“The Brussels Diary With Yana Toom”: Poor, Rich and the EU


It is time to change the ideology of inequality, and compromises based on the principle of ‘ours and yours’ are of no help.


We can keep thinking all we want that ‘this crisis is an opportunity’. Unfortunately, the pandemic hits first where it hurts most. Inequality is growing in the EU. Though inequality has been growing since the mid 70s, the growth has largely been slow. We are now seeing a sharp rise: the poor lose so much more than the rich do. In a recent study, various scenarios were given; however, they were all pessimistic. In the best-case scenario, the income of the poor declines by 10 per cent and the gap with the rich grows by 3.5 per cent. In the worst-case scenario, the gap between incomes grows by 9 per cent because the income of the poor drops by 16 per cent.


These are the EU average numbers. This process will transpire differently across countries in the same way as the recovery after the first wave varied. It is already clear now that lockdowns have a weak effect on the economy. Everything depends on the state of the particular economy: how it functions, its dependence on tourism, export-import and whether they produce something that is in demand in a crisis. Are revenues distributed fairly in the country?


For example, in Germany, the overall situation is not that bad despite a very strict lockdown because the Germans' level of the real sector is high and they have a good social policy in place. In contrast, the overall state is not so good in Italy and Spain. The same goes for our country. The reason is that even before the crisis social inequality in Estonia was worse compared to the EU average. The situation will deteriorate if nothing is done about it.


Europe hopes to defeat the crisis by injecting huge amounts of money, more than two trillion euro, including debt, into the economy. However, the French economist Thomas Piketty writes that ‘the entire history of public debt shows that a problem of this scale cannot be resolved only with it – nobody controls the allocation of resources’. The rich win again and the poor only lose.


What to do? Piketty reminds us how the economy was built up after World War II – with taxes imposed on the wealthiest. For example, 91 per cent of personal income was taken from rich people right up until the middle of 1960s in the United States, thereby diminishing the public debt and financing social programmes. These are certainly extreme measures but there is also some manoeuvring room. Two years ago, Piketty proposed to put the EU budget together from four taxes – profits from the largest corporations, monthly income in excess of sixteen thousand euros, wealth over one million euros and СО2 emissions.


When considering the gap between the rich and poor, this proposal seems reasonable. However, we will hit the wall again because every country decides themselves about their social matters. Countries with an adequate social policy in place will be in a good state, and life will not be better or fun in countries where the rich free themselves from taxes.


Even so, Europe is taking its first steps on this path – Brussels is ready to supplement its budget with federal taxes. Not right away but in a few years. The measures include taxes on corporations with a huge turnover, sale of shares and bonds, and the profits of rich technology giants like Google.


In my opinion, this is reasonable and right. As Piketty has written, it is time to change the ideology of inequality. Actual changes are needed in the EU. Compromises made based on the principle of ‘ours and yours’ are of no help in getting out of the current crisis.