Eurozone unemployment is higher than official data suggest, continuing to keep wage growth muted, a European Central Bank study showed on Wednesday (10 May), raising fresh doubts about whether the bank can start rolling back its stimulus measures soon, writes Balazs Koranyi.
Wage growth has been unexpectedly weak for a bloc that is enjoying its best economic run in a decade and the ECB has argued that better wage dynamics are needed for the inflation rebound to become sustainable, a key condition for cutting back stimulus.
Explaining the apparent disconnect between the rapid unemployment drop and weak growth in pay, the ECB said headline jobless figures exclude people who fail to meet strict statistical criteria and also exclude part time workers seeking more hours, even though both groups add to labor market slack.
Once adjusted for these categories, the labor market slack is around 15%, well above the official 9.5% unemployment rate and only Germany appears to be displaying signs of labor market tightness.
"In France and Italy, broader measures of labor market slack have continued to increase throughout the recovery, while in Spain and in the other euro area economies, they have recorded some recent declines, but remain well above pre-crisis estimates," the ECB bulletin article said.
"The level of the broader indicator of labor underutilization is still high, and this is likely to continue to contain wage dynamics," it added.
Labor market reforms, championed in part by the ECB, have fueled the rise of part time work, which has given employers greater flexibility. As a result, companies are hiring more part time or temporary workers instead of giving current employees more work.
Indeed, part time and temporary employment has risen by nearly four million since the financial crisis even though total employment has not increased, a potential drag on wages.
Critics of the ECB policy argue that solid economic growth and inflation already support the case for lowering stimulus but the ECB has repeatedly pointed to wages as a source of concern.
The ECB estimates that about 3.5% of the working age population is considered statistically as inactive, even though they could rejoin the workforce quickly. Another three percent is underemployed, or working fewer hours than would like to.
That puts the broader slack three percentage points above its pre-crisis level, the ECB data indicate, suggesting that unemployment has some way to fall for significant labor market tightness.
Another headache for the ECB is that the majority of new jobs created are in the services sector, where productivity gains are inherently lower, capping the potential for wage increases.
Big-tech companies to be given historical changes to their international tax agreements
Recently, some of the richest landmarks and countries of the world, have come to an agreement concerning the closing of international tax loopholes that have been endorsed by the biggest multinational corporations. Some of these tech companies have the largest share prices within the stock market, such as Apple, Amazon, Google and so on.
While tech taxation has long been an issue that international governments have had to agree on between themselves, betting too shares similar problems, especially due to its increase in popularity and allowed legalisation globally. Here we have provided a comparison of new betting sites which follow through on the correct taxation laws and legalities necessary for international usage.
During the G7 summit- which our last reports spoke about the topic of Brexit and trade deals, representatives of the United States, France, Germany, United Kingdom, Canada, Italy and Japan, came to a unified agreement to support the global corporation tax rates of at least 15%. It was in agreement that this should happen as these corporations should pay taxes where their businesses are in operation, and to the land they operate in. Tax evasion has long been propagated using initiatives and loopholes found by corporation entities, this unanimous decision will put a stop to hold tech companies responsible.
This decision is believed to be years in the making, and the G7 summits have long wanted to reach an agreement to make history and reform the global taxation system for the rising innovation and digital age that is on the horizon. Making companies like Apple, Amazon and Google take accountability, will keep taxation in check for what is estimated to be the surge of their developments and involvement overseas. Rishi Sunak, the United Kingdom’s Chancellor of the Exchequer, has mentioned that we are in the economic crisis of the pandemic, companies need to hold their weight and contribute to the reformation of the global economy. Reformed taxation is a step forward in achieving that. Global tech companies such as Amazon and Apple have massively increased in shareholder prices for each quarter after the major drop last year, making tech one of the most sustainable sectors to obtain taxes from. Of course, not all would agree on such comments, being that taxation loopholes have long been a thing and issue of the past.
The deal agreed upon will put massive pressure on other countries during the G20 meeting that is to occur in July. Having a base of agreement from the parties of G7 makes it very likely that other countries will come to an agreement, with nations such as Australia, Brazil, China, Mexico etc. who are to be in attendance. Lower tax haven countries like Ireland will expect lower rates with a minimum of 12.5% where others may be higher depending. It was expected that the 15 percent tax rate would be higher at the level of at least 21%, and countries who agree with this believe that a base level of 15% should be set with possibilities of more ambitious rates depending on destination and region that multinational companies operate and pay taxes from.
Big countries' tax deal to reveal rift in Europe
4 minute read
A global deal on corporate tax looks set to bring to a climax a deep-seated European Union battle, pitting large members Germany, France and Italy against Ireland, Luxembourg and the Netherlands. Read more.
Although the smaller EU partners at the centre of a years-long struggle over their favourable tax regimes, welcomed the Group of Seven deal on June 5. for a minimum corporate rate of at least 15%, some critics predict trouble implementing it.
The European Commission, the EU's executive, has long struggled to get agreement within the bloc on a common approach to taxation, a freedom which has been jealously guarded by all its 27 members, both large and small.
"The traditional EU tax holdouts are trying to keep the framework as flexible as possible so that they can continue to do business more or less as usual," Rebecca Christie of Brussels-based think tank Bruegel said.
Paschal Donohoe, Ireland's finance minister and president of the Eurogroup of his euro zone peers, gave the G7 wealthy countries' deal, which needs to be approved by a much wider group, a lukewarm welcome.
"Any agreement will have to meet the needs of small and large countries," he said on Twitter, pointing to the "139 countries" needed for a wider international accord.
And Hans Vijlbrief, deputy finance minister in the Netherlands, said on Twitter that his country supported the G7 plans and had already taken steps to stop tax avoidance.
Although EU officials have privately criticised countries such as Ireland or Cyprus, tackling them in public is politically charged and the bloc's blacklist of 'uncooperative' tax centres, due to its criteria, makes no mention of EU havens.
These have flourished by offering companies lower rates through so-called letter-box centres, where they can book profits without having a significant presence.
"European tax havens have no interest in giving in," Sven Giegold, a Green-party member of the European Parliament lobbying for fairer rules, said of the prospects for change.
Nevertheless, Luxembourg's finance minister Pierre Gramegna welcomed the G7 accord, adding that he would contribute to a wider discussion for a detailed international agreement.
Although Ireland, Luxembourg and the Netherlands welcomed the long-fought for reform, Cyprus had a more guarded response.
"The small EU member states' should be acknowledged and taken into consideration," Cyprus's Finance Minister Constantinos Petrides told Reuters.
And even G7 member France may find it hard to completely adjust to the new international rules.
"Big countries like France and Italy also have tax strategies they are determined to keep," Christie said.
The Tax Justice Network ranks the Netherlands, Luxembourg, Ireland and Cyprus among the most prominent global havens, but also includes France, Spain and Germany on its list.
Europe's divisions flared up in 2015 after documents dubbed the 'LuxLeaks' showed how Luxembourg helped companies channel profits while paying little or no tax.
That prompted a clampdown by Margrethe Vestager, the EU's powerful antitrust chief, who employed rules that prevent illegal state support for companies, arguing that such tax deals amounted to unfair subsidies.
Vestager has opened investigations into Finnish paper packaging company Huhtamaki for back taxes to Luxembourg and investigating the Dutch tax treatment of InterIKEA and Nike.
The Netherlands and Luxembourg have denied the arrangements breach EU rules.
But she has had setbacks such as last year when the General Court threw out her order for iPhone maker Apple (AAPL.O) to pay €13 billion ($16bn) in Irish back taxes, a ruling which is now being appealed.
Vestager's order for Starbucks to pay millions in Dutch back taxes was also rejected.
Despite these defeats, judges have agreed with her approach.
"Fair taxation is a top priority for the EU," a spokesperson for the European Commission said: "We remain committed to ensuring that all businesses ... pay their fair share of tax."
The Netherlands in particular has underscored a willingness to change after criticism of its role as a conduit for multinationals to move profits from one subsidiary to another while paying no or low taxes.
It introduced a rule in January taxing royalties and interest payments sent by Dutch companies to jurisdictions where the corporate tax rate is less than 9%.
"The demand for fairness has grown," said Paul Tang, a Dutch member of the European Parliament. "And now it is combined with a need to finance investment."
($1 = €0.8214)
Global Europe: €79.5 billion to support development
The EU is set to invest €79.5 billion on development and international cooperation in neighbouring countries and further afield by 2027, Society.
As part of its 2021-2027 budget, the European Union is overhauling how it invests outside the bloc. Following a landmark deal with EU countries in December 2020, MEPs will vote during June's plenary session in Strasbourg on establishing the €79.5bn Global Europe fund, which merges several existing EU instruments, including the European Development Fund. This streamlining will allow the EU to more effectively uphold and promote its values and interests worldwide and respond more swiftly to emerging global challenges.
The instrument will finance the EU's foreign policy priorities in the coming seven years and support sustainable development in EU neighbourhood countries, as well as in sub-Saharan Africa, Asia, the Americas, the Pacific and the Caribbean. Global Europe will support projects that contribute to addressing issues such as poverty eradication and migration and promote EU values such as human rights and democracy.
The programme will also support global multilateral efforts and ensure the EU is able to live up to its commitments in the world, including the Sustainable Development Goals and the Paris climate accord. Thirty percent of the programme’s overall funding will contribute to achieving climate objectives.
At least €19.3bn is earmarked for EU neighbourhood countries with €29.2bn set to be invested in sub-Saharan Africa. Global Europe funding will also be set aside for rapid response action including crisis management and conflict prevention. The EU will boost its support to sustainable investment worldwide under the European Fund for Sustainable Development Plus, which will leverage private capital to complement direct development assistance.
In negotiations with the Council, Parliament ensured MEPs’ increased involvement in strategic decisions regarding the programme. Once approved, the regulation on Global Europe will retroactively apply from 1 January 2021.
Global Europe is one of 15 EU flagship programmes supported by the Parliament in the negotiations on the EU's budget for 2021-2027 and the EU recovery instrument, which collectively will allow the Union to provide more than €1.8 trillion in funding over the coming years.
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