Piketty: 'It is a surprise that a candidate for EU Commission president comes from a tax haven'

  
Thomas Piketty
Author of the bestselling book "The Capital in the 21st century"

In an interview with EurActiv, "rock star" economist Thomas Piketty argued for a deep institutional reform of the European Union that would show citizens that Europe is working for social justice. He is also shocked that the EPP chose a candidate from Luxembourg, a tax haven.

Thomas Piketty is a French economist, author of  Capital in the 21st Century, and co-signatory of the French "Manifeste pour une union politique de l’euro" (Manifesto for a political union of the eurozone).

You presented a manifesto for Europe which argues for a eurozone parliament. Why establish another chamber, when European institutions are already considered too complicated?

Yes, the current system is complicated, but it doesn’t work. The European Parliament represents 28 states, but not exclusively the 18 states that are part of the eurozone. It is not certain whether all of these 18 countries want further European integration. So we need political institutions that are adapted to those eurozone states that want further integration.

The second problem, above and beyond the 28-18 question, is that the European Parliament bypasses national parliaments too much. It is completely legitimate to have a chamber that is directly elected by citizens in a large federation like the European Union, as well as a chamber that represents the national or federal states. In a way, this is the current situation in Europe with the heads of state or their ministers in the Council, which already forms the second chamber representing the states, and the European Parliament, which represents the citizens.

But it does not work. We will always need the Council of Ministers for a certain number of decisions. However, it is not efficient in adopting fiscal or budgetary measures. You cannot represent a country of 60, 70 or 90 million inhabitants, like Germany, with just one person.

If you really want to adopt common budgetary decisions which commit public finances of member states on, for example, a common corporate tax or public debt, then we need a parliament for the eurozone which can debate those questions on a supranational basis.

The eurozone chamber would not have representatives from each state, but 10, 20 or 30 members of parliament representing all political groups on a ratio based on their numbers within the national parliaments.

That way each member of parliament would be faced with European and national obligations and not be able to blame European institutions, as they often do today.

What makes you think that these representatives would not vote in line with their governments, especially on budgetary and fiscal matters?

Imagine if 30 French representatives - 20 from the Socialist Party (PS) and ten from the UMP (if we ignore the Greens etc) - arrive in the parliament. I doubt they would all vote in the same way.

There is a good chance that coalitions will form naturally when they find themselves side by side with 15 German SPD members, 15 CDU members, and the same diversity from Italy, Belgium and Spain. Sometimes there will be nationalist thinking, but as is proven by voting in the European Parliament, there will also be group voting. PS members will vote with SPD members more often etc.

They would be able to make democratic decisions on the level of pan-European debt, taxation and other important choices. Current negotiations on deficit levels between the Commission and the national governments do not work.

The goal of the manifesto is to contribute to the debate in relation to reworking the European institutions and the eurozone, especially in France, a country that likes to teach other countries about solidarity and highlight German egoism. In truth, thought on European political union is much more advanced in Germany than it is in France, where there is a serious lack of actual proposals.

We cannot do what François Hollande has done for years and claim to support a common public debt without outlining at what point a democratic decision would be made on the deficit level.

Your proposal for a corporate profits tax would mean a treaty change, and therefore referendums in certain countries. Is this realistic?

The treaties were changed in 2012 and it only took six months. This change did not solve the problem, but instead, increased inefficiency.

Europe has been too intrusive in matters where it should not get involved. Yet when it comes to tax havens, we have to wait for the US to put in place sanctions against Swiss banks before forcing them to fall in line. The truth is that European countries are much more threatened by Swiss banking secrecy than the US.

Another example: there will soon be a European corporate tax, which will be much lower than the US equivalent. In the US, the federal rate is at 35% whereas Europe is leaning towards 25%, soon to be 15%. The level of mandatory taxation in Europe is much higher than in the US.

Do European citizens really want to tax corporate profits less than in the US if it leads to greater labour tax, especially of low and medium-skilled jobs?

These are the results of a Union that does not deal with fiscal issues. It forces decisions that explain why European employment levels are so low.

We should not be surprised that employment and wages are stagnating compared to in the US, if work is over-taxed in Europe. It is not just a question of fiscal justice, even though this is important, but also a job creation problem in the EU. It is possible to reform the treaties and convince a majority of Europeans' opinions that certain decisions should be taken together.

This does not mean pooling all taxes and public spending, but just corporate profits for example. People now realise that national sovereignty is not suitable for dealing with these issues. 

The problem with the French referendum of 2005 was that it was on a treaty that did not contain democratic progress. This is clear when it's compared to the Maastricht Treaty, in which the unique currency was a real step forward. Therefore, it was very difficult to explain why people had to go and vote on the treaty.

If we prove to people that Europe is reintroducing fiscal justice by imposing taxes on multinational corporations which are currently not paying tax anywhere, I think support would increase.

The US, where inequality is booming, welcomed your book. What social challenges will Europe have to face?

The stakes are different in Europe. In the US, there has been an extreme increase in inequality over the past 30 years. In Europe, the real stakes concern the modernisation of the welfare state and the way the European Union works, notably the deepening of the monetary union.

One of the lessons of my book is that it is very hard to reduce current public debt levels through austerity measures alone. There are three solutions; austerity, inflation or progressive taxation of private wealth.

With very little economic growth and inflation under 1%, counting on budget surpluses to reduce public debt to 90% of GDP will not work. If it does work, it will take at least 40 years. The only example of a country that managed to reduce similar levels of debt by focusing on budgetary surpluses was the UK in the 1800s, and it took them almost a whole century.

These are the stakes in Europe; how to progress from the public debt crisis to the modernisation of the welfare state. A historical perspective is, in my opinion, useful for everyone.

When you say modernisation of the welfare state, does this not mean dismantling the "best system in the world"?

I think we must show that it is possible to modernise without dismantling. When I say modernisation, for example, of the pension system in France, I propose a reform that is close to what has been done in Sweden, which means unifying all pension systems in the public and private sector with a unique and progressive system for new generations. France is in this irreversible situation where the system squanders a huge amount of money - more so than all European countries except Italy - and yet people fear they may not get a pension.

Is a European minimum wage a way of curbing increasing inequalities?

There has been a relatively surprising revival in the idea of a European minimum wage over the past ten years. Countries like the UK or Germany, where historically there was none, have now introduced it. I think it is a useful tool, but at a European level, adjusting each country's average wage is crucial.

The minimum wage is a crucial tool to compliment other tools like education or investment in qualifications, because it is a lot easier to have a high minimum wage when one has access to high-level qualifications and lucrative jobs. Both are complementary forms of social investment, and should not be pitted against each other.

Europe and the US are negotiating a historic free-trade treaty. Are these negotiations moving in the right direction?

No, they are not. The transatlantic declarations should contain references to a common tax-base for multinationals, concrete sanctions against tax havens, and the establishment of a register for global financial stocks, or at the very least, a register for transatlantic stocks.

The US and the EU represent half of global GDP, which could lead to greater financial transparency. The establishment of a global register for financial stocks would show who owns what and where.

Public demand to fight inequality is high in the US. There is also a demand in the EU for greater justice and democracy. I think both Europeans and Americans would be happy to see that the transatlantic treaty is not just competition and opening of markets (when markets have never been so open), but that it is also about more regulation and financial and fiscal transparency.

The upcoming European elections will see an increase in extremist, or at least eurosceptic, political parties. How should Europe deal with this challenge?

Unfortunately I believe that without radical change or democratisation in the European institutions, Europe's growing unpopularity will continue.

A large part of public opinion believes that globalisation, and especially the liberalisation of exchanges at a European level, disproportionately benefit those who are more qualified and wealthy. It is obviously a huge step forward that people think their vote will affect the choice of the European Commission.

I find it shocking that one of the groups chose a representative from Luxembourg, which has become a tax haven. 30 or 40 years ago, the wealth of these countries relied greatly on industrialisation. Today it is built on a financial sector, part of which corresponds to providing tax exemptions to companies from other European countries. This completely goes against economic and social cooperation.

Interviewed by Tanja Milevska. Translated from French.

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Comments

an european's picture

Piketty don't have to be shocked nor has someone to wonder why he has been vote as a candidate and has finally nothing to do with tax heaven's either !
Luxembourg as apparently as a " tax hell" committed to have "simplify" the exchange of information!
What he wants is real solidarity more democracy and not à la Merkel only one !
But for the monetary systems without real federal structures won't work unlike in the U.S. whose economie is flourishing !
Concerning the United States however they've the best system in the world for their $ !
No & No

"The stakes are different in Europe. In the US, there has been an extreme increase in inequality over the past 30 years."

I't's not totally true.
American Average is 4300$ / month !!

INSTEAD WE in in Europe are totally in-equalized in different member-states!