MILAN (Reuters Breakingviews) - Ursula von der Leyen is starting on the defensive. Despite her ambition to overhaul the European Union, the new European Commission president is unlikely to persuade Italy and Germany to set aside their differences on common banking rules any time soon. A plan to tax technology giants offers a better chance for the traditional EU rivals to find some common ground.
Among her long list of promises, the former German defence minister has pledged to complete the euro zone’s half-baked monetary union. To enable lenders to operate freely across the 19-nation currency bloc, member states first need to agree to common deposit insurance, as well as a fund to handle the cost of bank failures.
Rome and Berlin are in opposite corners. German leaders want Italy to reduce financial risks, including its $2.5 trillion public debt, before signing up to measures that could see euro zone taxpayers share the cost of a future crisis.
Meanwhile, Italian officials object to Berlin-backed suggestions that euro zone sovereign bonds should carry different levels of risk when calculating bank capital requirements. Stripping Italy’s public debt of its current risk-free status would hit domestic lenders, which are large holders of the securities. That might accelerate an Italian debt blowup.
Messy politics in both countries will hamper any compromise in 2020. Italian Prime Minister Giuseppe Conte’s coalition is fragile and under constant attack from eurosceptic leader Matteo Salvini, the likely winner of any election. Meanwhile, German Finance Minister Olaf Scholz, who championed a recent plan to create a common deposit backstop, has become less influential after losing out in a recent vote to lead his Social Democratic Party.
It thus makes sense for von der Leyen to change tack. A more promising idea is a plan to impose a 3% levy on the revenue of global tech companies such as Facebook and Amazon. That would help redress an imbalance which the commission says allows digital players to pay an effective 10% corporate tax rate, against 23% for brick-and-mortar rivals. The project needs to overcome opposition from small low-tax states like Ireland – and faces fierce criticism from President Donald Trump.
But France, Italy and Germany all like the idea. While banking union remains elusive, the tech tax could unite the euro zone’s biggest adversaries.
This is a Breakingviews prediction for 2020. To see more of our predictions, click here: bit.ly/2Z4pobV
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