Saturday, June 4, 2011

The EU Single Market needs EU political union even more than the Euro single currency!

Some (or most Eurosceptics want the EU to revert to a common market or free trade area that they think that the EEC was all about (yet see my post The EEC was never (mainly) about economics of May 27, 2011, for an analysis why this was not the case, though).

Economics, trade in partuculat, was used as a way to bring the countries and people of Europe closer together with a view to creating better conditions for political (and defense) union than the ones in the early 50s (when the proposal for a European Defense Community was defeated in a vote of the French General Assembly (parliament)).

Yet, what the experience of the WTO rules based "free trade", including the failure of the Doha Round have shown, is that a free trade area needs single rules (laws) not only in policy areas that affect trade directly but in most policy areas. Even more so, a single market, as the one in the EU since 1/1/1993!

The EU way of creating those single/uniform laws/rules in the EU Single Market, via EU reguations (that become national law in the member states directly) and EU Directives (that need to be transposed into the national legal systems of the member states by those member states governments) did work, but IMO only to a certain extent.

Subsidiarity, a Roman principle re law making, that is embedded in the EU system, says that laws must be formulated and applied at the most appropriate level, depending on the case, ie the local (municipal regional), national or EU level.

In 2009, more than 40,000 state laws were formulated, voted and applied by the 50 states and territories of the USA. One can argue that this does not make sense, and that such volume of non-national (federal) lawmaking balkanises the country (USA) and creates problems for its citizens and legal entities, eg companies, especially the micros and SME ones. How easy is it for a micro or smal or mid size company to do business inside the whole of the US? Not as easy as non-American might think! How easy is it for an American (worker, free lancer, pensioner, job seeker, etc) to do all the red tape that comes with relocating from one US state to another? Not that easy!

What makes things easier in the US case is the common/single language. Other than that, the US Internal Market is not that single for workers, self employed, micros, SMES, large companies, retired persons etc!

Eg. They have to change car license plates when relocating, pay state and local taxes to a different authority (while their national (federal) tax remains the same). If their insurance company does not operate in the state they are moving to, what do they do? It used to be that banks were not allowed to operate in all 50 states but I think that has changed in recent years. Certain US professsionals who voluntered to go and work in the state of Luisiana after the recent catastrophe were not allowed to because their professional licenses did not apply in the state! Inter-state online commerce was exempt from any sales tax because as I read, otherwise it would render it difficult if not impossible (I am not sure if the exemption still applies or what has happened recently)!

It is one thing for local and state governments in the US to decide how to spend their budgets, ie that does not distort the single entity of the US systemics, but when laws and taxes are different then people and legal entities face not a single system, but one with local sub-systems. Ie internal market for products, services, capital and work, in principle, but in practice not single.

That is why I am now examining the German federal model closer to see happen "on the ground" of the Federal Republic of Germany's federal model. Relevant post coming soon.

The situation is much worse in the alleged EU Single Market. First, all income tax is collected by member states, no national EU (federal) income tax. Even double tax avoidance is based on bilateral agreements based on a OECD prototype! That is because the EU has no competence in matters of income tax, of persons and of legal entities! Only some in indirect taxation (eg VAT).

So, the types of single laws that a polity has, are the types required not only for a well founded single currency but more importanty, for a single market, for firms and persons, as well. Otherwise the alleged single market works only for large companies and wealthy individuals who can hire the types of experts needed to weed through the labyrinth of state and local laws. That is why mobility intra-EU is very low compared to the US or eg intra-Germany. The 21+ languages is but a relatively small barrier to the EU Single Market for real people and the real economy!

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