The world is in the midst of a massive tectonic shift, according to Gillian Tett. In her keynote address, Ms. Tett shone a spotlight onto the challenges currently embroiling both Europe and the wider global financial markets and found that many of Europe’s biggest underlying problems were less about economics and more about the political economy.
Ms. Tett suggested that many of the current woes come down to The Three C’s: Credit (in other words trust), Cohesion (social, political and economic) and Complexity. Trust and cohesion were the most dire challenges today, she noted. Trust has all but evaporated, not only in the markets and financial systems, but also in the regulators and governments who were trusted by voters to be watchful stewards of their national economies.
Cohesion – or the lack of it in the Eurozone – was only exasperating an already difficult situation by creating a ‘nation state’ mentality towards the ongoing sovereign debt crisis. Ms. Tett suggested that cohesion deficits also existed on a national level (between voters and the political and financial elite) and a regulatory level (between the various national regulators).
Ms. Tett also pointed to the heightened complexity that has overtaken the world markets over the past few years and noted that – while we live in a global economy where we need to understand that our actions have wide-reaching repercussions – very few people actually understand the macro view of how the world’s financial systems and economies interact.
Following her keynote address, Ms. Tett was joined by Dr. Norbert Walter and Dr. Nicos Christodoulakis to discuss how these forces are reshaping the world for business and their tax directors.
Dr. Walter opened the floor with a perspective that Europe now lacks ownership as a direct result of the lack of trust between voters and their institutions. Businesses, he argued, must take up this space by not only fulfilling their social obligations, but also by playing a fuller role in democracy.
As a former Finance Minister with the Greek government, Dr. Christodoulakis brought forward the idea that there had, prior to 2008, been a disparity between the Eurozone’s northern member states and those in the south in terms of investment; the north gained much of the infrastructure and manufacturing while the south saw higher investments into real estate and other industries that – in the end – created a huge current account balance sheet for the countries in the south. This, he suggested, is the first thing that must be taken care of.
The implication of all this for tax, added Ms. Tett, comes back to trust and cohesion. People need to build trust in their institutions while also seeing that the tax burden is being fairly and equally applied. The challenge for governments and regulators is now to create polices and frameworks that build both cohesion and trust at the same time.
Dr. Christodoulakis proposed that what the world needed to be thinking about first was greater integration within the Eurozone, starting with a unifying bank landscape. Ultimately, he suggested, this would lead to a wider system of tax changes but – if it also created common rules across the Eurozone – it would likely solve many of the problems facing Europe today, such as the creation of Euro bonds.
For his part, Dr. Walter agreed that greater cohesion was needed within the Eurozone and that this belief should start at the cultural level – by learning together in schools and universities and by working together within companies – in order to build a greater sense of cohesion.