Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 120 - 136)



  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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