Tax fraud and energy

The agenda for Wednesday's (22.05.2013) special European Union summit has already been through several versions. At first it was meant to be purely about energy, then only tax fraud, now it's meant to deal with both issues, and all within one afternoon. Both topics have certainly been the source of plenty of incendiary material in the European Parliament, even though the parliament is meant to be left out of tax issues, which is the business of member states.

EU tax commissioner Algirdas Semeta welcomes the fact that tax fraud is finally going to be discussed by government leaders, despite the fact that finance ministers recently agreed to work together more closely to tackle tax fraud and evasion. Semeta couldn't conceal the fact that he'd "hoped for more ambition, binding agreements, and shorter deadlines."

It was agreed, for instance, that the EU will negotiate with a number of third countries on potential data exchange agreements about bank account holders. But Luxembourg and Austria, among others, continue to maintain banking secrecy, which means the exchange of data will still be blocked within the EU.

Trillion-euro hole

Udo Bullmann, German Social Democrat MEP and finance policy specialist, summed up the feelings of many European parliamentarians of various countries and political affiliations: "It's no longer acceptable that the European states are financed exclusively by people who either can't run away or are too decent to do so."

The EU estimates that Europe loses an income of a trillion euros ($1.3 trillion) every year through tax fraud. MEPs often describe in imaginative detail what they could do with all that money, and complain that ordinary people are often forced to make up for rich people's lost contributions through higher taxes and duties.

In the relentless search for someone to blame, the debate sometimes turns into a row between nations, as when Franz Obermayr of the Freedom Party of Austria and Werner Langen of the German Christian Democratic Union exchanged words across the chamber.

Obermayr called for a crackdown on tax havens in the Caribbean and elsewhere, but then warned that "bank secrecy should be preserved for the small investor." That led to Langen's outburst, and he accused Austria of consistently blocking the EU's cross-border Savings Tax Directive. He also said that Austria's endowment model had "more or less invited the rich to practice tax avoidance under Austrian law. How do you have the nerve to claim that Austria is a solution?"

Langen argued that Luxembourg, Austria, Switzerland, Liechtenstein, and the Cayman Islands continually pass the responsibility to each other and so block any hope of a European-wide solution.

High taxes encourage creativity

There is a significant minority in the parliament that argues along very different lines: they also condemn tax fraud among rich individuals and the crafty tax avoidance strategies of international corporations like Google, Amazon or Starbucks, but some, like Swedish MEP Gunnar Hökmark, believe that the EU's planned financial transaction tax would lead to even more creative avoidance strategies.

And British Conservative MEP Martin Callanan pointed out that high taxes had driven companies out of France, which is why there should be no tax harmony in Europe, but tax competition. He then added sarcastically that France should do as it pleases. "I just ask that, for the sake of energy efficiency, the last businessman who leaves France turns out the lights," he said.

Climate policy destroying jobs?

That provided a convenient link to the other big summit issue. Energy has also very much become a part of the European economic crisis. The EU's energy commissioner Günther Oettinger admitted that energy had been made deliberately more expensive in the past, "for one thing, to solve our budgetary problems. And secondly for energy efficiency: one is more frugal with expensive things."

But expensive energy is increasingly becoming a problem for Europe's poor, while it also drives European industry away. Gas and electricity are significantly cheaper in the US, argued Oettinger, and that competitive disadvantage should not be simply tolerated, or else Europe would de-industrialize and lose many valuable jobs.

Many MEPs - of both left and right - agree with Oettinger. They think there is too much focus on climate policy. But the Green party's co-chairman Daniel Cohn-Bendit warned, "If you rely on coal, nuclear, and shale gas to solve the energy problem, you are returning to the past."

Cohn-Bendit said that extracting shale gas means more money has to be invested in clearing up the damage that it causes, and that is more than the extra energy is worth. EU climate change commissioner Connie Hedegaard also said recently that Europe hardly wanted to return to the days of coal power and the kind of polluted cities that one now finds in Europe's biggest competitor, China.