Blair's pointless Euro-war

An EU savings tax would affect very few people, so why is the PM risking his whole European strategy to fight it?

Share
Related Topics
He may be Europe's most senior finance minister, but when the Chancellor, Gordon Brown, gave a rare press conference in Brussels last week, he had domestic politics on his mind. With Britain opposing a planned EU tax on savings, Mr Brown was guaranteed glowing headlines in the Euro- sceptic press by threatening to veto the measure. He duly played to the gallery and was showered with praise the next morning.

Hundreds of miles away in Frankfurt, another press conference last week was hosted by the President of the European Central Bank, Wim Duisenberg. The stooping, grey-haired Dutchman is worried by the German government's attempt to bail out an ailing German construction group and said so in public. This time the headlines were not so good, as the markets took fright and dragged the euro below the sacred $1 threshold.

Taken together these separate events may mark a significant turning point for Britain. In both cases, symbols about Europe are concealing the reality, and the consequences steer the Government inexorably away from its stated goal of membership of the euro.

Not since the Conservative era have relations between the Government and its EU partners been so tense as over the savings tax, which reaches its climax in Helsinki this week. When Tony Blair lands in the freezing Finnish capital for a summit on Thursday night he can expect a reception in keeping with the temperature outside.

Mr Blair has fought his corner before, once over the role of Britain in the running of the euro (he lost) and once over the British rebate (he gained a creditable draw). On this occasion he is isolated and will attract maximum odium if, as is likely, he vetoes the tax plan.

The gulf between the sides is big and a mood of compromise is not expected to be in the chilly Helsinki air. Some of Mr Blair's most powerful counterparts, including Germany's Chancellor Gerhard Schroder, are incredulous that the Government should risk so much unpopularity around the capitals of Europe for so little.

Why is the Government so exercised about an issue which hardly affects the man in the street? The proposed legislation aims to prevent EU citizens investing in neighbouring countries to escape paying tax on interest in their own. It would force member states either to levy a tax - probably 20 per cent - on interest paid to EU citizens who are non-resident, or to inform tax authorities in their native country about those earnings.

While in opposition, New Labour made hay with its attack on the "fat cats". Now it argues that this plan is unacceptable because of the risk to London's Eurobond market, for which it has demanded a blanket exemption. Such is the disinformation about the plan (the leader column of the Daily Telegraph claimed bizarrely last week that the revenue from the savings tax would go to the European Commission itself), that it has assumed talismanic proportions in Westminster. Even pro-Europeans now believe that the Government has left itself no room to compromise this week because to do so would open Mr Blair to the charge of permitting a new "Euro-tax".

The reality is rather different. The measures would affect only between 3 and 5 per cent of the Eurobond market; chiefly, residents of other EU countries investing small sums in new bonds. Moreover, the Government would not even need to impose a tax. Instead it has the option of providing the information to the tax authorities of the country of the resident, allowing them to recoup the cash.

Brussels wants to widen the struggle against tax evasion and has grounds to hope that, if the EU could sign up to a package to tackle tax evasion, so could Switzerland, the United States and other financial centres (indeed the Swiss have already indicated a willingness to talk about the issue).

Shorn of rhetoric, the Government's practical argument comes down to one point: the tax will impose a new administrative burden which will drive up costs and force business out of the EU. Ministers have put no figure on this and seem to rely on assurances from the City that, even in the age of the computer, this will still add significantly to costs. A cynic might even conclude that the bond dealers can see little gain in deterring the tax dodgers.

The practical consequences of Britain's refusal to compromise are only now dawning. They could reverberate throughout the EU for many months. First, the move will fuel calls for the abolition of the national veto over tax - putting Mr Blair on the defensive during a round of treaty negotiations next year and giving ammunition to the Euro-sceptics. Second, it will reduce the prospects of agreement on liberalisation of financial services, thereby illustrating the benefits of European co-operation. Third, it is a reminder to the 11 nations within the euro zone that Britain would be an awkward collaborator uninterested in achieving a level playing field on tax if any interests are at stake.

Now for Mr Duisenberg, whose period of stewardship of the single currency has been anything but sure-footed. Since its launch 11 months ago the euro has lost 16 per cent of its value and the bank and Europe's leaders have struggled to co-ordinate a consistent message.

Undoubtedly the euro has suffered from the relative strength of the US dollar and the improvement in the Japanese economy. But does this reflect real weakness in euroland? The 11-nation bloc has low interest rates, controlled inflation and rosy economic prospects as exporters reap the reward of a beneficial exchange rate.

The recovery in France has already taken hold and seems destined to spread. Ten days ago the European Commission's latest economic survey struck an upbeat tone, predicting a big jump in real gross domestic product next year in the 11-nation zone from 2.1 per cent in 1999 to 2.9 per cent in both of the next two years.

Yet in Germany the failings of the currency on the foreign-exchange market have produced nostalgia for the days of the Deutschmark, that potent symbol of post-war recovery. (The irony is that it is Germany's reluctance to complete structural reform which underlines market worries, highlighted by Mr Duisenberg's intervention). Throughout euroland and beyond, confidence is brittle as the currency's slide becomes a powerful symbol of weakness.

Meanwhile, for Britain, a little-noticed date is almost upon us, one with a distinct bearing on our prospects of joining the euro. The UK matches all the necessary criteria for admission bar one: a stable currency. Enshrined in the Maastricht Treaty is a requirement for exchange-rate continuity against the euro for a period of two years. If Mr Blair envisages membership in 2002, the pound's present high rate against the euro is a real and immediate problem; joining at the current rate could provoke a ruinous repeat of Britain's ERM catastrophe.

In Europe, of course, it is often possible to reach a political deal with the help of powerful allies. But after this week Mr Blair may find he has fewer of those than he thinks.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped commission: SThree: Does earning a 6 figu...

Recruitment Genius: SEO Executive

£18000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: New Lift Sales Executive - Lift and Elevators

£35000 - £40000 per annum: Recruitment Genius: A challenging opportunity for a...

Day In a Page

Read Next
 

For all his faults, Russell Brand is utterly sincere, something politicians should emulate

Janet Street-Porter
 

Never underestimate the power of the National Trust

Boyd Tonkin
The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss