Another dreadful debate on Europe, the Queen's head and nasty krauts

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The Independent Culture
SO, THE Hun is at the gate again. This time he not only wants to rape our daughters and steal our empire, but worse - he wants to harmonise our taxes. Where Kaiser Wilhelm strutted and Adolf Hitler screamed, now Oskar Lafontaine - finance minister of all Germany - threatens the sacking of the classical temples of the City of London. Teutonic knights, fair of hair, dark of countenance and rigid of doctrine, seek to reduce this enlightened, dynamic country to the state of bureaucratised inertia that characterises theirs.

Or do they? Is this vision a fictional nightmare, induced by imbibing the mild narcotic of British right-wing journalism? From the days of William Randolph Hirst, and the Spanish-American War, it has been the same: enemies are good for business. "Leave Our Taxes Alone, Fritz! Hans Off Our Exemptions!"

Amid this cacophony it is hard for the non-economist and the inexpert (ie me - and possibly even you, dear reader) to work out what the hell is going on, let alone whether or not we approve of it. Nevertheless, the hares are running hither and thither. Which one will you follow down its little hare-hole? It is going to happen, and it's a bad thing; it isn't going to happen, and it's a bad thing; it's going to happen a little bit, and that's too much; it's going to happen a little bit, and that's not enough; it isn't going to happen, but perhaps it should.

Or, more specifically, we read that the French and the Germans - in the shape of their respective finance ministers - have got together and decided that all this separate country business has gone far enough, and that - broadly - we Europeans should enjoy similar tax regimes, without the capacity of individual governments to thwart the will of the majority through use of the veto. Which means higher taxes all round, including VAT on children's clothes and books - an iniquitous attempt to force British children to wander round in their underwear reading the Frankfurter Allgemeine Zeitung.

Not at all, rejoin Leon Brittan and sundry others. Oskar is a bit of a bigmouth, and no one really takes him seriously (finance minister of the united Germany being no great shakes these days); there is little demand in the rest of Europe for an end to the veto on tax matters, or for standardising taxes. Indeed, the French and the Germans are at loggerheads themselves. There may be a change here, a coming together there - mostly to end the phenomenon of tax evasion through tax havens - but that's hardly a threat to civilisation as we know it, is it?

The lines of this debate seem wearily familiar. They are repetitions of the two-decade-old, sterile battle between entrenched positions, in which anti-Europeans (invariably the attackers) occasionally open up with their robotic batteries of heavy press boomers, and the pros (always on the defensive) reply with a barrage of soothing Nivea.

In search of more profound insights, I picked up the November edition of that excellent magazine, Prospect (which I recommend to anyone with five brain cells to rub together), containing an article on Lafontaine by its editor, David Goodhart. Goodhart has the immense distinction of being someone who looks at Germany as a country, rather than merely as a pathology, so he may be able to tell us whether Lafontaine was just a fable. Once a fan, Goodhart now believes that Oskar is "an insecure, posturing intellectual in politics, more concerned with being right than solving problems". Furthermore, Lafontaine and his neo-Keynesians are highly constrained, thinks Goodhart, by the new machinery of the European Central Bank, and by the anti-reflationary stability pact.

Any threat to our legendary low levels of corporate taxation from such a source may, therefore, be over-rated. But even as I write this sentence, I become aware of just how ancient and - probably - irrelevant this whole debate is. The entire discussion we've been having this week is characterised by an economic parochialism that might have seemed appropriate two years ago, but which is crazy now.

I'm not saying that we should be unconcerned about creating a good business environment in Britain, or that we should be seduced into over-regulation by countries who might like to see us become less competitive (whoever they are). But I look at the world right now, and I wonder whether this is really our big problem. Is it not the case that economic growth and employment are actually under far more assault from the continuing crises in the Far East, Russia and Latin America; that hemispheric predicaments are putting our skilled workers out of their jobs, rather than wrongheaded fiddling with local taxation? Or rather, isn't the big question before us this: how are we to exercise some power over global markets?

Picking up my well thumbed copy of Prospect again, I find an article by that former prophet of the free market, Paul Krugman. He relates how market sentiment - essentially the actions, rational or otherwise, of speculators - is instructing the embattled governments of Brazil, Thailand and South Korea to "take steps which will ensure a nasty, perhaps disastrous, recession". In a phenomenon known as "self-fulfilling speculative attacks", markets anticipate a crisis, and by their actions (withdrawing investment) bring one about. They then demand a series of deflationary actions that make the problem worse. Political crises will often follow the economic ones, compounding the misery. Krugman concludes that global action must be taken to insulate economies from such attacks, by limiting the free movement of capital.

Now, in the same week as the Lafontaine brouhaha, we learn of two huge mergers: Mobil and Exxon will become the world's largest company in revenue terms, and the Deutsche Bank is about to swallow Banker's Trust of America. These new combines will exercise enormous power. The need for supranational bodies and co-ordination, and thus for further European integration, has never been stronger. And yet, here we are: embarked in another arid and angry debate about Europe, the Queen's head and nasty krauts.

It must stop. We are currently suffering from years of Eurosceptic domination of the public debate, just as earlier we suffered for years of delay over the EU. In 20 years' time, histories will be written blaming the bizarre British political climate of the mid-Nineties for the unaccountable failure to enter the single currency with the first wave, and thus to help construct a Europe able to meet the global problems of the millennium. They will recall how Labour's extreme lack of self-confidence, following two decades in opposition, prevented it from taking the necessary action to join - "an absence of zeal", as Hugo Young has recently called it.

Or we could wise up to the truth; which is that we and the Hun are in this together.