Franco-German letter urges move to common taxes

FRANCE and Germany want a new EU framework to speed up progress for common corporation and financial transaction taxes.

A Franco-German letter sent yesterday to European Council President Herman Van Rompuy, also called for faster convergence of financial regulation and labour market policies.

The call for faster convergence alongside a series of reforms to counter the debt crisis suggests Berlin and Paris want to keep the pressure on countries like Britain to back pan-European regulation of finance and on Ireland to bring its low corporate tax rate closer to that of its peers.

It also left the way open for a smaller group of countries to plough ahead in certain areas of policy integration via what the letter, in EU jargon, called “enhanced cooperation”.

“A new common legal framework, fully consistent with the internal market, should be established to allow for faster progress in specific areas,” Paris and Berlin said in the letter, released ahead of a key EU summit in Brussels on Friday.

The framework, they said, should cover financial regulation, labour markets, convergence and harmonisation of the corporate tax base and creation of a financial transaction tax as well as pursuit of growth-supporting policies and more efficient use of European funds in the euro area.

The main thrust of the letter was to call for changes in the EU treaty in line with proposals President Nicolas Sarkozy and Chancellor Angela Merkel outlined in Paris on Monday as a response to Europe’s debt crisis.

“The current crisis has uncovered the deficiencies in the construction of EMU mercilessly,” the two governments said.

“Alongside the single currency, a strong economic pillar is indispensable, building on enhanced governance to foster fiscal discipline as well as stronger growth and enhanced competitiveness.

“In order to achieve these objectives we need a renewed contract between the euro area member states,” they said.

Of the 27 EU countries, 17 share the euro currency. They said the 17 need a more efficient institutional set-up without duplicating existing structures.

Among areas requiring progress, it cited the holding of current twice-yearly summits of eurozone leaders, focused on economic and fiscal policy under the chairmanship of a permanent president to be held monthly.

* Reuters