Most Conservative MPs, myself included, are exasperated by the European Union. Meanwhile people across Britain tell pollsters they want some sort of referendum to express a deep felt disgust with the whole thing. There is annoyance that the EU costs a fortune and continually makes laws that hamper our country’s future success. To cap it all they’ve made a complete pigs ear of the Euro and threaten to plunge us all back into recession.
Ahead of the EU Summit, David Cameron made it clear that his priorities were to support the survival of the Euro and protect the City of London. By sticking to his guns and refusing to give in last night he has shown real strength. Some say we should allow the Euro to fail – maybe even help it along – and that the repatriation of things like the social chapter is a greater priority than our financial services industry.
The Government’s first priority was and is to avoid the Euro falling apart. This is the right thing to do. The bottom line is that about half of our international trade is with the EU. We have more trade with Ireland than with the BRIC countries put together. If the Euro were to fall apart there would be serious economic dislocation. Commentators warn this would lead to a severe recession on the continent. Rather than the stronger economic growth expected at the back end of 2012, the UK would instead likely suffer a recession on a similar scale to 2008/9. A big downturn at a time when we are still economically weakened from the most recent recession is not a gamble any sensible Government would take. The Government is therefore right to do its best to help hold the Euro together. It may not be possible, but the Prime Minister has certainly done all he can.
The Government placed a red line on the financial transactions tax and further City regulation. It held to this line and that was the right thing to do. Why should the Government put the UK’s financial services industry ahead of a more general repatriation of powers? Many feel those greedy bankers should be punished for what they have done to us. And yet financial services is responsible for 10% of our GDP and £50Bn of tax receipts. Put a financial transactions tax in place and much of this industry would trade elsewhere. If you lost 10% of that industry you would see a 1% reduction in GDP and lose £5Bn or more in tax receipts. We could not risk that when economic growth is so flat and tax receipts are so badly needed.
Even so, many will ask why put the City ahead of the repatriation of things like the social chapter. A supply side reform like getting rid of the social chapter will take 5-10 years to bear fruit to boost our economy. More City regulation and the financial transactions tax would have a more immediate impact. Banks can switch their money flows and trading overnight. The impact would be to lose economic activity very quickly. We should protect our economy from a further downturn right now and we need those taxes to pay for schools, hospitals and help with the costs of bringing up our children. This is why it was right to safeguard the City in the immediate. Moreover given the Eurozone want to go ahead with such regulation on their own, it may turn out that UK financial services receives a boost, winning business from the Eurozone.
Many of us want shot of the whole European project in our hearts. Yet the Government must govern with a cool head. The key priorities at this time of crisis should still be to avoid the collapse of the Euro as this would hurt our economy and our people deeply. It was right to seek to avoid the immediate dent in our economy that the financial transactions tax and more City regulation would cause. Longer term we ought to prioritise increasing trade with the rest of the World so that we become less dependent on the Eurozone. Less economic reliance on Europe will give us a wider choice on the nature of the relationship we will have with the EU.