US embassy cable - 04BRATISLAVA295

UNCLAS BRATISLAVA 000295 
 
SIPDIS 
 
 
DEPT PASS TO USTR FOR RDRISCOLL 
 
TREASURY FOR CHGREWE 
 
USDOC FOR MROGERS AND STIMMINS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PGOV, LO 
SUBJECT: EU ACCESSION STATES CALL FOR REFORMS BY CURRENT 
    MEMBERS 
 
 
1.  SUMMARY.  DURING A CONFERENCE IN BRATISLAVA LAST WEEK, 
FINANCE MINISTERS FROM SIX EU ACCESSION STATES CALLED ON 
CURRENT EU MEMBERS TO FIND THE POLITICAL WILL TO UNDERTAKE 
STRUCTURAL REFORMS IN THEIR OWN AGRICULTURE SECTORS, PENSION 
AND TAX SYSTEMS.  THE MINISTERS ALSO URGED MEMBER STATES NOT 
TO REDUCE TRANSFER PAYMENTS TO ACCESSION STATES, AND 
CRITICIZED FRANCE AND GERMANY FOR BREACHING FISCAL DEFICIT 
CEILING RULES UNDER THE EU'S STABILITY AND GROWTH PACT.  THE 
TWO-DAY CONFERENCE, "ECONOMIC REFORMS FOR EUROPE," FEATURED 
SENIOR OFFICIALS FROM SLOVAKIA, THE CZECH REPUBLIC, 
SLOVENIA, LATVIA, POLAND AND MALTA, AS WELL AS AUTHORITIES 
FROM THE WORLD BANK, THE OECD AND THE EUROPEAN INVESTMENT 
BANK.  PARTICIPANTS PRAISED SLOVAKIA FOR ITS RECENTLY 
ESTABLISHED FLAT RATE TAX SYSTEM.  END SUMMARY. 
 
2.  DURING THE MARCH 18-19 CONFERENCE, SLOVAK FINANCE 
MINISTER IVAN MIKLOS CRITICIZED THE EU FOR FOOT-DRAGGING AND 
SAID HE HOPED ENLARGEMENT WOULD "DEEPEN AND SPEED UP 
STRUCTURAL REFORMS IN CURRENT EU STATES," THOUGH HE REMAINED 
SKEPTICAL MUCH WOULD CHANGE.  SLOVENIAN FINANCE MINISTER 
DUSAN MRAMOR CRITICIZED THE EU`S COMMON AGRICULTURE POLICY, 
WHICH HE SAID "FORCED EU MEMBERS TO SPEND EXTENSIVE AMOUNTS 
OF MONEY ON FARM SUBSIDIES, INSTEAD OF PROGRAMS OF THEIR OWN 
CHOICE." 
 
3.  THE DELEGATES URGED THE EUROPEAN COMMISSION TO RESIST 
PRESSURE FROM GERMANY, FRANCE, THE UK, THE NETHERLANDS, 
SWEDEN AND AUSTRIA TO LOWER TRANSFER PAYMENTS FROM THE 
CURRENT LEVEL OF 1.24 PERCENT OF GROSS NATIONAL INCOME TO 
    1.0 PERCENT FOR THE PERIOD OF 2007 TO 2013.  FURTHERMORE, 
THEY VOICED DISAPPOINTMENT WITH FRANCE AND GERMANY FOR 
FAILING MAINTAIN FISCAL DEFICITS WITHIN THE STABILITY AND 
GROWTH PACT'S LIMIT OF THREE PERCENT OF GDP.  MIKLOS 
EXPLAINED THAT IT WAS FRUSTRATING TO UNDERGO PAINFUL REFORMS 
IN ORDER TO QUALIFY FOR MEMBERSHIP IN THE EURO ZONE WHEN 
CURRENT MEMBERS IGNORED THE RULES.  MOST INCOMING EU 
MEMBERS, SAID THEY INTENDED TO STAY WITHIN THE EUROPEAN 
EXCHANGE RATE MECHANISM (ERM-2), A WAITING ROOM FOR EURO 
ADOPTION, FOR ONLY THE MINIMUM TWO-YEAR PERIOD.  THEY FELT 
STAYING IN THE ERM-2 ANY LONGER WOULD OPEN THEIR CURRENCIES 
TO THE THREAT OF SPECULATION BY CURRENCY TRADERS. 
 
4.  SLOVAKIA RECEIVED WIDE PRAISE DURING THE CONFERENCE FOR 
ITS RECENTLY ADOPTED REFORMS, PARTICULARLY ITS TAX SYSTEM 
OVERHAUL THAT ESTABLISHED A 19 PERCENT FLAT RATE FOR 
PERSONAL AND CORPORATE TAXES AS WELL AS VAT, AND ELIMINATED 
WITHHOLDING TAXES ON DIVIDENDS.  POLISH FINANCE MINISTER 
ANDRZEJ RACZKO SAID IT WOULD BE GREAT IF ALL 25 FUTURE EU 
MEMBERS COULD FOLLOW SLOVAKIA'S EXAMPLE.  U.S. TAX POLICY 
EXPERT DANIEL MITCHELL OF THE HERITAGE FOUNDATION ADDED THAT 
THE COUNTRIES OF CENTRAL EUROPE HAD CHANGED HISTORY BY 
PURSUING TAX POLICIES THAT FUELED ECONOMIC GROWTH.  THE 
OECD'S TAX EXPERT JEFFREY OWENS STRESSED THE SLOVAK SYSTEM 
WAS NOT ONLY ADVANTAGEOUS IN TERMS OF LOW INCOME TAXES, BUT 
ALSO EASY, FAIR AND NON-DISCRIMINATING. 
 
WEISER 
 
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