Monaco, Andorra and Liechtenstein are all, unless they have been visited overnight by a trio of Bundeswehr Panzer Divisions, sovereign independent states. All are members of the United Nations. The former has a history as a polity going back to 1297; Andorra to 1278 and the latter to 1719. As such they are entitled to pass whatever laws they choose without interference from outside.

Each has made themselves prosperous by passing tax laws and setting tax rates that attract wealthy people and corporations to their lands, each has had the temerity to run themselves efficiently and frugally and thus has chosen to impose low tax rates upon its citizens, residents and corporations.

All of these qualities offend mainstream European politicians who have acquired the narco-habit of high taxes, high expenditure, inefficiency and profligacy, not least Frau Merkel, Chancellor of Germany, who plans to bully Albert II, His Serene Highness The Sovereign Prince of Monaco (and other knavish competitors) into all manner of ‘reforms’ to their laws. Thus, as The Times reports:

Thomas Steg, a German government spokesman, said: “The Chancellor [...] will make clear that we […] expect Monaco to co-operate and to accept the OECD standards on transparency, information exchange and fair behaviour in taxing.”

I have no problem with them being asked to beef up their money-laundering restrictions (politely, mind) since the system of control of money-laundering depends on all being part of it. It is the phrase “fair behaviour in taxing” which raises my hackles. What business is it of Germany what the tax regime is in another State? None whatsoever.
 
When they refer to the concept of ‘fair’ in the context of tax regimes, however, what they really mean to say is ‘competitive’. The EU hates competition in the field of tax rates, not least because the ones with ‘low’ (or as they would see it, ‘unfair’) tax rates always seem to have the best growth and most efficient economies and are the ones which attract companies to move their corporate HQs and to set up new businesses.
 
This is, of course, all part of the next step which the EU will be taking once the Treaty of Lisbon comes into force. All that is required is a coalition of high-taxing nations to be assembled and tax harmonization will be transformed from an Onanistic fantasy into a wonderful reality.
 
For the moment the UK has zero-rating for VAT on food, children’s clothes and books. From time to time the EU has made a fuss about this and has tried to prod London into ‘harmonizing’ (which is another word for ‘imposing’) such rates. This has been strongly resisted whenever mentioned, not least because the government that imposes a 17.5% price hike on food and children’s clothing must expect to be out of power for a generation.
 
All this can be put to an end by the EU once they have their hands on the levers of real power. Once ‘reforms’ can be introduced without the need for further treaties (and thus inconvenient referenda) and pushed through with lots of Qualified Majority Voting (QMV), member states can be forced upon pain of some swingeing penalties to increase their taxes so as to be ever so harmonious with those of other member States. And of one thing you may be quite sure, the tax rates will never go down, only up. After all, wielding absolute power costs lots of money.
 
Of course, such a system will not work if there are pockets of independence around the place which continue to offer low (“unfair”) tax rates because that might undermine all the wonderful achievements of the EU. So we cannot have, can we, the likes of Monaco, Andorra and Liechtenstein offering a low tax regime that might attract lots of companies and individuals there? Thus they are going to have to be bullied into line.
 
And while they are at it they will have to breach every known rule of banking privacy and confidentiality and give the EU the low-down on every one of its ‘citizens’ who has a bank account or any other sort of presence there; or any money being transferred will be taxed automatically as it leaves the country. It will, then, be back to the tried and tested method of the suitcase in the back of the Merc.
 
Monaco is ruled by its own Prince as is Liechtenstein. They may feel inclined to tell the EU where it can stick itself. Poor Andorra, however, is ruled by two co-Princes, one the Bishop of the Seu d’Urgell and the other none other than Nicholas Sarkozy, President of France, so it may well find that some less-than-subtle pressure is applied to bully her into line.
 
None of which will work, ultimately, as other more distant tax havens will simply develop themselves yet further with lots more offerings of business-friendly low tax regimes and banking privacy laws. The only effect on the EU will be to suck money out of the system.
 
This is a process known as “cutting your nose off to spite your face.”