Now the story of the euro begins to unravel

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The Independent Online
WHAT IS it about this season that is bringing senior political figures out of the closet in such droves? I refer, of course, to the really conspiratorial closet, the one whose doors have been glued and bolted shut for decades - the one in which the ultimate aim of the European Union has been fomenting away, shielded from the scrutiny of daylight.

On Wednesday, Joschka Fischer, the German foreign minister, called for the creation of a unitary European state with a single constitution. The following day Chancellor Gerhard Schroder, while not quite endorsing the bonfire of nationalities proposed by Mr Fischer, called for other countries to pay more to finance "an ever more integrated Europe" and to get rid of the right of one country to veto the decision of others.

Then Yves-Thibault de Silguy, the European commissioner in charge of preparations for the single currency, outed himself by stating that the long-term objective of EMU was to harmonise first VAT and then income tax across the single currency area. Gordon Brown, having signed up to the principle of tax harmonisation, then claimed that he would use his veto in any vote on it - the same veto Mr Schroder wants to abolish. So Mr Brown's "No" simply means "Not yet".

Harmonise is a lovely word, a synaesthetic delight. Good things come in harmony, bad things jar. Who could object to harmonising? Especially not when, as Mr de Silguy added, the intention is to end "distortions" in the tax systems between the countries inside the single currency. Distortions are nasty things that go against the natural order.

Hold the Newspeak. This is getting tricky. New Labour capitalised on the tax-sensitivity of the British electorate - indeed, it reinforced it, to the extent that it is now seen as the act of a Scargillite rebel to call for even a marginally higher rate for high earners.

Tax, not sex, is Mr Blair's Achilles heel. He has always been keenly aware that one key reason the electorate distrusted Old Labour was that it was seen to be too fond of taxing the salariat and spending the money inefficiently. European top rates, however, are universally higher than the 40 per cent band in Britain. The long-awaited tax reform in Germany centred on whether the upper bracket should be lowered from 56 per cent. The Netherlands extracts 60 per cent tax at a relatively low earnings threshold.

The outburst of frankness about the fiscal consequences of EMU is the last thing Mr Blair needed at the end of a year whisking us closer towards entry without any awkward questions asked, or, rather, asked but not heeded. So far, the Government's strategy has been to accelerate preparations for entry, priming businesses and public opinion to accept that British membership of EMU is inevitable and that anyone who opposes it is a small- minded nationalist misfit at odds with the popular will.

Unlike Margaret Thatcher, who loved a good row, Mr Blair's preferred strategy, when confronted with a contentious issue, is to plug away quietly at reshaping consensus, until all contentiousness has withered away and there is nothing left to have a row about.

The admissions that Europe's fiscal burden would have to be shared in order to address the regional strains of EMU destroys this pretence. From now on a nasty question will lurk in the television studios, in the Commons and on the street, ready to bite Mr Blair's ankles: can the Prime Minister tell us whether we will not pay more tax as a result of entry into EMU?

Voters often insist that they would happily pay more to fund better schools and hospitals. New Labour learnt from the 1992 election defeat not to take them at their word. Does Mr Blair really think that people will accept the transfer of more of their earnings to even out deficits in Italy or Greece, let alone the next wave of entrants from eastern and central Europe; or that they will believe that a supra-national institution will spend public money more wisely than a national one?

Being a Cassandra on this topic, I feel vindicated but disquieted by the developments of the last weeks. A few months ago I wrote that "EMU's dirty little secret is that a lot of things will have to happen afterwards which its proponents hide from us today. Without harmonisation of tax, pensions and eventually welfare provision, it cannot be sustained."

An EMU-phile minister and a Treasury adviser rounded on me the next day. There were no plans at all to harmonise taxes or anything else: I should know better than to scaremonger. In fact, Oskar Lafontaine, the new Bonn finance minister, had scaremongered without any help from me at his party's pre-election conference in Hanover, in which he called for unified tax rates across Europe (including business rates), "greater collusion" in pensions and a loosening of the European Central Bank's grip on interest rate policy in the single currency area.

On the latter point, the stability of EMU is under assault even before its launch. The key to the shift is high German unemployment, the reason Mr Schroder was elected by such a substantial margin. His political survival depends on decreasing the jobless figures fast. Whatever his reservations about the consequences for the single currency, he will break the terms of the stability pact to stimulate demand and create jobs.

Here the Prime Minister relocated the debate about British entry into EMU on purely economic territory. But the Government's position is drifting perilously close to asserting that Britain will join whatever the gaps opening up in EMU. I fail to see how this differs, in essence, from the inflexibility of the more rabid constitutional Eurosceptics.

In This Blessed Plot, an excellent and elegant tour d'horizon of Britain's crabbed relations with European institutions, Hugo Young berates the forgers of British policy towards Europe for dissembling the true goal of integration: namely political union, although he more often calls it "the European ideal". I, too, have a European ideal, but it is of a more liberal and flexible kind than Mr Young and the present masters of the EU envisage. His vision is about to come to pass with EMU, the apotheosis of the post- war European Union, which he imbues with a mystical, eternal Hegelian significance. "It had survived for decades. Its leaders were determined that it should continue. It would be the context, the given reality, round which their other problems would resolve." The tone and the tense suggest that this is the end of the story. It is not. There will be other ways and eventualities that we have not yet dreamt of, challenges to the orthodoxies of our age. Today's Europe is one chapter in the continent's story; not the whole book.

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