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The Wall Street Journal Europe

March 6, 2001 

International Commentary:
Bully Europe

     Britain places a former Chilean head of state under house arrest at the behest of a Spanish judge. The European Union sanctions Austria for the results of a democratic election. The EU council of finance ministers reprimands Ireland for its low-tax policy. The French Parliament describes Switzerland as a "predator in world finance" for its bank secrecy laws. A pattern, maybe?

     If so, then it's not a wise one. The arrest of Gen. Augusto Pinochet, initially hailed as a great blow for human rights, soon became a foreign-policy fiasco and a domestic embarrassment for the British government. At length, an excuse was found to send the old man home. The sanctions against Austria, also done in the name of moral principle, collapsed the moment it became clear Vienna would go only so far in its self-abasement. Among the sanctions' other effects was to push Denmark into voting against the euro in last September's referendum. The reprimand of Ireland had no effect on Irish fiscal policy, though it may yet influence the course of debate over Britain's adoption of the euro.

     As for Switzerland, the country on Sunday voted by a 77% to 23% margin against entering into membership talks with the EU. Brussels, as usual, is refusing to accept that such a thing happened: "The Swiss did not say 'No' to Europe," reads a nonchalant statement from the Commission. If you believe this, there's a bridge we'd like to sell you.

     The Swiss vote cannot, of course, be ascribed to any single factor. Switzerland's penchant for neutrality and independence is legendary; its suspicion of multilateral institutions such as NATO and the U.N. equally so. Yet the country remains very much at the heart of Europe and until recently had been moving in a more integrationist direction. In 1992 it became a member of the World Bank and International Monetary Fund. Last year, the Swiss voted for an accord with the EU that loosened restrictions on the free movement of people and labor. If Sunday's vote was not out of character, the margin nevertheless suggested a turning back.

     Here the effects of the French parliamentary report on Swiss banking cannot be underestimated. To be called a "predator" by a neighbor nine times your size is probably not conducive to good relations, especially if the object of your neighbors' attacks happens to be your economic mainstay. Nor is this the first time that pleasant, friendly Switzerland has come under attack from its democratic friends. The U.S. and the EU have applied considerable pressure on the Swiss to loosen bank secrecy laws, through which Switzerland has managed to attract an estimated $2 trillion in capital. How would France react to attempts to strip it of such a sum, which amounts to about 25% above its entire GDP? Par la guerre, de Gaulle would have said.

     But the reason for the Swiss rebuff goes beyond EU intimidation tactics. Put simply, Switzerland looks out upon a European economy that doesn't seem to offer much by way of an example. Unemployment is roughly four times greater in the EU than in Switzerland; value-added taxes twice as great; top marginal corporate tax rates about 25% higher. The Swiss government takes in a little less than 15% of GDP, as compared to 19% in Germany and 24% in France. The absence of a minimum wage means it can more easily employ its large immigrant population. Switzerland's top federal income tax rate stands at 11.5%, as opposed to 46% in Italy. And while most of the tax take in Switzerland happens on the local level, the Swiss still pay lower rates of income tax than the rest of the EU and, moreover, they enjoy the benefits of tax competition between their 26 cantons, something Brussels has assiduously sought to take away from the rest of Europe.

     All this should put the ball in Brussels' court. The EU cannot say of the Swiss, as they say of the risk-taking Americans, that they are not like us, they are the ones who got on the boats and so forth. Indeed, Switzerland is nothing if not a kind of model EU in miniature: polyglot, democratic, prosperous and federal. But rather than emulate the Swiss, especially in matters economic, EU politicians have chosen to lecture them.

     And the Swiss aren't the only targets. Lately, Louis Michel, the foreign minister of Belgium (Belgium!) has threatened sanctions against Italy should a center-right coalition that includes the Northern League's Umberto Bossi be installed in April's elections. So far, Italian politicians have treated Mr. Michel's comments as one does a large and buzzing fly -- by trying to shoo it out the window. Yet Belgium takes over the EU presidency in June, meaning this fly is not for turning. Just how annoying will eurosanctimony have to get, we wonder, before someone, somewhere, pulls out the swatter?

     -- From The Wall Street Journal Europe


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