Leaders of the European Union meeting in Vienna this weekend have an agenda best described as work in progress. Although no momentous decisions are required or expected, it is nevertheless full of significance for this State. The Union is heading into intense budgetary negotiations on Agenda 2000, which will determine the shape and extent of agricultural and structural funds in preparation for enlargement. Ireland is under pressure on both counts and now has the difficult task of minimising cuts and simultaneously protecting its industrial policy from efforts to harmonise corporate taxation as the single currency is introduced.
These negotiations will be chaired by the new German government in the New Year and come as that state is determined to reduce its net contribution to the EU budget. Ahead of the summit, Mr Jacques Santer, president of the European Commission, has warned that proposals by some member-states to stabilise the Union's expenditure could end prospects of reforming the Common Agricultural Policy. The question will not be resolved at Vienna, but this summit will be an important testing of the waters.
Yesterday the German chancellor, Mr Schroder, said his government could not endure the dual pressures of remaining the Union's principal paymaster, while capital leaves the country in pursuit of lower taxation levels elsewhere.
The declaration this week by Mr Schroder and the British Prime Minister, Mr Blair, that they oppose a unified system of corporate taxation in the EU has clarified a confusing row and must be a relief to the Minister for Finance, Mr McCreevy, and the Government. Instead, attention is to be devoted to a code of conduct for fair competition and co-ordination in tax policies. This makes the long-term plan to bring down overall corporate taxation policies, the cornerstone of Ireland's approach to industrial development, more secure. But it is hard to believe the question will go away, as the euro is introduced and the debate on its economic governance gathers pace, stimulated especially by the German minister for finance, Mr Oskar Lafontaine, in his critique of globalisation and his calls for a shift of taxation from labour to capital. More and more it is clear that notwithstanding such discussions, the new currency creates a zone of stability in the world economy.
Even when due allowance is made for the need to adjust Ireland's comparative rates to take account of transfer pricing by multinational companies based here, this State remains at the lower end of the overall tax regimes. In future the wherewithal to fund capital investment will have to be provided much more from the State's own resources. There will be less of a soft landing from the reduction of EU structural funds if the German government gets its way.