Tax Break

Who said tax is boring?

Brussels Sprouts

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

“I never forget a face, but in your case I will be glad to make an exception”.

Groucho Marx’s famous line haunted me the other day as I tried, in vain, to remember  the name, face or other distinguishing feature of the first (and only) person I ever met who worked in Brussels with the European Commission. All I recall is that he was a smooth-talking, post-pubescent All American Boy  wearing khaki trousers, a blue Oxford shirt and navy blazer. He spoke with the confidence of a young man who had been to enough college lectures about Europe to know he could teach it a thing or two. C’est tout, as they say  at the epicentre of European folly  and promptly translate it into 22 other languages. With 27, going on 28, countries to cherry-pick its people from, I have never been able to fathom how this New World imposter managed to elbow his way into the bastion of the Old.

I admit that I have no time for the faceless bureaucracy of Europe. Those guys would give the Circumlocution  Office in Dickens’s Bleak House a real run for its money. Legislation starts its life at the European Commission where 27 individuals, whose main claim to their position is that their national governments needed to be rid of them,  churn out competition choking ideas by the kilometer. The Commission sends its proposals to the directly elected European Parliament together with the ever-changing Council of Ministers (made up of 27 ministers who fancy a day-trip to Brussels) for them to mull over.

While both the Parliament (directly elected) and the Council (constituting representatives of national governments) can put a tick in the box on the form that says “democratic” , in reality that democracy has virtually no meaning. Whether followers of Hobbes, Rousseau or Locke, the raison d’être (when I think of the waste in the EU, those French expressions just keep on coming) of any system of government is the organization of civil society. The European Union is not (at least, yet) a civil society. It is at least 27 civil societies (some more civil than others). 27 civil societies cannot produce a representative government. What they CAN produce is a serious irritation to the skins of their societies – and that they have done very effectively.

End of world domination?

End of world domination?

The respected contemporary historian, Niall Ferguson, points out in his recent book “Civilization”, that one of the main reasons that “The West” completely eclipsed “The East”  over the last 500 years was the competition between the myriad of States in Europe. The Industrial Revolution was led by Britain not because the Greatest Nation in the History of the World (sorry, I had to get that in) invented everything (it didn’t), but because labour costs in Britain were comparatively high, which encouraged innovation to improve productivity.

Well, after the better part of a century of a world dominated by Communism, National Socialism and Socialism, over the last 30 years it has looked like we are finally getting back on track with the word competition making a comeback in the lexicon of polite English, and the East not overcoming the West but joining it.

Did I forget something?

With the collapse of Planet Earth’s financial system a few years back the world’s governments realized (once again) that, while competition is a grand thing and the financial sector is a critical part of world growth, that same financial sector has the power to really screw things up for everybody bigtime so it needs regulating.

The Dodd-Frank Act in the US and the UK’s Financial Services Act 2012 represented the verbose but fairly measured responses of the two most significant financial sector nations.  The Basel Committee, established originally by Central Bankers, came up with Basel III revisiting the capital adequacy of the international banking system – which, while inevitably attracting a degree of controversy, is the most appropriate response  for bankers to a crashed financial system.

With the rational responses safely on the road, it was inevitably time for the We-Want-To-See-Blood Brigade to get going. The British Government had briefly, and ignominiously, flirted with a super tax on bankers’ bonuses (it would have been much more fun to burn them at the stake), but soon realized that revenge maketh not sound economics. Meanwhile, across La Manche (there I go again) President Folies Bergere still insists he wants to bury his nation with a 75% top income tax rate even though the courts have struck it down (who cares – when there have been 5 Republiques, what’s the big deal going for a 6th?). But, these, at least are anti-competitive responses of national governments pandering to the blood-lust of their electorates.

The EU, on the other hand, exercising what Rudyard Kipling’s cousin Stanley Baldwin once called “power without responsiblity, the prerogative of the harlot through the ages”, is left to run havoc with its bureaucratic chainsaw through the back streets of Europe.

Following a mad agreement in February to limit bankers’ bonuses which will just lead to higher fixed salaries and less flexibility in a downturn (the EU , to its chagrin, has not yet managed to sink its fangs into national tax systems), in March the EU Parliament decided to go after investment managers. And not just any investment managers –  the investment managers of Mutual Funds. These funds, which are generally not leveraged, do not cause any systemic risk to the economy. Furthermore, the Parliament wants the managers to receive at least half of their bonuses as investments in their funds – which ignores the fact that US investors are banned from investing in such vehicles so “Good Night, and Good Luck” to American Fund Managers; they could always, I suppose, get work in Brussels. In short, this is a load of piffle. The good news is that, in order for it to become law, it needs the agreement of the 27 National Governments  which is about as likely as World War III breaking out (which is what the EU was designed to prevent). Meanwhile, the Members of the European Parliament will be able to keep spending taxpayers hard-earned cash commuting between Brussels and Strasbourg (not to mention, their home countries). A far better idea than limiting investment managers’ bonuses would be to limit MEPs’ salaries – to zero, and send them home.

Weapon in next European War

Weapon in next European War

Groucho may have another lesson for us regarding EU bureaucrats. Following a luncheon interview with the legendary Alastair Cooke at Marx’s golf club, they were queuing at the till to pay. The middle-aged Jewish matron in front of them was taking her time finding the cash in her handbag to settle her bill. His signature cigar revolving in his mouth like an anti-aircraft gun, Marx finally fired a salvo at the cashier: “When you see the whites of her eyes – shoot!”.

Europe has fought several of its wars on Belgian soil. Could the next one be over free markets and competition? C’est la guerre.

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