Michael Burnett was a candidate for the European Parliament in the West Midlands in 2009
David Cameron faces a difficult week in Brussels with several interlocking issues:
- The need for the Eurozone to create the structures for economic and monetary union to function effectively and the implications of this for the Single Market.
- The future of the proposed banking union
Discussions on the margins about the resolution of the EU Budget for 2014-2020;
- And, possibly, the financial transactions tax.
These issues are not only complex in themselves, but also have obvious overlaps – i.e: the banking union is a key component of economic and monetary union; the financial transactions tax is regarded as a possible source of “own resources” for the EU budget, thus making it less dependent on contributions from Member States, and the closer integration of the Eurozone may lead to block voting on Single Market issues, which could mean that non-Eurozone members could be institutionally outvoted.
Even if they were not, the significance of the issues at stake means that there will probably be a “grand bargain” – the usual modus operandi of EU compromises. The issues at stake should not be underestimated. Make no mistake, what is proposed for the Eurozone – creating a state within a state – will fundamentally change the character of the EU more than anything since the UK’s accession in 1973.
It would be wrong to allow the argument to be characterised as 26 against one, even though we don’t always handle the politics of this well. Opening discussions in the EU by threatening a veto makes it easier to caricature the UK as the villain of the piece. And then there is diversity of view amongst other Member States on the scope of the banking union, the measures which are needed to make economic and monetary union function, including enforcement measures, in the absence of political union and the definition of the demos which underpins the economic and monetary union.
So what should the Prime Minister do this week at the summit?
Option One is simply to say that we want nothing to do with the EU if it is heading in the direction implied by economic and monetary union and a banking union. This route leads ultimately to an “in or out” referendum. But in my view things have changed since 1975, when I was in the small minority of Conservatives who voted for the UK to leave the EEC.
The benefits of the Single Market both in itself and in its attraction of foreign investment are well known. Of course, if Britain were not in the EU, then access to the EU Single Market could be gained – but at a price. Norway makes a contribution to the EU budget, in effect for Single Market access. In 2013-14, this is expected to be around €550m, which, if scaled up for the relative population of Britain and Norway, is equivalent to around €6.8bn. And Britain would no longer have the power to influence the shape of Single Market legislation: i.e. it would, like non-EU EEA members at present, have to accept it as passed down – the so-called "fax democracy".
Similarly, and often overlooked in a world of trading blocs, by conducting trade negotiations at EU level, Britain benefits from the power to open markets to its goods and services derived from the value of reciprocal access to EU markets, and not merely from the value of reciprocal access to the British market. Those (such as Nigel Farage) who have argued that such benefits could in any case be gained from WTO membership are overlooking the fact that WTO disputes can be lengthy, difficult to resolve and hard to enforce.
Furthermore, this view fails to consider what would be the reality of the “day after” a British withdrawal. The UK would still trade significantly with the EU, would still share a land border with the EU and would remain a co-partner with many EU Member States in NATO – so that the UK and the EU would still have a close relationship.
Option Two is to assume that, in effect, much of what is proposed doesn’t really matter because, at some point, the inherent tensions in the Eurozone will cause it to fracture. Of course the Eurozone is not an optimal currency area, the project is essential political rather than economic and, even from the point of view, of those who believe in closer political integration, a currency union was the wrong place to start – and, indeed, unnecessary. The United States, which did not have a single currency until the 1860s, showed that while political union is necessary for a monetary union to work, the reverse is not the case.
But this is to place a bet on an uncertain outcome and one which, if it happened, would create a very uncomfortable neighbour for the UK.
Option Three is to negotiate seriously about what the UK wants as its part of the grand bargain.
What should that be? In other words, what should David Cameron’s “red lines” be?
Firstly, a redefinition of a qualified majority for decisions on Single Market issues by reclassifying the Eurozone as a single entity and reweighting the votes in the Council so that others can form a blocking minority. This would be consistent with past practice, as the EU has generally given additional weighting to smaller states.
Secondly, that the revenues of a financial transactions tax should not form part of the EU’s “own resources” but be retained by the Member State in which they arose and that the financial transactions tax would only apply to transactions between countries who have agreed to impose it.
Thirdly, the need for a zero-based review of the EU budget – i.e,:a fundamental review of the balance of the EU budget to reflect the importance of promoting innovation, growth and the global economic competitiveness of EU. This should include a review of the added value of Committee of the Regions and the Economic and Social Committee. This would address future demands for EU budget increases by requiring that additional functions are financed by corresponding reductions elsewhere in the budget.
Fourthly, a commitment by all EU Member States to increase national defence spending to the average share of GDP of European NATO members.
And the “nice to have” list?
- The introduction of more rigorous ex ante impact assessment of EU legislation – which means not just, as happens at present, of European Commission proposals but also an ex ante assessment after amendment by Member States and the European Parliament before final enactment. The impact assessment should not just cover the cost of implementation, but also of how Member States and local authorities will, in reality, finance the implementation and an assessment of how they can be implemented in a manner consistent with value for money.
- New rules for the launch of infringements proceedings for Single Market infringements. The European Commission currently makes the ultimate decision on whether or not to pursue infringements, and, due to limited resources, cannot be very active. For example, there have been less than 30 infringement procedures launched in the field of public procurement in the last two years. There needs to be a mechanism by which the Commission can be obliged to pursue infringements.
- Since equality of sacrifice matters in the age of austerity, that, instead of the current “community tax”, newly hired EU employees should be required to pay the EU average level of income tax paid by citizens on comparable income.
- The establishment of the principle of “sunset clauses” in EU legislation.
The Prime Minister has shown more understanding that many of his predecessors in understanding that alliance building is the way to achieve results in the EU. But he will be tested by what compromises are needed on the level of the EU budget and the British rebate to achieve these aims.
And if he fails?
Then UK may have to consider a much more fundamental realignment – in other words, proposing a different constellation of more similar nations, something more than the recasting of the Eurozone into an optimal currency zone.
David Cameron may have launched the first manifestation of a new alignment – a North Sea and Baltic Union – when he convened a Nordic Baltic summit in January last year.