Thursday, 5 May 2016

EU Referendum: "the fear of God"

For anyone who still believes that after a "leave" vote the UK could quickly secure as good a deal on trade as the one it would have as an EU or EEA-EFTA member, I offer these lessons from the former Greek finance minister, Yanis Varoufakis.

In his new book, And the weak suffer what they must? - about the origins of the Eurozone collapse - Varoufakis recounts a meeting he had in Brussels a few years ago.

"I was discussing the latest twists and turns of the crisis with one of the European Commission's high priests", Varoufakis says, when he asked an "almost impertinent" question. "Why is the Commission pushing Portugal to increase indirect taxes at a time of collapsing demand? (Would such tax hikes not push sales and, by extension, the state's sales tax revenues down? So too with the doubling of taxes on heating fuel in Greece)".

"Why", he asked, "are you pushing for this? Don't you see that people will simply not heat their homes and that government revenues from the fuel tax will fall?"

"Of course", replied the official. "But we are only pushing for higher sales and fuel taxes as a deterrent. The point is to demonstrate to Rome what it has coming its way if they do not comply with our demands for greater austerity there".

Varoufakis continued: "More recently, when I was negotiating on the Greek government’s behalf with the Commission, the ECB and the IMF, I came up against exactly the same rationale".

An interlocutor was then questioned on the exorbitant sales tax rates he was trying to push down the throat of the Greek people. Would improve our state's tax revenue, he was asked. He freely admitted that they would not. "So why do you insist upon them?" Varoufakis asked. The answer? "Someone whose views matter here wants to demonstrate to Paris what is in store for France if they refuse to enact structural reforms".

Varoufakis does not identify who it was "whose views matter here", but much later in the book he says something that indicates it could have been the German finance minister Wolfgang Schäuble: "Greece was to be the sacrificial goat that would put the fear of God in France's elites, eliciting their consent to Dr Schauble's version of political union".

If Britain votes to leave, the first job of European Commission "high priests" in negotiations will not be to ensure commercial benefit for the remaining member states by keeping trade with the UK easy.

Rather, their first job will be to ensure that any deal they negotiate with the UK is punishing enough to act as a deterrent to the Netherlands, Denmark and any other member state whose people want to follow the British out of the union.

The deal must, as the Greek finance minister found out, "put the fear of God" into the elites of those countries.

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