A political “consensus” is at this moment being forged in the Euro Area around a policy mix where the ECB would go for some form of, yet undefined, quantitative easing and this in exchange for radical structural reforms.
To push this view through, it seems as if anything is allowed. A rather hallucinating illustration of this is what Mario Draghi is reported to have said in the press briefing that followed the September meeting of the ECB board last week:
We can provide as much monetary stimulus as we want, but if the person who plans to use this credit for a new business has to wait eight months before he or she can open this new business, and then has to pay lots of taxes, this person will not apply for credit.
It cannot be clearer said than that: The real problem with the Euro Area is business is facing too many obstacles. No amount of monetary easing can ultimately compensate for the fact that the Euro Area simply isn’t “business friendly” enough.
However, before intellectually surrendering to this view, policy-makers would do well to check the facts. They will then find the following:
In the economy that is considered to be the prime example of flexibility, the US, it takes five days to start a business. In Italy and France, countries seen by the ECB as being basket cases that are in desperate need of reform, it takes 6 and 7 days respectively. Then there is Germany, the ECB’s champion and role model for the rest of the Euro Area, where a business needs 15 days to set up shop. This is even slightly more than the number of days needed in Greece (14). Spanish business does need to be a bit more patient with 25 days. However, it is clear that the President of the ECB, by referring to a period of eight months, has simply plucked a number out of thin air without bothering to check the real numbers.
Source: World Bank (http://data.worldbank.org/indicator/IC.REG.DURS)
What about these excessively high taxes business has to pay in Europe?
The graph below shows that there is not a single European member state where the effective tax rate on business profits is higher compared to the US or Japan. In member states such as Ireland, Cyprus, Slovenia, Slovakia, Bulgaria or Romania, taxes on business profits are even ridiculously low, with business only having to pay 10% or less. The extent to which tax competition on corporate profits has taken place in the internal marketplace with its freedom of movement for capital is not to be underestimated. Again, the President of the ECB seems to be unaware of this.
Source: Data taken from Business Europe Reform Barometer (http://www.bia-bg.com/uploads/files/News/Ref%20barometer_Spring2013%20final.pdf)
All of this is very regrettable. The European Central Bank is supposed to be neutral and independent. Its President should not be seen as siding with business by blindly repeating the false and poisonous slogans that the business lobby is spreading across Europe.
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