I was particularly honoured to have been able to accept the invitation to address your meeting and present some ideas on what should be done to make the repetition of financial crises more unlikely in the future and to bring more democracy, transparency and justice to the world’s financial markets.
Meeting at the worst moment of the financial crises in 2008 when the whole existing financial architecture was threathened with a meltdown, the G20 adopted a far-reaching statement on needed reforms of the international financial system, most of which had been longstanding demands of Attac and other concerned civil society actors. Looking back at what has been done since then, one must sadly conclude that most of that fine-sounding program has been watered down or still waits for its implementation.
The European Union has done more than most other actors but not nearly enough, and some things it has done to address the euro/debt crisis has arguably been more harmful than helpful.
What we are witnessing today in Europe is not only a financial/debt/euro crisis, but also a deep crisis of democracy in Europe.
Even by the modest standard of whether the EU respects its own rules and the democratic elements therein, the answer is a dismal no. The big picture is, that all normal procedures for preearing and taking decisions in the EU have been put aside. The Commission has been shunted aside, the permanent president of the EC is a mere frontsman for the Merkel-Sarkozy axis driven by Berlin which prepares and imposes its own solutions on everyone else, who come to EC and eurogroup meetings with limited if any foreknowledge of what they are expected to sign on to.
The most illustrating example of this is the recently signed agreement on Economic Union.
This was sprung by Merkozy with the backing of the EPP leaders on the EC with no foreknowledege, public debate or critical analysis. It also adds to the confusion in the EU institutional framework.
But also the larger framework for how the the debt crisis has been managed in the EU has contributed to the democracy crisis.
The Finnish Parliament through its Grand Committee has been the best informed national parliament meeting, if necessary, at 7.30 on Monday morning to go through the proposals for the second Greek rescue package. But even if our own national system of parliamentary scrutiny over EU affairs has functioned more or less as our constitution requires between government and parliament it has ment on occasion that the government has openly shared its own ignorance with parliament being itself usually only partially informed at best if what will be proposed at the meeting or PM or FM will attend.
I stress the role of the National Parliaments in the process. With due respect to the European Parliament it does not carry the same democratic legitimacy as National parliaments and of course can have no say in how national budgetary resources will be used for dealing with the debt crisis – not that the EP has been adequately informed or consulted on those issues where it has real responsibilities under the treaties.
As for democracy in Greece one can seriously question whether the EU is now engaged in trying to turn the cradle of democracy into the grave of democracy, even if some of the most outrageous proposals for limiting Greece’s democractic sovereignity have been so far rejected.
However it is important to move from concentrating on what has gone and what has been done wrong to focusing on what should be done to rectify past mistakes and avoid new crisis in the future.
Denmark and Finland have worked together in the Nordic-Baltic Group to bring the issue of tax havens on the agenda of the International Financial Institutions. We look forward to the Danish presidency of the European Union to advance the Financial Transaction Tax, and the proposal for country-by-country reporting for corporations. It is my hope that we can, together with the other Nordic countries, take the lead in the work for better, more efficient and just global governance.
While many international organisations have been slow in waking up to the problems that tax havens – or more appropriately secrecy jurisdictions – pose to global equity, stability and functioning markets, the International Task Force on Financial Integrity and Economic Development has been quick in developing analysis and policy measures on these issues. The Task Force has done an excellent work in bringing the issue of ”illicit financial flows”, estimated at more than 1 trillion USD per year from developing countries into industrialised nations, to the forefront of international development co-operation. Financial integrity is today a key priority.
In its programme adopted in June last year the new Finnish government committed itself to increasing stability, transparency and responsibility in international financial markets and to stand in the frontline in ”ending international tax evasion” and to “shut down tax havens.”
In order to concretize the goals of our government program, we have revisited the Helsinki Process on Globalisation and Democracy. The Helsinki Process, launched ten years ago, sought to contribute to global problem-solving by providing a new kind of forum for different stakeholders from the North and South to come together as equals to discuss and develop feasible proposals for addressing common concerns.
As ten years have passed since the launch and four years the end we decided to organize a Helsinki Process +10 Conference together with our old partner Tanzania. This took place in Helsinki just last month.
We had two interrelated themes in the Conference – global economic governance and sustainable development. In my introduction global economic governance focused on international tax questions including the FTT and international investments and the possibilities to find synergies between these processes.
We are currently processing the wealth of ideas that rose from the deliberations. The next step could be an international tax seminar.
The Finnish government has been engaged in negotiations with the Tax Justice Network on possibilities to host the 2012 major international tax justice seminar in Helsinki on transfer pricing of multinational companies. We would be looking forward to discussions on whether Finland could join Denmark and Norway in the Partnership panel of the Task Force, and whether tackling the misuse of transfer pricing could become a topic where Finland could start having a higher international profile. Also, given the Nordic countries’ reputation for sound economic policies, good governance and transparency on the world stage, we must use Nordic cooperation in advancing these themes in other international fora as well.
The Danish Presidency of the European Union provides a window of opportunity to advance a more transparent standard for corporate reporting on a country-by-country basis. The proposal is now advancing in the European Commission, but differences still exist on its scope – whether to go beyond extractive industries and the types of operations required for reporting. The proposal has the capacity to close down some of the biggest loopholes in the global economy, that of transfer mispricing by increasing the amount of available information for tax administrations to ensure that a fair amount of taxes are being paid. Shareholders will also appreciate a more accurate picture of corporate liabilities and operations.
We would also like to promote the European Union framework for a Common Consolidated Corporate Tax Base (CCCTB) which would ensure that corporations would be taxed as single units within the European Union, and would create further tax co-operation within the EU to tackle tax evasion with the EU economies, estimated at 2-5% of GDP by the EU commission.
In addition to companies’ misuse of transfer pricing, another important theme is developing and promoting models for the multilateral, automatic information exchange on tax issues. The OECD is currently preparing the convention on mutual administrative assistance in tax matters. Finland welcomes this development and will promote automatic exchange of tax information, both through this convention and further means such as enlarging the membership and the scope of the European Savings Tax Directive.
The almost empty OECD black list of tax havens shows that the current model of bilateral treaties for tax information exchange is not enough. We need multilateral, automatic exchange of information, better criteria and lists for defining tax havens and secrecy jurisdictions. We welcome the Financial Secrecy Index of the Tax Justice Network, just published in its 2011 edition, and would like to encourage debate and reactions from multilateral institutions towards independent work carried out by civil society.
The Finnish government supports the introduction of financial transaction taxes in its programme. The European commission proposed for a financial transaction tax at the EU level is a welcome initiative. It has strong support from many Member States and in European Parliament, and from the European public.
However, some EU member states have signalled their willingness to go ahead with the plan even in this case, either as a euro-zone project or in some other ”coalition of the willing” type of arrangement. As a recent letter to the Danish EU Presidency states, together with eight other countries Finland wishes that Denmark takes an active role in taking the proposal forward before the end of June.
The FTT works against short-term speculative and flash transactions, as they operate with low margins on huge volumes and frequency. The low tax percentage would make many of such trades less profitable, and thus their volume would be reduced. It is thus similar to a tax on harmful, addictive or dangerous products that are not banned, such as cigarettes or alcohol. A FTT of only 0.05-0.1% of the value of the transaction (depending on type and on proposal), with differentiated rates for different types of financial products to avoid market distortions, would not affect transactions which have a direct link to productive investment, trade or management of risk. We need a financial transaction tax for increasing stability and putting brakes on the ever worsening cycle of bubbles and crises
Many civil society organisations and political parties in Europe think that parts of the revenues of FTTs (50€ Bn – 200€ Bn depending on the how broad the tax base is), s could be used to cushion the negative impact of current austerity measures, and cost of bailing out failed financial institutions at the heart of the current financial and economic crisis. However, the economic crisis has also hit countries in the South. It is ordinary people – and sadly most often the poorest – in the North and the South who are paying a disproportionate price for the crisis, while they had no part in causing it. Therefore part of the revenues should be directed towards tackling poverty also in the South. Equally, funding is needed for tackling climate change.
The 100 billion USD target by 2020 agreed upon in the climate change negotiations explicitely requires multiple sources – public, private and innovative – to be met. Using part of the revenues from a FTT would be a robust and predictable way of providing complementary financing to the newly established Green Climate Fund.As welcome as the recent developments in the EU have been, it is noteworthy that the commission’s proposal does not include the traditional Tobin tax on currency transactions which are concentrated in only four financial centres, namely London, New York, Frankfurt and Tokyo and proposes very low tax percentages. While the discussions in the Council of the EU will be based on the Commission’s proposal, the possibility of including currency transactions in the FTT merits further consideration. The stated reason for their exclusion – that a tax on currency transactions would be in violation of the free movement of capital within the single market – would not prevent imposing the tax on non-EU currencies, such as the US dollar, the Chinese renmimbi or the Danish krona, for instance.
In the time when even the traditionally conservative IMF has both stated that an FTT is feasible and has started to embrace capital controls as a means for increasing stability, we should be ready to make bold commitments at the EU-level. There is a path worth following for dealing with the global financial crisis, where sentiments against banks are high, and new taxation proposals would be welcomed by the public.
Transaction taxes are sometimes opposed for the fear that they will drive business out of the country. This is not a feasible argument. For example, the UK has already a Stamp Duty for stock market trade, and some 40 countries already have different kinds of transaction taxes in place.
The Nordic model, based on progressive, effective and relatively high taxation, has proven to be the most competitive and equal in the world, combining economic vitality with social well-being. Denmark, Finland and the other Nordic countries should join their forces and take this experience to the global stage and present alternatives to the prevailing ”race to the bottom” mentality. Working together the Nordic countries can make a difference.
Increasing financial transparency and taxing international financial transactions are important in themselves and good starting points for further action. They are merely starting points, because it is clear that we need significantly more reforms to achieve the kind of global governance needed to prevent future crises and ensure an equitable distribution of the benefits.
The Crisis in the Euro-area
For the European Union there is no “business as usual” option in dealing with sovereign depth crises. But some of the proposals for dealing with the crisis offer cures that can be worse than the disease. This is the case when proposals are made that would delegitimize Keynesian policies and make austerity the fundamental rule that would be even written into the member states’ constitutions in the spirit of the Neo-Liberal policy agenda, which brought about the crisis in the first place. This is the problem with the agreement on Economic Union, which can be charactarised as at best irrelevant and at worst potentially harmful.
The permanent European Stability Mechanism set to come into force in 2013 also has merits. Among other things it includes provisions for debt restruction and for the financial sector to take responsibility for its reckless lending. The ESM together with the so-called six-pack of legislation for financial governance set to be adopted may still need some “seven-up” to make it functional particularly in the field of market regulation. And while it may reduce the likelihood of new financial crisis in the future, it offers no comfort in the immediate future where urgent measures are called for.
This is an issue where the participation of all states and not only the Euro countries or even EU member states is needed. There is no way Norway for example can avoid being affected by the crisis if mismanagement leads, in the worst case, to global financial meltdown.
Free and Fair Trade
Finland supports a free and fair trade regime and wants to support the integration of the developing countries into the international economy. The needs of the least developed countries to develop their own economies and to strengthen their influence in trade policy have to be recognized and supported. The commitment of all actors in the global economy to social and corporate responsibility has to be ensured with binding rules and agreements.
The rules governing international trade have to be developed so as to better take into account the exigencies of environmental and consumer protection, human rights and core labour standards. We also want to see a new international mechanism created for debt adjustment and relief.
We also want to see the global rules-based trade regime maintained, improved and strengthened. Whatever the shortcomings of the WTO, a universal trade regime with equal participation from all the countries in the world is surely preferable compared to the present trend of regionalization and bilateralization of trade and investment agreements, which almost inevitably are biased in favour of the strongest party.
In the WTO even the poorest and smallest country can resort to the Trade Dispute Mechanism against the richest and biggest countries to gain justice against their protectionist and discriminatory measures – provided of course that they are adequately resourced, which is why capacity-building has to be part of the Nordic countries’ trade and development policies.
This is why we also want to see a new global agreement on investment. It was right that the draft Multilateral Agreement on Investment of the OECD was abandoned through the action of the NGO community, as it would have drastically altered the balance of rights and obligations between governments and transnational investors in favour of the latter. However an agreement negotiated with full participation of the developed countries, with the right balance safeguarding the rights of governments and taking proper account of the need to ensure respect for environmental, consumer and labour standards as well as corporate responsibility is still very much needed.
Would there be any ways and means of influencing “the political gravitation” of the Financial Transaction Tax and the Multilateral Agreement on Investment processes described above so, that the resistance on both sides, the opposition against a financial transaction tax on one hand and a global agreement on investments on the other, could be gradually diminished? And respectively, could a momentum for building processes towards a somewhat parallel implementation of the two be created?