The British Foreign Secretary made a speech this week reinforcing the centrality of the EU to British foreign policy. The Government appears to be drifting from nonchalance about Europe to a new engagement. 

The Exhausted British Turn To Europe

It is a shift of emphasis that has to be seen in the context of NATO's Bucharest Summit this week. Of all the many directions that NATO could have gone this week, it took the one that the exhausted Anglo-Saxons most wanted - the inveigling of Europe into the Anglo-Saxon world-view. 

The British position is simple - the 'West' cannot be managed without European resources being engaged in the struggle against 'threats' and this European engagement must follow the line from Washington as tempered by the still small voice of London.

Foreign Secretary Miliband, from a prominent Marxist intellectual family and a probable future Leader of the Labour Party (or at least what is left of it after its possible defeat at the next General Election), has always been strongly pro-European but this is more than an expression of a personal prejudice.

The pro-Europeans captured control of the British State a long time ago and now they have truly captured control of the higher reaches of the ruling party as well. 

Domestically, Europe is likely to be sustained as the political dividing line between the official centre-left and conservatism - although the rising resistance to New Labour from within its ranks is far from sold on the European dream.

The Bucharest NATO Summit

As for the Summit, before it had even started, the Germans neatly pre-empted the problem of a confrontation over Ukraine and Georgia joining NATO by stating that the ‘time was not right’. Germany would, it said, veto the former Soviet Republics' attempts to join the Membership Action Plan.

How convenient! There are genuine differences of opinion between Germany (worried about human rights, over-extension of NATO's remit and public support [in the Ukraine] for such a move) and ‘containment’ thinking in Washington but many US officials will be privately relieved that a confrontational issue with Russia is being deferred.

As we will see, taking this troublesome issue off the agenda enabled the US to triumph on every other front even if the shenanigans over what is this thing called NATO continued until the final communiques.

The French delivered on their promise to provide troops for the effort in Afghanistan and the US started signaling that it would cease its opposition to a stronger EU defence capability.

Apparently, we Europeans should spend more on defence – although try selling that proposition to those Europeans who are seeing their much treasured public services and perks being whittled away. But let us move on.

French engagement in the increasingly lack-lustre Anglo-Saxon ‘War on Terror' was a mere tool. What we really saw in Bucharest was a staging point towards the eventual conclusion of long term Franco-German aspirations for Europe as, at the least, a quasi-independent sub-super power in its own right - albeit almost entirely on Anglo-Saxon terms.

Outcomes

The outcome of the Summit can be summarized as a series of simple bullet points …

1. Afghanistan is no longer seen as anything other than a basket case but it is also a pawn in a bigger game. The original purpose for intervention, the recovery of a failed state, has long since been lost in favour of the far more important American interest in re-unifying the free market West. This West must operate within clearly defined imperial borders directed at Russian containment. The Cold War, in short, is back.

2.  France is America’s new best friend (or so President Sarkozy would like to believe), delivering headline troops for Afghanistan, but, more importantly, swinging things in Europe for Washington on missile defence in another containment operation. The Russians feel this to be offensive in intent even if it is presented as defensive in Western rhetoric.

3.  NATO has been reaffirmed as the sole military voice of a resurgent West with, again, one purpose, the containment of Russia. This was made even more obvious by NATO’s decision to support the extension of the missile defence system to the Balkans and Turkey (which really does mean that only Iran stands in the way of full containment).

4.  NATO has had to adopt the increasingly ridiculous myth that little Iran is a ‘potential’ threat to Europe in order to square the circle for European support for the missile defence system.

Everyone knows that this whole project is about containing Russia but the fiction has to be maintained that it is, in fact, about warding off an aggressive Iran. It is also about finding a way to enliven NATO as a defensive organization.

Pottering about in West Asia and elsewhere will get nowhere if NATO cannot argue at home that it is defending Europe. The demonization of Russia and Iran becomes critical to NATO’s survival and its transformation into a more equal US/EU defence operation. This is an extended process of changing the product while keeping the brand intact.

What the US and its protectorate in London do not want is an independent European defence capability - it must be locked into the Atlantic West.

Will European electorates be fooled by all this self-interested posturing? Well, mostly they do not care - security and foreign policy usually passes most people by and everyone is dreadfully careful not to put conscripts into any firing lines. This is all going to get through by default.

Confronting Russia Kindly

But is this what some fear - the beginning of the next cycle of wars which Westerners, with their characteristic competitive blood lust, feel it necessary to indulge in periodically? In fact, not all is gloom about this inherent tendency to confrontation

The signal being sent to Russia is that NATO may seek to extend itself to include Ukraine and Georgia but, once this is done, borders can be fixed and Russia need not fear any daft latter-day pro-democracy Napoleon, Kaiser or Hitler marching across its snowy wastes.

A truncated contained Russia is even to be offered missile defence capability against the mad mullahs of Tehran and other future centres of Islamic revolution as well as mutual reduction of the expensive and largely useless stockpiles of nuclear warheads in both the US and Russia.

Bush's administration will be presenting something that already seems to be part of thinking in the McCain camp so that a Republican Administration could reasonably be trusted to carry it through.

However, it does assume that President Medvedev will want to abandon all thoughts of ‘expansion of influence’ and geo-strategic competition and just trade energy at reasonable prices for access to capital and technology. This is a rather subservient position and may not appeal to the new Russian nationalism.

What Is In It For The UK

But what is in it for the UK. We are seeing a deal cut between the US and a Franco-German Europe to deal with Russia in which the price for American support in European engagement is a commitmentto collaborative global policing.

Study the close body language of Bush and Kouchner at the Summit in photographs and you get an inkling of what we mean. If you are a ‘progressive’ or an atlanticist Briton, this has been a triumph. It means that Continental Europe has been fully and willingly inveigled into the Washington-London liberal interventionist axis.

But now look at it from a traditional British realist position. This is yet another ‘own goal’. Weak support for US policies has opened the door to that nightmare of British foreign policy since Napoleon, a continent-wide military power on its doorstep.

If so, it would seem that a lot of British soldiers have died for nothing over many centuries. The Americans have 'stabbed' the Brits in the back unless the Brits actually are deep inside the new capability, undermining Franco-German pretensions from day one.

But this means that British troops will be committed to defending some tin pot marginal state and it is too easily forgotten that tens of thousands of Britons died because someone took a pot shot at first Belgium (1914) and then Poland (1939),  Being incinerated to defend Moldova will not strike many as in the national interest.

Perhaps the British are fighting a rearguard action against the inevitable – it is usually called ‘scepticism’ in diplomatic circles when the British express their concerns about European defence aspirations.

This scepticism was fully expressed in Bucharest and the fact that it was expressed suggests, pace Mr. Miliband's enthusasm for Europe, that British policy is about containing Europe as much as it is about containing Russia - and that London has lost the will to do little more than keep postponing the inevitable.

France has set its mission to persuade the UK to accept the ‘inevitable’ within its six months EU Presidency. Hence, the charm offensive involving the strategic application of Bruni power to London directly before Bucharest.

This New Labour Government is so demoralized and so infiltrated with pro-Europeans that this charm offensive may actually work, eventually handing a nationalist gift to the rising Tories - that they will then be unable to make use of!

Churchill's legacy means that the Tories are as supine to America as New Labour while the Liberal Democrats are supine to a Europe that is now increasingly supine to Washington. There is no one outside the fringes of the BNP and the Left who holds to a genuine realist position in the sovereign interest as classically defined. The rush to 'multilateralism' is a general political class disease.

The British Position

The British always give primacy to NATO (partly to keep the Americans on side). Unfortunately, the dance of diplomatic death between the US, the EU proper and NATO means that many weaselly words can be used to hide real changes that may mean that what NATO was two decades ago and what NATO will be in two decades may be very different indeed.

The US has been weakened and over-stretched. The Franco-German offer is to ‘gift’ America with support in return for ‘freedom’ to be European.

From this perspective, though they do not seem to have realised it, the British are about to get sold out – or rather to have to accept that they are now a mere province of the EU wing of the Western Empire rather than just the Atlantic outpost of an American-dominated West. British room for manouevre and political will died somewhere between Suez and the financial crisis of the 1970s.

In any case, unthreatened by any direct enemies and with its ‘East of Suez’ and ‘South of the Sahara’ policies looking increasingly unsustainable, the UK has two choices:

• to withdraw from being a major military power altogether and play only a minor part in the collaborative collective security arrangements of NATO (whatever NATO actually emerges);

• to merge its military capability into a European force whose primary purpose is to stabilize frontiers with the Russian bloc and Islam (and capture the anarchic Balkans for the West).

The national interest may dictate the first but 'gloire' and 'amour propre' draw the State, which is really only the democratic heir to a feudal business empire, towards the second. 

British military history makes London believe that it has rights to lead or at least co-lead with France the European defensive capability. Its expensive and otherwise useless nuclear toy and its unnecessary aircraft carriers become bargaining chips.

Anxieties

Despite all the talking up of the Russian threat and the instinctive distrust of the Russians amongst the British masses, no one in the UK is going to follow Europe or America blindly into a confrontation with the Bear, short of Russian troops crossing a border in force – and, even then, not if the Russians are reacting to an obvious provocation.

This makes a very good reason for intelligent Britons, Frenchman and Germans to resist the acquisition of Georgia and the Ukraine by NATO and to be very wary of bear-tweaking by the little states on Europe’s Eastern frontier.

Western foreign policy is at sea. It cannot decide what being 'the West' really means. It is making reluctant enemies of others only to help define what it is in terms of its own ideology and borders.

Is the current border settlement process in the Balkans merely a means of ordering frontiers to enable a more effective future collaboration between neighbouring sovereign states? From this perspective, Kosovo is vastly more important than Afghanistan.

But what borders are appropriate for reasonable defence and when does defence become aggressive containment of others (Kennan-style), cold war, proxy war and then finally hot war?

If border delineation is the current name of the game, is it really in the European public interest to operate in the Levant (possibly), let alone East of Suez and South of the Sahara (probably not, unless you are a driven progressive like Kouchner)?

Would Europe go to war to protect Israel or intervene militarily in a Ukrainian Civil War (they have happened before)? The EU's ambition to be a state, originally designed to avert war, is on the edge of becoming one of the causes of the next one.

Conclusion

This Summit has been a triumph for the US. Even the concessions to Merkel on the Ukraine and Georgia (with all the little EU states looking like minions around her) are actually only an argument for delay while things are as squared as they can be with the old Russian bear.

When ‘senior advisers’ to Brown said that the discussions on Georgia had ‘largely gone Washington’s way’, they could have been talking about the Summit as a whole.

Meanwhile, the pig’s breakfast that is Afghanistan continues with a multinational force of everyone and the ship’s cat still requiring organization and discipline. But does Afghanistan matter as much as we like to think? Maybe, like Somalia, the game is not to win but to stop the other side from winning.

The actual numbers of troops looked at by nationality suggest that, while the US and an exhausted UK still rule the roost, with Australian and Canadian enthusiasm waning, thousands of miles away in the heart of the West the EU, still dominated by France and Germany, has come to a historic deal to share power, as junior partner to Washington, in the Old World.

But one last fact – 68% of the French population oppose France sending more troops and so do the French Socialists as a Party. There is similar opposition from Die Linke in Germany while half the British Labour Party is seriously troubled by its Leaders' foreign policies.

The US, the EU, NATO and UN may be in cahoots on Afghanistan but European public opinion is not universally sold on what they are doing. This is very fertile soil for Russian dabbling.

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In the week of the national budget, the effect of tax rates on London's role as global city remains salient. It is often not appreciated that Middle Eastern capital discovered London as safe centre only as recently as the 1970s.

What has been built in thirty or so years could be unravelled in three. The terms and conditions surrounding the domicile of international interests in London are a material factor in assessing the long term prospects for national economic growth.

Yahoo is not the fund of some regional potentate but is a leading-edge company in the latest economic revolution, that of information. It has now indicated that it will move its European HQ from London to Geneva. Its managers will be told to relocate or be fired and the reason being given is change in the corporate tax regime.

Nor is this an isolated incident. Google chose to base its European engineering HQ in Zurich and Electronic Arts moved its European HQ to Geneva in 2006. The irony is that leading companies in the new information sector are basing their European operations in a non-EU state.

This must raise a serious question whether it is really in the UK national interest to equalize its tax rates with Europe (as increasingly pressed to do so by the EU) and go with the implicit campaign to raise rather than lower international corporate taxation.

There is an alternative strategy which is to go it alone, like Switzerland, and preserve an international trading base, one that is beginning to drift overseas far more than Government realizes.

Any trend towards the shift of corporate headquarters from any EU state to a non-EU state within EU borders raises the ante for core Europe (which is essentially the growing German ‘sphere of influence' operating alongside its French junior partner).

It affects the core German commitment [under Chancellor Merkel] to enforce a single regulatory framework that can be negotiated on equal terms with the US to create a single pan-Atlantic/European market.

This hard-line liberal or Atlanticist perspective is one shared by much liberal internationalist opinion in London. It sets these ideologues into a direct conflict with 'national interest' and City ideologues, along lines that are increasingly splitting the British political class along their traditional party fault-lines and setting trades unions off against the 'City'.

It may mean that, having ‘blitzkrieged’ Liechtenstein into near-submission, the German and Euro-liberal impulse will be towards ensuring that ‘something must be done’ about Switzerland or else the European tax base will be undercut and European innovation will drift ever further from its core to its margins.

Like all wars, economic as much as military, the temptation must be to see the first action as merely preliminary to a second and a third and so on until, like the Romans and the British, you discover you have a acquired an unwieldy and costly empire - or have to retreat in the winter snows from Borodino or Stalingrad.

The UK Government is probably less concerned with theory at this time and more with the short term necessity of getting cash-in-bank.

This week's budget was largely touted as one of ‘stability’, meaning that it was a politically sufficient shuffling of the tax cards in which socially responsible cover (green and anti-alcohol) was given to some fairly uninspiring attempts to deal with child and pensioner poverty.

But the message from Labour's trades union backers is clear - the Government must start generating cash for redistributive purposes regardless of the economic slow-down.

Logically, the only way to do that is through increasing taxation and, as we will note, the trades union interest in the US, the EU and the UK is becoming a major pillar of the coalition to insert a tough regulatory framework over free capital.

The real story of the British Government's economic policy recently remains one of over-expenditure because of silly imperial adventuring, of a pro-migration strategy whose raison d’etre has collapsed as growth slows and of a benefits systems that is out of control and still unreformed.

The impossibility of persuading the public to pay any more direct tax is the back-drop to what are called stealth taxes (always requiring some 'feel good' cover as they are introduced).

Targeting the tax-evading corporation and wealthy individual is probably all that is left in the cupboard because attempts to brow-beat energy corporations to comply with the government's brief attempt at arbitrary action signally failed in the run-up to the Budget Speech.

The farrago over non-domicile taxation, with a partial withdrawal by the Government from its previous high ground, and widespread criticism of increased corporation tax for smaller businesses means that the Government cannot go much further down these routes without risking the next election.

In a pale reflection of the current German campaign against tax evasion, the HMRC are mounting their own increasing propaganda operations to prepare the ground for more action in the coming months and years.

The latest figures, which are admitted not to be particularly reliable by the nature of things, suggest that Britons are hiding £1.5bn per annum and that most of the £80bn stashed offshore in 2005 was held in the Channel Islands and the Isle of Man.

We are getting clues to future trends. First, that the really clever and 'big' money with no real allegiance to Europe will be moving out of area and into East Asian boltholes quite soon and, second, that the smaller tax havens of the British Isles are no longer under the protection of the Crown in relation to longstanding European-wide demands that they be brought to heel.

Governments have an in-built propensity to exaggerate unknown figures in the direction of ensuring political support but, noting a range of tax evasion estimates that may mean the sums are actually closer to £800-900 million per annum, this is still a substantial sum.

The order of villainy is also the probable order of UK and EU targeting – the Channel Islands and Switzerland first and the Cayman Islands, Isle of Man, Singapore, Hong King, Bahamas and Luxembourg second.

The politics of this are interesting and worth reviewing. We have noted that, whether in the US, UK or EU, there is a very close relationship between state agencies and the trades unions in propagandizing directly and through political allies for a tougher line on tax evasion.

The state interest is simply institutional. Alternative sources of capital are a threat to authority.  Whether the tax funds are to be spent on guns (improved military capacity) or butter (welfare) is a matter of irrelevance.

For the trades unions, the assumption is that increased tax take will be spent on social service benefits and on job preservation and protection. This money is now needed quickly to counter the effects on members of recession today and liberalisation tomorrow.

The bureaucratic impulse towards power in itself and the social democratic impulse towards service provision are allied but not identical. Whereas the trades unions are merely slowing down the demise of welfarism, the real purpose of the campaign against tax havens is centred on state formation (predominant in the EU) and security (predominant in the US).

The need to increase the tax take from the wealthy and the non-innovative corporate sector is partly to enable the necessary transitional ‘bribes’ to the trades union and centre-left establishment that will ensure their engagement with an essentially liberal and bureaucratic project.

The irony that it is the most innovative companies that are moving to more favourable tax regimes like Switzerland suggests that the reasoning behind recent measures is flawed and that there is really no sustainable ‘third way’ between the social democratic state and the free market.

Unfortunately, so much investment has been placed in the New Democrat model imported from the US in the early 1990s that a reversal of policy in this respect is effectively an admission of political defeat by an entire generation of the centre-left.

This is a fascinating time. Absolute free market ideology and classical socialism are becoming or have been fully discredited (not necessarily intellectually, but politically within the elites of the West). There are now new and competing ways of dealing with Western responses to globalization and we have to draw a distinction between means and ends.

The shared ends are a strengthening of (allegedly democratic but in fact corporatist) state power, whether as federalized mega-states such as the US, EU and (conceivably) Russia or as executive states within the mega-states.

These executive nation states are more sovereign in the EU case than the equivalent US state but are probably destined to be no more so within a few decades of consolidation.

Everyone who is involved in these projects – whether bureaucratic, large business and organized centre-left – are studiously avoiding any discussion of what these mega-states and strengthened national states are actually for and how the money from increased tax take should be spent.

All that they are currently agreed upon is that money for bureaucratic and political use must be increased and that independent and unaccountable centres of capital accumulation operating outside state or 'imperial' regulatory structures are intrinsically anarchic and politically dangerous.

The next phase is a rush, post-Nice in Europe but with significant US support, for the implementation of a wider regulatory regime in which every independent source of capital within the West's sphere of influence is brought under the ultimate authority of a highly technocratic liberal state structure. Once this is over, then the cash gets divvied out.

This is where it gets interesting. The logic should be of a corporatist understanding not unlike Germany between 1934 and 1938, but with full liberal democratic forms, or Scandinavia under social democracy. Worker requirements for jobs and benefits would be protected in order to give a domestic base for whatever security and economic strategy is deemed necessary by executive power.

We have an open mind on just how foolish and aggressive or passive such strategies may turn out to be. The growth of anti-Islamic sentiment in core Europe and anti-Russian sentiment in Eastern Europe suggests caution in assuming that, for example, the EU is going to be any less peaceful than the US in its long term conduct.

But another possibility is that the ‘security state’ becomes committed to liberal economics to such an extent that it clashes directly with the social democratic impulse behind trades union support for its growth and development.

This is the real battleground once the state consolidation phase is completed. The bureaucratic order may yet place order and stability ahead of economic liberty and economic growth and this is an argument that has yet to work its way through the system to a conclusion.

The probability is that a weakened corporatist model will hold, with the trades unions as junior partner in the domestic ‘coalition’ much as France is junior partner to Germany internationally.

A sort of faux-social democracy will emerge in which regulation and corporatism creates a sufficient simulacrum of a free market and of democracy that most people will find it acceptable – much as Indians accepted British rule and other subject races accepted Roman rule – until the system breaks down on ‘internal contradictions’. Yet such a state could last for decades or centuries.

In the short term, we can reasonably predict that OECD pressure on independent centres of capital accumulation, on tax evasion and on collusion against the 'public interest' will intensify to irresistable levels over the next few years.

Because the West cannot put up barriers (for ideological reasons) that would isolate itself from globalization, we will see the same type of boundary formation in economic affairs that we are seeing in political affairs (vide Kosovo).

Small countries and ‘city-states’ like Switzerland and the City of London may have to accept a de facto weakening of their independent competitiveness in order to participate in what will be claimed to be the greater opportunities offered by federal integration. Eventually, boundary formation must reach its natural limits.

At one extreme, the British national interest under a Tory Government might dictate that the UK renegotiates its status with the EU and becomes, like a determined Norway and Switzerland, itself the economic boundary.

This scares EU bureaucrats because it creates the pre-conditions for future detachments such as Denmark and for opportunities for Russia to make ‘improved bids’ for Balkans aspirants to join their sphere of influence.

But it also helps to explain why the pro-Western (in the ideological sense) Brown Government determinedly used the whip to ensure that there would be no referendum and no public debate on a policy which would set the heartland English dead-set against great tracts of the New Labour coalition.

At the other extreme, countries like the UK and Switzerland, on either side of the current economic border, might become fully tamed and integrated. Western ambitions would then turn to bringing the emerging world and Russia into line as a condition for doing business with an integrated West.

When Lex in the FT today (wroting on this week's House of Lords' ruling on extradition) writes that “finally someone has put limits on US prosecutors’ efforts to police the world …” he or she is not complaining about policing the world, only about the attempt by the US to dominate the process. Liberal pro-Europeans are merely resentful of US Manifest Destiny. 

What Euro-liberals want is joint US-European negotiations of the rules by which the West will conduct itself and, eventually, joint policing of the world because Western (not US) values are so evidently superior. Euro-liberals are merely resentful that the US operates according to American national interest instead of that of this thing called the West.

The eventual reality will lie probably somewhere between the two extreme models reviewed above, with tolerance of some border freedoms and acceptance that the Middle East and East Asia will always offer opportunities for the non-repatriation of serious amounts of extra-European cash until world government comes.

In other words, the hard-line Euro-liberals are going to be rather frustrated that social democratic demands mean that full integration with North America will always be a matter of stealth and domestic bribes, while the need to keep Euro-corporatism within the family will mean irritating compromises that work against 'world government' thinking. Such is life!

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German Foreign Intelligence [BND] has paid at least £3m for information leading to the arrest of a former Deutsche Post CEO on tax evasion charges. The BND purchased material from a former employee of Liechtenstein’s biggest bank [LGT] and the payment was authorized at the highest finance ministry levels.

The BND's material, essentially nicked from the Bank, contained the account details of about 750 German HNWIs. We understand that around 150 probes are about to be launched.

The scale of the alleged tax evasion has ‘outraged’ the Germans. Raids have taken place on homes and offices in Frankfurt, Munich, Hamburg and elsewhere, with a special emphasis on Metzler Bank. More than 100 further raids are, we are told, being planned.

It would seem that bank employees can now count access to client details as part of their pension. The person concerned is now under police protection. There are, of course, issues surrounding whether stolen documents are acceptable as evidence but this is a matter for German lawyers to consider and not us.

All we know is that a precedent has been set for European intelligence agencies and their political masters to be unashamedly involved in a criminal act in one jurisdiction in order to deal with criminal investigations in their own.

One political consequence (it is said) is that the scandal will help push Germany to the Left, a trajectory that needed no help from the BND. Mainstream anti-corporate rhetoric is emerging as the centre-left tries to claw back support from the Left and the centre-right tries to keep together a coalition fromn which it gains most benefit.

The fear on the Right (and even the mainstream centre-left) is that these investigations show that tax evasion is endemic rather than a matter of a few rotten apples. If so, more leftish social democrats see a chance to exploit what will be widely taken as an abuse of the ‘German model’.

The Christian Democrats do not seem minded to defend business. Business refuses to fight back, knowing the political conditions it faces inside Germany. The economic establishment is so worried about a witch-hunt that it is effectively telling those who are about to be caught that they will be isolated without any support from the (implied) law-abiding majority

This has given a further push to EU and OECD initiatives to force tax havens to become more transparent.  The political ramifications are very much part of the calculations of an intelligence community that operates at levels quite separate from direct national political decision-making. 

Treasury Ministries and the intelligence community may be semi-detached from one another officially. Economic crimes are increasingly a national security issue and intelligence-sharing and co-operation the rule rather than the exception.

Public reaction in Germany shows that the media and the electorate broadly endorse the use of the BND (equivalent to the CIA or MI6) in its use of stolen materials in the national economic interest.

The BND's subsequent comment is worth quoting [as reported in the Financial Times, 16 February]:-

“A big part of our job is to track financial transactions that underpin terrorism, money laundering, organized crime and nuclear proliferation. We therefore keep a close eye on financial and trade centres. If, in the course of this work, we are offered information that does not pertain to this spectrum but could be of interest to other agencies, we will pass it on to the relevant bodies …”

Money laundering, organized crime and tax evasion by the haute-bourgeoisie are now firmly positioned within the same basket of ‘economic crimes’. HNWIs of all types be warned.

This is not just a German but a European-wide phenomenon. One cross-over victim is wealthy Italian business figure Leonardo del Vecchio who is E20m [£15m] poorer in fines, back taxes and interest after an investigation into an accounting change that affected his German-based interests and whose interpretation he disputes.

Since the tax authorities tend to investigate and judge in their own interest, many HNWIs are likely to find themselves on the wrong side of an ideological crusade, fully buttressed by public opinion, before too long.

This is not socialism, of course, but something we might call neo-republicanism, the assertion of state authority over those who are supposed to be part of the community but who increasingly operate in cross-border environments.

The Germans are now placing intense pressure on Liechtenstein over transparency. Naturally enough, the little country is resisting.

Liechtenstein’s Crown Prince Alois fought back against being 'bullied' by such formidable forces, declaring in effect that Germans had attacked his country – not militarily, of course (Germans having given up such methods in 1945).

Indeed, the Germans are threatening sanctions, the modern form of warfare but its attack on Liechtenstein as a tax haven cannot be understood unless seen as part of a wider OECD strategy. The OECD and the EU were certainly not shy in endorsing Merkel’s calls for greater financial transparency fro. the Principality.

In effect, the little country is regarded as a place out of time that needs to be brought into line, something left over from the Holy Roman Empire.

And if this was all happening just as Liechtenstein’s Prime Minister visited Berlin, we find this no surprise given the centrality of the problem of tax havens to European policy-making and the rather acute sense of the value of publicity amongst OECD officials.

Liechtenstein is far too small not to give way eventually. It has already announced a tightening up of controls on banks, including extra powers for financial regulators – although it claims that the new regulations are ‘coincidentally’ timed. The 'no coincidence' is that the Prime Minister comes into negotiate with these concessions and the BND plans its raid just before he arrives.

The OECD is the 'evil genius' lurking behind these shenanigans. It has been hammering at small tax havens like Liechtenstein for well over a decade under US Treasury and French Finance Ministry pressure. London itself was a primary target in the 1990s and at the turn of this century.

OECD officials will have been doing a little victory dance at its Paris offices at the prospect of bringing down one of the worst ‘perps’ in Europe.

The little Liechtensteiners have one argument that the Germans do not want to hear but which many European business interests and Anglo-Saxon euro-sceptics of the Right may well re-introduce into the political debate – that this level of tax evasion would not have happened if the German model did not screw so much tax out of the business sector in the first place.

This is not an argument that the Europhiles (with their ambitions for great power status) or the OECD wants to hear, but, when the dust has settled, we may see that tax evasion was a safety valve.

German and other European business lobbies may now seek more domestic political influence to drive down tax rates altogether, something Germany has been mercifully free from compared to the Anglo-Saxon West.

The German tax investigations could eventually prove a major own goal for the corporatist interest, especially as OECD tax havens policy is already driving mobile money further and further away from the key finance centres in the West.

The UK Government’s non-domicile taxation proposals have been exaggerated in the short term, in a campaign promoted aggressively by the Financial Times in particular but our relevant here.

The Government’s recent retreat on policy and the reality that most international professional and financial services functions can be operable from a number of well-resourced centres around the world means that the State cannot now have its cake and eat it – a full engagement in the global economic system and high business taxation.

Whether in Germany or the UK, HNWIs and business interests at the top end can decide where to live and work on the basis of the cost to them. Higher taxes mean higher salary bills for higher level executives. 

The model promoted by the OECD either means less criminality (the driver for the American component) but eventually lower taxes or it can mean higher taxes and lower economic growth (and instability) assuming a country stays well within the global market system.

What it cannot easily do is sustain the social democratic model of higher taxes and higher economic growth based on consensus between classes. The global economic system creates in-built pressures to export jobs to lower cost centres and to seek lower tax jurisdictions. The advanced economies end up on a lower tax and higher cost of education and economic infrastructure treadmill that whips funds away from welfare and even security.

In grander political terms, this internal contradiction – that low tax rates are required to create gross tax take in a global economy – spells the doom of the ‘third way’ and the corporatist politics of both the Anglo-Saxons and Europeans.

It also implies relative periodic pauperisation of those members of the middle class who cannot operate globally whenever there is a serious localised recession or a more general 'loss of competitiveness'.

Perhaps this is what Mervyn King, Governor of the Bank of England was warning us about when he advised that general living standards would fall for the British in the coming year.

In the end, countries are going to have to choose to be either economic Romans (part of a global system) or economic barbarians (operating along national interest lines). Their electorates, where they are democracies, may force the pace according to local conditions.

In the end, this is going to be partly a matter of ‘class’ – the power of the dominant class interest within the electorate will dictate where a country plays in the great economic game.

For Germany, the stakes are particularly high because its corporatist model can probably only survive if extended to a higher EU or even Transatlantic level - and yet the allies required to do this will set standards of lower taxation and micro-de-regulation that will unravel the 'understanding' that has kept the nation together for sixty years.

What Merkel and her Western allies want is a transition to a situation where 'good' Germans can pay less tax because 'bad' Germans are not allowed to evade tax.

The total tax take will then remain, with growth, enough to pay for at least the basic welfare state and the West becomes an innovative, entrepreneurial economy with flexible labour and capital markets, da-dee-da-dee-da ...

What the OECD strike against Liechtenstein and other tax havens does, though, is frighten the wealthy not just into compliance but also into flight, while mobilising the Left, reasonably enough, into asking why such evasion has been tolerated and whether the welfare state could not have been even better maintained if these funds had been available in the first place. 

The Left may ask why taxes should not be raised further to force the business community (its class enemy) to pick up the tab for its criminal elements.

The use of foreign intelligence services as an instrument of economic warfare also opens up a new can of worms in an age of massive bank write downs and sovereign wealth funds. 

If an intelligence service may suborn an employee of a bank in a neighbouring democratic country (not some far-away rogue state like Iran), how long before it is digging deep into the files and data banks of its own audit firms and banks to predict the dodgy ones and pin down 'economic criminals'.

To what extent are democratic sovereign small states now going to have their small competitive advantage removed to maintain the needs of large ones?  And do not think that this is not relevant to London. 

As a financial city state, the City of London is in the same relationship to a fully federalised EU as Liechtenstein is to a federalised Germany. It can only be a matter of time before a foreign intelligence agency purloins data from a British-domiciled financial institution to meet its national economic needs.

What is the betting that there is far more of this going on already than we can possibly imagine. The BND case has been made public only because it is politically convenient, that is all.

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