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Latest European Export: Taxes

 By George A. Pieler and Jens F. Laurson

Europe’s judicial victory in support of its carbon-emission charges on foreign air carriers (in addition to European ones) coincided with the European Union’s latest round of begging for help from the IMF. On top of that, European leaders are pressing hard for a new tax on all financial transactions.  The EU’s head, former French finance minister Christine Lagarde, responded by urging IMF members to speed implementation of their agreement to double contributions to the Fund, citing “the European situation.”

European leaders make no pretense that revenues from the air-emissions fee or the transactions tax would alleviate its debt problems, which have just brought an S&P downgrade for debt of nine EU members and threaten harmful reverberations the world over. Instead, they talk about funding favored “green” projects (essentially ideologically targeted corporate welfare) and new measures to “alleviate poverty” in unspecified ways in unidentified locations. IMF members are supposed to fork over extra cash to prop up Europe, while Europe uses expanded revenue-raising powers to dabble in good intentions. The UK is being criticized for daring to suggest the obvious: that all new monies would in fact go direct to general revenues, not new eco-initiatives.

The IMF has no business promoting this kind of bailout, especially given Europe’s present policy posture. If developed-nation adjustment aid is writ large in the IMF’s future, it should be tolerated only when that aid promotes both fiscal soundness and good global economic citizenship. Quasi-tariffs on investments in Europe or travel to Europe don’t pass that test. The coincidence of these events raises the question: Should more of the world’s wealth be allocated to Europe, just as Europe is forcing its strange eco-energy policies on its leading competitors in the field of aviation?

This latest round of Euro-wrangling may raise reasonable doubt as to whether the IMF is run out of its home in Washington, or out of the French finance ministry. Such doubts could easily be dispersed if Lagarde, technically representing the IMF and not France, would insist that Europe abandon all efforts to impose its air-emission fees on foreign carriers and set aside talk of a financial transactions tax, two political projects where economic harm would outweigh presumed gains. This could be done crisply and formally, or with a quiet wink-and-nod behind the scenes. But it should be the minimum concession Europe ought to make to economic rationality before it qualified for any further aid from the IMF. 

Many airline carriers, after fighting the new charges, announced that they will pass them on to consumers (United, Lufthansa). B, BBut China, calling the scheme “a trade barrier in the name of environmental protection,” says it will refuse to comply at all, while India has lodged a formal protest. Even if the EU avoids a trade-war with the U.S. and China over the emissions tax, it will have succeeded in raising the cost of air travel worldwide.

Further, as noted above, the EU aims higher still than simply raising air travel prices. The proposed financial transactions tax would throw yet more sand in the gears of global commerce. France, annoyed by the UK’s refusal to endorse treaty changes making Europe a unified fiscal entity, stepped up the rhetoric in favor of a Europe-wide financial transactions tax, which would hit (coincidentally, no doubt) London firms hardest. Nicolas Sarkozy has won at least rhetorical support from Germany and Italy for such a move. But a tax on financial transactions would affect all investment activity in the world. The Global Financial Markets Association projects the FTT would reduce liquidity, drive 75 percent of affected transactions out of Europe, and slow Europe’s and the world’s economy. It would hamper all trading. 

One yearns for a return to basic principles. The IMF was designed to stabilize the economies of developing nations, not bail out developed ones after bad political and economic decisions. And the global economy doesn’t need more policies that douse international commerce cross-border investment and air travel right now. If Europe wants to indulge in economic frivolity for domestic political consumption, it is free to do so.  But it has no business asking the IMF, or the global community at large, to foot the bill.

George A. Pieler is an attorney and writer in Falls Church, Virginia.  Jens F. Laurson is Editor-at-Large of the International Affairs Forum.

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(Photo courtesy of Markusram)

 

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