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Systematically Destroying Europe's Competitive Advantage

Kitty Miv, Editor
31 January, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

As an ex-conference organizer myself, I can only eat my heart out at the franchise that Klaus Schwab has constructed on a snowy Swiss mountain; but now, as a humble journalist, I have to thank him for his annual newsfest. This year, the best moment may have been David Cameron's carefully calculated challenge to the EU. Let's leave aside the ritual attack on corporate tax avoidance; by now it's about equivalent to saying grace before a meal, and about as effective, some might think. More important is that he has been brave enough to throw down the gauntlet to the mad dogs of Brussels, who are systematically destroying Europe' competitive advantage, and need to be stopped. Of course everyone says that he is doing it for selfish political purposes, but it can happen that politics, national advantage and economic sanity may inhabit the same place at the same time; and that's the role that the UK can play in the next five years, if Cameron sticks to his last. Naturally the Continentals are throwing every kind of negative propaganda at him; but the more they do it, the more I think he must be right. After 50 years of corporatist, social partner gibberish, the EU has become hidebound, trapped in its own sententious verbiage. So, go for it, David!

If David Cameron and his euro-sceptic legions want a semi-detached UK, the terrible twins Angela Merkel and Francois Hollande want to complete the roofing of their half-finished euro-house. Again, we'll have to shut our ears to the twaddle about transaction taxes and corporate tax unification and focus just on the fiscal charter, which will submit EU members to some sort of budgetary harmonization under the control of Brussels and Dragon Draghi. You may be surprised to hear this coming from me: how can I support Cameron's dash for freedom at the same time as euro-unification? Because Europe has to go one way or the other: a Brexit accompanied by a Grexit and a few other exits would lead to an outcome of a sort - a Europe of competing nation states, but it is against the grain of history. A better outcome would be a united Europe with one currency and a single economic budgetary policy, on the model (OK, not quite) of the USA, which could then live or more likely die in competition with other major blocs. But that's not going to be the result: instead, we will have something like a re-creation of EFTA led by the UK, with a unitary euro-zone, which may have been forced to become more competitive by the UK's antics. That's how I can have my cake and eat it!

Europe's systemic lack of competitive advantage is revealing itself, day-by-day, in its terrible and worsening unemployment figures, while the US demonstrates some underlying resilience during difficult times. There may even be an outbreak of bipartisanship in the Congress, with the passage by the House and its rapid acceptance by the Senate and the President of a temporizing bill to push off the next section of the fiscal cliff. It is tempting to equate the relative health of the US economy to its lower level of public spending and taxation; but this may be an illusory equation. It is horribly difficult to compare such figures across borders. Apparently, US public spending is about 5% less than the UK's and 10% less than higher-spending EU economies (percentages of GDP); and taxation provides a lower proportion of spending, hence the worries over the debt cap. But there are so many other factors: the regulatory environment; the level of education; the "entitlement" canvas. All one can say with some certitude, at least, all I can say, is that less government spending is better than more, and less taxation is better than more. That puts me in the tea-pot, probably!

I can't believe that the Greek government is behaving so badly over its new gaming laws and the state gambling monopoly, OPAP. It's as if the minister responsible and the whole state gambling apparatus are inhabiting a parallel universe with no communication passing between them and the rest of the administration. They are flagrantly breaking settled EU law despite repeated complaints from Brussels and the European gaming industry. Just this last week the European Court of Justice ruled against the regime, even as it was before the latest law was passed, which actually makes the situation worse. I can only imagine that the government is so fixated on spending the money foolishly donated to it by the troika that it has no time for anything else. What else can explain it?

Bermuda is becoming the latest in a line of "offshore" island jurisdictions to fall foul of the economic downturn, although it's not clear yet whether the solution will be more taxes or less government, nor whether the UK will so to speak stick its oar in, as it has done in the case of the Cayman Islands and Turks and Caicos. At least there has been no suggestion of skullduggery; it's always a problem in these small places that government can be captured by undesirable elements. It's their smallness that lies at the root of all their problems, from one perspective, although it's also their quasi-invisibility that allowed them to flourish for decades as the home for foot-loose money on the run from the tax man. But then they got noticed, big-time, and they have had to grow up quickly, learning how to be respectable world citizens. And that's not easy, when you're small. So now we have the spectacle of a number, let's say a dozen, of mini-states with vast financial sectors, tiny populations and large, cumbersome bureaucracies. A linked problem is that they are mostly ex-colonies, with racially mixed populations which have taken over their own governance without, at first, really knowing how to do it. All of this is very expensive for them, which was just about bearable in the good times, but has now brought one after another of the islands to their knees. Really it's illogical for these over-grown governmental and regulatory apparatuses to exist in such numbers; they ought to merge, to make more sense of it. How about Bermuda and the BVI? There would be a power-house. Of course that's not going to happen; CARICOM shows you how it goes when a group of such jurisdictions tries to create a bigger unit: 1 1 1 1 1 1 doesn't = 6, it equals 7. Or however many it is, plus one extra government, just as in Europe. Bermudians are much too proud to consider such a thing, anyway

Kitty's Encomiums and Execrations

Methodology: each week (this is the 37th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a ranking of – 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, falling back again in week 24 to minus two.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

France in fraternity with Germany

United Kingdom attacks the EU

United States: an outbreak of rationality

And Kitty's Execrations:

Bermuda in the soup

Greece plays solo





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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