The Second 'Iron Lady'

NEW YORK (TheStreet) -- A woman trained in chemistry rises from out of nowhere, takes control of a conservative party, leads it to victory and stamps her authority on the world.

Think you buried her last week? That's the biography of German Chancellor Angela Merkel.

Despite austerity, despite losing state election after state election, despite constant crises in which southern Europeans shouted "Nazi" at her, Merkel's Christian Democratic Union looks set to sweep September's national elections and return to power, perhaps with a stronger majority, according to Reuters.

What Americans need to know, now, is Germany is headed toward an historic confrontation with the United Kingdom in which we're on the UK's side. The issue dividing the two countries is the role of tax havens, as I wrote about last November, the British protectorates that are making corporations and rich individuals more powerful than any government.

If you're for the rule of law, you need to be against the tax havens. Merkel is. She made that crystal clear in ending the Cyprus crisis with a deal that seizes big accounts, ending that country's tax haven status and bringing the banking system there thoroughly under European Union control.

There was a lot of screaming about this deal, most of it involving the "principle" of seizing bank deposits, as a Cyprus Mail piece published just this week shows.

But what was really happening, what no one will talk about, is Merkel was using the crisis as a way to close a key tax haven.

That's what is behind the dispute going on behind the scenes between Merkel and UK Prime Minister David Cameron.

At the Centre for European Reform, Charles Grant writes that Germany is keen to change just a few articles in EU treaties, creating a European version of our Federal Reserve and sinking funds like those Alexander Hamilton used to retire America's Revolutionary War debts.

In other words, Merkel's model for change is our economic model, an independent central bank enforcing rules on member states through monetary policy.

But she also wants to go further and eliminate incentives that now drive the use of tax havens.

What Cameron wants, by contrast, is a change to Europe's underlying treaties that would let "The City" -- London's big banks -- opt out of such a system and maintain their monetary forum shopping in which revenue and assets are moved to whichever country or island protectorate offers the best deal.

He likes it. We like it, even though I believe it's the system that led to the 2008 economic collapse. He's threatening to take the UK out of Europe if he doesn't get his way.

The key to the Merkel order is a "financial transaction tax" that Britain and the U.S. oppose but 11 European countries, including Germany, fully support. As Nouriel Roubini's EconoMonitor points out the tax would greatly reduce economic velocity and could shut down the economic repo market. A blog post on the site calls it "vindictive populism masquerading as the pursuit of fairness."

Maybe. It may also be seen as a way of imposing central control over an economic system that continues to spin out of control, beyond the reach of any government or governmental entity. It is, in short, the rule of law against the rule of capital.

Merkel is often described as a conservative, and perhaps in domestic terms she is one. But she is better understood as an internationalist, determined to bring the rule of law into the market. Historically, she may prove to be more important than Margaret Thatcher ever dreamed of being.

And the lady's not for turning, either.

At the time of publication, the author was long VEURX, a Vanguard European index fund.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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