Berlusconi reneges on savings tax directive

Date: 27/03/03

By Peter Chapman

QUESTION: what has the EU's directive on savings tax got to do with Italian milk subsidies?

Answer: absolutely nothing. Unless, that is, you are Italian Prime Minister Silvio Berlusconi or his Finance Minister Giulio Tremonti.

To blank looks all round at last week's Brussels summit, the two made it clear that Italy would renege on a political agreement reached by EU finance ministers in January unless Rome was given 30 years to pay a €650 million fine for exceeding what it claims are inadequate milk quotas.

If he had failed to speak out, dairy farmers may well have rioted, claimed an unrepentant Berlusconi.

"We had to play the unsympathetic part of the one who says "no".

"Our position is justified by the fact that in Italy, the problem of milk quotas is not manageable any more," he explained.

It was the latest in a long line of summit shenanigans orchestrated by Il Cavaliere. He once prompted an infamous debate on the site of the European Food Safety Agency by casting aspersions about the culinary know-how of the Finns, whom he claimed did not know what prosciutto is.

No doubt he would have created more of a stir at last spring's Barcelona EU get-together, but for a bout of stomach flu.

But his milk tirade did little to boost the EU's flagging PR image after its split over the war on Iraq.

Jacques Chirac complained that the milk spat was irrelevant on a day that bombs were raining down on Baghdad.

At the same time, it was an open goal for eurosceptics who claim that Europe's bid to become the most competitive economy is doomed if member states continue to put narrow self-interests first. Greek Prime Minister Costas Simitis, pointing to other deals, such as an agreement on reforms to the European Central Bank voting system and energy taxation, insisted that the summit "did not become a victim of the war".

But he admitted: "We cannot move forward in this manner."

The savings tax regime is seen by some experts - if not all - as a key piece in that process, kick-started at Lisbon three years ago.

It would allow countries to receive tax income from the money their citizens stash away in foreign bank accounts and dissuade tax evasion - despite a messy compromise that allows Luxembourg and non-EU Switzerland to keep banking secrecy in exchange for high withholding taxes.

The savings tax deal is tied up to two other pieces of financial legislation - one on a code of conduct for corporate taxation and another on taxation of interest and royalties - that will also remain blocked until the milk row is sorted out.

"By delaying the adoption of key reforms, we delay a better future for all of us," a clearly frustrated Greek Finance Minister Nikos Christodoulakis told European Voice.

But it would be wrong to blame Berlusconi alone for the shameless deal- making that risks stunting progress in the EU.

Belgium only agreed to accept the tax package if it won assurances from other member states that they would overturn a European Commission ruling that outlawed tax breaks it grants to multinationals which set up in the country.

The Commission signalled it would fight this backroom deal all the way to the European Court of Justice if necessary.

Italian Prime Minister Silvio Berlusconi has threatened to block a new European Union directive on savings tax unless Rome is given 30 years to pay a €650 million fine for exceeding what it claims are inadequate milk quotas.