Outlook: A strong euro and a dead stability pact. Surely some mistake?

Brown and the EU; Norris
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Where does yesterday's defiance by France and Germany of the European Commission's rules on budget deficits leave the Stability and Growth Pact, a cornerstone of the single currency project? It would be tempting to answer as dead as a dodo, but of course it cannot be that, for there have to be some rules to underpin fiscal discipline among members of the single currency or the euro will split apart at the seams.

Much as the europhobes would welcome such an outcome, the euro hasn't yet reached breaking point. Yesterday's news barely registered in currency markets, where the euro continued to trade at close to record highs against the dollar. Euroland's two biggest economies have shown themselves to be fiscally irresponsible, and yet the currency markets don't seem to care. Set against America, they are in any case paradigms of virtue. What Ecofin ministers in effect agreed to yesterday was a common sense loosening of the rules requiring governments to keep their deficits below 3 per cent of GDP at all times.

It would have been insane to insist on a fiscal tightening at such a time, with unemployment so high and with both the German and French economies still showing virtually no growth. To have imposed the stiff financial penalties stipulated by the Stability and Growth Pact would have further compounded the economic damage. The rules always were too prescriptive, they've been tested, and they've been found wanting.

The irony of the present situation is that the Stability and Growth Pact was designed primarily not for France and Germany, who were presumed too robust to require such straitjacketing, but with the supposedly more ill-disciplined peripheral economies in mind. Now it is them who are left feebly to protest as Europe's two largest economies flout the pact. If Germany and France can do it, anyone can, and the risk is that those who have practiced fiscal restraint will now let rip, eventually leading to inflation and higher interest rates. Already an emergency meeting of the European Central Bank is being convened to analyse the implications.

Yet this is only a crisis if no alternative rules are constructed to replace the now plainly bankrupt Stability Pact requirements. Something similar to the fiscal rules used by the British government, which aims to balance the Budget ignoring investment over the economic cycle as a whole, need urgently to be put in place. As for the British government itself, it would ill become ministers to gloat. Most of them have long argued the case for subsidiarity in matters fiscal.

What yesterday's decision demonstrates is that even member states as committed to the euro project as France and Germany will always assert their independence from centrally administered rigidity when self interest requires it. So long as more flexible rules exist to prevent anarchy, the pursuit of such interest is not in the least bit incompatible with a single currency.

Brown and the EU

Proposed European Directive number 100506/B: to harmonise the width of cinema and theatre seats across Europe, necessitating the replacement of all such seats in Britain and Ireland where said width is too small to accommodate the growing girth of the average German behind.

There's quite enough real euro-trash that comes out of Brussels without the need for invention, but as you might have guessed, the above quoted directive on cinema seats is just parody.

None the less it didn't stop one supposedly truth seeking broadsheet from transforming a harmless discussion about common standards of measurement in Europe into this corker of an anti-European scare story, complete with suitably outraged comments from the great and the good of London's theatre land.

Gordon Brown seems to have fallen into the same trap in jumping on his high horse over supposed European proposals to harmonise rates of corporation tax across Europe. What's being proposed is nothing of the sort, yet that hasn't stopped the Chancellor promising business leaders that he'll be going to the barricades to prevent a harmonisation of rates.

Actually, what the Commission wants is a common definition of taxable profits, which most people would agree is a reasonably sensible thing. As things stand, there is no such definition, which means that larger corporations tend to recognise profits through transfer pricing and other techniques in territories where standards are most pliable, leading to a confusion of different tax breaks, rules and regulations across the European Union. The present set-up has very little to do with tax competition, but is rich territory for tax avoidance and obfuscation. Establishing a single tax base would improve tax competition, not decrease it.

Not for the first time, the Chancellor is tilting at windmills. Having promised to make an issue of tax harmonisation at yesterday's meeting of European Finance Ministers, in practice he pulled his punches and said virtually nothing about it, leaving Frits Bolkestein, the European Commissioner for taxation, to stress for the umpteenth time that "member states' fundamental prerogatives in tax matters, in particular their right to set taxes", would be fully respected.

Hardly anyone of influence in Europe believes in tax harmonisation any more outside a few French socialists, yet Mr Brown constantly bangs on about it as though it's about to engulf us. Of course, there is one area of tax harmonisation he is very much in favour of, and that's the levelling up of excise duties on fuel, tobacco and drink to Britain's punishingly high levels, but unsurprisingly this gets as little air time in Europe as all Mr Brown's other flights of fancy.

The Chancellor claims to be pro-European, but in reality he's as Europhobic as The Daily Telegraph and The Sun, for whom, bizarrely, he now likes to write opinion pieces. OK, OK, so this is high politics, and his increasingly anti-European remarks are for domestic consumption. Yet there is enough misinformed pontificating about the threat of a European super state without such an accomplished, high ranking and intelligent minister of state constantly adding to it.

In his speech to a business leadership conference, Mr Brown said he would also wage war against the supposed deluge of wasteful regulation coming out of Brussels. Pots and kettles spring immediately to mind, for as Chris Huhne, a Liberal Democrat member of the European Parliament points out, over the past year alone, Mr Brown has recruited more new civil servants than the entire staff of the European Commission. If they are not engaged in regulation and tax collection, what is it that all these people do? He should try explaining that to business leaders before ignorantly launching into his next attack on the European bogeyman.


Steve Norris, the former Tory Transport Minister who was yesterday formally anointed as interim chairman of Jarvis, should make up his mind whether he wants to be a businessman or a politician, for the way things are going, he looks likely to fail at both. As a combative, anti-New Labour politician, he's a completely inappropriate non-executive chairman of Jarvis, whose business as a government contractor requires an apolitical, and low-profile schmoozer.

Furthermore, his determination to stand as a candidate for the London Mayor gives him a clear conflict of interest as a politician, in that Jarvis is a major beneficiary of the PPP for the Tube. Mr Norris says he will resign from Jarvis when he wins the election, but nobody, other than Mr Norris himself believes he'll be victorious, which will presumably leave him as permanent chairman of Jarvis. It's all most unsatisfactory for shareholders. Having finally got rid of poor old Paris Moayedi, an autocrat but a brilliant businessman, it's out of the frying pan into the fire.