Trilemma EU and EMU Challenges: Fiscal Competition, Harmonization or Unification

Eurozone has grouped 18 countries in the European area, with different tax systems and thus, on the background of a common monetary policy numerous decisions and commitments for fiscal harmonization were adopted. Unfortunately, the realities did not carried into effect the ambitions assumed, different fiscal sovereignties have perpetuated their coexistence within the well-known frames, insufficiently tailored to the declared-only desire of harmonizing and, in time, the inefficiency of institutions deepened and the dysfunctions diversified, meaning exactly the scaffolding that the huge single market was designed and built upon. Moreover, the perpetuated coexistence of different tax regimes not only slowed, delayed or postponed the harmonization, but even stimulated tax competition between Member States' economies, becoming both the cause and result of the natural differences between countries. Tax competition seems also to merge most of the reasons of the multiform crisis which shake the markets and the states all over the world, not only in the European continent. Accordingly, the European Commission, supported by Germany and the other Member States, proposes measures for fiscal unification in the European Union, considering that the Eurozone crisis is the result of the common monetary policy singularity, but in the absence of a common fiscal policy. 1. Introduction 1. Harmonization vs. tax competition In practice, the need for harmonization requires a sustained and real requirement for a balance between: Decrease taxation – on the one hand and, Fiscal consolidation, on the other hand, which means the proper management of the public debt and budget deficit under the Maastricht criteria. In its 10 years of triumphant euro area operation, the European Union has made a harmonized uniform regulation of various policies, such as: labour protection, employment, competition, environment, rationalization of water consumption and energy etc. However, the European Union failed to reach a comfortable level of harmonization as to support a unified fiscal policy, and this has become remarkably and surprisingly clear, especially when the current financial turmoil has generalized. Strengthening the unified tax environment, especially in the euro area means the fiscal coordination, but it is a broad and comprehensive action, both as practice and as an approach, based on the following principles: Common fiscal policy milestones should be accepted by all the states even in certain circumstances; Principle of subsidiarity, which confirms the vertical relations between the European institutions and national bodies. Certainly, tax harmonization can be achieved through a unique tax system as a …