the Employment Pact, cf. EU Commission (1999b). Co-operation has, however,
been rather sketchy so far. It has thus mainly consisted of exchanging
information, making joint analyses, and issuing recommendations without
limiting the competence of the individual countries to carry out their own
labour market and employment policies.
In the first instance, the objective of this co-operation is to increase
employment and create a more flexible labour market. In the long run, the
problem may turn out to be labour scarcity as a consequence of the
demographic development and the aim of the employment and labour market
policy co-operation will therefore also be to contribute to larger “employ-
ability”, i.e. increasing the job supply by increasing labour market association
of individual generations.
There are similar dynamic policy spillover effects into other areas. This applies
to the tax policy where the free movement of capital inside the Internal Market
has created a need for a harmonisation of the taxation rules on the return on
financial capital as well as on profits (corporate taxation). The geographic
location of firms and especially of financial investment is sensitive to
differences in taxation. Unless the taxation rules are harmonised, competition
between the countries in these areas will either lead to a reduction in the tax
rates or result in distortions in the allocation of capital and tax revenue between
the countries. Differences in excise duties and value added tax on consumption
might also induce consumers to make their purchases in countries with the
lowest taxation level. Although several members (e.g. the UK and Denmark)
are reluctant to give up their national competence concerning taxation, there is
nevertheless a strong market pressure to introduce common regulations in the
area. This pressure is enhanced by the increasing use of the Internet for trade in
goods, which also calls for a solution at the EU level.
The most important, immediate challenge of the EU co-operation will arise if
the current accession negotiations between the EU and a number of Central and
East European countries are completed successfully. In the first instance,
Poland, the Czech Republic, Hungary, Slovenia, and Estonia are expected to
obtain membership, but several other countries, such as Slovakia, Latvia, and
Lithuania are expected to rapidly succeed. The desire for enlargement of the
European Union is especially politically motivated. The admission of these
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