can block Merkel if she decides to help financially.

All of this is speculation of course, but an interesting indication of the forces at work in Germany at the moment - and the massive opposition that a bailout could provoke.

Taxing questions

The EU's new Taxation Commissioner Algirdas Semeta has announced that he is planning to revive previously shelved plans for an EU-wide carbon tax, aiming to set a minimum levy of €10/tonne of CO2 emitted (although the exact level is a bit unclear) from energy sources such as petrol, coal, and natural gas when they are used as motor and heating fuel, or to produce electricity.

Based on the Commission's previous proposal we've calculated that such a tax would cost the UK economy at least £3.2bn a year. This cost will hit poorer consumers and small businesses disproportionately hard.

Is the cost worth it? Well, a carbon tax can, and has worked in some member states - Sweden being the most conspicous example (the country has cut carbon emissions by 9% since introducing a carbon tax in 1991, while the economy has grown by 48% during the same time period). Unlike the EU's flawed Emissions Trading Scheme, a carbon tax would create a firm price on carbon (although still largely arbitrary) and ensure that polluters have to pay rather than being rewarded. This, in turn, would provide a strong incentive to switch to, and invest in, green energy. If replacing other, poorly targeted, CO2 policies a carbon tax could be the right way to go.

But apart from this discussion, the proposed tax raises two further important issues.

Firstly, why an EU-wide harmonised tax? We must remember that the EU already has all manner of climate change policy instruments playing different tunes. It has an extensive cap-and-trade system for large emitters of CO2, such as power generators and heavy industry. It has heavily prescriptive renewable energy targets and biofuel targets (the latter of which even the Commission now admits might be a mistake). It also has various other environmental regulations restricting emissions such as the Large Combustion Plant Directive, which will force the closure of nine of the UK's power plants by 2015.

Those in favour of an EU-wide tax say that it must be harmonised across Europe in order to avoid 'distortions to the Single market'. However other countries, Sweden for instance, have successfully implemented a domestic carbon tax without any detrimental impact on their economies.

But more importantly, if the stated end goal is not EU tax harmonisation in and of itself but emissions reduction, all that really needs to be decided at an EU level is the extent of the emissions reduction targets. As for the means, who cares? The job of meeting these targets should be left up to member states, who are best equipped to devise a policy mix tailored to their individual circumstances - and when it comes to energy, these are often very diverse.

A carbon tax may be a cost-effective option, or it may not. But it should not be the European Commission's job to decide.

This leads us to the second issue. There are understandable concerns that the Commission has an ulterior motive for its carbon tax. While the current proposal would see member states collecting the revenues from any tax, such "eco taxes" have long been seen by many within the Commission as a way of directly financing the EU budget - a view shared by EU President Herman Van Rompuy.

If such a carbon tax were established, it would clearly create an obvious focal point for those calling for an EU funding stream that bypasses member states' treasuries, with the ultimate aim being a direct tax.

All the more reason to follow a pragmatic approach that concentrates on the stated aim of cutting emissions at the lowest cost to businesses and consumers, rather than creating yet more centralised and complex EU rules that limit member states' ability to tailor climate change policies to their own needs.

Thursday, March 04, 2010

Great clunking fist

A BBC documentary has revealed that Londoners will not benefit from a "pre-sale" of tickets for the Olympic games thanks to EU competition law, which prevents discrimination in favour of the host country. Despite having swallowed the increases on their council tax since 2006 in order to fund the games, Londoners will apparently have to battle it out with 500 million Europeans for coveted games tickets.

International Olympic Committee President Jacques Rogge has said he is powerless to intervene, but helpfully suggested that the UK's European neighbours, especially France and Germany, would snap up the tickets, ensuring seats were filled.

As London Assembly Member Dee Doocey put it, "it's called European law and there's nothing you can do about it".

Favouring the host nation/side in ticket allocations is a long established principle in all manner of sporting fixtures, but is evidently not a principle that escapes the application of the great clunking fist that is EU competition policy.

Wednesday, March 03, 2010

Setting a good example

Amid gloomy economic news about the state of Greece's public finances and impending austerity measures, former MEP and Greek singing legend Nana Mouskouri has today said she will donate her pension from her time as an MEP (1994-1999) to the public coffers to help Greece tackle its debt crisis.


At around £23,000 a year, it won't bring Greece's debt levels to within the 3% GDP required by the EU's Growth and Stability Pact all on its own, but is a response to calls for wealthy Greeks to contribute more money to the national treasury in the current crisis.


Amid never-ending examples of how the European Parliament wastes taxpayers' money, and MEPs voting for endless increases to their allowances, it's nice to see that not everyone goes to Brussels to climb aboard the gravy train and milk it for all they can get (for those who find it hard to believe see last year's blog piece on Swedish MEP Jens Holm donating his travel expenses to charity).

MEPs have a long, long way to go to arrest citizens' declining faith in the European Parliament, but if more took the same approach as Jens Holm and Nana Mouskouri it would make a start.

Tuesday, March 02, 2010

Waking up to smell the coffee

As the eurozone's flaws and weaknesses continue to manifest themselves in the midst of the Greek crisis, the appetite for the euro in Europe's far north is dminishing. In Denmark, the government has been forced to kick a referendum on the country joining the euro into the long-grass, following objections from Danish unions and others over the state of the euro - and in particular the Commission's instant new powers to meddle in negotiations on pay between national social partners (a clear no-go zone for Scandi unions).

And in Sweden, citizens have done a bit of a U-turn: a poll for Swedish Television shows that 50% of Swedes are now against the country joining the eurozone, with 39% in favour and 11% undecided. When the same question was asked in April 2009, 47% were in favour of joining the euro, while 45% were against. Changing sentiments in other words. And who can blame them? The Swedish krona is on the move and more and more commentators are acknowledging that the country has benefited from staying outside the eurozone (benefits which include an annual windfall profit of SEK 30bn from higher exports).

Not everyone is getting with the programme though. The Swedish Liberal People's Party - which forms part of the governing coalition - still says on its website: "Sweden joining the monetary union would eliminate uncertainties and currency risks - and would contribute to more investments, higher income from exports and economic growth."

Right...

Monday, March 01, 2010

Play one we know!

For those of you that didn't know, the European Commission is now in the art business, using taxpayers money to fund various culture projects to promote "greater intercultural dialogue" and various other abstract goals.

Of the projects chosen for funding in 2010, surely the most bizarre is the European Joysticks Orchestra (pictured), which received £50,872 to compose new works, host concerts and train teachers in the “art” of creating music using the computer device.

Click here for a youtube video of the Orchestra's work.

Other projects include "Exchange Radical Moments", which aims to organise an event in 2011 featuring “simultaneously scattered actions, images and interventions [which] will sparkle and ignite like flares across the European landscape, leaving ephemeral but direct and uncensored residue”.

Likewise, the European Laboratory for Hip Hop Dance will net £44,931 of taxpayers’ cash to “improve the recognition and visibility of hip hop dance in Europe” and “encourage connectivity between hip hop artists”.

Now we don't want to be accused of being party-poopers - if people feel that government should be funding cultural projects that is fine. But the problem with the European Commission is that there is no acountability. No one to punish at the ballot box if you feel your money has been spent unwisely.

And quite frankly, judging by the sort of projects the Commission has decided to back, DG Culture is hardly full of budding Charles Saatchis.