EU ACCESSION STATES CALL FOR REFORMS BY CURRENT

UNCLAS BRATISLAVA 000295

SIPDIS


DEPT PASS TO USTR FOR RDRISCOLL

TREASURY FOR CHGREWE

USDOC FOR MROGERS AND STIMMINS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV LO
SUBJECT: EU ACCESSION STATES CALL FOR REFORMS BY CURRENT
MEMBERS



1. SUMMARY. DURING A CONFERENCE IN BRATISLAVA LAST WEEK,
FINANCE MINISTERS FROM SIX EU ACCESSION STATES CALLED ON
CURRENT EU MEMBERS TO FIND THE POLITICAL WILL TO UNDERTAKE
STRUCTURAL REFORMS IN THEIR OWN AGRICULTURE SECTORS, PENSION
AND TAX SYSTEMS. THE MINISTERS ALSO URGED MEMBER STATES NOT
TO REDUCE TRANSFER PAYMENTS TO ACCESSION STATES, AND
CRITICIZED FRANCE AND GERMANY FOR BREACHING FISCAL DEFICIT
CEILING RULES UNDER THE EU'S STABILITY AND GROWTH PACT. THE
TWO-DAY CONFERENCE, "ECONOMIC REFORMS FOR EUROPE," FEATURED
SENIOR OFFICIALS FROM SLOVAKIA, THE CZECH REPUBLIC,
SLOVENIA, LATVIA, POLAND AND MALTA, AS WELL AS AUTHORITIES
FROM THE WORLD BANK, THE OECD AND THE EUROPEAN INVESTMENT
BANK. PARTICIPANTS PRAISED SLOVAKIA FOR ITS RECENTLY
ESTABLISHED FLAT RATE TAX SYSTEM. END SUMMARY.


2. DURING THE MARCH 18-19 CONFERENCE, SLOVAK FINANCE
MINISTER IVAN MIKLOS CRITICIZED THE EU FOR FOOT-DRAGGING AND
SAID HE HOPED ENLARGEMENT WOULD "DEEPEN AND SPEED UP
STRUCTURAL REFORMS IN CURRENT EU STATES," THOUGH HE REMAINED
SKEPTICAL MUCH WOULD CHANGE. SLOVENIAN FINANCE MINISTER
DUSAN MRAMOR CRITICIZED THE EU`S COMMON AGRICULTURE POLICY,
WHICH HE SAID "FORCED EU MEMBERS TO SPEND EXTENSIVE AMOUNTS
OF MONEY ON FARM SUBSIDIES, INSTEAD OF PROGRAMS OF THEIR OWN
CHOICE."


3. THE DELEGATES URGED THE EUROPEAN COMMISSION TO RESIST
PRESSURE FROM GERMANY, FRANCE, THE UK, THE NETHERLANDS,
SWEDEN AND AUSTRIA TO LOWER TRANSFER PAYMENTS FROM THE
CURRENT LEVEL OF 1.24 PERCENT OF GROSS NATIONAL INCOME TO
1.0 PERCENT FOR THE PERIOD OF 2007 TO 2013. FURTHERMORE,
THEY VOICED DISAPPOINTMENT WITH FRANCE AND GERMANY FOR
FAILING MAINTAIN FISCAL DEFICITS WITHIN THE STABILITY AND
GROWTH PACT'S LIMIT OF THREE PERCENT OF GDP. MIKLOS
EXPLAINED THAT IT WAS FRUSTRATING TO UNDERGO PAINFUL REFORMS
IN ORDER TO QUALIFY FOR MEMBERSHIP IN THE EURO ZONE WHEN
CURRENT MEMBERS IGNORED THE RULES. MOST INCOMING EU
MEMBERS, SAID THEY INTENDED TO STAY WITHIN THE EUROPEAN
EXCHANGE RATE MECHANISM (ERM-2),A WAITING ROOM FOR EURO
ADOPTION, FOR ONLY THE MINIMUM TWO-YEAR PERIOD. THEY FELT
STAYING IN THE ERM-2 ANY LONGER WOULD OPEN THEIR CURRENCIES
TO THE THREAT OF SPECULATION BY CURRENCY TRADERS.


4. SLOVAKIA RECEIVED WIDE PRAISE DURING THE CONFERENCE FOR
ITS RECENTLY ADOPTED REFORMS, PARTICULARLY ITS TAX SYSTEM
OVERHAUL THAT ESTABLISHED A 19 PERCENT FLAT RATE FOR
PERSONAL AND CORPORATE TAXES AS WELL AS VAT, AND ELIMINATED
WITHHOLDING TAXES ON DIVIDENDS. POLISH FINANCE MINISTER
ANDRZEJ RACZKO SAID IT WOULD BE GREAT IF ALL 25 FUTURE EU
MEMBERS COULD FOLLOW SLOVAKIA'S EXAMPLE. U.S. TAX POLICY
EXPERT DANIEL MITCHELL OF THE HERITAGE FOUNDATION ADDED THAT
THE COUNTRIES OF CENTRAL EUROPE HAD CHANGED HISTORY BY
PURSUING TAX POLICIES THAT FUELED ECONOMIC GROWTH. THE
OECD'S TAX EXPERT JEFFREY OWENS STRESSED THE SLOVAK SYSTEM
WAS NOT ONLY ADVANTAGEOUS IN TERMS OF LOW INCOME TAXES, BUT
ALSO EASY, FAIR AND NON-DISCRIMINATING.

WEISER

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