CNBC Business | Business Round-Up

Business Round-Up

A look at what’s happening around Europe

LEGISLATION

EU hits Microsoft

The EU imposed a record €899m fine on Microsoft for charging “unreasonable” prices to rivals for access to its software. The fine brings the total levied on the world’s leading software group close to €1.7bn in the past four years. The fine, representing 60% of the maximum, reflects the 488 days – until October 22, 2007 – during which Microsoft refused to comply with the commission’s March 2004 antitrust ruling. EU competition commissioner Neelie Kroes insisted the new penalty was “reasonable and proportionate” and should be “a clear signal to the outside world and especially Microsoft that they should stick to the rules”. Microsoft is the first company in 50 years of EU competition policy that has been fined for failure to comply with an anti-trust decision. (See Viewpoint by Microsoft chairman Bill Gates, page 15)

Hannan’s view

The EU faces a new taxing dilemma writes Daniel Hannan

The EU can be an uncomfortable neighbour. It is seeking to crack down on neighbouring “tax havens”: Monaco, Switzerland, Liechtenstein, the Channel Islands and Andorra. Now it is perfectly reasonable for a state to go after its nationals if they are breaking the law. And it has every right to ask its neighbours to cooperate in bringing criminal activities to an end. But this is not simply about illegality. What the EU resents about its micro-neighbours is that they offer an alternative to Euro-centralisation: their low tax rates are a standing rebuke, a reminder of how cheaply and efficiently countries can be administered.

Last year, Brussels censured Switzerland for providing “illicit state aid” to certain companies. What was the nature of this “illicit state aid”? You guessed it: low taxes.

Eurocrats should pause to ask themselves why it is that these statelets have such low taxes. The answer is clear enough. Small countries require small bureaucracies, so there is less waste. This, in turn, reduces the need for taxation, and stimulates enterprise. Because the population tends to be homogenous, laws are less likely to have unintended consequences, and decisions are made more closely to the people they affect.

Big countries can duplicate these advantages if they govern themselves like a confederation of small ones: the US, for example, has a highly devolved system of administration, which allows local communities to elect their school boards, their sheriffs, their sanitation officers and so on. But America, founded in a popular revolt against a remote government, is the – in both senses – big exception. Whereas the US was founded on the Jeffersonian ideal that power should be dispersed, and decisions taken as closely as possible to the people, the EU was founded on the opposite ideal: the first line of the first clause of the Treaty of Rome commits it to “ever-closer union”. Of course, once they allowed their minds to run down this track, Eurocrats might come to an uncomfortable realisation, namely that the EU is fated, by its nature and its design, to be both inefficient and expensive.

“To the size of a state there is a limit,” wrote Aristotle, “as there is to that of plants, animals and implements. For they can none of them retain their natural facility if too large”. Amen.
Daniel Hannan is the Conservative MEP for South-East England

AVIATION

BA revises flight plan

British Airways has warned it would no longer be able to operate profitably if the price of oil continues to rise and that a sustained high price would lead to “fundamental changes in the industry”. At an investor day the airline predicted that its fuel bill would rise to €3.25bn this year, representing nearly a third of its entire cost base and €590m more than the previous year. Combined with the heavy spending on Heathrow’s new Terminal Five, the soaring costs led chief executive Willie Walsh to jettison his longstated target of reaching 10% margins, forecasting instead that the margin will be around 7% for the 2009 financial year. Nevertheless, despite the gloomy outlook Walsh predicted that the company would increase turnover by up to 4.5% to €12bn next year. Long-haul premium traffic, which accounts for the majority of British Airway’s profits, grew 11% last February from the same time a year earlier, a trend Walsh predicted would continue despite a “sharp slowdown in the US and the UK”.