Accounting Essays | The Economic
and Monetary Union (EMU)
The Economic
and Monetary Union (EMU) has been planned for several years
and the European Union governments in 1992 as part of the Maastricht
Treaty agreed to establish a single European currency.
EMU does
not, however, simply refer to a change in the denomination of
the UK currency. It also involves the transfer of British economic
powers to the control of Central European Bank (CEB).
Interest
rates will be set by this new ECB for all participating countries,
irrespective of the specific monetary needs of the individual
countries, with the Bank of England becoming nothing more than
a subsidiary of the ECB, by merely administrating its decisions.
The sovereignty of British parliamentary democracy will become
increasingly powerless, even those economic policies that remain
in UK control, will also be subjected to detailed supervision
by the CEB.
Individual governments can still employ fiscal measures, hence,
taxation and government spending to help control their economies.
But some observers argue that such measures still need to be
co-ordinated with other EU member countries.
This can result
in a future transfer of fiscal policy decision as well as monetary
to the European Union governing body.
Given such transfer of
national powers it is not surprising to see that UK has chosen
not to participate and keep its parliamentary sovereignty and
governments remain the principal decision makers in regards
to taxation, both direct (Income tax) and indirect (Value added
taxation).
The ideal of 'tax harmonisation' within the EMU is still at
an early stage. This is designed to bring into line all member
states tax rates and policies.
The need for this integration
is based on two grounds, firstly, from a neo-liberal point of
view, national differences in tax regimes and rates represent
inefficient and trade distorting barriers to competition.
The
second argument for tax harmonisation is that there must be
European control of tax and fiscal policy in order to offset
the ECB's control of interest rates and setting of monetary
policy.
Recent opinion polls have shown that there is very little
support for European tax harmonisation. The current rates of
VAT, corporation tax and excise duties within member states
vary significantly as a result.
Source: Data from OECD Revenue Statistics, 1965-2001, p.74.
Bale, T., 2005
The varying rates of taxation within EU member
states are a remaining mean of encouraging capital (having lost
control over monetary policies), among other things, to relocate
to where taxes are lowest. To ensure that there country remains
an attractive place for foreign direct investment.
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