EUROPP

May 25 2013

Clamping down on Google’s tax avoidance: don’t hold your breath

Posted in: Martin Hearson, The Euro, European economics, finance, business and regulation

Outrage over tax avoidance has bubbled up this week with the visit of Google’s executive chairman Eric Schmidt to the UK. The crucial agreement that has brought criticism of Google is that the sale of a product over the internet is treated just like the sale of its physical equivalent, and therefore taxed in the country where the company is domiciled. Martin Hearson argues that the system as it stands now suits countries like the US and UK, which are home to large multinationals that sell services abroad without needing a big physical presence. This is why the UK opposed the proposed changes at a meeting debating international tax rules last year.

Doing no evil: Eric Schmidt
(Credit: Guillaume Paumier, CC-BY)

Google’s executive chairman Eric Schmidt visited the LSE this week after a period of unprecedented criticism of the search giant. I wonder if he still feels the same way today as he did last October, when he told journalists:

I am very proud of the [tax] structure that we set up. We did it based on the incentives that the governments offered us to operate…It’s called capitalism. We are proudly capitalistic. I’m not confused about this.

Last Thursday Matt Brittin, the company’s vice president, was told “I think you do evil” by the chair of parliament’s Public Accounts Committee when he made a second appearance to defend what he had openly admitted were the company’s tax avoidance activities.

Coverage of a pre-G8 summit meeting for business leaders at 10 Downing Street on Monday, attended by Schmidt, focused on the tax avoidance questions, and whether the company’s tax practices had been discussed. David Cameron and Nick Clegg did indeed claim to have challenged Schmidt for his aggressive tax position. On Wednesday, Ed Miliband took the fight to the belly of the beast, throwing the company’s own words back at it. He said:

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Posted by: Posted on May 25, 2013 by Blog Admin Tagged with: finance, global trade, international negotiations, tax, tax avoidance, taxes

May 24 2013

Brussels blog round-up for 18 – 24 May: Little movement on tax evasion, an olive oil u-turn and are there too many European Commissioners?

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Posted in: Brussels Blog Round up

Chris Gilson takes a look at the week in Brussels blogging.

The EU centre and the crisis

The Common Agricultural Policy blog reports on last week’s farm council meeting which focused on the nature and scope for support for young farmers. A deal is more likely this year under Ireland’s Presidency of the Council of the European Union, which has experience in these matters, than under Lithuania, which is due to take over in the summer. Public Affairs 2.0 examines how Europe’s transport networks are the ‘engine’ behind the single market, and what further liberalisation is still required.This week also saw controversy across Europe over the European Commission’s plans to ban refillable containers for olive oil across European restaurants. The plan was dropped after a public outcry, which Open Europe says shows that the Commission is capable of rethinking ‘silly’ ideas in the face of consumer pressure

Credit: avlxyz (Creative Commons BY SA)

This week sees reports in the German paper Der Spiegel on ‘secret’ plans by the European Commission to stick to the one European Commissioner per country rule, according to Open Europe. Under the Lisbon Treaty, there should be 19 Commissioners after Croatia’s accession in July, and it is becoming increasingly difficult to defend having 28 (at an extra cost of millions). Kiels Prat in Europe takes the other side of the argument, saying that it is important that each Member State be represented with a European Commissioner.

Lost in EUrope looks at a recent IMF report which characterises Holland’s economic situation to be more like that of the countries of the eurozone periphery, given high levels of domestic debt, and weak domestic demand. Lost in EUrope reports that one of the outcomes of the recent bail-in deal for Cyprus, is that the economy will contract by more than 10 per cent this year – which would be a record fall for the EU.

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Posted by: Posted on May 24, 2013 by Blog Admin Tagged with: Commissioners, eu, euroscepticism, tax evasion, UK

May 24 2013

For the Kremlin, ‘Foglegate’ is another part of its psychological game with Washington.

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Posted in: EU foreign affairs (including defence, development aid and trade) and the European neighbourhood, European Neighbourhood, Ondrej Ditrych

Last week, a Cold War style spy scandal erupted between the USA and Russia, as an US embassy staffer was caught trying to recruit a Russian counter-terrorism officer for the CIA. Ondrej Ditrych looks at Moscow’s very public exposure of the operation, in the context of recent cooperation between the two countries in the aftermath of the Boston bombings. He argues that the Kremlin has decided to give wide exposure to the affair in order to help cement Vladimir Putin’s leadership, and to potentially humiliate Washington in mutual negotiations.

The scene was reminiscent of the Cold War, and the script – for indeed there was a script – could have come straight from one of John Le Carré’s novels. Only now, the part of the poor Jim Pridaux, lured into a trap in the woods of Communist Czechoslovakia where he had been led to believe he would learn the identity of the MI6 ‘mole’ from a defecting general in Tinker, Tailor, Soldier, Spy (1974), was assumed by Ryan Fogle, a U.S. diplomat at the Moscow embassy, presumably on the CIA payroll.

The time was midnight, the place Akademik Pilyugin Street. Fogle was out to meet a Russian counter-terrorism officer specialising in the North Caucasus. He had made some effort to lose any tail there could have been at leaving the embassy. In the end, it was futile – it appears to have been his very contact who struck him to the ground as the FSB (Russia’s internal security agency) officers swarmed around. The rest is video footage, circulated and endlessly rebroadcast on state television networks: the transport to Lubyanka, detailed shots of Fogle’s paraphernalia (including improbable ones like a compass, or a letter that reads, as some have pointed out, like a Nigerian email scam), and the visit at the notorious FSB headquarters by three other embassy staffers, filmed silently listening while a Russian official reviews Fogle’s alleged actions.

Moscow Kremlin Credit: Pavel Kazachkov (Creative Commons BY)

When a recruitment operation by foreign intelligence is compromised, the targeted government generally has three options. First, it can unceremoniously return the agent to the country of origin, declaring him a persona non grata. A U.S. diplomat posted to in Russia identified by the FSB as ‘Benjamin Dillon’ may have suffered such fate as recently as January. Second, it can try to convince the agent that (s)he has succeeded. This way it can pocket the money, gain insight into the foreign service’s knowledge and operational procedures, and possibly even feed it disinformation. Third, it can opt for a public exposure.

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Posted by: Posted on May 24, 2013 by Blog Admin Tagged with: CIA, defence, Kremlin, Russia, USA.

May 23 2013

Leaving the EU will not only fail to secure what Eurosceptics desire but would likely make the UK’s position worse

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Posted in: EU institutions, government and politics and enlargement, Euroscepticism collaboration, Seamus Nevin, West Europe

Seamus Nevin argues that the UK would still be strongly influenced by the EU even if it were to leave, contrary to what many Eurosceptics imagine. Moreover, it would find itself with much less power on the outside, which is important when considering that the EU is far from perfect and in need of reform. To ensure a bright future, the UK must be at the forefront of a dynamic and successful EU.

A leader who once warned his party to stop “banging on about Europe”, last January UK Prime Minister David Cameron made a speech in which he committed to an in/out referendum on the UK’s membership of the EU. Four months on, Cameron’s attempt to seize the initiative on Europe in response to a restive backbench and growing support for UKIP has neither failed to quell Tory MPs’ discontent or halted the rise of UKIP. Not just that, the Conservatives and UKIP are no longer the only ones pushing for a referendum.

Nigel Lawson’s letter to The Times last week is perhaps indicative of the gains that Eurosceptics hope to make through a UK withdrawal from the European Union. In his letter, the former Chancellor of the Exchequer stated that “the EU has become a bureaucratic monstrosity” which imposes substantial economic costs on all member states and that “escaping” the EU would be a major economic plus for the UK.

Credit: gingerbeardman (Creative Commons BY NC ND)

Responding to those who claim that to leave the EU would damage the UK economy, Lord Lawson replied that “the heart of the matter is that the relevant economic context nowadays is not Europe but globalisation, including global free trade, with the World Trade Organisation as its monitor”. While there is much misperception encouraging current British Euroscepticism, it is this element of the argument which is perhaps the most misguided.

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Posted by: Posted on May 23, 2013 by Blog Admin Tagged with: eu, euroscepticism, UK

May 23 2013

The Irish Presidency of the Council of the EU has shown that serious decisions on European security and defence still need to be made.

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Posted in: Ben Tonra, EU foreign affairs (including defence, development aid and trade) and the European neighbourhood

Europe as a region has 1.7 million troops, and the second highest level of regional defence spending in the world. Yet it lacks the capacity to manage and coordinate these forces as a whole. Ben Tonra looks at how Ireland’s Presidency of the Council of the EU has helped to move forward the discussion on European security and defence, ahead of the European Council summit in December. He argues that, in light of the need for Europe to take a larger role in international security, Member States’ national defence ministries should be better connected to EU policy and decision making.

As the Irish European Council presidency draws to a close at the end of June, all eyes are on the big ticket items the Irish Government pledged to address: substantive progress on economic governance and banking union; jobs, growth and the single market; the Multiannual Financial Framework; EU-US free trade; fisheries and agriculture reform and a host of others. Somewhat overlooked has been the issue of security and defence. The Irish presidency has worked tremendously hard to contribute to a positive momentum in the run-up to the dedicated European Council discussion on security and defence at the December 2013 summit. The prevailing mood in advance of that discussion seems to be one of anticipation tempered by apprehension.

Credit: The Council of the European Union

The anticipation is generated by the fact that major forces seem to be converging which make substantive decisions on security and defence a necessity. First, European defence budgets are under pressure as never before and member states are desperately seeking means by which they can maintain military capacity at reduced overall cost. Pooling and sharing between EU partners appears a no-brainer in this regard; whether it is an Anglo-French agreement to share an aircraft carrier so as to maintain their global strategic reach or whether it is a Belgian-Dutch agreement to base a Belgian helicopter and crew on a Dutch naval vessel to combat narco-trafficking in the Caribbean. Second, if jobs and growth are an overriding European priority, the defence sector (already employing 600,000) has tremendous potential; whether it is from the ‘prime’ multinational behemoth EADS or the tiny Reamda based in Tralee, County Kerry. Thirdly, the world is changing and for arguably the first time in two generations, Europe is going to have to supply its own security and will have to make a much larger contribution to international security. Europe’s decades’ long dependence on the United States is ending – it may end with a bang or a whimper – but it is ending. Long after the end of the Cold War, Europe still depended on the US to address security crises in the Balkans, in Libya and most recently in Mali. Even with 1.7 million troops and with the second highest regional defence spending in the world, Europe does not have the basic capacity to manage and to direct even comparatively small-scale military operations. Gaping holes exist in European air, land and sea forces which make even apparently modest military missions problematic.

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Posted by: Posted on May 23, 2013 by Blog Admin Tagged with: Council of the EU, defence, Ireland

May 22 2013

Low bond yields have saved the German government €80 billion in interest since 2009.

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Posted in: Jens Boysen-Hogrefe, The Euro, European economics, finance, business and regulation, West Europe

The eurozone crisis of the past half-decade has seen huge volatility in the market for government bonds, with the heavily indebted countries on the eurozone’s periphery facing relatively high rates. One side effect of this volatility, writes Jens Boysen-Hogrefe is that Germany has been seen as a “safe haven“ for those who wish to invest in government debt, leading to unusually low yields for government bonds. He finds that these low yields have saved the German government over €80 billion in the past five years.

Yields for German government bonds reached record lows in recent months. The downturn in yields has now lasted since the start of the Great Recession, apart from a short disruption in the first half of 2011, and this has affected bills and bonds over all maturities (as shown in Figure 1 below). Papers with short maturities have partly reached negative yields. Having these low yields for such a long time have made a sizable relief for the public budget in Germany. This relief has been especially pronounced for the federal government which is responsible for roughly one half of Germany’s public debt. The gains of the federal government may be especially pronounced, since the bonds that they hold may function as a “safe haven” in Europe’s debt crisis. Other German public debtors, like the Länder and communities, are benefiting from low yields, too, but to a somewhat smaller extent.

Figure 1: Yield Curve for German Federal Government Bonds

JBH Fig 1