In Brussels, if we are unhappy with the weather — which most of the time we are — we blame the Gulf Stream. We regard warm water flowing across the Atlantic from below Florida as the best hope of benign conditions in northwest Europe. Clearly the Gulf Stream is out of sorts, because temperatures are forecast to plunge again this weekend, to far below the seasonal norms.

Instead of warm air, Europe was hit at the start of this month by the shrill blast of the Panama Papers — details of tax avoidance arrangements made with the help of Panamanian law firm Mossack Fonseca. Although I am no meteorologist, my prediction is that Panama will continue to disrupt the political weather for many months to come.

This rather different form of Gulf Stream has already claimed some casualties. The prime minister of Iceland, Sigmundur Davíð Gunnlaugsson, was forced to resign, because of disclosures about his and his wife’s investments using companies in the British Virgin Islands and Panama. The industry and energy minister of Spain, José Manuel Soria, resigned last week, having not disclosed and then denied offshore investments.

In Britain, Prime Minister David Cameron sustained political injury because he was so slow to come clean about how he had gained from a trust set up by his stockbroker father. In Malta, the heat has been turned up on Prime Minister Joe Muscat, whose chief of staff, Keith Schembri, and energy minister, Konrad Mizzi, were implicated in a scheme to set up a trust in New Zealand with a shell company in Panama.

They were just some of the more eminent people embarrassed by the initial tidal wave of revelations. The chances are high that they will not be the last. The sheer quantity of material leaked to the German newspaper Süddeutsche Zeitung — 11.5 million pages — makes it likely that some connections will have been missed. The material was so copious that Süddeutsche Zeitung shared it with an international consortium of investigative journalists, which has announced there will be further revelations. A full list of companies is due out in the first week of May.

It is in the nature of this kind of cooperative international journalism that it is choreographed to make a big splash, and a tidal wave of news reports broke across the world on April 3. But it would be wrong to think of the Panama Papers as a freak storm in the political weather — though that may well have been how they seemed to the Icelandic prime minister, or to Malta’s Mizzi, who nurtured ambitions to become deputy prime minister.

Collateral damage

What matters, surely, is whether, after the initial waves have subsided, the revelations and the various responses of both governments and electorates to the evidence combine to effect lasting change to the political and fiscal climate.

If they do, then this is bad news for the European Commission — and specifically for its president, Jean-Claude Juncker.

In November 2014, the second meeting of Juncker’s new Commission was overshadowed by the revelations of LuxLeaks – information about how companies had used Luxembourg to reduce their corporate tax obligations. Those revelations led to the setting up of a temporary committee in the European Parliament, and contributed to the Commission’s own proposal for greater transparency on corporate taxation, published by Commissioner Jonathan Hill last week. Hill said the proposal was not a response to the Panama Papers, because its drafting long preceded their publication, but he did concede that the Panama Papers had “sharpened the focus of the proposal and has made us reconsider how we go about tackling the question of jurisdictions that do not have high standards of…corporate governance.”

But what the Panama Papers appear to have done — for how long, it is impossible to say at this stage — is to raise the bar for the standards that will now be applied to people in public life. The response in Britain is an extreme example, where not only Cameron, but also George Osborne, the finance minister, and Jeremy Corbyn, the leader of the Labour Party, the main opposition, have published their tax returns. Where LuxLeaks put the heat mainly on multinational companies, the Panama Papers have revealed the tax avoidance strategies of individuals — and across Europe, the public seems increasingly intolerant of such strategies.

What would worry me, if I was an adviser to Juncker, is the frequency with which Luxembourg is cropping up in the individual controversies. For instance, the transaction that seemed to have done for Iceland's Davíð was that his wife bought a company, Wintris, registered in the British Virgin Islands. She bought it from Mossack Fonseca using a Luxembourgish bank. Sweden’s financial supervisor has announced that it will be investigating Nordea, a big Nordic bank, whose Luxembourg branch, according to the Panama Papers, had set up more than 400 offshore companies for its clients.

Banking secrets

Or again, consider the embarrassment in Belgium, where the Panama Papers show that Dexia was helping clients to avoid tax by using Panamanian shell companies. The Franco-Belgian bank was in such difficulties during the financial crisis of 2008 that it was given Belgian state assistance of €6 billion plus various state-backed guarantees. But that was not enough to save it: The Belgian state had to intervene again with billions of euro in taxpayers’ money in 2011, buying out the Belgian part and creating what is now Belfius. Yet the Panama Papers show that in 2008-09 this state-funded bank, chaired after its bailout by a former prime minister, the late Jean-Luc Dehaene, was helping its clients to avoid tax through its Luxembourg subsidiary Dexia-BIL.

Luc Coene, a former governor of the Belgian national bank, in an interview published at the weekend by De Standaard, excused the collective failure of the regulators with the time-honored defense that it was somebody else’s fault. A tip from a Belgian tax investigation office to the office of the bank supervisor FSMA that Dexia should be investigated came to nothing in 2009. The national bank had taken on partial oversight of Dexia only in 2011 so knew nothing of the tip from the tax investigators to the other supervisor FSMA. And the Panama arrangements were not made by Dexia itself, but by a subsidiary of a subsidiary — Dexia-BIL. He could not know what knowledge the Belgian management of Dexia had of its activities in Luxembourg. And as a Belgian regulator he had had no remit to comment on banks in Luxembourg.

Coene remarked that Dexia-BIL appeared not to have breached any Luxembourg law. And yet, he observed that: “I think that all the big banks still have a number of subsidiaries in tax havens (“belastingparadijzen”). The question is, to what extent they are still active and what precisely they are doing.” Now Coene is no purist central banker: He is politically attuned — a former member of the Belgian senate and former chief of staff to prime minister Guy Verhofstadt. I interpret this as an admission — coming as it does from a member of the board of the Single Supervisory Mechanism, the supervisor of Europe’s biggest banks — that the regulatory climate has shifted and is still shifting.

And that, I believe, could yet present problems for Juncker, who, lest anyone had forgotten, was finance minister of Luxembourg for a mere 20 years, from July 1989 to 2009, and (overlapping) prime minister from January 1995 to December 2013. In other words, for nearly a quarter of a century he played a leading role in the establishment and defense of Luxembourg as a center of financial services.

Just as Luxembourg carved out a niche role in the audio-visual industry, having early liberalized its radio and television broadcasting, so it created a role for itself in financial services, founded on banking secrecy, low taxation, geographical proximity to the business heartlands of Germany and France and — it should be acknowledged — expertise.

At the time of the LuxLeaks disclosures, Juncker argued that the tax deals struck with multinational companies were “the logic of the non-harmonization” of tax rules within the EU. What had happened was, he said, legally correct. “I am politically responsible for all that happened,” he added.

A year and a half ago, that defense was apparently sufficient — at least for those political leaders who made him president of the Commission. Personally, I always considered Juncker’s record on taxation and banking secrecy to be incompatible with being Commission president, but my view is not what counts.

The European Council chose to forget or ignore that Juncker had long resisted attempts to improve banking transparency and improve cross-border taxation — which had given Luxembourg a particular competitive advantage over its neighbors.

A lot now depends on the extent to which LuxLeaks and/or the Panama Papers erode Juncker’s defense that everything was legal and he was ignorant of any wrongdoing. If there was law-breaking, then the ex-prime minister is vulnerable to the charge that either he didn’t know what was going on and should have, or he knew what was going on and allowed it. He is vulnerable also to whispers that Luxembourg’s business and political community is so small and tightly knit that complete ignorance is implausible.

Lux-links

What is more difficult to guess — at this moment of shifting standards — is whether Juncker will be condemned for allowing practices in Luxembourg that though legal were morally questionable. (You do not have to be a tax lawyer to see that what Juncker calls “the logic of non-harmonization” was compounded by Luxembourg’s culture of secrecy/discretion, which meant that companies could keep secret their tax arrangements and individuals could hide their revenue.)

It is entirely possible that the government leaders who put Juncker in place — and their successors — will stick to the view that bygones should be bygones and Juncker’s past policies should not affect his standing as Commission president.

But what I detect, in at least some parts of Europe, is a readiness to revisit the past and to apply the standards of the present — meaning that what was legally correct may yet be found morally unacceptable in the court of public opinion.

Juncker may choose to argue that his Commission is at the vanguard of reform. But what if his past record embarrasses the likes of Margrethe Vestager, as she turns over tax rulings made by national authorities with multinational corporations? Or Jonathan Hill, as he advances his proposal for increasing the tax transparency rules applying to multinationals? Or Pierre Moscovici, arguing for measures against tax evasion and money-laundering? Is this a sinner who repents, an opportunist, or just a hypocrite?

Perhaps, at the end of a few committees of inquiry, that will simply mean the G7 or G20 getting tough on the likes of Panama and the British Virgin Islands.

Whether Juncker is credible will also be important in the context of the Commission’s attempt to enforce fiscal discipline in Greece (or anywhere else). How does the Commission argue for improving revenue collection while LuxLeaks and Panama Papers paint a picture of a Juncker-run Grand-Duchy promoting tax-avoidance?

Two years ago the European Parliament’s biggest political groups colluded in Juncker’s nomination as Commission president, but if he is destabilized by controversies on tax, he cannot rely on their help. I note that Manfred Weber, the leader of the center-right group in the European Parliament, the European People’s Party, greeted the Panama Papers with a tweet that said: “@EPPGroup asks for full transparency on #PanamaPapers. Inquiry Committee needed to corner those who undermine foundations of society.”

Gianni Pittella, the leader of the center-left Socialists and Democrats, has called for the Commission to draw up a blacklist of tax-havens and introduce sanctions against companies and banks that help rich people evade tax.

Perhaps, at the end of a few committees of inquiry, that will simply mean the G7 or G20 getting tough on the likes of Panama and the British Virgin Islands, but the mantra of zero tolerance could yet bite closer to home. What we know from the Panama Papers so far is that there is nothing benign or predictable about this fiscal Gulf Stream. If the climate has truly turned, then Juncker should brace himself for some stormy blasts.