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The American Spectator -- June 2001

Laetitia`s Lament


The most beautiful French woman alive sits in London avoiding taxes. There are two ways to get her back. One would plunge Europe even deeper into economic sclerosis. The other could make the Old World the center of the New Economy. The decision will be made by Eurocrats in Brussels. Good Luck.

By Eileen Ciesla


It was no unintentional slight, but a deliberate act of traitorous implication. Last spring, Laetitia Casta, the French model whose beauty was so treasured by her countrymen that she was made the new "Marianne," symbol of the French Republic, repaid the compliment by moving to London barely after the bust was unveiled. At a runway show in Cannes shortly thereafter the beauty was met with cries of "Traitor" and "Vive la France." But former "Marianne" Brigitte Bardot offered Laetitia moral support: "Good for her. If I were younger, I would join her."

What pushed the Corsican-bred beauty to depart France, urged on by her predecessor?

Taxes.

French income taxes are bad enough. No matter how beautiful, and regardless of how many French mythological figures she represents, a French woman, or man, making a mere $45,000 a year is taxed at the top marginal rate of 54 percent, plus 16 percent for social security taxes. Laetitia, whose salary is estimated to be $3 million, saves 30 to 40 percent just by renting a flat in Trafalgar Square.

Since we are talking France, of course it gets worse. If the supermodel or citizen in question is frugal enough to build a significant nest egg, she will pay a "wealth tax" of up to 8 percent, all but decimating incentives to save and invest. But the real fury of the revolution is reserved for entrepreneurs. Should Laetitia ever decide to, say, start her own cosmetics line, and take the company public on the Nouveau Marche, she might want to attract or motivate talent with stock options. The French tax authorities, however, have made sure no one gets too motivated. Realize a gain of FFr 1 million on your options and sell them in less than four years (the moment, in French thinking, when investment ceases to be speculation) and you will owe 120 percent on the gain. That is, you must pay the entire FFr 1 million gain plus 200,000.

For many French entrepreneurs the indignity is too much. Roughly 150 entrepreneurial French companies have relocated to Britain. According to one estimate, 250,000 French are living in the UK, many described by their banks as "ultra-high net worth individuals."

Ah, but the French government has a solution: erect a fiscal blockade to rein in fleeing entrepreneurs. Try to take your chances abroad and you face a 40 percent exit tax on the unrealized gain in your company`s stock.

Despite the scene at Cannes, Bardot was not Laetitia`s only supporter. An editorial in the French paper Le Point intoned, "To learn that the personification of the national symbol prefers Knightsbridge to St.-Germain-de-Près because of abusive taxes shows something is wrong." Observing a brain drain far beyond Laetitia, Le Monde sighed, "You can`t have a dinner party without a guest mentioning the exodus to Great Britain. It is very depressing to hear that after les huguenots, les royalistes, les proscrits de la commune et les gaullistes, it is today the turn of large fortunes, the high salaries and the entrepreneurial forces to find refuge across the Channel." Even the Socialist-led government`s finance minister, Laurent Fabius, called the flight of talent "a worrying phenomenon." More worrying perhaps is that annual French GDP growth has averaged a mere 1.24 percent over the past 20 years, and only 1.5 during the booming 1990s.

Perhaps the spectacle of the face scheduled to appear on French coinage decamping across the channel helped induce the government to make some token tax cuts, trimming the top corporate rate from 36.66 percent to 35.33 percent. Perhaps the French will do more. Spain and Germany have both trimmed taxes recently. Tax cuts have launched a small renaissance in Swedish startups and reinvigorated Dutch growth rates. And Italy`s Silvio Berlusconi, at this writing favored to win a second chance as Italy`s Prime Minister after his abortive eight-month adventure in 1994, has campaigned on the promise to bring the "Thatcher-Reagan-Aznar" model to his country`s ailing economy.

So that`s one way France and other high-tax EU states could go: Modest tax reform to staunch the worst of the brain drain and nudge up EU growth rates, which have been barely better than France`s over the past two decades, averaging a mere 1.6 percent.

But there is a problem. It`s called Ireland. Ireland is in a supply-side boom, embarrassing Brussels Eurocrats who predicted disaster and reminding them just how much they hate the very idea of trimming taxes.

Ireland is not interested in modest tax cuts, or modest growth. Since the late 1980s, when sheer desperation pushed the government into the arms of supply-siders, tiny Ireland has been the most aggressive tax cutter and fastest-growing economy in Europe. Since 1990 Irish GDP growth has been more than double the EU average each year but one; since 1995 Irish growth rates have been more than triple the EU average each year. Over that period the Irish have averaged 9.4 percent annual growth compared to the EU`s 2.6 percent.

Ireland has no intention of retreating from more tax cuts, but some forces in the EU would like to stop them before the revolution spreads. For while their Gallic brethren might tolerate modest reform, if the French and Belgians fear anything more than an outbreak of foot and mouth disease carried by rogue English cattle, it is a plague of Irish-inspired radical tax cuts. Ireland is giving the EU a nervous breakdown.

Long a contender for the title of world`s poorest developed country, by the mid-1980s Ireland was hitting new lows: unemployment was in the high teens, economic growth was essentially nil, inflation topped 10 percent. The Irish trade deficit was more than 12 percent a year of GDP. Despite high tax rates the government ran mounting deficits, with indebtedness (the ratio of publicly held debt to GDP) peaking at 118 percent of GDP in 1987.

As in centuries past, the one successful Irish export was people: Educated, English-speaking, and highly employable, some 200,000 Irish emigrated in the 1980s.

Faced with a massive budget crisis, the Irish government was finally open to drastic solutions. A band of ten economists, espousing supply-side ideas, pushed through an emergency agenda. Among these ten was current finance minister Charlie McCreevy, present target of EU displeasure and author of Ireland`s tax-cutting budgets.

In 1986 GDP growth was an abysmal 0.4 percent. That year the tax cuts started in earnest. In 1985 the top personal income tax rate was 65 percent in a five-tier system with the lowest rate at 35 percent. In 1986 the top rate was cut to 60 percent; in 1987 it was nipped again to 58 percent. GDP grew to over 4 percent for the first time in the 1980s. In 1989 the supply-siders took firm control of the government. By 1992 the top rate was slimmed to 52 percent and Ireland had averaged 4.5 percent growth for six years running.

The cuts kept coming. By 2000 the top rate in a now two-tier system was 44 percent (the bottom rate was 20) and GDP growth hit 10 percent. This year the top rate slides to 42 percent.



Cuts in personal income tax rates were only part of the story. The general corporate income tax had been 50 percent, but in 1980 the government had established a special 10 percent rate for businesses in the Shannon Airport Zone. Observing the resulting boom in foreign investment, the government first broadened the program to include the International Financial Services Center in Dublin, and then began to cut corporate taxes for everyone. By 1996 the corporate rate had been slashed to 36 percent; today it is 24 percent and dropping.

In the mid-1990s high-tax EU nations began a campaign to rein in "tax poaching" (i.e., cutting taxes lower than your socialist neighbors), targeting in particular Ireland`s special 10 percent rate for foreign businesses. Ever peaceful and accommodating, the Irish of course gave in immediately. There will be no more special 10 percent rate for foreigners. Instead the Irish will cut all corporate rates to 12.5 percent by 2003, giving Ireland one of the lowest corporate rates in the world.

The result has been a flood of foreign direct investment -- which is exactly what the high-tax EU countries are annoyed about. Nearly half of all North American direct investment in Europe goes to Ireland. American multinationals Dell, Gateway, Microsoft, and Oracle all keep their European headquarters in Erin.

From 1986, when the personal rate cuts started, to 1994 the top personal rate was shaved by 17 points and GDP growth averaged more than 4.5 percent. Then in 1994 Ireland slashed its capital gains tax rate on share sales from 40 to 27 percent and never looked back. In 1998 it cut the overall cap gains rate in one fell swoop from 40 to 20 percent. Growth averaged 10 percent for the next six years and tripled the EU average every single year. In 1996, its worst year after the 1994 cap gains cut, Ireland grew 7.7 percent while France stalled at 1.6 and the EU averaged 1.8.

In the wake of the capital gains cuts, which powerfully stimulated business investment and created a surge in the Irish stock market, the unemployment figures finally moved out of double digits for the first time in more than a decade, dropping from 15.7 percent in 1993 to under 5 percent last year. In France today unemployment is stuck at 10.3 percent; across the EU the figure is 8.5 percent.

So with personal income tax rates reduced by a third, corporate rates cut by three-quarters, and the capital gains rate chopped in half, what happened to government revenues?

They boomed. Ireland`s supply-siders came to power because of a government financial crisis: an unmanageable deficit, amounting to 14 percent of GDP, and a crushing burden of debt. Early attempts to solve budget problems by budget cuts did little to reduce the deficit or government spending as a percentage of GDP. It took tax cuts to solve Ireland`s budget crisis. Between 1980 and 1997, personal income tax revenues leaped fivefold, from $1.2 billion to $5.1 billion. Capital gains tax revenues increased 600 percent between 1993 and 1998.

In 1997 Ireland`s perpetual deficit crossed over into surplus, projected this year at 5 percent of GDP. National indebtedness has come down from 118 percent of GDP to 39 percent.

Brussels, fiercely statist, wants to ascribe Ireland`s recovery to EU spending programs. And Keynesian economists denounce it all as an overheated inflationary bubble, implying the Irish economy must be destroyed in order to save it.

The real surprise is that anyone is surprised by the effects the tax cuts had. The Roaring Twenties of the U.S., the post-war expansions in Germany under Ludwig Erhard and in Japan under Ishibashi, the Seven Fat Years under Reagan, the Thatcher years, and the boom in Clinton`s second term after the capital gains rate reduction in 1997 -- all bear witness to the same principle. Tax cuts don`t starve government, they feed it.

A World Bank study by Keith Marsden in 1983 showed that low tax rate countries increase government spending on average three times as fast as high tax rate countries. In the 1980s the developed country with the lowest tax rate was Hong Kong with a top rate of 17 percent. It was also the nation with the fastest- growing government revenues and the fastest growth in government spending.

Economist (and American Spectator contributing editor) Alan Reynolds, studying less developed countries, shows that in every case in which they drastically reduced top marginal tax rates, hyperinflations evaporated, growth expanded, and revenue coffers swelled. Mauritius halved its top rate from 60 percent to 35 percent in 1979 and watched tax receipts grow faster than its accelerating GDP -- by 10 percent a year -- while budget deficits dropped even faster. When India cut its top individual rate from 65 percent to 50 percent in 1985, the Bombay stock market surged, and tax rate receipts increased by 40 percent in one year. Turkey cut its top rate from 75 to 50 percent in 1985-86, and saw growth rates leap to an average of 7 percent a year while tax receipts increased by 23 percent in 1985 and 31 percent in 1986. South Korea cut its top rate repeatedly from a high of 89 percent in 1979 to 40 percent by 1996. Income tax revenue grew from 1.7 billion Korean won in 1980 to 27.1 billion in 1996.

Why does it work again and again? It`s the economy, stupid. Reynolds shows, for instance, that regardless of how high the top rate goes in the U.S., the income tax will not yield revenues amounting to more than 9 to 11 percent of personal income. Taxpayers always find ways to avoid punitive rates: Capital ships offshore. Talent migrates. Accountants become artists. Havens teem.

In the U.S., following two personal income tax rate increases in 1991 and 1995, income tax revenues actually dropped to 8.8 percent of personal income, less than the 10 percent collected in the late 1980s when the top rate was at its lowest: 28 percent.

If the percentage of personal income the government can collect in taxes is essentially invariable, then the only variable the government has to work with is growth. Only growth can reduce deficits and fund programs. And the only way to reliably increase growth is to boost incentives to work and invest by reducing taxes and tax proxies like regulation.

By rejecting the perceived tradeoff between tax cuts and diminished revenue, McCreevy effected a stunning reversal in Ireland`s fortunes, birthing a Celtic Tiger. For the first time in centuries, more people want to move to Ireland than leave it. On average, 28,000 people left each year between 1987 and 1991. With immigration policies as welcoming as its capital markets, Ireland is drawing some 50,000 immigrants a year. The Irish labor agency, Fás, scours the globe, holding job fairs in Germany, London, New Zealand, South Africa, Newfoundland, and just this March in New York City, hoping to lure not only the Diaspora but any qualified American to fill the huge demand of the high-tech and service sectors. With unemployment at 3.7 percent there are an estimated 50,000 unfilled positions in the Republic, 30,000 in Dublin alone. As Fás director Gregory Craig noted to an Irish Times reporter, "I`ve spent most of my career trying to find jobs for people, now I`m trying to find people for jobs."

And yes, Ireland`s EU partners do see the career fairs as another example of "poaching" by an Ireland growing too fast for comfort.



At an EU finance meeting last December, McCreevy made it clear that Ireland was not yet through with tax cuts. The EU made it just as clear that it does not intend to let Ireland continue to endanger its dreams of tax harmonization, i.e., keeping EU tax rates uniformly high rather than allowing member states to compete in a "race to the bottom." In January Pedro Solbes, the EU`s Economic and Monetary Affairs Commissioner, urged Ireland to reconsider its budget, arguing that low Irish tax rates violated the Broad Economic Policy Guidelines, part of the Stability and Growth Pact that all members agree to annually. And he asked the other finance ministers to "formally rebuke the Irish government over sharp tax cuts in its budget."

The excuse of course was that the EU wanted to save Ireland from itself. Any further cuts, or spending increases, Solbes warned, "would overheat the economy," Keynes-speak for an economy in which people work too hard, invest too much, create too many jobs, and get too rich.

McCreevy, sadly lacking in contrition, shot back that the EU was acting out of "envy." Panic is a better explanation. As the Daily Telegraph observed, the EU`s real motive was betrayed by EU finance minister Didier Reynders, who called the reprimand a "pre-emptive strike by Brussels to stop conservative parties in Italy, France, and Germany from coming to power on a tax-cutting platform."

The tax cut threat comes not just from conservative parties. "You`ve got left-wing socialist governments cutting top marginal rates," says Michael Darda, European analyst with Polyconomics Inc., a supply-side consulting group. "Granted, they`re still too high, but it`s pretty exciting."

In Spain, the center-right government of Prime Minister Jose Maria Aznar cut taxes immediately after coming to power in 1997, slashing the top income tax rate from 56 to 48 percent and reducing the top corporate rate to 35 percent. Spain`s unemployment rate dropped from a catastrophic 22.5 percent in 1995 to a merely brutal 14 percent (kept high largely by Spain`s rigid labor laws). But GDP growth now runs respectably over 3 percent and Aznar, who won re-election this year, vows to continue reforms. Germany, under the unlikely leadership of Green Party Chancellor Gerhard Schroeder, is reducing its top personal rate from 53 to 48 percent and its top corporate rate from 51.6 to 25 percent, the most dramatic cuts since the days of Ludwig Erhard`s post-war "German miracle," created by cutting the top rate from 95 percent in 1948 to 53 percent in 1958.

Facing a continental supply-side revolt, Reynders sounds increasingly desperate to discredit -- and punish -- Irish success. "The economic miracle here was achieved with EU aid and the authorities shouldn`t forget this," Reynders warned at a meeting of finance ministers. He means the more than $32 billion in EU aid Ireland has received since 1973. EU aid currently equals about 4 percent of Irish GDP. But the claim that Euro-subsidies, not tax cuts, drove the Irish boom won`t wash. The dates are wrong. And most of the aid goes to agricultural subsidies, whose contribution to Irish growth rates is probably negative; to education (in a country already obsessively literate); and to transportation infrastructure, helpful but hardly central to a boom driven by technology and services.

By Reynders`s logic, Newfoundland, which received at one point 42 percent of its revenues as grants from the Canadian government, should be booming. Like Ireland in the 1980s, Newfoundland suffers from an unemployment rate of 17 percent.

But Reynders was doing more than claiming credit, he was making a threat, invoking a provision of the EU bylaws that could be used to block future funding if Ireland continues as a tax reform rebel.

Another EU charge is that Irish tax cuts are breeding "excesses of success." After averaging less than 2 percent from 1990 through 1998, inflation came roaring back in 1999, ultimately rising to 7 percent before dropping back below 6 percent recently.

Keynesians in Brussels blame Erin`s "risky" tax cutting and "overheated" growth. But Euroskeptics in the UK, pointing out that inflation returned the same year Ireland joined the euro, call the Irish inflation just one more example of what happens when a nation cedes its monetary policy to a foreign central bank. "The interest rate is not settled with Ireland in mind. Ireland represents 1 percent of the EU`s population," says Anthony Coughlan, professor at Trinity College, Dublin. "The rates are set in Frankfurt, where the main concern is slower-growing Germany and France."

Robert Mundell, Nobel Prize-winning economist and the "spiritual father" of the euro, rejects the idea that Ireland is seeing a monetary inflation at all. Pointing out that monetary inflation can only be the result of excess money supply, and therefore would apply equally to any country on the euro, Mundell argues that prices are rising in Ireland because the real value of Irish assets is rising relative to the rest of Europe. When the U.S. stock market booms, skyscrapers in Manhattan rise in price relative to land in, say, Fargo, North Dakota, not because Manhattan is experiencing "inflation," but because demand for downtown office space rises when the local financial industry prospers. As Mundell argued at the World Economic Forum in Davos, Switzerland, this February, Ireland`s land, labor, and resources have become more valuable relative to those of other countries on the euro because it has a more vigorous economy.

Dismissing inflation as a straw man, Mundell argued that the EU`s "hidden agenda is to establish a framework for tax harmonization." Officially the EU backed off its latest push for harmonization in February of this year. But Belgium is due to take over the EU presidency on July 1, and Reynders makes no secret of his euro-federalist views. His grand vision reaches beyond harmonization to convergence of fiscal plans, a euro tax for a euro budget. "If you have a European area and a euro currency, I think that one day you are going to need a European tax," he told reporters in March.



Is this what it all comes down to -- the euro versus the Laffer curve? Does European union, or at least the euro, necessarily come at the price of permanent (high) tax solidarity enforced by Brussels?

Mundell suggests that the real answer may be just the opposite: The euro is as likely to drive a European supply-side revolt as sidetrack it.

The essential supply-side, or neo-classical, insight is the importance of splitting monetary and fiscal policy and restricting each to its proper purpose. The sole purpose of monetary policy is to establish monetary stability, not to stimulate or restrain growth by manipulation of "aggregate demand." Growth is properly driven by incentives to work and invest, which are most readily influenced by fiscal policy, especially tax rates and social insurance policies. The great Keynesian mistake is to reverse this order, using inflationary monetary policy to boost growth and using fiscal policy -- tax increases -- to restrain inflation. By joining the euro, EU states effectively deprive themselves of this temptation by surrendering control of monetary policy to Frankfurt, thus leaving fiscal policy their only tool for stimulating growth.

In a recent debate with Milton Friedman in the National Post, Mundell observed that "when a country fixes its currency to a large and stable monetary leader, it gets a rudder for its economic policy, a stable rate of inflation and discipline for its fiscal policy." With a common money in place, fiscal policy is the only lever remaining to control the economy and the basis on which to compete with other trading partners in the eurozone. That is what appears to be driving tax cuts across Europe, regardless of the political rhetoric coming from Brussels. Thus the euro does not so much control the debate over taxes as sharpen it to a point. Driving tax cuts by member states, it also drives Brussels`s lust for harmonized or even centralized taxation to forestall those tax cuts.

McCreevy shows no signs of backing down -- the tax on stock options will be reduced this year from 40 to 20 percent -- or letting Brussels obscure the source of Irish success. "It is very difficult for me, in the light of the comparative performance of the Irish economy, to see that any recommendation (to change the budget) is warranted. Our growth rate at 11 percent is three times the EU average. We have a budget surplus of 5 percent. Eight of the 14 EU states are running deficits. Taxation and expenditures are 33 percent of GDP" -- down from 50 percent in the early 1980s. Deputy Prime Minister Mary Harney is similarly intransigent. "It is amazing that our EU partners would want to punish the most successful economy in Europe. They really ought to be thinking of ways to emulate our approach, not stifle it." In case anyone missed the message, she pointed out last July that Ireland is "closer to Boston than to Berlin."

On the Continent open defiance of Brussels seems less tenable. The reprimand against Ireland has prompted even such a flamboyant rebel as Italy`s Silvio Berlusconi to tone down his supply-side rhetoric. His likely finance minister, Guilio Tremonti, spooked by Brussels`s threats, has become the soul of prudence: "We have a dream. But we are careful. We are not stupid. We know that we are in Europe, and must obey the stability pact [of the single European currency]."

Tremonti dreams of cutting direct taxation on companies and individuals to 33 percent of GDP and of the "Tremonti Law," which would give tax breaks to companies that reinvest their earnings and entice capital back to Italy. But he was careful to tell the Financial Times, "We are not supply-siders, and cannot afford to be.... We have a lot of enemies, so let us start slowly."

Meanwhile, Laetitia/Marianne remains in her London exile, an unmistakable symbol of French and European failure. Why do the French tolerate policies so self-evidently destructive?

"One among four or five in France are in public service. They eat 38% of all the tax revenues in their salary and benefits. Their average salary is greater than a salary in the private sector. Their retirement benefits are greater. In the French courts their average workweek is 28 hours. Wouldn’t you try to kill someone who tried to take that away from you?" asks Jack Anderson, European tax partner with Ernst & Young.

It is not wealth that France fears, but the competitive forces of globalization that will inevitably devastate the cozy government sector. Eurocrats want the growth rates of a competitive economy, but they cannot let go of the sclerotic certainty of soft socialism and the world`s most luxurious safety nets. As French Prime Minister Jospin famously remarked, "Yes to market economies. No to market societies."

But there is no escape. No matter what Mr. Jospin believes, global competition will slash and burn its way through the heart of France`s statist status quo. If he wants to continue to afford the French safety net, his best chance is to do a bit of slashing himself. Though it may fluster Belgian bureaucrats and gall the Gallic sensibility, the remedy is quite simple, Mr. Jospin. Cut her tax rates and you can have your Marianne and your revenues, too.

- - -

HJL

[realbertl]

der artikel spricht mir aus der seele

[JLL]

Ein sehr schöner Artikel, der es verdient einmal wieder nach oben geholt zu werden.

Irland ist für die EU, das was die Gallier für das Römische Imperium waren.

Man kann den Iren nur weiterhin viel Erfolg und Durchhaltevermögen wünschen.

Gruß

JLL

[>Newark<]

´The American Spectator´
War in dem Käseblatt auch was über den bigfoot
und ufos zu lesen ?

[JLL]

Weiß nicht.

Nach dem Artikel sind mir die Iren trotzdem sympathisch.

Ich hoffe, das ist anständig recherchiert.

Gruß

JLL

[HJL@WOL]

@all


Gentlemen, das sind Fakten !
Das was die EU und ihre verlogenen Mediengrössen am liebsten unter den Tisch fallen lassen würden und uns
- EU - Robotniks verschweigen würden.

Stichwort : Jeder Club braucht Regeln

Gemeint : Ein Club, eine Regel ( auch wenn diese noch so falsch ist ) Planwirtschaft „ at it’s best "

- - -

Financial Times

http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid…

Ireland`s example to the eastEurope`s transition economies should welcome the rejection of a one-size-fits-all model, say Danny McCoy and John McHalePublished: July 2 2001 18:56GMT | Last Updated: July 2 2001 19:03GMT

The rejection of the Nice treaty in the recent referendum has placed Ireland at the centre of the debate about enlargement of the European Union.

When the initial frustration and bewilderment at its decision have passed, Ireland may prove to have provided an important political as well as an economic example to smaller nations within the EU.

Ireland, a tiny economy that represents less than 1 per cent of economic activity in the EU, has successfully raised its living standards to the European average in barely two decades.

Even though it is geographically farthest removed from Europe`s expansion eastwards, it provides the model most aspiring EU member states wish to copy.

While the Irish rejection of the Nice treaty has been blamed on several factors, most rejectionists agree that blocking enlargement was not a primary motivation.

One issue that did contribute to the outcome was the electorate`s umbrage at the reprimand, or "recommendation", issued by the European Commission to the Irish government this year to modify its expansionary budget.

( Eingefügter Kommentar : Das muß man sich mal vorstellen !
modify its expansionary budget - zu deutsch : wachst nicht zu schnell sonst sehen wir - Kommunisten - alt aus ! )

This dispute between the Commission and the Irish authorities - still unresolved - carries a clear warning that attempts to apply common economic rules to all countries, regardless of their stage of transition, may produce negative political reactions.

While the Commission is obliged to apply a common procedure to all member states, and indeed is an important bulwark for smaller member states against larger country dominance, any suspicion of a „ one-size-fits-all economic model " can be expected to arouse opposition.

Every club needs rules.

The main macroeconomic rules operating within the EU are contained in the stability and growth pact specifying limits for government deficit and debt to gross domestic product ratios.

But Ireland was not in breach of the pact: the dispute with Brussels revolves around differing assessments of the appropriate response to a rapidly growing economy, given the desire for policy co-ordination in Europe.

But the pact is flawed in one important respect. While the importance of growth is acknowledged in its title, it is based on the rates recorded in the most economically advanced EU member states. By its definition, stability would be consistent with an economy growing at 5 per cent each year in nominal terms.

However, the economies of eastern and southern Europe beginning their transitions to EU membership will be expected - indeed, will need - to have higher nominal growth rates if convergence is to be achieved within a reasonable time span.

A strict application of the current EU stability rules would unduly hinder these states` use of public finances to stimulate the faster growth that ultimately allows convergence to occur.

The rules of fiscal rectitude need to be modified to reflect fundamentally different growth paths that should be encouraged in an enlarged Union. Common rules on fiscal stability are not the only issue.

Ireland has suffered withering criticism for rejecting the harmonisation of its corporate tax regime with those of heavier-taxing European states. Some have gone so far as to suggest that Ireland should do as it is told with its budget surplus because the money is coming from the EU`s citizens.

Taxation is at the core of Ireland`s economic strategy - the very strategy that the accession countries are studying with such interest. After some difficult years adjusting to greater inter-national competition, successive Irish governments have hit on a policy combination that centres on low taxes and light regulation to create a business climate that has made the country a magnet for foreign direct investment.

Inclusion in the single market is also essential to Ireland`s attractiveness as a location for investment, as is its more recent participation in the single currency project. And large net transfers from the EU have indeed helped to propel Irish growth - though the idea that the Irish economy was built on European money is simplistic and greatly mistaken.

It is unlikely, however, that similar financial flows will be provided for the large number of relatively poor countries seeking to join the next rounds of expansion. The aspirant states will have to look very carefully at the policies available to them once they are inside the EU.

It is getting policies right - not EU development funds - that will secure Irish-type growth. All this means that if the accession countries hope to emulate Ireland`s impressive convergence in living standards, they should welcome an opportunity to re-open a debate on the type of model that can work in the enlarged EU.

Ireland`s rejection of the Nice treaty has caused consternation in Brussels and beyond: by focusing attention on the EU`s economic rules, it may prove a boon for Europe`s aspirant members.

Danny McCoy is an economist at the Economic and Social Research Institute, Dublin.

John McHale is an associate professor at Harvard University

- - -

HJL

[HJL@WOL]

@all

Nachtrag

Ireland ist z. Zt. das " Paradies " für die arbeitssuchenden " IT - Spezialisten / Softwareberater etc ". Internationale Firmen lassen sich eher in " Irland " nieder und bearbeiten d. " Kontinent " von dort aus ( SW/Svc.-Hotlines etc. ) als in Deutschland -( warum wohl ? )

Lebenshaltungskosten im Vgl. zu " D " ...
Einkommen Netto nach Steuern/Abzügen ...
...

Und nicht zuletzt " quality of life " ...

- - -

Gruß

HJL


P.S.

Soll bitte keine Aufforderung sein, sich dort mal umzuschauen - bitte n i c h t !

Wir brauchen hierzulande doch auch noch " Fachkräfte ".

Sonst kommt unsere " Regierung " evtl. noch in grössere Kalamitäten bei d. Suche n. Spezialisten.

Wie hatte seinerzeit d. IBM - Chef "D" gesagt:

Wenn wir keine Computer-Chips mehr produzieren können, na dann steigen wir halt um auf " Kartoffel-Chips ".

In diesem Sinne !

Wenn wir keine