Examination of Witnesses(Questions 120
- 136)
THURSDAY 15 JUNE 2000
COMMISSIONER PEDRO
SOLBES MIRA,
MR GEOFFREY
MARTIN AND
MS ELENA
FLORES GUAL
120. That is a very diplomatic answer.
(Commissioner Solbes) No, no, normally—
121. Can I ask one final question which I think
will be a less flippant one. The Chancellor of the Exchequer when
asked whether or not these tests are in the process of being met,
simply said "No, when they are met, they are met", in
other words he will do no progress report as to whether or not
these five tests are in the process of being met. Now, is it not
something that you in your job could helpfully do for the British
people to report over time as to whether or not these five tests
that the UK Chancellor has set out are being met because at the
moment that knowledge is being denied to us? Is that something
you can monitor for us?
(Commissioner Solbes) Why are you so interested that
the Commission intervenes in internal British politics?
Mr Kidney: Exactly.
Mr Cousins
122. You should be downstairs, David.
(Commissioner Solbes) Our position is very clear.
The United Kingdom has a model which implies that the decision
will be adopted by the British Government, I imagine in co-operation
with the Parliament, and taking into consideration the position
of the British public. That is a decision of the British Government.
How the British Government adopts its decision has nothing to
do with the Commission.
Sir Teddy Taylor: Hear! Hear!
Mr Ruffley
123. I think it probably should. One final question
on the structural reform, Commissioner. These have been very interesting
answers, I am sure the President will agree. The pace of structural
reform, is it quick enough?
(Commissioner Solbes) Here is always a difficult question
because the answer always has to be the same. If I say that I
am satisfied then the interpretation could be you think it is
unnecessary to go further. I am not saying that the idea behind
your question is a problem. If I say I am not satisfied then they
are saying "Well, we are not doing things". I think
that we have advanced a lot as concerns structural reform and
if you are interested in this subject there is a very, very detailed
report of the Commission, the report on the implementation of
the broad economic guidelines of last year where we present every
advance that we have done concerning the structural reforms. If
you ask me if I am satisfied with what we have done, I will say
no but I will say no this year, next year and the year after next
year. Structural reform, by definition, is a modernisation process.
So we have always to be ambitious as concerns structural reform
and I think we have to go far. I could give you some good examples
of things that we have done and some bad examples of things that
we have not yet done. Probably the most well known example is
our commitment in the Lisbon Summit to the liberalisation of the
financial markets, the liberalisation of the position of other
sectors.
124. Many Members of this Committee visited
Germany last week and I just wondered if you would answer a question
on structural reform that they were unable to answer. Are there
three examples of labour market deregulation that are necessary
to improve the working of the euro that still need to be taken
by the German Government? Can you give me three examples of measures
that are necessary to deregulate the labour market?
(Commissioner Solbes) You know social conditions are
a national responsibility and you have always been very keen to
keep control of this area. I think that the Germans, like many
other countries in Europe, have to adapt more to the globalisation
process. You want some examples. I could give you some examples,
some examples of labour market modification which are included
in the Broad Economic Policy Guidelines of the Commission and
the Council regarding Germany. We are saying Germany should "critically
re-assess its policy towards the eastern part of a country where
labour market problems are still especially severe", for
example. The second example, if you want, is "continue and
monitor efforts to bring down gradually the fiscal pressure on
labour by reducing taxes and social security contributions".
The third example is "reduce disincentives within the tax
and benefit system which discourage labour market participation
of all groups." These are three examples.
Chairman: Thank you very much. Sir Michael
Spicer.
Sir Michael Spicer
125. Commissioner, on 21 February in Ireland
to the Institute of European Affairs there you said, amongst other
things, "to ensure consistency between monetary policy and
other policies there is a need for Member States to intensify
policy co-ordination". Is that another way of saying there
needs to be a single fiscal authority in Europe?
(Commissioner Solbes) No.
126. It is not?
(Commissioner Solbes) My answer is no.
127. Perhaps you can give me an answer to this
question. In a paper which your organisation produced it talked
about "a further aim is to encourage a broad public discussion
on these public fiscal policy challenges". If your first
answer was no, that there is to be no fiscal authority, why have
a public discussion about fiscal policies?
(Commissioner Solbes) As you know, we are discussing
these policies. I do not know which document you are referring
to, whether you are referring to the document on Quality and Sustainability
of Public Finances. First, to clarify this point, we are not discussing
taxation, we are discussing fiscal consolidation which is a completely
different subject.
128. You are discussing about fiscal consolidation?
(Commissioner Solbes) Fiscal consolidation if you
are referring to the document on the Quality and Sustainability
of Public Finances. I do not know which document you are referring
to.
129. It does not matter what document but there
is a document, you accept, that talks about fiscal co-ordination.
(Commissioner Solbes) If we are talking about fiscal-co-ordination
in terms of fiscal consolidation, that is one question, but if
we are talking about fiscal co-ordination in terms of taxation,
that is a different question. I will try to explain the point.
Fiscal consolidation is the Stability and Growth Pact. The original
idea was to reduce public deficits up to a position close to balance.
This situation will be reached as an average in the year 2001.
What we are supporting today is the idea to ask member states
what to do after. Are we satisfied with the existing situation
or do we have to do something more? Yes, we have to. We say you
have to analyse two problems. One of them is "are our fiscal
systems good enough to improve growth, to improve employment?
What are the best taxes, for example, to create employment?"
The necessity of facing the new economy—this also has to
correspond with the type of expenditure we are doing. We are speaking
about these questions, we are speaking about figures and about
the percentage of—
130. Commissioner, you have got to catch a train
in five minutes and I am only allowed one more question. I am
sorry to interrupt you. What is your view about the necessity
or not of a central fiscal body in order to balance a central
monetary body, to have these two bodies in sync with each other?
(Commissioner Solbes) You know I belong to the Commission
and one of our first commitments is to support EU legislation
and to support the Treaty. The Treaty is very clear. The Treaty
is based on a system which you could see as three legs, a normal
system in a sense. One is the monetary authority which is rather
clear is the European Central Bank. The other is the Ecofin Council
which is formed by the members of the Union. There is a third
leg if you want, which is the Commission. Our role is, of course,
to be preparing documents, preparing recommendations, to participate,
to help the Member States to go on, to try to find consensus,
but the decision has to be adopted by these Member States. I think
the system is doing rather well and I think it is not necessary
to modify this.
Sir Michael Spicer: Unfortunately we
have no more time because I would have liked to have pursued this.
Mr Fallon
131. Turning to one of the documents, you say
the Commission's job is to prepare documents.
(Commissioner Solbes) Concerning economic policy,
it is not exactly the same on everything.
132. Turning to your document, Public Finances
in EMU 2000, your report in May, you say "Member States
must demonstrate their willingness to pursue responsible fiscal
behaviour". Who defines responsible fiscal behaviour?
(Commissioner Solbes) Yes. I would say, for example,
something of the type that if one country in the euro 11, to give
you an example, adopts a very expansive fiscal policy, this will
create problems to the European Central Bank.
133. Is it any part of the Commission's role
to define what is responsible fiscal behaviour?
(Commissioner Solbes) No, it is the decision of the
Member States as you read there.
Mr Cousins
134. The same document that my colleague has
just referred to does refer to harmful tax competition between
the fiscal entities that make up the European Union. What do you
think the Commission really means by "harmful tax competition"
and how do we seek to overcome it?
(Commissioner Solbes) Well, harmful tax competition
could imply utilisation of taxation to improve your competitive
situation without being able to finance this. If you are able
to reduce your public expenditure and taxation, why not?
135. Just to be clear about that then. Harmful
tax competition solely relates to the size of deficits or projected
deficits, there are not other issues?
(Commissioner Solbes) Any issue which could be connected,
for example within single markets, state aids could affect this
interpretation.
136. Just to be clear then, in some contexts
taxes or tax regimes like for example, let us say, a corporation
tax rate of five per cent—I am not aware of a corporation
tax anywhere in the European Union being five per cent, I am aware
of some where corporation tax has been close to five per cent
but not actually five per cent so it is a hypothetical example—could
be considered a state aid that was harmful to tax competition.
(Commissioner Solbes) As you know, the regime of taxation
in the Union is rather complex. We make a distinction for excise
duties, we have minimum levels, we make a distinction for VAT,
we have a common basis with different applications and different
rates. There has been good work carried out by Mr Monti, who was
responsible for the internal market during the former Commission,
which resulted in the so-called Monti Code on Taxation. As a result
of this discussion a group on taxation was created under the responsibility
of Mrs Primarolo to analyse the position of so-called tax havens
in Europe. They are trying to analyse whether there are some abnormal
specific situations. The idea is to have or to try to analyse
these abnormal situations on the basis of the state aid regime,
that is to say it implies that you are giving the special treatment
to get some advantage, not because it is the general model. This
is the kind of problem we are facing at the moment.
Chairman: Commissioner, thank you very
much for the helpful and, if I may say so, skilful way in which
you have answered the questions. Thank you very much, it is much
appreciated.
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