The UK Parliament is due to start debating today details of the proposed in-out EU referendum. Nothing much is expected to happen immediately; it seems Conservative backbenchers are largely content to let Mr. Cameron renegotiate terms with other members states after the next election, provided there is a referendum then. Why force something now? They could end up doing UKIP’s publicity for them.
‘Renegotiate’ is actually something of a misnomer. What many Conservatives believe is that Mr. Cameron will actually do a direct deal with Angela Merkel after the election to keep the show on the road. There’ll be some movement on the single market – and the UK will get the right to opt out of some of the EU’s social provisions. That, goes this story, will be enough for Cameron to win the referendum on the basis he has secured EU reform.
One striking thing about this scenario is that the only politician that matters in it is Angela Merkel. She has indeed swept all before her; she’s had the raw political success of Mrs. Thatcher – married to universal popularity at home. And she also happens to be in charge of the German economy. Stability plus massive economic power, plus personal popularity. She’s the boss.
Unsurprisingly, her European colleagues have sometimes found it hard to take. Berlusconi was notoriously dismissive of her – and of German-led austerity in general. He wasn’t really an austerity kind of guy, Silvio. And she isn’t his kind of lady. But it is slightly shocking to see Romano Prodi come out so fiercely against Germany. ‘Today there is only one country and only one in command: Germany’, he said. And, ‘German public opinion is by now convinced that any economic stimulus for the European economy is an unjustified help for the ‘feckless’ South, to which I have the honour of belonging. They are obsessed with inflation, just like teenagers obsessed with sex.’
Ouch. Prodi was the head of the EU for six years. A true Brussels insider. Power breeds resentment, even power exercised ever so benignly.
I was at the International VAT Association’s conference a couple of weeks ago, and got to see a little bit of German economic muscle in action. Astrid Grunkorn, who is in charge of the cross-border refund section of the German tax authorities, was there, and taking questions. In the last few years, the authority seems to have been rejecting refund applications that would once have been paid without question. Frau Grunkorn listened appreciatively to comments, but held a firm line. The authority was within its rights to reject claims where postcodes were set out wrongly; where invoices were sent post-deadline following electronic claim submission before the deadline; if applicants had failed to comply correctly with the 5MB claim limit; and it was likely that any claims from US companies only backed up with a standard US tax certificate would be rejected as being insufficient. IVA members tried to argue that these policies breached the EU’s principle of proportionality, but Frau Grunkorn replied by saying the policies had generally been tested in the German courts.
It was obvious that a line in the sand had been drawn. German sovereignty was primary. For years and years, the Germans were among the most reliable and understanding of VAT refunders. They went out of their way to be reasonable. The contrast with Italy, say, or Greece, with three and four year waits, and arbitrary rejections, could not have been more marked. Perhaps this is another area in which Germany has had enough, and has the power to have had enough.
If you are dealing with the German tax authorities, get it right first time.