jectives reached in different countries over the years, there are very real fears that
harmonization would lead to a severe destabilizing of economies.
Countries which think they have relatively low tax regimes, such as the United
Kingdom, fear that they might be obliged to increase taxes, thereby making products
more expensive and the economy less competitive. Countries with high tax regimes
fear the social unrest that may be generated by attempts to cut back public expendi-
ture to take account of reduced tax income, as was experienced in some member
states during the period when they were trying to reduce public borrowing to meet
the entry requirements for the single currency.
A committee of the European Parliament has also been looking into a list of tax
practices in individual member states that might be deemed to be anticompetitive.
For example, Ireland offers a ten-year income tax holiday to companies setting up
there. This clearly offers a tax incentive whose object is to persuade inward invest-
ment to locate in Ireland rather than in any other member state. The role of tax havens
is also being questioned, with places like Jersey and the Isle of Man now being con-
sidered to have negotiated an overly privileged relationship with the EU since they
are broadly within its customs tariff wall but free from the constraints of member-
ship.
At the same time, there is no doubt that the diverse taxation regimes are a bigger
obstacle to a single market than financial accounting, and that these are part of the
regulatory package which means that some EU member states are more interesting
for inward investors than others.
17.7 THE EURO. Many skeptics thought that a single European currency would
never be achieved, and that if achieved, would not last. It remains to be seen how suc-
cessful the experiment will be, but the initial introduction of the currency has passed
without any major disruption. The single currency is arguably the most important in-
dividual development since the founding of the European Economic Community in
1957, not only because of its economic consequences, but also because it is the first
major initiative that does not involve all member states, thereby excluding a small
group of members from a development which is at the heart of the EU. The 11 par-
ticipants in the European Monetary Union are: Germany, France, Italy, Spain, Ire-
land, the Netherlands, Belgium, Luxembourg, Finland, Austria, and Portugal.
It has been expected that the single currency will itself accelerate the movement
toward harmonization, simply because differences that express themselves in price
differentials between countries will become more visible. It is thought that this visi-
bility is likely to lead to calls for harmonization but is also likely to lead to competi-
tion that will itself damage the economies of uncompetitive states and force them to
react. However, there is very little obvious manifestation of this so far. A number of
companies that trade across borders have revised their prices to have a single euro
price, but there is little evidence that the new currency is having the harmonizing ef-
fects which were predicted.
As far as the investment market is concerned, here again the euro is expected to
heighten the ease of comparisons, as well as removing currency risk from invest-
ments within the Eurozone, thereby encouraging cross-border investment. However,
the effects are likely to be slower since many investors prefer corporate debt invest-
ment to equity, and many continental European funds have restrictions on placing
their funds outside their home market, apart from the depressed state of the equity
markets. Even so, the pressures are growing for a restructuring of the stock ex-
17.7 THE EURO 17 • 15