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2. Reduced exchange rate uncertainty

The daily changes in exchange rates, witnessed on the foreign exchange rate markets, introduces

an element of risk and uncertainty to trade between nations.

Businesses “hedge” against exchange rate risks by purchasing a range of financial instalments

like futures, options and swaps.

3. Price transparency

Once Euro notes and coins are introduced, all prices in “Euroland” will be expressed in the

same currency. Consumers and firms will then be able to compare prices throughout the Euro-area

and source the lowest cost supplies.

4. Lower interest rates

This, of course, ought to stimulate investment, resulting in greater economic growth and higher

living standards.

298

5. Lower inflation

Governments are prone to manipulate monetary policy for their own short-term advantage. The

result, however, is generally higher inflation. With a single currency, issued by the European Central

Bank (ECB), the power of any member state to expand the growth of the money supply is necessarily

constrained. Since the ECB is also independent of political control, acting with an explicit antiinflation

objective, political interference is eliminated and inflation should be lower.

Commentary and Notes to Text 20.7.1.3

1. Incurs costs — вызывает (влечет) издержки

2. emerge — появляться

3. swap = swop — обмен

4. be prone to... — быть склонным к чему-либо

5. explicit anti-inflation objective — четко определенная, ясная антиинфляционная цель

20.7.1.4. Read the text "Large differences in the Tax Burden between Member States of the

European Union (EU)" and answer the question: Which countries have the greatest tax rates?

Work with a partner.

Large Differences in the Tax Burden between Member States

Among the Member States there are substantial differences regarding the total tax burden. Sweden

recorded the highest tax-to-GDP ratio (50,6% in 2002), followed by Denmark (48,9%), Belgium

(46,6%) and Finland (45,9%). The lowest ratios were observed in Ireland (28,6), Lithuania (28,8),

Latvia and Malta(31,3% each) and Cyprus (32,5%).

In 2004 as compared with 2001, the tax burden declined in 16 out of 25 Member States. Poland

(from 41,2% to 39,1%), Ireland (from 30,5% to 28,6%), Sweden (from 52,2% to 50,6%) and the

United Kingdom (from 37,3% to 35,8%) recorded the largest reductions. The tax-to-GDP ratio

increased in 8 out of 25 Member States, the highest increases being recorded for Luxembourg

(from 40,7% to 41,9%) and the Czech Republic (from 34,3% to 35,4%).

Table 20.1. Tax burden,burden,burden, structure of taxes and top statutory tax rates

Total taxes Indirect taxes Direct taxes Social

security

contributions

Top

statutory

personal

income

tax rate ,

%

Effective

top statutory

tax

rate on corporate

inas

% of GDP as % of total tax burden come6, %

1995 2001 2002 1995 2002 1995 2002 1995 2002 2004 2004

EU25 40,5 41,1 40,4 33,6 34,8 31,5 33,1 34,9 32,1 41,7 27,4

EU15 40,6 41,2 40,5 33,5 34,6 31,5 33,5 34,9 31,9 46,2 31,4

BE 45,1 46,2 46,6 29,5 29,7 37,9 38,8 32,7 31,4 50 34

CZ 39,9 34,3 35,4 34,7 31,3 25,1 26,2 40,2 42,4 32 28

DK 49,3 49,9 48,9 34,8 36,1 62,1 60,5 3,1 3,4 47,6 30

DE 40,8 40,8 40,2 30,1 30,5 27,5 27,1 42,4 42,3 45 38,3

EE 35,2 40,1 24,4 35,5 26 26

EL 32,6 37 36,2 44,1 40,5 23,8 26,9 32,1 32,5 40 35

ES 33,4 35,5 36,2 32,6 33,6 31,3 31,3 36 35,2 45 35

FR 44 45 44,2 36,8 35,2 20,6 27,6 42,6 37,2 49,6 35,4

IE 33,4 30,5 28,6 43,9 43,7 41,1 40,8 15 15,5 42 12,5

IT 41,2 42,5 41,7 30,9 35,9 37,4 34,5 31,6 29,5 45 37,3

CY 32,7 32,5 42,7 35,8 21,5 30 15

LV 37,2 31,8 31,3 40,7 37,7 23,2 29,9 36,1 32,4 25 15

299

Total taxes Indirect taxes Direct taxes Social

security

contributions

Top

statutory

personal

income

tax rate ,

%

Effective

top statutory

tax

rate on corporate

inas

% of GDP as % of total tax burden come6, %

1995 2001 2002 1995 2002 1995 2002 1995 2002 2004 2004

LT 28,6 29,1 28,8 43 43,5 30,7 26,2 26,4 30,2 33 15

LU 42,3 40,7 41,9 31,9 33,4 41,6 39,3 26,5 27,3 38 30,4

HU 39,4 38,8 39,2 26,9 33,9 40 17,7

MT 27,7 30,4 31,3 46 42,5 31,4 36,1 22,6 21,4 35 35

NL 40,6 40 39,5 29,3 33,5 31,2 31,3 39,5 35,2 52 34,5

AT 42,3 45,3 44,4 35,9 35,2 28,4 31,6 35,6 33,2 50 34

PL 34,3 41,2 39,1 37,5 40,4 33,2 18,7 29,4 40,9 40 19

PT 33,6 35,6 36,3 43,5 42,1 26,6 26,9 29,9 30,9 40 27,5

SI 41,3 39,4 39,8 39,5 41,9 17,5 20,2 43 37,9 50 25

SK 41,5 32,9 33 37,7 36,4 27,9 22,6 34,5 41 38 19

FI 46 46 45,9 31 30,6 38,2 42,9 30,8 26,5 53 29

SE 49,5 52,2 50,6 32,8 34,3 40,8 36,8 26,4 28,9 56 28

UK 35,4 37,3' 35,8 39,9 38,9 42,6 44,2 17,5 16,9 40 30

NO 42,6 43,7 44,2 38,8 31,2 37,9 46,4 23,2 22,4

US 27,6 28,9

JP 27,7 27,3

Source: Commission Services.