I do not think that I am the only person in Britain who
reckons Oskar Lafontaine is a good thing, but there have been a few times in
the past month when I have wondered.
His remarks about the need for the countries of the European
Union to harmonise their tax policies have attracted a quite extraordinary
outpouring of venom here – and not just from the anti-European press and the
Tories.
That the Sun
dubbed the German finance minister ‘the most dangerous man in Europe’ was
hardly surprising (though the space it allocated to doing it, three pages,
certainly was). Nor was there anything new in William Hague’s reiteration of
his party’s tired xenophobia.
But they were joined in their synthetic outrage by others of
a normally pro-European disposition – most significantly, the chancellor of the
exchequer, Gordon Brown, and the prime minister, Tony Blair. "Britain has a
veto on tax policy and we will not hesitate to use that if we have to,"
declared Brown. "It is by cutting taxes, not raising them, that is the way
forward to create jobs."
In British political terms, it is easy enough to understand
why Brown and Blair reacted as they did. They firmly believe that Labour won
the 1997 general election because they spent five years assuring the electorate
that Labour had ceased to be a party of "tax and spend". Because tax levels are
lower in Britain than everywhere else in the EU apart from Ireland,
harmonisation would almost certainly mean an increase in British taxes. So
harmonisation is politically unthinkable.
From an economic point of view, the Brown-Blair position is
just as easy to grasp. They believe that Britain’s low business taxes and
anti-pollution taxes have helped attract inward investment. Harmonisation will
reduce Britain’s competitive advantage over its European neighbours.
But this of course is precisely why Lafontaine and nearly
everyone else on the continental European centre-left favours harmonisation. To
them, Brown and Blair are trying to have their cake and eat it. They want all
the advantages of access to the giant affluent EU market – to the extent that
they might even sign up for membership of the euro. But they want Britain to
undercut continental disincentives to pollute and undercut the continental
‘social wage’. Although they want Britain to benefit from continental
infrastructure spending, they don’t want to pay the fair share of the costs.
Worse, if Britain manages to scupper harmonisation, the
temptation will grow for other EU governments to emulate its "free rider"
position, which in turn could set off a frenzy of competitive tax-cutting that
destroyed the capacity of most EU countries to maintain generous welfare states
and high infrastructure spending. That would be a betrayal of everything most
continental social democrats stand for, and they are quite right to want to
stop it.
The spat over harmonisation might turn out to be
insignificant. My hunch, however, is that it is a foretaste of a rocky
relationship between the British Labour government and the rest of the EU over
the next few years.
With the single currency in place from 1 January, the
participants in monetary union will have a mass of common problems to solve –
and Britain, as a non-participant, will necessarily find itself out of the
loop. In these circumstances, it might well be that Brown and Blair will have
to threaten use of the British veto to have any influence on EU macroeconomic
policy (and not just on taxation). But the more they throw their weight around,
the less respect they will command among their partners.
