Sir, – In her article on the French official assault on Ireland’s corporate tax regime, Lara Marlowe quotes from a report by the Paris-based Jacques Delors Institute, which claims that Ireland’s receipt of EU structural funds has enabled this country to offer a low corporate tax rate (“French look intent on pursuing EU tax harmonisation”, Business News, September 25th).

                                                    <p class="LETTER">That assertion is highly questionable. </p>
                                                    <p class="LETTER">For over a quarter of a century, Ireland’s corporate tax revenues relative to GDP have been larger than France’s, and before that were not much more than 0.5 per cent of GDP lower. </p>
                                                    <p class="LETTER">This is incompatible with the idea that the structural funds financed Ireland’s low corporate tax rate. In fact, as is often the case in public finance, Ireland discovered that the lower the rate, the higher the take. </p>
                                                                                                                                                                                        <p class="LETTER">The Irish corporate tax regime has powered Ireland’s ascent out of the ranks of those who need EU funds to the status of a net contributor to the EU budget. That means that going forward Ireland will ultimately pay more than it receives from such initiatives as the EU €750 billion Covid recovery fund, cited by the Jacques Delors Institute as an act of EU solidarity that requires tax harmonisation among member states. </p>
                                                    <p class="LETTER">In debates on the issue of Ireland’s company tax regime, there is often the claim – and there is an inference of it in the institute’s report – that Ireland somehow “owes” the EU for the structural funds. If the funds did create debts, whether legal, political or moral, they were more than paid off in 2011 when the European Central Bank (headed at the time by a French national) insisted that Ireland should repay all of the Irish banks’ creditors (thought to be mainly French and German interests). </p>
                                                    <p class="LETTER">The error of letting creditors off in financial crashes like this has been long recognised by the IMF. At the time it urged that some at least of the €60 billion involved in the Irish case should be shouldered by these creditors. The error was recognised subsequently by the EU, which now makes this kind of “bailing in” a standard feature of any future systemic financial rescues. Too late for the Irish taxpayer.</p>

                                                    <p class="LETTER">Finally, the proposal from a French official, also cited in Lara Marlowe’s article, that the EU should bend the rules to get around article 116 of the Treaty on the Functioning of the European Union, which enshrines tax autonomy, smacks more than a little of the sort of manoeuvres recently seen in our nearest neighbour. At least the British made no bones about their readiness to break an agreement already made. Usage of EU gobbledygook like “passerelle” should not be allowed to obscure the fact that something similar is afoot in Europe. – Yours, etc,</p>
                                                    <p class="LETTER">JIM DORGAN,</p>
                                                    <p class="LETTER">Blackrock, </p>
                                                    <p class="LETTER">Co Dublin. </p>

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A Discussion with Franck Guiader of Gide 255

Last week, the European Commission adopted a Digital Finance Package along with legislative proposals on cryptoassets (digital assets). The move had been widely telegraphed by the Commission and, in fact, a draft of the crypto regulation was leaked the week before.

The proposal on cryptoassets seeks to leverage the potential of this Fintech innovation while mitigating potential risk and preserving financial stability. European Commission Executive Vice-President Valdis Dombrovskis noted that there are special rules for stablecoins, like Facebook’s Libra, including more stringent requirements:

” This is because of the potentially vast scale these stablecoins could reach in terms of users – which could pose specific challenges to financial stability. So we need strong safeguards, also against fraud and money laundering,” stated Dombrovskis.

Crowdfund Insider contacted Franck Guiader, for additional perspective on the European Union approach to cryptoassets. Guiader is Head of Innovation & Fintech at Gide 255 – part of the global law firm of Gide. He is an expert in Fintech, specializing in European regulation. Previously, he was the manager of the French Autorité des Marchés Financiers (AMF) Asset Management Regulation division of the Regulatory Policy and International Affairs Directorate. In May 2016, Guiader became head of the AMF’s new Fintech division. He also co-led the AMF-ACPR Fintech forum with the supervisory authority. Clearly, Guiader is closely engaged with Fintech innovation including cryptoassets.  Our discussion with Guiader is shared below.

(Editors Note: the discussion took place just prior to the official release of the legislation)

The regulations were widely anticipated to be posted later this month. As this “draft” was leaked was this an attempt to run the rules up the flagpole in advance? What is the chatter on the proposal?

Franck Guiader: First of all, this leak requires to remain cautious on the final draft that will be officially published soon.

Discussions on this expected regulation started 2 years ago at the EU level, and I would say that the rationale of the text is not a surprise.

The time has come now to scrutinize the details and to assess to what extent this new piece of regulation will meet players’ expectations. There is still a lot to achieve and negotiations should be intense.

The draft legislation covers a diverse range of areas pertaining to digital assets. Is there a risk of these rules becoming overly prescriptive in a rapidly changing environment?

Franck Guiader: This is clearly one of the risks stemming from a new regulation in general, particularly in the realm of digital finance.

Rules are of course of utmost importance to provide legal certainty, but they shall be designed pragmatically, taking into account both the particularities of advanced technologies and the functioning of these new ecosystems. The worst-case scenario would be a too strict regulation dissuading crypto-players to develop their activities within the EU. A balanced approach will hence be key, to avoid regulatory arbitrage at the expense of the EU single market.

How closely do these proposed rules align with France’s ecosystem?

Franck Guiader: The French crypto-ecosystem is dynamic and ambitious. We find players throughout the value chain of crypto-digital finance: platforms of exchanges, custodians, advisors…

We also find an increasing number of incumbent players, such as investment banks, interesting in the development of financial activities based on DLTs.

Today, these players that are our clients at Gide, both new entrants and historical institutions, expect from the EU legislator and national authorities certain clarifications that could allow to accelerate the tokenization of assets and/or the blockchainization of certain activities.

France paved the way for innovations in regulation applying to these players. Several hooks dealing with blockchain and cryptos have already been inserted into the French law (eg. PACTE Bill providing a regime for digital assets service providers).   The rules proposed by the EU Commission seem to be partially inspired by the French law. Others seem to stem from regulation applying to securities markets. The main challenge will consist in the reconciliation between traditional rules and legal concepts, and particularities of decentralized ledger technologies.

ESMA and the EBA have been enlisted to fill in much of the details. Doesn’t this leave quite a bit of room for interpretation by these two entities?

Franck Guiader: Generally speaking, and particularly when it comes to innovation, we need European authorities to avoid regulatory arbitrage within the EU. This is a key point ensuring convergence. The misinterpretation of rules applying to new activities could lead to a failure for the EU Commission with this new regulation. Moreover, the EBA for instance needs to be informed of large-scale initiatives and monitor their impact that might create systemic risk in the market of means of payments. The notion of “significant” stablecoins appears in the draft for these reasons.

Do you see any big shortcomings in the proposal?

Franck Guiader: No “big” shortcomings except maybe a “big” place given to proportionality.

Volumes will not be able to increase if there is a lack of proportionality in the final proposal.

Rules can not apply equally to start-ups whose activities remain under low thresholds, and big players dealing significant volumes and flows. A gradual and progressive approach would make sense to rule this new market, with a test and learn mechanism that would allow fostering innovation in finance.

What about “exchanges” or digital asset marketplaces. Doesn’t the proposal leave much up to the member state to decide?

Franck Guiader: Legally speaking, this text is not a directive implemented into each Member state’s law, but a regulation that directly applies to players. Broadly speaking, it means that Member State will have less maneuvering walking. When they must clarify certain rules at the National level, it is to ensure a good coordination/articulation with certain specificities of national law.

What are your predictions for the proposed legislation if it becomes European law?

Franck Guiader: From a purely legal perspective, I would say that it will create confidence, certainty, and will open a pan-European market for these players that will benefit from the EU passport mechanism. Incumbent players should also be more open to innovate through the use of DLTs, with in-house experimentations and/or in partnerships with start-up companies.

From an economic perspective, I hope that the final text will be sufficiently proportionate, to avoid regulatory arbitrage and make the EU great for the crypto-ecosystem.

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS

ISTANBUL-Reuters

Turkey sees a European Union summit this week as an opportunity to reset relations between them, but the bloc must produce specific proposals and a timetable to work on a roadmap together, President Recep Tayyip Erdoğan’s spokesman said.

Tensions flared between Turkey and EU member Greece after Ankara sent a seismic vessel to explore for hydrocarbons in disputed waters in the eastern Mediterranean last month and the Oct. 1-2 summit aims to calm the bitter dispute.

“I believe the EU summit has a chance to have a reset in Turkey-EU relations. It is an important opportunity. We can have a reset there. And I see this willingness on the part of many EU member countries,” presidential spokesman İbrahim Kalın told Reuters.

“They also have to understand that they cannot expect Turkey to do everything,” Kalın said in an interview. “It must be a mutual process. If Turkey is expected to do X, Y, Z, EU countries must fulfill their responsibilities as well.”

Senior EU diplomats and officials have said the bloc is unlikely to follow through on a threat to impose sanctions on Turkey after Ankara’s agreement last week to resume exploratory talks with Greece, which were halted in 2016.

Work was continuing on deciding a date for the resumption of talks, Kalın said, adding the talks would continue where they left off and focus not just on issues of continental shelves and maritime limits, but on islands and air space.

He said he believed the talks would have a positive impact and would also focus on political consultation and military-to-military talks. “In all of these three tracks we believe we will make some good progress very soon,” he said.

Turkey got involved in a war of words with France during the east Mediterranean dispute and Erdoğan last week held his first talks with French President Emmanuel Macron in months in a bid to ease the tensions.

Kalın said there was a positive atmosphere in those talks with the two leaders agreeing to try and find ways to minimize their differences.

“I believe all these things will produce a more positive agenda and a more positive atmosphere between Turkey and France,” he said.

BY
Claudia Meier
Julian Lehmann

For the past five years, European Union leaders have tried but failed to reform the block’s rules on asylum. The main bone of contention was the Dublin Regulation, in particular the rule of first entry, which specifies that the first EU member state that an asylum seeker enters is responsible for hosting them and processing their asylum claim. Because of fundamental disagreements on how to reform ​“Dublin”, all other reform proposals have gathered dust on shelves in Brussels. Meanwhile, thousands of asylum seekers still languish in dangerous camps at Europe’s borders.

On Wednesday, the EU Commission finally unveiled the Union’s new reform ideas. On responsibility for asylum applications, they aim to replace the rules of the Dublin Regulation by – drumroll – the rules of the Dublin Regulation. In other words, the basic rules will continue to apply, with some tweaks like member state cooperation in the event of numerous asylum seekers arriving at one member’s borders at the same time. Fundamentally, the proposal cements the sad truth that the EU’s asylum policy has become a sinister race to the bottom on who manages to host the least asylum seekers. Even this lackluster proposal on distributing responsibility was met with immediate and fierce opposition in some member states – including by Austria’s Chancellor Sebastian Kurz, who declared it dead on arrival.

But the EU has few alternatives to reform. In 2015 and 2016, when the numbers of asylum applications spiked, illiberal political parties all over Europe were swift to exploit them for political gain. And they will do so again if member states fail to break the deadlock and sensibly reform the Dublin Regulation. Indeed, the current system leads to frustration everywhere: the EU’s border states like Greece will repeat their mantra of being left overburdened, while others like France or Poland will complain that most asylum seekers who end up further north should have been accommodated in the countries of their first arrival.

Given this protracted situation, the upcoming negotiations on the proposed new laws will have to address two questions: What is the bare minimum that would make a reform better than no reform? And how can the champions of this bare minimum mobilize a majority for it? We think that, above all, a new governance would have to stand the test of being a more solidary system. But reaching – and salvaging – such a compromise will require radical political action.

Call the bluff with a different resettlement option. The EU Commission proposes that states who are unwilling to host asylum seekers as part of a relocation effort ​“in times of crisis” can instead contribute to collective effort by organizing returns of asylum seekers whose claims have been rejected (“return sponsorships”). This idea could prove a slippery slope into a situation where virtually every member state wiggles out of a commitment to admit asylum seekers – a recipe for more disasters and human rights violations like the ones the world is currently witnessing in Moria, Greece. To prevent this, the EU should cap the total number of such ​“return sponsorships” to 10 percent of all asylum seekers who are being relocated in the EU. Member states that still refuse to accommodate asylum seekers could be offered the alternative to accept the equivalent of their share of recognized refugees from outside the EU. Refugees are recognized as such by the UN High Commissioner for Refugees, so that this compromise would call the bluff on the argument that redistribution creates a ​“pull factor”, as well as popular claims that only the most resourceful people manage to reach the EU.

Push through a low threshold for mutual support. The pact is vague on the criteria that would trigger any new mechanism in support of an overburdened EU state. For instance, it does not define the kind of ​“crisis” that would oblige member states to support each other. To address this flaw, the EU should set a threshold for each member state, depending on its economic power. This would send a signal of serious intentions to the states at the EU’s external borders. In addition, any mechanism for mutual support would have to kick in automatically. Anything else would be an invitation for anti-EU governments to blame the European Union once the numbers of asylum seekers go up.

Up the stakes for spoilers. The single most important leverage the EU has over its member states is its budget. EU leaders have just adopted a new budget for the next seven years, following a 90 hour-long summit. The ball is now in the European Parliament’s court – MEPs have yet to accept the carefully hatched proposal. One of the main points of contention is budget conditionality: many parliamentarians want the EU to be able to withhold funds when a member state does not comply with the principles of democratic rule of law. The EU parliament should explicitly include systematic violations of the rights of foreigners under EU jurisdiction – including during returns procedures – as part of its definition of democratic rule of law. This would finally give the EU leverage when a member state undercuts its minimum standards on asylum. It would also help to address the perverse incentive structure of the current system in which member states are ​“rewarded” for sub-standard asylum systems, because such systems bar the returns of asylum seekers who have traveled onward to other EU states.

Hammer home the message of international credibility. The EU’s current treatment of asylum seekers is harming its international standing when advocating for principles like cooperation on migration policy, democratic rule of law and human rights. In several African states, EU officials have had to deal with rebuttals and accusations of hypocrisy when trying to argue for upholding the human rights of migrants. In private, German Chancellor Merkel has shared how China’s President Xi – of all people – has also confronted her with the failings of EU migration policy. A new, more humane compromise on asylum policy is a crucial step for the EU to regain some of its credibility on the international stage.

The chances are slim that the ​“pact’s” proposal on the Dublin Regulation will lead to concrete reforms worth fighting for. But the moment is more promising than it has been for a long time. The numbers of asylum applications in the EU have shrunk by almost 50 percent when compared to their peak in 2015. Since then, governments should have learned that the EU cannot afford a perpetual political crisis on asylum – and asylum seekers even less so.