At a recent media breakfast in New York City, EU president Romano Prodi criticized an op-ed in the Financial Times co-authored by the prime ministers of Britain and Estonia. In the piece, the two leaders argued strenuously for competitive tax and budget policies as a means of exerting pro-growth policy pressures on "old Europe." But Prodi labeled this "unfair competition," and insisted on harmonization among tax and welfare policies.
Does old Europe want Britain to flounder with it? Not only is tax-and-welfare spending too high in old Europe, labor-market rules are so inflexible that it is too expensive to hire and illegal to fire.
The free-market English-speaking world, with economic policies that are still to this day driven primarily by Reagan-Thatcher capitalist principles, has persistently outgrown Europe over the past 20 years. The latter is stuck in a big-government central-planning time warp that favors income leveling over entrepreneurship and maintains deep bootprints on all manner of private enterprise.
The 10 new Eastern European countries recently liberated from Stalinism are scheduled to enter the European Union soon. But this group knows full well that it has more in common with the anti-terrorist foreign and pro-growth economic policies of the English-speaking nations than with old-world Europe.
These recently democratized countries have been slashing taxes and rolling back Soviet-style central planning everywhere. Their low-cost, free-market incentivized economies will pose strong competition to old Europe's stodgy state-planning. It is precisely this competition that socialist-leaning Romano Prodi and his fellow Eurocrats wish to avoid.
In old Europe, top personal tax rates are nearly 60 percent in France, almost 50 percent in Germany and 45 percent in Italy. But in new Europe, the top individual rate is 32 percent in the Czech Republic, 25 percent in Latvia, 33 percent in Lithuania and 38 percent in the Slovak Republic. Why should these supply-side countries be forced to strangle their new economic progress?
Geographic proximity is one thing, but the principles of political and economic freedom are quite another. A free-trade union between new Europe and Anglo-America would probably make more sense than "harmonizing" recession and high unemployment.