Euro Watch

Plans to reduce the tax burden of German businesses have attracted criticism from the Social Democratic Party, which has threatened to oppose the tax reforms introduced by finance minister Peer Steinbruck. The reforms, which aim to lower the average tax burden on companies from 38.7 percent to 29.8 percent and to make up at least some of the loss by closing existing loopholes in tax law, have party members upset because new estimates have been released showing that the total relief to businesses would total €8 billion per year in the first years of the program, rather than the €5 billion in Mr. Steinbruck’s earlier estimates.

Some members of the SPD with seats in the Bundestag have also complained that their constituents have reacted negatively to the reforms, which they see as an unfair benefit to business in the wake of deep cuts in German’s welfare system. Criticism is not limited to politicians and the public, however. Some sectors of the business community have also expressed displeasure with certain aspects of the reform, which would limit the ability of insurance companies, private equity, and highly leveraged businesses from deducting interest payments from their taxable profits.

There were reports on the press on Tuesday that Mr. Steinbruck, a member of the SPD himself, had threatened on Monday to resign if his party forced a renegotiation of the reforms, but aides have denied those reports.

Despite a coalition between the SPD and Prime Minster Angel Merkel’s Christian Democratic Union that has a huge majority in the Bundestag, there have been difficulties in passing Ms. Merkel’s promised reforms due to ideological differences between the two parties. Those difficulties are expected to grow as new elections approach.

Tags: European Economy News by Brian Turner
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Brussels Airlines has not even begun flying yet, but it has already learned that cultural preferences and superstitions can influence a company’s bottom line. The new airline, the result of a merger between SN Brussels and Virgin Express, has already had to change its logo. Because the emblem had only been painted onto one of its planes, the change won’t cost as much as it could have. Still, the episode points out the problems that can crop up when a business violates a cultural prejudice.

The original logo was composed of 13 balls that formed a stylized “b”, standing for the airline’s name. The number of balls that made up the letter were considered especially appropriate because they matched the number of African destinations for the airline. Africa is a key market for the new air carrier. But as soon as photos of the new logo circulated in public, the airline began to receive a flood of complaints, largely from the United States and Italy. In those countries triskaidekaphobia, the fear of the number thirteen, is especially prominent.

The airline could have changed the number of balls in the logo to either 12 or 14. In many buildings, there is no 13th floor, in deference to this phobia, and in many planes there is no 13th row of seats. Ultimately, the airline chose to increase the number of balls to 14. It was felt that the religious connotations of the number 12 among Christians – there were 12 apostles to Jesus – might also cause concern in some regions. It is a good thing that Brussels Airlines does not fly to China, however. In Chinese culture, the number 14 is considered as unlucky as 13 is in some Western cultures.

Tags: European Economy News by Brian Turner
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The European Commission has imposed fines on ThyssenKrupp (FWB: TKA; LSE: THK) and four other lift manufacturers in an antitrust case in an effort to make it more expensive for cartels to violate competition rules. The companies involved did business in Germany, the Netherlands, Belgium, and Luxembourg between 1995 and 2004, coordinating bids so that designated groups would win specific contracts. The European Union’s competition commissioner said that the lift and escalator cartel had “ripped off” taxpayers, the government, and private customers with its practices.

The improper actions by the cartel extended not only to supply of their product initially, but also to later maintenance of the lifts and escalators they installed. In addition to the fines, the Commission also urged customers to renegotiate their contracts with the companies involved and said that there could be grounds for lawsuits for damages caused through the cartel’s misbehavior.

Among the companies found to be involved in the cartel were ThyssenKrupp, which was fined €479.7 million; Otis Elevators, a division of United Technologies (NYSE: UTX), fined €224.9 million; Schindler (SWX: SCHNEU), fined €143.7 million, and Kone (OMXHelsinki: KNE), fined €142.1 million. All the companies that received fines said that they were examining the ruling. United Technologies said that Otis will appeal the judgment.

The Commission pointed out that it was itself a victim of the cartel, which had installed lifts in its headquarters as well as at the European Court of Justice in Luxembourg.

Tags: European Union News by Brian Turner
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Environment ministers from European Union member nations have agreed, at least in principle, to cut greenhouse emissions by 20 percent from 1990 levels by 2020 and to work toward a 30 percent cut worldwide if other developed nations are willing to do the same.

The EU must still figure out how and where to make the cuts, setting the stage for compromise with member nations such as new members Poland and Hungary as well as Finland, all of which are said to oppose mandatory targets for the cuts. Ministers from the UK, Spain and Slovenia supported the 30 percent target, while German Environment Minister Sigmar Gabriel said his country was prepared to cut emissions by 40 percent.

Advocates of national limits said that failure of the EU to act would make it more difficult to convince nations such as the US and China to agree to limit their emissions. But some nations have said they doubt that setting national emissions limits will have any effect on current environmental problems. Further, international negotiations toward standards to replace the Kyoto Protocol, which expires in 2012, have not been able to reach agreement.

Tags: European Union News by Brian Turner
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According to new forecasts from the European Commission, the Eurozone economy will grow by 2.4 percent in 2007, up from an earlier forecast of growth of 2.1 percent this year. In addition, the Commission has said that it expects inflation to be at 1.8 percent in 2007, rather than the 2.1 percent inflation predicted earlier.

The improved numbers are justified, according to EU monetary affairs commissioner Joaquin Almunia, due to a broad recovery across the Eurozone, with growth over the full European Union expected to be even higher than in the 13 nations that use the Euro as their currency. Poland is expected to see the years best growth, at 5 percent. Spain is close behind, with growth expected to be at 3.7 percent. Italy’s economy is expected to grow at a rate of 2 percent, while the UK is expected to see growth of 2.7 percent. The German economy is expected to grow by 1.8 percent. The predictions for all these nations have been upgraded.

The only national economies that received lowered forecasts for growth were France, now expected to see its economy grow by 2.2 percent, and the Netherlands, which is forecast to see its economy grow by 2.8 percent.

The lowered inflation forecast was explained by increased productivity and competition and to a stronger euro. The Commission said, however, that if wages rise faster than productivity the European Central Bank might be forced to issue further interest rate increases.

Tags: European Economy News by Brian Turner
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The European Commission has called tax breaks given to companies by Switzerland to locate their corporate offices there are “unfair” due to the discrimination they make between foreign and domestic sources of income. By giving companies tax breaks on profits they make from EU customers, the Commission says, Switzerland upsets the “level playing field” that is required for continued trade relations between the EU and Switzerland. Switzerland replied that there was no foundation to the argument, and pointed out that there are no rules to break concerning tax arrangements because no regulations between it and the European Union exist.

Swiss law lets individual cantons give full or partial tax exemptions to companies on profits they generate outside Switzerland. Among the companies that have chosen to locate their European headquarters in Zurich are Kraft, Google, and IBM.

Switzerland is not a member of the EU, but it has assented to most EU trade rules for which the EU has granted access to customers in its member nations. The position of the Commission is that because Switzerland reaps the benefits of privileged access to EU markets, it should face the responsibilities that go along with such access. The Commission has not said what measures it would – or could – take against Switzerland if no agreement is reached on the issue.

Tags: European Union News by Brian Turner
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The total gross domestic product of the 13-nation Eurozone was up 0.9 percent in the last quarter of 2006 over the previous quarter, taking GDP growth for the whole year up to 2.7 percent according to Eurostat, the official statistics off ice of the European Union. Growth in 2005 was at 1.4 percent for the region. The growth, which was better than had been anticipated, was in large part due to growth in Italy, Germany, and France.

The French economy grew by 2.0 percent in 2006, helped by growth of between 0.6 percent and 0.7 percent in the fourth quarter, according to INSEE, the national statistics office. There had been no growth in the third quarter. Meanwhile in Italy, fourth-quarter growth was at 1.1 percent, well ahead of predictions of about 0.3 percent growth. Growth there was helped by fewer imports and a higher demand for Italian goods from foreign buyers.

Germany, with the Eurozone’s biggest economy, had the region’s biggest growth in GDP. The German GDP added 0.9 percent in the fourth quarter after growth of 0.8 percent in the third quarter. Third quarter growth numbers were revised upward from 0.6 percent. According to the Federal Statistics Office, growth for the full year was revised up from 2.5 percent to 2.7 percent, matching growth in the Eurozone as a whole. Both foreign and domestic demand was strong in the last quarter. Domestic demand in that quarter was helped by spending ahead of a 3 percent hike in the Value Added Tax beginning January 1.

Tags: European Economy News by Brian Turner
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The European Commission is expected to soon reveal a new package of proposals that will change the rules regulating cross-border trades between European Union member states. The new rules are designed to eliminate the remaining restrictions on trade between member states and to enhance competition.

Under the new rules, for example, a company that wants to sell goods to another member state will no longer have to prove that their products meet the purchasing nation’s standards and rules. The responsibility will instead belong to the purchasing nation, which will have to prove scientifically that the potential import must be restricted and that the restriction does not violate any principles of the EU.

The newly proposed rules are likely to produce a number of disputes as they require some nations to abandon safety standards for such products as used vehicles, bicycles, and construction machinery. Some of these safety standards have been long established. One European parliament member said that the new rules will also be controversial because they will raise ideological issues between nations that take a protectionist stand and those that advocate a free market, and because they involve a great deal of money.

The new rules were the idea of industry commissioner Gunter Verheugen to find solutions to trade problems that have led to numerous legal disputes between EU member states.

Tags: European Union News by Brian Turner
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The trade deficits of both the UK and France hit new record highs in 2006, according to new data released on Friday, while Germany reported Thursday that it had ended the year with a trade surplus of €162 billion.

The UK’s Office of National Statistics said that the goods trade deficit was at £7.14 billion in December, putting the trade deficit for the full year at £55.8 billion. It was at £44.6 billion in 2005. The trade gap with non-European Union goods deficit was slightly lower in December, at £4.3 billion, a bit of good news amid the bad. In addition, there was a record surplus in services in 2006, at £28.5 billion last year. That was up from a surplus of £24.2 billion in 2005. The ONS downplayed the numbers by pointing out that they were distorted by a high level of VAT fraud, but analysts still were disappointed by the data.

In France, meanwhile, the trade deficit was at €29.2 billion in 2006, with exports at €386.0 billion while imports were at €4.16.1 billion. Exports were helped by delivery of airplanes built by Airbus, but exports by French automakers were down by 1.9 percent during the year. The French government blamed the record trade deficit on rising energy prices. Trade minister Christine Lagarde said that the if those energy prices were taken out of the equation, the nation’s trade balance actually showed a surplus on the year.

Tags: European Economy News by Brian Turner
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Interest rates in the Eurozone were kept on hold at 3.5 percent on Thursday, but many analysts look for another rate increase at the European Central Bank’s next meeting, scheduled for March. In comments after the meeting of the ECB, the Bank’s president said that “vigilance” must be used in monitoring the economy, a word he often uses in statements a month ahead of rate increases. Last month, he used instead the phrase “close monitoring”. This use of language by the ECB president is closely watched by analysts looking for clues about where the interest rate is likely to go next.

With unemployment down in Germany and France and with consumer confidence still robust after an increase in the value added tax in Germany, from 16 percent to 19 percent, many analysts predict strong growth in the economy during the first half of 2007. Along with that growth comes the possibility that inflation will also grow.

The decision by the ECB came after the Bank of England also voted to keep the UK interest rate steady at 5.25 percent after it had raised it last month. Many analysts look for another near-term rate hike there, as well.

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Three automobile manufacturers, two in France and one in Italy, have raised objections to the treatment of German carmakers as the European Commission proposed stringent controls on greenhouse gas emissions from vehicles. The new proposals are the strictest in the world and call for rules that require new cars to emit no more than 120g of carbon per kilometre by 2012. The current average emissions from new cars made in Europe is 161 g/km.

The proposal, which was delayed from when it was first expected to be introduced, was diluted after carmakers protested that the original form of the proposal would add thousands of euros to the cost of a new car as well as eliminate jobs. The complaints came from PSA Peugeot Citroen and Renault in France and Fiat of Italy after German chancellor Angela Merkel warned the Commission in a letter last week against proposing targets on emissions that would hurt carmakers, such as German companies DaimlerChrysler and BMW, that make cars that emit higher amounts of carbon than the average. In addition Volkswagen, along with the European divisions of General Motors and Ford Motor, wrote to the European Commission president, calling the Commission proposal “unrealistic” and technically impossible.

The French and Italian carmakers said they were “irritated” because they have worked very hard and spent a great deal of money to produce cars with lower emissions and feel that it would be unfair for them to be penalized in order to “prop up” German companies that produce larger vehicles that emit more carbon. They said that the watered-down proposal makes it look like German is using its presidency of the European Union in order to protect interests in its own country.

Tags: European Union News by Brian Turner
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Details of a plan that would make automobile manufacturers cut emissions from their vehicles by 25 percent overall, with an 18 percent cut in carbon dioxide emissions, by 2012 will be introduced in the European Commission on Wednesday after a two-week delay in which one commissioner had argued for all cuts to come from the manufacturers alone. The plan to be introduced calls for some of the cuts to come from the use of biofuels and better tires as well as from changes made to the design of the cars themselves.

Car industry representatives had said that the proposal to make all emissions cuts the responsibility of carmakers would have sent the cost of a new car up by €2,500. Other reports said that the changes would cause the price of a car to go up by around €600. The industry also contends that consumers are not interested in vehicles that have smaller engines and produce fewer emissions, and that cheaper ways of reducing emissions lie in reducing congestion and changing the behavior of drivers.

But transport is the only European sector that has increased its carbon dioxide emissions in the past 15 years, despite improvements in engine efficiency. This is blamed on increases in the size and power of cars. And so the proposal to be introduced Wednesday holds carmakers responsible for reducing emissions down to 130g/km, down from the 2005 emissions level of 162g/km. A further 10g/km reduction in emissions would be achieved by use of biofuels and better tires, plus initiatives to make sure drivers change gears appropriately.

Tags: European Union News by Brian Turner
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Details of a plan that would make automobile manufacturers cut emissions from their vehicles by 25 percent overall, with an 18 percent cut in carbon dioxide emissions, by 2012 will be introduced in the European Commission on Wednesday after a two-week delay in which one commissioner had argued for all cuts to come from the manufacturers alone. The plan to be introduced calls for some of the cuts to come from the use of biofuels and better tires as well as from changes made to the design of the cars themselves.

Car industry representatives had said that the proposal to make all emissions cuts the responsibility of carmakers would have sent the cost of a new car up by €2,500. Other reports said that the changes would cause the price of a car to go up by around €600. The industry also contends that consumers are not interested in vehicles that have smaller engines and produce fewer emissions, and that cheaper ways of reducing emissions lie in reducing congestion and changing the behavior of drivers.

But transport is the only European sector that has increased its carbon dioxide emissions in the past 15 years, despite improvements in engine efficiency. This is blamed on increases in the size and power of cars. And so the proposal to be introduced Wednesday holds carmakers responsible for reducing emissions down to 130g/km, down from the 2005 emissions level of 162g/km. A further 10g/km reduction in emissions would be achieved by use of biofuels and better tires, plus initiatives to make sure drivers change gears appropriately.

Tags: European Union News by Brian Turner
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Differences in growth in various Eurozone member nation economies has led to differences over whether or not the European Central Bank is supporting growth, or is not supporting all member nations equally. New data indicates that while Germany’s industrial sector is continuing to recover, Italian and French manufacturers are seeing slowdowns. The mixed results have resulted in a region-wide slowdown in growth that dropped the Eurozone purchasing managers’ index to 55.5 in January, down from 56.5 in December.

This continuing difference in performance in different parts of the region raises the question of whether the benefits of belonging to the monetary union were reaching all member nations evenly. The French PMI was at 52.4 in January after being at 54.2 in December, its lowest level in almost a year. Meanwhile, the Italian PMI was down from 55.0 in December to 53.5 in January, its lowest level in a full year.

While the major candidates for president in France’s upcoming election are using the figures to accuse the ECB of not supporting growth, the ECB characterizes the differences in economic growth between Eurozone nations as not that different from the differences between US states and considers regional differences to be unavoidable as it focuses more on the possibility of inflation. With output prices up last much at their fastest pace since they began to be monitored in 2002, it is seen as likely that the ECB be raising interest rates yet again.

Tags: ECB: European Central Bank News, European Economy News, European Union News by Brian Turner
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