The European Commission and the European Monetary Institute have commanded the public limelight in recent weeks, with their long-awaited reports detailing who will qualify for economic and monetary union.
But behind the scenes a much more intricate operation has been going on, as EU finance ministers and central bankers prepare the ground for the post-EMU world. At a recent informal meeting of the ministers, it became clear that after EMU tax policy will no longer be an exclusively national affair.
In 1991, the European Union's Maastricht treaty set out that fiscal - or budgetary - policy should be a matter of common concern. But even those who read the treaty were not entirely sure what this provision meant in practice. Finance ministers began to lay the groundwork at their recent meeting in York for what could eventually emerge as a definition of common concern. And the pressure on Ireland from Europe to control its spending to help keep a lid on inflation shows this is already starting to work in practice.
Defenders of national sovereignty have reason to be interested, especially if they believed national budgets would merely have to adhere to the German-inspired growth and stability pact, which seeks to encourage budgetary discipline.
At York, Theo Waigel, the German finance minister, proposed a five-point plan under which members of EMU should draw up their 1999 budgets in close co-operation with each other.
His proposal went so far as to suggest that unexpected budgetary surpluses should be used for debt repayment - probably one of the most interventionist taxation proposals attempted on the EU level. And in the communique after the revaluation of the pound's central ERM rate, the Government here promised that extra revenues accruing to the exchequer this year from soaring tax revenues would go toward reducing the national debt.
Co-ordination implies more than just a courtesy call between finance ministers the day before the publication of budgets. It is about active co-operation on the nitty-gritty details of budgets themselves. And it includes the possibility of foreign finance ministers raising objections, perhaps even in public.
Officials believe, for example, that tax co-ordination could be used creatively to achieve some of the desired micro-economic policy goals which have moved to centre stage under the British presidency.
One area which has been discussed is venture capital, a notoriously under-developed business in most of the EU, especially in comparison with the US. One way for governments to encourage the growth of venture capital would be through the tax system, for example, through the use of special tax breaks.
The approach suggests that tax harmonisation will not occur as a single big reform package but as a step-by-step process. Among the big-ticket items to hit the agenda at some point in the near future, according to EU officials, will be proposals to harmonise corporate taxes and savings taxes.
This process is driven by France and Germany, which fear the single currency will encourage tax competition as companies relocate to areas with low corporation tax. Ireland and the Netherlands are already seen as beneficiaries of lopsided corporation tax rates across the EU and the Government here has committed to move towards a single rate of 12.5 per cent for all business.
The German finance ministry is particularly concerned about the prospect of savers moving to tax havens such as Luxembourg, where banks do not levy withholding taxes on savings.
Economists and monetary officials still debate whether tax harmonisation is necessary for Emu to work. Under a benign scenario, assuming that EMU operates smoothly and generates few distortions, monetary policy is bound to be the predominant tool of macroeconomic policy.
If EMU faces strains, closer fiscal co-operation could become a pressing issue, especially if economic cycles among participating members diverge.
Ireland and Spain, two of the strongest-growing EU economies, will get an additional economic boost, because short-term interest rates are set to fall sharply as a result of the transition to EMU.
Some economists have warned that this could result in a boom-bust cycle in the absence of fiscal policy counter-measures - in other ways tightening budget policy. This led to the commitment from the Government as part of the revaluation deal to put extra revenues towards increasing the budget surplus next year and to have the control of inflation as the primary goal of the 1999 package.
