Wednesday, June 01, 2005

And then to Luxembourg

After Holland, attention turns to The Grand Duchy, which is holding its referendum on 10 July. It is the fourth member state to attempt ratification of the constitution and, in normal times, the result would be a foregone conclusion.

But these are not normal times. To the distress of the political élites, who will vote for the constitution in the Luxembourg parliament on 30 June, support is waning, a development which is all the more surprising for the fact that Luxembourg is home to a great number of European institutions, whose workers and dependents account for up to 40 percent of the population.

But this is also a country of 160 banks and it is these, plus the country’s unique status as a tax haven within the Community, which is making the population of 450,000 begin to wonder about the benefits of membership of the Union. The causus belli is the "withholding tax" directive, coming into force on 1 July, intended to fight "detrimental tax competition" and to regulate the transfer of savings in the EU.

This has started to worry the financial establishments of Luxembourg which generate more of the third of the country's wealth and about half of public revenues. It is feared that, in order to preserve its sacrosanct prinsiple of bank secrecy, the banking sector will have to forego up to 35 percent of the income derived from funds placed by non-residents in the Grand Dutchy. No funds, however sophisticated, will escape this "European tax".

"We are victims of unrestrained European over-regulation," says Jean-Jacques Rommes, general manager of the Association of the Luxembourg banks. "The dilemma is terrible," adds Norbert Von Kunitzki, president of the Institute of European and International Studies. "If Europe does not progress, Luxembourg will die yet, if it is federalised, the advantages which gave us our prosperity will disappear."

And while much of the population is untroubled by this dillema, some have increasing doubts. To put it crudely, "people note that the dirty cow gives only as much milk as before", says Norbert Von Kunitzki (what a lovely phrase).

Before this referendum, there have been only two others, (on the maintenance of the monarchy, in 1919, and on the prohibition of the Communist Party in 1937). The participation in the 10 July poll is compulsory and prime minister Juncker has threatened to resign if he does not get his victory.

This "blackmail" has not gone down well and the response has been a 13 point fall in support for the constitution, according to an Ilres survey published on 25 May, although – by general standards – it remains high, at 60 percent. Nevertheless, the "no" vote has increased nine points which, as Le Figaro points out, "feeds the concerns of the political leaders."

Based on an article in today's Le Figaro.

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