Divide and conquer

A friend of mine has just sent me this link, in which Sarkozy is saying that it is unreasonable for us to maintain our low corporate tax rates while seeking financial aid from Europe:

“I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half (what other countries have),” he said.

For a more inflammatory version of the same argument, by an influential French economist, click here. And I was struck on my last trip to France by how ordinary people there are making the link between the Irish bailout and our ‘dumping fiscal’.

There are lots of obvious counters to all this, but I think the more important point is that such responses are inevitable, given the European response to the crisis to date. As two recent articles point out (here and here), the real cleavage in Europe is between European taxpayers and bank creditors (with the ECB being a third interested party, as another body which could help to fill the holes which have emerged in the European banking system). But since the powers that be are ruling out bondholder haircuts and quantitative easing, the only cleavage we are left with in practice is the one between core and periphery taxpayers.

Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own. Why wouldn’t they be? Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks. Why wouldn’t they be?

And while ordinary Europeans get angry with each other, with unpredictable political consequences, capital walks away scot free.

Olli Rehn in the FT

Olli Rehn has an interesting piece in the FT this morning.   One noteworthy part is the admission that the current and proposed financial support measures are not up to the task.

In parallel, we must ensure that the financial support mechanisms put in place last May are fit for purpose. The effective lending capacity of the current European financial stability facility should be reinforced and the scope of its activity widened. Here we need to review all options for the size and scope of our financial backstops – not only for the current ones, but also for the permanent European stability mechanism too.

Waste bill published

Irish legislators have a habit of amending bills but not consolidate. The Environment (Miscellaneous Provisions) Bill 2011 has been published. It’s a tough read but would allow the Minister for the Environment to put punitive levies on landfill and incineration. Strikingly, the bill was published even though the results of the consultation on the bill are still not public (UPDATE: See first comment).

I’ve posted on this before, and my opinion has not changed.

UPDATE: Submissions to the consultations are public at last. I’ve browsed through them. There is a range of opinions, as one would expect. I was reminded, however, that waste policy is so much broader than imposing levies on landfill and incineration. As it stands, the legacy of the current government may be:

  1. the right to impose punitive levies on incineration — a right that the next Minister may choose not to exercise;
  2. the right to impose punitive levies on landfill — whereas a system of tradable permits would be more appropriate given that the EU put a cap on the amount; and
  3. the need to reform waste policy.

Draft submission on climate bill

As the introduction of the climate bill may be imminent, I thought it would be appropriate to make public at least part of the consultation. Our latest draft is here. It omits one crucial part as we’re still trying to get our heads around estimating the costs of the proposed targets.

All comments are welcome.

This is the summary: [W]e are grateful for the opportunity to comment on the draft Climate Change Response Bill 2010. There are a few ambiguous statements in the draft bill that will need to be clarified in the next version, particularly with regard to the emissions target for 2020 and the definition of carbon sinks. A unilateral adoption of a 30% emission reduction target for 2020, as proposed in the draft bill, would be problematic, as EU legislation would oblige Ireland to bridge the gap between the EU target (-20%) and the Irish target (-30%) through emission reduction in the domestic non-ETS sectors (mostly agriculture, households, small and medium-sized enterprises, and transport). The proposed targets for 2030 and 2050 are extraordinarily ambitious. The draft bill omits to introduce an appropriate framework for policy measures to meet the proposed targets. The establishment of a National Climate Change Expert Advisory Body is a welcome proposal but the climate bill should guarantee that the people on the body are indeed experts and that the body is independent. The Regulatory Impact Assessment adds little to our understanding of the impact of the proposed climate bill.

We recommend the following changes to the Climate Change Response Bill 2010:

  • Adopt the EU target of a 20% emission reduction by 2020.
  • After 2020, the target should be to intensify climate policy such that the (nominal) marginal abatement costs of emission reduction increases with the rate of discount (i.e., the nominal interest rate) until carbon dioxide emissions are zero.
  • Create a framework for policy interventions of greenhouse gas emissions, with single regulation and equalization of marginal abatement costs as important criteria.
  • Guarantee that the National Climate Change Expert Advisory Body is independent and has the required expertise.

Furthermore, we recommend that the impacts of the proposed climate bill will be assessed before the bill is introduced.

UPDATE: Interesting comments in today’s Irish Times. Ciaran Cuffe may need to check his math.

Baltic Meltdown Avoided?

Just arrived in my inbox, a link to this IMF article, containing the following paragraph:

Meltdown avoided

It is too early to pass final judgment on the success of the Baltic strategy. Adjustment is still far from complete, and the current problems in the eurozone may yet complicate recovery. What is clear, however, is that the most dire predictions have not come true. Despite an unprecedented economic downturn―cumulatively, GDP has shrunk by about a quarter―devaluation and banking crises have been avoided.

So they’ve lost quarter of their GDP but a meltdown was avoided? I guess this shows that the definition of a meltdown is in the eye of the beholder.