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Juncker’s sound of silence

5 December 2014 10:37 (UTC+04:00)
Juncker’s sound of silence

By Giles Merritt

Editor of Europe’s World and heads the Brussels-based think tanks Friends of Europe and Security & Defense Agenda.

The new European Commission President Jean-Claude Juncker had barely moved into his new office when his telephone began ringing off the hook. Juncker knew who was calling: journalists around the world were seeking answers regarding the revelations, made by the International Consortium of Investigative Journalists (ICIJ) and its media partners, that Luxembourg’s government under Juncker had struck a series of tax-avoidance deals with multinational corporations at the expense of ordinary taxpayers. And Juncker was not picking up.

For a senior politician at the center of a media firestorm, silence is the wrong response. After all, when 86 journalists from major newspapers in 45 countries spend 15 months combing through 2.5 million records concerning 120,000 companies and 130,000 wealthy individuals, they are unlikely to settle for “no comment.” If Juncker does not start a frank conversation soon, he risks eclipsing his five-year term with scandal before it has even begun.

To be sure, Juncker did eventually speak to the press, even acknowledging that he should have spoken out when the so-called “Lux leaks” first emerged. But his brief statement came almost a week after the allegations emerged, and showed a notable lack of concern.

Indeed, though Juncker admitted to being “politically responsible” for the controversial tax rulings, owing to his position as finance minister and prime minister when they were signed, he stressed that Luxembourg had always been in compliance with national legislation and international rules. According to Juncker, the problem is insufficient tax harmonization among European Union member states, which “can lead to results that are not in line with ethical and moral standards.”

Juncker then took his case to the European Parliament, many of whose members had been openly critical of the tax deals – and Juncker’s silence – since the ICIJ released its findings. Though he won a confidence vote in late November, his initial request for the MEPs’ trust was met with a chorus of boos. German Finance Minister Wolfgang Schäuble, too, has made disparaging comments about the deals.

But the Lux leaks are not just fueling criticism in European political circles. European citizens have suffered through five years of tough austerity, spurred by a global financial crisis that is widely considered to be the fault of greedy bankers and financiers. In this context, public opinion risks becoming very hostile, not only toward the Luxembourg government, which Juncker led for almost 20 years, but also toward the European Commission that he now heads.

Of course, the ICIJ revelations are not altogether shocking. Luxembourg’s economic shift in the 1970s from steelmaking to Swiss-style financial operations is well known. Indeed, before the Lux leaks emerged, the country was already facing rising pressure from the EU to clean up its banking and tax practices.

What the ICIJ has done is provide detailed and irrefutable evidence that almost 350 multinational corporations, including the Swedish furniture giant IKEA and America’s global delivery service FedEx, have been benefiting from Luxembourg’s dubious tax rulings. Specifically, they have been juggling their debt among “mailbox” subsidiaries in Luxembourg, thereby whittling their tax bills to almost nothing. All of this is “perfectly legal,” the firms’ lawyers and accountants insist, because they have received so-called “comfort letters” from the Luxembourg authorities that officially approve their tax arrangements.

But the European Commission’s financial watchdogs have become increasingly impatient with this arrangement, formally requesting that Luxembourg provide copies of all of the comfort letters granted. So far, they have received only a handful. Margrethe Vestager, the incoming European Commissioner responsible for competition policy, has confirmed that she will press ahead with investigations in Luxembourg, as well as in Ireland and the Netherlands.

Now, Juncker finds himself in an awkward position. One of his first acts as head of the European Commission was to unveil a series of initiatives – to be spearheaded by the relevant commissioner, Pierre Moscovici – to tackle tax avoidance. In other words, he is now questioning national tax arrangements that he introduced.

In such a tense environment, with skepticism toward Europe rising sharply, Juncker must explain to the public how a poacher can become a credible gamekeeper. The problem is that frank talk does not mesh with Juncker’s political style, which he developed over decades of dealing with other European leaders largely beyond the spotlight.

Juncker’s style has enabled him to play a constructive role in shaping EU economic and monetary policy, from the Maastricht Treaty, which introduced the euro, to the bailouts that saved it. But it has not made him a charismatic politician adept at using the media – not to mention the right rhetoric and body language – to shape public opinion. And that is who he now must become.

With the EU’s popularity waning, the firmness with which its leaders crack down on what voters view as tax-dodging corporate fat cats will be of more than passing interest. It is up to Juncker to prove that he is up to the task.

Copyright: Project Syndicate

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