According to BBC News and the UK Guardian, it appears German Chancellor Angela Merkel is still keen on supporting the UK Government’s long held desire to remain in the European Union but not by dispensing with the founding principles of the entire project. Looks like British PM Cameron’s tight rope walk with UKIP + eurosceptic backbenchers on one side and those pesky but somewhat more vital EU allies on the other, is starting to enter some strong headwinds.
After a brief hiatus, PIIGSty.com is once again expanding and looking for talented, keen, impartial budding writers/contributors would want to develop their interest and writing abilities in the following areas (and others, upon suggestion):
- Current affairs
- Political theory/political science
- Social sciences (including health)
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Full article PDF here
With the conflict in Syria hitting the headlines for the past number of years, PIIGSty History presents an ‘all you really need to know’ summary of Syrian history from ancient times to the modern day.
Syria has been at the heart of human civilisation for thousands of years; a relic of competing empires for centuries. The violence now raging across the country often seems random and inexplicable, but it isn’t. The key to understanding the current conflict lies in the history of Syria; a turbulent story of religion, treachery, empire and war. Historically, the Syrian border has changed significantly over time. Ancient ‘Greater Syria’ included the modern states of Israel, Lebanon, Jordon, Iraq and parts of Turkey.
Today, those fighting for control of Syria nurse grievances spanning centuries and are often misunderstood. The Middle East as a whole boasts more recorded human history than any other part of the world, containing the oldest continuously inhabited cities on earth. The ancient ‘silk route’ ran through this vital region with the area today known as Syria being at a vital crossroads heavily frequented by transiting merchants plying their trade. Soon, the conquerors followed the merchants, beginning with the Romans.
The birth of Arab Islam, the Prophet Muhammad and the Umayyads
In the early 4th century, Roman Emperor Constantine the Great began encouraging Christianity. The Roman Empire became a Christian empire with inhabitants converted to Christianity by default. In the Middle East, Christianity was already the dominant religion, that being the region of its conception. As a result, for centuries, Syria was the centre of the Christian world.
By the 7th century, 300 years of Christian domination began to fracture. Arab tribesmen, united by their leader, the Prophet Muhammad, streamed north on an Arab conquest in search of Syrian riches. They brought with them the new religion of Islam which Muhammad had founded. Between 632AD and 642AD, they captured the old Roman province of Syria and set about building an Islamic civilisation – seeking to expand the frontiers of Islam with Syria as its commercial and religious engine. These conquerors founded the first and greatest Arab-Islamic dynasty – the Umayyads – and soon deepened their control over greater Syria and beyond. Syria (and its capital Damascus) was chosen was the capital of the new Arab Empire, as a stable anchor for the fledgling entity. Syria became then the ‘beating heart’ of Arab-Islam. Hope and enthusiasm soon gave way to rancor and division. Not all Arabs venerated the Umayyads as their rule was seen to be widening divisions in Islam rather than uniting them. The Prophet Muhammad died in 632AD, just before the Syrian conquest. The issue of division centred around the successor as leader of Islam. Some believed the Prophet Muhammad named his cousin Imam Ali as his successor and Imam Ali’s descendants after him in a hereditary line of succession from which leaders of Islam would be extracted for ever more. Adherents of this view (Shia Islam) were known as Shia or Shi’ites. Today Shia Islam is the second largest denomination of Islam in the world.
Other Muslims rejected the hereditary succession (Sunni Islam) and were known as Sunnis. Prominent among them were the Umayyads themselves – who cemented their power (and began centuries of religious conflict) by killing Imam Ali’s son in 680AD, the Prophet’s grandson Imam Hussein. Today, Sunni Islam is the largest denomination of Islam in the world, with 80% of all Muslims adhering to this denomination.
More information on the differences between Sunni and Shia is available from The Economist
By the late 11th century, a new era of Syrian history began when waves of Christian crusaders from Europe invaded the Holy Land, now Arab Islamic lands. The violent conflict left deep scars in the Middle East and implacable opposition to Western intervention in the region which continues to this day. In response, the violence and necessity for protection produced one of the great Syrian leaders – Saladin, the first Sultan (King) of Egypt and Syria. Saladin remains a venerated hero to the Syrians as, through his actions, he united Greater Syria and took back Jerusalem from the Christian crusaders. Saladin was also a strict Sunni and reduced Shia influence, which had become a repressed minority.
The end of empire – the Sykes-Picot agreement
From the 13th century to the modern day – Syria fell under control of two great Islamic Empires in succession. One, based in Egypt, The other, under the Ottoman Turks. Story of modern Syria begins with a great global conflagration. World War 1 (1914-1918) cost hundreds of thousands of lives in the Middle East. Syria was then part of the Ottoman Empire and had sided with Germany. To fight the Ottoman Turks (and the Germans), the British joined forces with rebel Arab nationalists – one of their leaders was Prince Faisal – who dreamed of liberating Syria from the Ottoman Empire through a form of secular, pan-Arab nationalism. The ‘Arab Revolt’ under Faisal and his British military advisor T.E Lawrence (Lawrence of Arabia) was hugely successful. In 1918, they captured Damascus. To Faisal, this was the beginning of the Arab Kingdom that the British had promised him, his family and followers. But the British had to admit they had also promised Syria to the French, earlier in 1916. As allies in the Great War, France, Britain and Russia (the tripartite ‘Triple Entente’) had already agreed a secret carve up of former Ottoman Empire territory up victory in the Middle East. Sir Mark Sykes (for Britain) and François Georges-Picot (for France) signed the 1916 Sykes–Picot Agreement.
Full Article PDF here
Otto van Bismarck was by no means your typical democrat (in fact, he was quite anti-democratic, right-wing, and anti-Catholic) but his actions have had an enormous impact on European Affairs ever since. Bismarck was Minister President (effectively Prime Minister) of the Kingdom of Prussia, a powerful and vast German state, spanning the Northern part of today’s Germany from the Belgian/French border deep into today’s Poland.
Under Bismarck’s leadership, Prussia consolidated its power by forming a loose confederation of smaller northern states (North German Confederation). Southern states were encouraged by Bismarck to end their relationship with France and its King, Napoleon III. This led to the Franco-Prussian War of 1870-1871, which France lost, leaving Prussia as the most powerful state in Western Europe.
After the war, states agreed to unify under the political and economic leadership of Prussia. The proposed German Empire (or Reich) would consist of 25 German states plus the annexed French territory of Alsace-Lorraine. The positions of President of the North German Confederation and King of Prussia were to be united under the title of German Emperor. In January 1871, the state princes gathered in France’s Versailles Palace where Wilhelm I, the King of Prussia, was proclaimed Emperor Wilhelm of the German Empire. Bismarck, as Minister President (Prime Minister) of Prussia and Federal Chancellor of the North German Confederation, became the Imperial Chancellor of the German Empire in March 1871.
Under the new 1871 constitution, the federal government would consist of an Executive (Emperor and Chancellor – the Emperor being solely responsible for appointing and dismissing the Chancellor), Reichstag (Parliament) and Bundesrat (Senate). Wilhelm would continue to hold extensive powers including: final approval for all laws; ability to assemble or dismiss the Reichstag/Bundesrat and complete control of foreign policy as commander-in-chief of the armed forces. Existing administrators (Kings, Grand dukes, Landgraves) would retain their power as each state would continue to have its own rulers, constitution and parliament with control over local affairs. The unity of this new Empire would be deepened through a process of ‘Prussification’ incorporating a new currency (Reichmarks), a unified federal bank (Reichbank) and a postal service (Reichpost), among other things. Berlin, the capital of Prussia (of course) would be the new capital of the Empire.
PIIGSty is proud to launch today a new series on important moments on European history. In less than 1,000 words, each post (also available as a handy PDF) will give you a quick, simplified run-down without drowning you in pointless facts you’ll never remember anyway…
Any comments or queries, why not email us on firstname.lastname@example.org
A very highly timely forum was held in Dublin City University (DCU) on June 12 with experts from across the academic world on the subject of politics/economics of sovereign debt – mainly, the eurozone. The blurb was as follows: “The debt crises in Ireland and Europe require a combination of political and economic analysis. This conference includes cutting-edge papers from leading international scholars.”
Key papers presented were as follows (well worth a read):
- Michael Bechtel (University of St .Gallen), Jens Hainmueller (Massachusetts Institute of Technology) and Yotam Margalit (Columbia University) ‘Studying Public Opinion on the Eurozone Bailouts‘
- Roman Goldach and Christian Fahrholz (Friedrich Schiller University, Jena) ‘The Euro Area’s Common Default Risk: Evidence on the Commission’s Effect on Uncertainty‘
- Iain McMenamin, Michael Breen, Juan Muñoz-Portillo (Dublin City University) ‘Elections, Institutions and Sovereign Debt‘
- James Alt (Harvard University), David Lassen (University of Copenhagen) and Joachim Wehner ‘Moral Hazard in an Economic Union: Domestic Politics, Transparency, and Fiscal Gimmickry in Europe‘
- Marc Flandreau (Graduate Institute of International and Development Studies) ‘Collective Action Clauses before they had Airplanes: Bondholder Committees and the London Stock Exchange in the 19th Century (1827-1868)‘
- Lauren M. Phillips (London School of Economics and Political Science) ‘Politics, Policy and Financial Market Volatility in Advanced Economies‘
There has been much debate lately over the Irish economy. Ireland has been held in high esteem across European capitals as somewhat of a poster-child for sticking the bailout conditions laid down by the ‘troika’ (The EU, European Commission, and International Monetary Fund – IMF). This means following a plan to shrink the economy and bring the huge gap between revenue and expenditure closer together. There are, of course, only two levers for a country in monetary union (the euro) to do this – raise taxes and/or cut spending – neither is ever popular buts its same across Europe.
On April 30, the Irish Department of Finance released its report on Ireland’s medium term economic on forecasts called the Stability Programme Update (SPU) which each eurozone country must submit to the European Commission annually as part of the European Semester process (aligning eurozone fiscal policy). The findings were:
Comparison of SPU and Budget 2013 (Presented December ’12)
- The Irish economy is forecast to grow slower (-0.2%) than the original projections at the time of Budget 2013 in December.
- The general government (GG) debt to GDP ratio (an ideal ‘compliance’ ratio and precondition for joining the euro being 60%), is now projected to stand at 123% this year, falling to 116% by 2015, marginally better than originally predicted in December.
- The other Maastricht criterion, that of the ‘excessive deficit procedure’ or EDP is forecast to be -7.5% this year (total revenue less spending), achieving the required level of -3.0% by 2015, as projected in December.
- The approximate €750m – €1bn savings from the ‘prom’ note deal which will knock a good chuck off the cost of servicing the national debt are assumed to help reduce this figure.
- On the positive side, the 2012 figure was -7.6%, well within the EDP target of -8.6%. The Irish economy is now performing at or above expectations in this area and the economy remains on target to hit -3.0% by 2015. Good news and politically valuable breathing space for Finance Minister Noonan as he crafts the next series of budgets. However, successive government ministers insist that austerity is not option and the proposed €3.1bn adjustment required this year under the EU-IMF programme is going ahead in the mid-October budget.
All this is line with the European Fiscal Compact (also known as the Irish Fiscal Stability Treaty) which was ratified by referendum by the Irish people on 31 May by a margin of 6:4. This allowed Brussels to push ahead with more formalised procedures under the Stability and Growth Pact (SGP) to penalise countries which did not follow their commitments and get their finances in order, as was the cost of joining the euro in the first place.
The differences between the SPU and the Commission forecast are, notably, slightly more pessimistic than the April 2013 SPU update with a growth project of +1.1% for 2013 rather than the Department’s forecast of +1.3%. But the pessimism is uniform. The Commission forecasts a more rapid decline in the current deficit fueled by the ‘prom’ note deal, a further public sector wage deal with unions (Croke Park II/Haddington Road) and other adjustment measures taking effect from the 2013 budget.
Why the pessimism?
Simply put,weak demand for Irish exports. The continuing uncertainly in the Eurozone with Cyprus, Slovenia and others, coupled with political uncertainties such as the unpopularity of French President Hollande and the federal election in Germany this November. Another issue which could negatively affect exports is the expiry of pharmaceutical patents the so-called pharma patent cliff.
The main issue is that despite the relative buoyancy of exports, there has been no real material recovery in domestic demand. What these forecasts agree on is that 2013 may be the pivotal turning point.
Irish Business Employers’ Confederation (IBEC) Quarterly Forecast
The IBEC quarterly review follows on from the SPU, making particular reference to domestic challenges such as unemployment (stubbornly stuck at 14%), weak consumer confidence and domestic demand and the issue of debt.
The key issue is ‘austerity fatigue’ across EU capitals and a renewed emphasis on growth rather than a strict doctrine of austerity. While Ireland appears to be successive, peripherals economies such as Spain, Portugal and Greece remain fragile. IBEC recommends, as ‘we are 85% of the way toward returning the fiscal deficit (EDP) below the 3% limit…the time is now right to ease back somewhat the pace of fiscal adjustment” – the proposed €3.1bn due in the mid-October budget.
Summary of Irish growth prospects
A number of other studies have also forecast Irish growth ahead, summarised here.
Read more here.
On May 21 last, the US Senate Permanent Subcommittee for Investigations, tasked with investigating Apple’s tax situation, released their findings (WATCH here) which bluntly accused Apple of ‘shielding’ its profits, exploiting loopholes in the US tax code to shift its profits to ‘offshore tax havens’ , in particular Irish owned holding companies. This allowed Apple to pay a corporate tax rate of 15% far below the headline US rate of 35%. Senator Carl Levin (Democrat – Michigan) outlined how US corporate tax accounts for only 9% of federal revenue, thanks to these loopholes. The overall estimated loss to the US Treasury is $1.9tn in corporate profits to non-US tax havens.
The Double Irish Rule Loophole
In the US, like most major Western economies, a company must pay tax in the country it has been incorporated/registered. In Ireland, a company must pay tax only if its operations are managed on Irish soil. This means companies can register in Ireland (or ‘new’ subsidiary companies of the big US giants like Apple) but not physically operate here, meaning they pay no corporate tax. This allowed an Irish registered Apple subsidiary to be managed and operated in the US but pay not one dime/cent in tax. Bizarre, but legal. More here
Such a company Apple Sales International did pay some tax, 0.05% on its profits in 2011, as ‘high’ as 2% other years. Apple Sales International generated $74bn in sales revenue between 2009-2012. Another Irish company, Apple Operations International, managed $30bn. The estimated combined tax loss to the US Treasury? $44bn, or nearly $15bn pa – a not unsubstantial figure. Interestingly, these subsidiaries are not technically registered….anywhere.
The Sweetheart Deal
That’s not the whole story. It has since been alleged that Apple received a ‘sweetheart’ tax deal from the Fianna Fáil Government in 1990 under Taoiseach Charlie Haughey, to avail of an incentivised rate, approximately 2%. In exchange, Apple has since provided Ireland with an estimated 3,500 direct employees.
The problem here is whether Apple received incentives or breaks to reduce its bill or whether is purposely sought to negotiate a ‘2% sweetheart deal’. The latter is serious, the former is perfectly legal.
The Irish Finance Minister Michael Noonan and Taoiseach (Prime Minister) Enda Kenny have denied such the sweetheart deal was made. The Committee reject this, and have been supported in this contention by Apple CEO Tim Cook. In any event, Noonan is technically correct. If a company is not tax resident in Ireland (i.e. like Apple Sales International, which has been registered in Ireland but does not manage its operations here) then quoting a figure of $30bn in revenue and proportioning a tax rate (however miniscule) is ridiculous. It should be zero, because there it is inactive in Ireland. The money is ‘held’ offshore from the US and never ‘repatriated’ i.e. paid to the US Treasury. The US wants to get its 35% on this sum but its task is to somehow decipher a labyrinthine tax code.
As Minister Noonan said – “It appears the rate that is being quoted is got as follows: the tax charged in Ireland on the branch activities in Ireland of companies that are not resident here on the one hand, is divided by the entire profit of the companies concerned, as if they were resident here, which they are not, on the other hand.” If Ireland was, in fact, a tax haven then shouldn’t Ireland benefit somewhat from this amount? Yes. Does Ireland benefit? Nope.
The question here is ethics and fairness, not legality. In a time of continued austerity, bailouts and hardship – the idea of a cash wealthy American super-company which provides flashy iPhones, iPads and iPods to nearly every man, woman and child (you would nearly think, anyway) trying its best to avoid paying its fair share in tax while the the public are hounded and squeezed for every last euro/dollar/pound/ruble seems just a tad unfair and inequitable.
However, multinationals employs anywhere between 100,000 and 150,000 employees in Ireland and in a recovering country with over 14% unemployment, jobs are currency. The Irish corporation tax level has long been a bone of contention with its EU partners, keen to harmonise taxation to promote fiscal unity across the eurozone and bolster the euro. With the issues of tax havens and fraud featuring strongly on the EU agenda going forward, this issue is not expected to disappear soon. Thens there the issue of being a good team player, especially considering Ireland’s huge efforts to assiduously adhere to the troika bailout programme despite demands to burn the unsecured bondholders, notably those in Northern European banks.
Answer to the original question we posed at the beginning? Apple did nothing illegal. Your own definition of improper is needed to answer the rest.
More detail on this issue is available through this article
May 30: Joanne Richardson, Chief Executive of the American Chamber of Commerce (Ireland) writes an OpEd piece in the Irish Times, declaring that Ireland is not, despite the Committees findings, a tax haven. Her reasoning is straightforward. As the article states: The OECD identifies four key indicators of a tax haven, none of which she declares applies to Ireland.
- No taxes or only nominal taxes (Ireland has a 12.5% Corporate tax rate)
- Lack of transparency
- Unwillingness to exchange information with tax administrations of OECD member countries
- Absence of a substantial activity requirement
She also heralds the fact that, “in December 2012, Ireland became one of the first countries in the world to sign an agreement with the US to improve international tax compliance and implement FATCA (Foreign Account Tax Compliance Act) – an emerging international standard for the automatic exchange of tax information.”
May 31: The Irish Ambassador to the US, Michael Collins writes to the two US Senators (an unusual step). The letter states:
- No ‘special’ tax deals are possible under the Irish tax code
- Restates that the Irish corporate tax rate (12.5%) is only levied on companies which operate in Ireland, and so are tax ‘resident’. That is, after all, Ireland’s definition of a ‘tax resident’ company. By using a US formula for calculating taxable income (as the US Committee does), they are being factually misleading
- Restates Joanne Richardson’s point on the (4 factor) OECD identification of a ‘tax haven’ which he repeats does not apply to Ireland
- Ireland is playing a strong role against ‘profit shifting’ and ‘aggressive tax planning’ with the OECD and EU, as part of Ireland’s Presidency of the Council of the European Union through the ECOFIN council.
June 1: The US Senators reject the interventions, arguing again that Ireland is tax haven.
“Testimony by key Apple executives, including CEO Tim Cook and head of tax operations Phillip Bullock, corroborates that Apple had a special arrangement with the Irish Government that, since 2003, resulted in an effective tax rate of 2pc or less,” the senators said in their statement.
“Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven,” they added.
A very busy few days for European Movement International which has just held its Federal Assembly in Dublin, in association with the (nearly complete…) Irish Presidency of the Council of the EU (Council of Ministers).
Delegates agreed resolutions on a huge and impressive range of issues including:
- European political parties
- A new European Convention in 2015
- EU-Ukraine association agreement
- Civil society in Greece
- The Multi-annual Financial Framework (MFF)
- Agreeing new members including European Movement Azerbaijan, SOLIDAR, Erasmus Students’ Network and the College of Europe.
More detail is available here from European Movement International’s website
Next up in the PIIGSty YEUr Tidbit Factsheet series, the Mortgage Credit Directive (MCD).
The MCD proposes a more integrated pan-European market for mortgages which gives borrowers more choice, stronger ability to compare mortgage products and greater protection while making cross-border mortgage lending much easier for banks. The EU home mortgage market is currently worth close to 50% of European GDP or €6.5tn.
Full version PDF here YEUr PIIGSty Tidbit: Mortgage Credit Directive