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The election victories of "New Labour" in the United Kingdom and the "Parti Socialiste" in France seem to have marked the beginning of a change in European politics. More and more citizens are realizing that the pursuit of neoliberal market fundamentalism, in spite of the great promises which the conservatives have been making for many years now, does not result in increased prosperity and well-being. Instead it has led to unprecedented mass unemployment, job insecurity, social exclusion and environmental degradation. The public reaction to this has meant that the left-wing parties, at last, are gaining ground again. This trend improves the chances to redirect politics towards a more just and ecologically sustainable economic order, both at the respective national levels and the level of the European Union (EU).

We, the undersigned, therefore welcome the steps that have been taken recently in this direction, e.g. the insertion of a new title on employment into the Treaty of Amsterdam and the decision to have an extraordinary meeting of the European Council on the problem of unacceptably high unemployment. Nevertheless, we fear that, whatever national and/or coordinated strategies for employment and social improvement are to be adopted, they will all be doomed to failure unless the extremely harmful erosion of national governments´ control over taxation (being one of the root causes for the high public debts of the member states) is not prevented.

The harsh fiscal convergence criteria of the single currency are exclusively geared to government spending as a means of consolidating public finances. The corresponding cut-backs of public expenditure are causing additional losses of jobs and the dismantling of public welfare. On the other hand, governments continually increase the tax burden and mandatory social contributions on labour. This further reduces the aggregate purchasing power and thus also endangers employment.

At the same time, capital not only profits from steady tax reductions, but is moreover allowed to evade taxation on a massive scale. Comprehensive financial liberalization and deregulation programmes have led to a far-reaching abolition of capital controls across the EU. This has provided actors on the financial markets with an enormous degree of freedom, enabling them to use their funds as powerful tools with which to "encourage" governments to adopt policies in line with their own preferences. Thus, by making it possible to play EU governments against each other, the unchecked globalization of capital has enhanced the opportunities for tax evasion and considerably eroded national revenue bases. In addition, the threat of capital flight has even compromised the political autonomy of the EU member states.

Against this background, the EU´s Economic and Social Committee which is made up equally of employers and unions, recently complained, by a large majority, about the "destructive tax competition" between the member states. According to the EU Commission, the EU´s average tax burden on labour was increased from 34.7 % in 1980 to 40.5 % in 1994, whereas levies on capital, revenues from self-employment, energy and natural resources fell from 44.1 % to 35.2 % in the same period. The Economic and Social Committee argues that this damaging distortion of factor taxation is, above all, a consequence of the prevailing "tax dumping" within the EU. Many governments are still speeding this up by establishing new tax havens and offering further tax reductions for foreign capital (with some tax rates below 1 %!). These heavy tax allowances are being financed partly at the expense of labour. As various estimates indicate, throughout the EU the losses in taxes resulting from legal cross-border tax evasion alone amount to at least 100 billion Ecu a year – to say nothing of the barely combatted illegal tax evasion. In the light of all this, the Economic and Social Committee rightly states that internal tax dumping could become a debilitating drain on the EU as a whole.

Since the EU and its member states urgently need additional funds to fight the dramatically growing unemployment and the ongoing destruction of nature, we consider it imperative to put an end to the detrimental trends described above. Therefore, we call upon you to exercise your political responsibility vis-à-vis the European citizens by taking joint action towards the introduction of a rational EU tax policy which would
( put a reasonable source tax on all income from interest at the same rate for all member states;
( introduce a minimum tax rate on capital income (income tax and corporation tax) throughout the EU;
( reduce the wage tax rates of the lower and medium income brackets;
( harmonize and increase the tax rates of all environment-related taxes;
( implement a foreign exchange transaction tax (as proposed by Nobel laureate James Tobin to curb speculative money flows).

Given the pressures of having to further cut back government expenditure as a consequence of the forthcoming stability pact, we are firmly convinced that there is a need for swift regulatory action in the proposed direction. If not, you will lack the financial space for manoeuvre required to deliver to the people what they have been promised. The mere resumption of the socially and environmentally devastating austerity policies of the conservatives would inevitably leave the disappointed electorate at the hands of ultra-right populists – as has occurred once before in the course of this century.

Since the G7, at their Lyon Summit, have also acknowledged that "tax schemes aimed at attracting financial and other geographically mobile activities can create harmful tax competition between States, carrying risks of distorting trade and investment and could lead to the erosion of national tax bases", we strongly urge you to widen your future initiatives beyond the EU framework to assure that countries cooperate on a global scale to put a stop to this self-reinforcing negative spiral.

cc: Leaders of the socialist, social democratic and green opposition parties in Germany, Ireland and Spain