The German declaration of economic war on tax evaders is developing into a major political crisis. The longstanding international campaign against tax evasion is no longer a matter of indirect pressure through Finance Ministries, the manipulation of activists, propaganda and the targeting of single individuals.

The 'war' (for be in no doubt that this is what we are talking about) has turned into a direct assault, initially only on Liechtenstein, on European tax havens in general. As we write, Berlin now has Monaco and Andorra in its sights – both classed as ‘unco-operative’ by the OECD.

Although no charges have yet been laid, the Germans are saying that they have information about accounts at a second Liechtenstein bank. The implications for London could be significant, especially as the supporters of the campaign calling for a Referendum on the Nice Treaty include significant City interests who have always feared EU interference in their de facto city-state.

We are now told that HM Revenue & Customs apparently refused, for two years, to pay the whistleblower on the LGT, the Liechtensteinian royal-backed bank, for material that might recoup £100m, so he went to the German Secret Service, the BND, instead. Only when the BND bought the main list and forced the pace did HMRC pay £100,000 for a list of (it seems) 100 individuals allegedly evading British taxes through the LGT. 

The leak about HMRC seems to have come from BND or OECD (although this is not certain). The ‘continentals’ have never hidden their irritation at British lack of initiative and support for the war on tax havens. 

After all, to them, the City of London is the lynch-pin of a system that privileges mobile finance capital in every possible way and the OECD [aka US Treasury] was distinctly unhappy that the British Government placed its national interest ahead of the 'project' in the BAE Systems affair.

The Germans are now probably rather pleased to have pushed the British into the same sort of quasi-legal action that they have perpetrated themselves. They have implicated them as allies in the ‘war’. The wheels of the machine are now in motion, the media alerted and the British will probably deem it wise to stand back rather than get too involved.

Germany is not acting alone. This campaign is fully backed by the OECD. This is essentially not about one government working against another so much as most large G8 governments working against a small minority of their citizens (basically, the holders of free unregulated capital) and their state patrons.

Most European OECD governments are concerned that the deregulatory process promoted in the Reagan-Thatcher era has long since reached the point where free capital threatens to undermine the tax base of what is left of the social democratic state.

Only the UK irritatingly lacks enthusiasm amongst the main players for its own cultural and economic self interest reasons, while the US wants increased regulation for wholly different but complementary reasons related to its competitive advantage as primary beneficiary of a deregulated global free market (see below).

Europeans fear that social conditions that are culturally tolerable in the US (because of its history) may emerge within a single market EU built out of a very different historical trajectory whose settlement frontier, despite the best efforts on Mr. Hitler, closed some time in the late middle ages to the East and with the French withdrawal from Algeria in the 1960s to the South.

Europe has turned in on itself in bloodletting so many times that it is regarded as the norm by historians. Although States have apparently sunk their differences enough to preclude inter-state war except in the Balkans, ethnic tension and disruption of more traditional communities by modernisation and economic recession may yet erupt into internal violence and instability.

Belgium, Catalonia, Migrant Urban Centres, the Balkans, the list of points of potential breakdown, all small but costly, goes on. But the European elite is still convinced that the European federal project is the right one.

Depending on their priorities, this aspect of the liberal project allows Europe to become transformed into a single super-state (despite frequent denials) analogous to the USA, and/or develop an independent defence capability and/or construct a stronger economy based on a critical mass of consumers.

The ‘creative destruction’ of small state producers and free trade will reproduce the success story (in GNP terms) of North America (or so the theory goes). The European version has a redistributive mechanism in place to heal the wounds of social change - but what if the cash is not there?  What happens then?

The corollary of modernisation is not only redistributive resources but an expensive internal security structure capable of putting down ‘revolts’.

Anyone with an ounce of historical knowledge knows that the United States was built in an atmosphere of endemic violence. This was either slowly repressed by a steady increase in federal executive powers, was siphoned off into an ever-expanding frontier or was pushed down to levels regarded as just tolerable by the respectable middle classes.

A free market to build prosperity thus requires a 'Roman' solution - that is a strong State with an adequate tax base.

The alternative, in the eyes of the bureaucrats, is not a libertarian paradise but something closer to the violent anarchy of the Thirty Years War at worst and the inefficiencies and petty oppressions of the Holy Roman Empire at best.

The paradox is that, to create the new liberal Western paradise, the new Europe has to have low tax but sufficient tax to sustain the same sort of security and infrastructural development that sustains the American model. Europeans want America only better - less violent, more ordered, more secure internally.

Obviously, state taxes cannot be lowered if the wealthy are siphoning off taxes to havens. And how can the remaining social democratic element in society be ‘bought off’ with the maintenance of welfare systems that are slowly and inevitably going to be unraveled and privatized by stealth?

Above all, the ‘third way’ centre-left created by the US New Democrats and extended into Europe by Mr. Blair may have fully bought into the project and replaced economic with cultural demands but it still needs to sustain a political base that has ‘expectations’ in terms of public service delivery and public service jobs.

There are good reasons why the OECD and Germany (speaking for other larger states committed to the European project) are beginning to speed up the process now.

The core campaign has, in fact, been going on since the mid-1990s when Treasury and security analysts first started identifying the scale of the risk to stability presented by the collapse of the Soviet empire. This was a new world in which labour and capital would become more mobile.

It is no accident that the key European initiatives at this time are Frattini’s border controls and the German war on tax havens – nor that terrorism is being used as a PR excuse across a wide front for actions that are really targeted at the point where uncontrolled migration and uncontrolled capital flows meet, organized crime.

There is a serious fear that organized crime, of the type accepted as low-level but endemic within American capitalism and which also emerged out of its waves of mass migration, is becoming recapitalized in Europe just as the formal global financial system is coming under strain.

If it accumulates capital at the current rate, it is only a matter of time before organised crime becomes capable, at some point, of entering the political process.

For bureaucratic theoreticians, both democratic politicians and independent capitalists can be far too easily seduced from one dark side to the other if there is profit in it. Power and money lack morals as far as the advocates of order are concerned.

The brief oligarchical experiment in Russia showed how fast this could happen when state authority collapsed. A reasonable interpretation (from a Roman point of view) of the collapse of the Roman Empire was that it was a victim of clientage-based organised crime (we just like to call them 'barbarians'). How Attila operated is a case study in predatory capital accumulation.

The dry run for this theory has always been the Middle East where ‘illicit trades’ and weak states (in economic control terms) have developed informal criminalised networks whose targets have often overlapped with political operations against Western interests and Israel.

It was US Treasury and ‘Zionist’ theorists of ‘terror’ who early on developed ideas about the dangers (to their interest) of free unregulated capital that subsequently buttressed various forms of insurgency. Hence the sustained and continuing attack in the late-1990s and early this century on the Saudi interest, the largest source of unregulated capital in the world at that time.

Any cool and objective analysis would apply to organised crime the same standards that we would apply to terrorism. There is crime and state crime just as there is terrorism and state terrorism and the ordinary citizen or subject of the state is constantly having to guide himself or herself through the Scylla of street thugs and suicide bombers and the Charybdis of secret police forces and air strikes.

As in all these cases, it depends where you stand. The two sides like to think they are different and operate in world where black is black and white is white but there are many shades of grey in this game.

Hunger from rapidly rising food prices because the rich world is converting grain into bio-fuels may make you more disposed to see a 'big man' who offers cheap grain as a lot less criminal than Congress.

Similarly, the BND and HMRC rewarding a 'thief' dealing in private information 'stolen' from the banking system of another sovereign country raises interesting moral questions depending on where you sit, as does the sight of a major G8 economy bearing down and demanding changes in the law of a tiny principality.  Depends where you stand.

The Russians have also led the way on tax evasion on their own account –targeting some powerful ‘friends of the West’ in a classic contradiction. The Russian method has been less subtle than that of Westerners who torment themselves about due process. Russians really do not seem to mind accepting the truth of the matter - that states are just the biggest guys on the block.

The Kremlin recovered ground against the massive thefts of natural resources and capacity in the anarchy of the fall of communism by dividing the new 'gilded age' elite into bad guys (jailed, exiled or classed, even by the US but sometimes not by Israel, as gangsters) and good guys (oligarchs who kow-towed and then worked to the state interest).

On the other side of the old superpower divide, the US Treasury has played a central role – not because of some theoretical support for other nations as conspiracy theorists would have it. The US is driven by the internationalising momentum of the same domestic assertion of federal power that had pacified a violent frontier society - only now the world is the frontier. 

The symbolic moment may be when Edgar Hoover's old FBI, chasing Dillinger and Ma Barker and her boys across state lines, became transformed into an extra-territorial arm of federal operations against Al-Qaeda. US moralism and self-interest has, in fact, been imposing standards on the world since at least the 1920s (our international drugs regime is a creature of the old US Narcotics Bureau, later the DEA).

This happens because domestic policy-making, led by Congress and geared to the vote in the Mid-West and Southern States, has demanded conduct overseas that has placed US industry under serious potential competitive pressure.

The rest of the West certainly, and preferably the rest of the World, must adopt the same standards, on matters such as competition policy, corruption, illicit trades, taxation and what have you, if US industry and commerce is not to be progressively hobbled. 

That much of this is cast in terms of morality and values does not hide the fact that these are the morality and values that play well in Peoria.

The link between US regulatory expansionism and Europe is not only through the OECD based in Paris but demonstrates a much more profound political identity of interest with liberal internationalists (such as the Blair-Brown government) and Euro-federalists of the centre-right (such as Merkel and, less clearly, Sarkozy).

These liberal elements have gone far beyond the original dream of a Europe that would never go to war again and they have moved steadily towards a different vision of a shared Western system covering security and regulation. 

If the US and Europe disagree (and they often do), it is a matter of detail where cultural differences, as Peoria conflicts with Strasbourg, mean that the two sides simply have different positions within a common direction.

The common enemy remains any form of anti-modernisation insurgency within or without, which may not only be organized crime but even 'legitimate' revolt, given the fact that elites will often abuse democracy especially when it comes in the form of emergent national-populist and left-wing socialist movements.

Odd little signs - the burning of the US Embassy in Belgrade, a Communist elected as President of Cyprus, the bitterness between Walloons and Flemings in Belgium, the fears of Catalonian and Basque separatism in Spain, the growing English resentment of Scotland, the Danish cartoons, the near-pogrom last year against Rumanian migrants in Italy, Baltic pro-Wehrmacht sentiment against the Russians, the rise of the anti-American Left in Germany itself - show that tiny cracks are appearing in the system.

This intimation of insurgency started to arrive some years ago. European policy on Kosovo, in defiance of Moscow, is as much about closing down a potential organised crime 'hot spot' as any fundamental concern with the sovereign rights of a minority.

Responsible officials will tell you privately that organized crime, fuelled by people-trafficking and heroin, is strengthening. In countries like the UK, officials are keen to show that recorded crime is on the decline but the public are not fools.

The types of crime (burglary, violence against the civilian, vehicle theft) recorded as historically important are down, but the public 'smells' that criminals no longer have to prey on their own middle classes to survive because they are in commerce now, trading people, goods, drugs.

The general social environment is drifting into collapse as a weakening public sector faces a black economy of growing scale and importance. But there are new developments that are causing the mild and immediate panic pushing the tax agenda to the forefront:

• The ‘Obama’ phenomenon indicates that a moderated form of populism may take hold at the expense of the old elites - some business needs to be transacted here and in other areas before January 2009.
• Popular opinion and popular culture are beginning to call the bluff of nightmare scenarios perpetrated by the security elite on terrorism in order to push through measures designed to deal with crime and welfare fraud. If a major terror incident now took place, the public are as likely to blame governments for tempting fate with their policies or force through counter-productive anti-Islamist policies that will be dangerously divisive.
• We seem to be heading for some serious economic adjustments that will create a level of pain that might seek political expression. The third world may face food riots but the West may face the first significant reduction in living standards amongst the most vulnerable in society just as the welfare states are dismantling themselves under pressure of migration. Indigenous working people are not going to be very happy.

These are three areas - public policy, public acceptance and economic conditions - where the old elites are racing against the clock.

The phenomenon of Die Linke in Germany (like Obama in relation to Clinton) also indicates that some challenges from the Left can seriously destabilize cosy deals within the elite.

Until now, the system itself and economic growth have enabled a 'triangulation' by which a centre-left elite or radical right-wing reformers could steal conservative clothes. 

For the first time, we are seeing signs that conservatives like Cameron can also 'triangulate' but by stealing socialist ('social capital' thinking) and nationalist (moderated) clothes, while the 'real' Left has the first opportunity in a generation to drag public debate in its direction, even if it cannot acquire majority power.

There is also a generational element to this. The very old guard who saw to the creation of the European ideal had managed to secure their succession in the next generation of Mandelson and Merkel. 

The next generation of Europeans are over-technocratic and their opposition is brighter, less ideological and able to be to far more populist, more social  (ironically in a High Tory 'one nation' sense) and potentially more nationalist. The project is getting old and tired.

This new generation was not weaned on various forms of anti-communism, but appears to have become more concerned with standing up to authoritarian, cynical elites who lie to their peoples (the experience since 2001 on foreign policy and Europe) and who have created a dangerous distrust in the people at large.

More to the point, this generation are coming to notice the effects of the Reagan-Thatcher-Blair free market on daily life in terms of migrant pressure, weakening public services and stealthy initiatives to reduce freedoms for the sake of ‘security’. The language of rights and duties and of citizenship has seemed so much intellectual fluff as conditions deteriorate.

From this point of view, Germany has declared war on Liechtenstein as a pre-emptive strike before, at some stage in the future, segments of the population at large declare war on the German and other states. German threats to Liechtenstein, if analysed, are actually quite crude and are designed to appeal to a frustrated domestic population.

We are at the beginning of a serious crisis of confidence in a project (for the unification of the North Atlantic) that is on the very edge of fulfillment but which has relied increasingly on half-truths and the mere delivery of economic growth to sustain what was originally an ideal born out of a tragedy.

Differential economic benefits (an inevitable result of any major economic correction), in which the losers cannot be ‘bought off’ through sufficient redistribution because the money is not there, means the emergence of ‘revolts’ which may mean nationalism, separatism, loss of control in urban areas and increased crime and political violence.

The Project has to act and act fast ... Germany is at the eye of this storm merely because it is at the centre of Europe, resented as much loved for its increasing economic dominance of the neighbouring countries.

It has to act decisively in an economic blitzkrieg or see its ‘authority’ whittled away in an unholy alliance of Russian energy dominance and small country nationalism.

The US (a central figure in OECD campaigning) and two similarly affected social democratic states, Finland and Sweden, are now expected to open tax probes. It is certainly hard to see how the ‘mice’ can ever escape the cat. OECD victory is probably assured in the short term – but the last time the Germans tried a blitzkrieg, they ended up lost in the snows of Eurasia.

The OECD Project may win all the short term battles but still lose itself in the snows of a revival of national-populism. A great deal is at stake in this 'war', just as in all other wars.

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