value chains, and tax competition between countries has led to a race to the bottom in terms of tax rates. 6 a debate is currently raging between economists as to whether all of the unequal gains resulting from international trade can be addressed using social transfers, or whether changes need to be made to the rules of the global game. 7 however, all would agree that the revenue which has been lost as a result of tax avoidance and tax optimisation would have helped governments to at least mitigate the adverse distributional effects of globalisation. 8 finally, the fourth concern is about democracy. many people are concerned as to whether the open market is truly subject to democratic control. as international markets extend further beyond the borders of nation states, it becomes less clear who governs them. some people fear that openness has resulted in elected authorities ceding sovereignty to international investors or multinational corporations – e. g. via investor - state dispute settlement mechanisms. international cooperation between elected governments has been rekindled following the global financial crisis ( particularly in the context of the g20 ), but beyond efforts to tackle immediate crises, the effective remit of such cooperation has largely been confined to financial regulation ( and, more recently, tax cooperation ). even in the presence of clear structures allowing democratic control ( as in the case of the eu ), some politicians have succeeded in suggesting that those structures are too remote from the lives of voters and successfully played on the idea of taking back control by promising to repatriate powers to the national level. some of these concerns are based more on perception than on fact. for example, increased sensitivity to financial shocks and widening income gaps could be attributable to a number of other factors, including technological change, 9 and the two processes are increasingly interrelated. 10 still, just as it is important not to overreact to criticism of globalisation, it is equally important to retain a sense of humility – to acknowledge that globalisation raises profound questions about fairness, stability, equity and democracy, which need to be properly debated and, where necessary, answered by means of effective public policies. regaining sovereignty some suggest that the solution is to withdraw within national borders. this option is destined to fail for two reasons. first, it deprives people of the economic advantages that trade and integration bring. according to one estimate, the eu ’ s gdp per capita would be as much as onefifth lower if no integration had taken place since 1950. 11more

##es at eu level thus far. to a large extent, this is because eu member states already have the most comprehensive welfare systems in the world at national level. as chancellor merkel has often noted, europe has 7 % of the world ’ s population, 25 % of its gdp and 50 % of its welfare spending. welfare systems need to be adjusted in many ways if they are to be financially sustainable, but they provide a strong basis for protecting people who lose out as a result of globalisation. indeed, history shows that making globalisation sustainable has often depended on strengthening the welfare state. the erosion of the tax base and the shifting of corporate profits are severely challenging member states ’ ability to engineer redistribution, but the eu has considerable latent potential in this regard, because no large corporation – not even apple – can threaten to completely turn its back on the world ’ s largest market. indeed, the european commission is already using competition tools to address possible tax arbitrage by multinational corporations, while the proposed common consolidated corporate tax base has the capacity to eliminate opportunities for tax avoidance through profit shifting within europe. in both areas, european institutions can establish leverage over large corporations in a way that individual countries cannot. a key issue for the eu as time goes by will be the extent to which its direct redistributional role should increase. the european globalisation adjustment fund, which was established in 2007, was set up in order to help workers and companies with the transition process, but its resources remain far too limited and its procedures too heavy. the european social fund has much greater resources at its disposal and has proved to be effective at helping people to get back into employment. there is an argument for expanding these two programmes further, both in scale and in scope. 18 ensuring democratic legitimacy in many ways, the eu gives its citizens more democratic control over globalisation than is afforded to people in other countries. indeed, it is far more advanced than other trade areas in terms of its political structure : decisions affecting the eu as a whole are taken jointly by nationally elected representatives sitting together in the council of the european union and by the directly elected european parliament. and through the powers it has over competition and financial regulation, the eu gives its citizens greater control over multinational companies and financial markets. a united europe, speaking with one voice at global level, also helps to communicate european preferences on trade, as well as on financial, tax, social and environmental standards. 5 / 7 bis central bankers'speeches however, governance and democratic