Despite the wishes of the party leadership, the issue of Europe refuses to go away. It is a drama in the wings which keeps forcing itself into the foreground; background music that keeps drowning out the conversation. Fears that the issue would derail the Conservative conference fortunately failed to materialise (it was a successfully uneventful conference). But Europe is rushing back up the agenda. Angela Merkel and Nicolas Sarkozy patched together a deal to save Greece and the euro, but said they couldn’t tell us what it is (yet). Herman van Rompuy, the EU president, took the extraordinary step of postponing this month’s EU summit, which all 27 EU leaders are expected to attend, saying more time was needed to sort out the deal (I pity the poor diary organisers of Europe). Mervyn King, the governor of the Bank of England, declared that the crisis facing us – sparked by the euro – could be worse than the 1930s. Sir John Major, normally so careful to be helpful to his No 10 successor, pointed out that a new wave of integration in Eurozone would have consequences for Britain, urging us to try to reclaim powers over employment law, financial services and fisheries. Former Tory Treasurer Lord Hesketh enjoyed his return to the limelight, defecting to UKIP.
As I pointed out recently in CityAM, fiscal integration in the Eurozone could seriously damage our national interests in Europe. The 17 (assuming Greece stays in) Eurozone countries would be very likely to form a caucus on most financial and economic issues, and indeed many other non-economic issues. When the new national voting weights from the Lisbon Treaty enter into force in 2014, the Eurozone 17 will get a qualified majority, meaning that whatever they agree between themselves, they can impose on other European countries, including the UK, whether we like it or not (unless it is an issue where we have a veto). We could potentially be in the position of having to accept legislation on issues of vital national importance, without having even been allowed into the negotiating room. The Eurozone 17 – dominated by France and Germany – are far more protectionist than the UK, and could start imposing trade barriers on the UK without our consent. In legal terms, there would be nothing to stop the Eurozone 17 coming up with all sorts of ways to “tame” London as a financial services centre, and there is nothing that we could do about it – even though in many sectors of financial services we have well over 50% market share in Europe. Even hardened Europhiles accept this is would be utterly indefensible, and a potentially politically explosive if it isn’t defused before hand. Even Nick Clegg has uttered warnings.
Obviously, exactly how problematic it is all depends on the deal that France and Germany are putting together, but that is still secret. It is possible that things might be arranged without a new treaty, or in way that doesn’t disadvantage the UK, but that seems unlikely.
The government knows it will almost certainly have to do something. Already people are pitching in ideas of what the government should ask for in return for the UK going along with Eurozone fiscal integration – not just analysts and former prime ministers, but industry lobby groups and others with a vested interest in EU reform. One idea being floated in some quarters is that the UK should get a veto on financial services legislation, protecting a vital national interest. The government might desperately want to avoid a fight, but a fight looks all but inevitable.