Just Say Nein To This Advice

It would be funny if it wasn't so serious. France and Germany--two countries that have averaged only 2% growth over the past three years--are leading an attack on the tax policies of Ireland and Luxembourg, which are averaging more than 5% growth. The objection? The smaller countries offer tax breaks to corporations and investors.

Certainly, it's understandable why high-tax, high-regulation countries such as France and Germany are worried. While they try to close big budget deficits, they're losing business and tax revenues to low-tax countries. But in the long run, such calls for prohibiting competition send the wrong message--one that's not helpful to Europe's economic future. Despite the continued sluggishness of growth across much of Europe, countries have been unwilling to give up their old ways. The result: Capital investment in France and Germany is falling as a share of gross domestic product, even while it is rising in the U.S. and Britain--and ultimately, investment is one of the best determinants of potential growth.

Instead of pressuring other countries to raise taxes, France and Germany should concentrate more on cutting government spending and reducing the regulations that hamstring their economies. That is the only way they can survive in an increasingly competitive global economy.

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