Do countries that are lax on tax drag the European Union down?
Cyrpus' banking crisis and subsequent bailout raises questions about how tax regulations in the European Union affect individual countries
Now that Cyprus has reached a solution to its debt crisis, announcing that it will levy a tax on his biggest, mostly offshore, investors, its less well-heeled citizens can relax. Not so the rest of the European Union; other countries with an equally weak tax structure could conceivably throw the union into chaos yet again if their banking systems near collapse.
Like the state-to-state differences here, each country in the EU has its own income, corporate and banking tax systems and there’s a tacit understanding that they won’t undermine each other. And while the patchwork of taxation didn’t cause the EU crisis, in cases like Cyprus it certainly exacerbates the situation.
There’s been talk of reforming the rules to make things more equitable across borders, but any substantial change is a long way off. Will countries with a more robust economy, such as Germany, continue to hold up the roof for the EU? Should all EU countries be forced to bring their tax rates up to the level of their neighbors? Once the deluge of economic emergencies is over, what’s next for the euro?
Scheherazade Rehman, Ph.D., Director, European Union Research Center and Professor of International Finance at George Washington University