The recent 10th anniversary of the introduction of the euro’s notes and coins was a curiously muted affair. How different from the launch back in 2002, all balloons and fanfares, with more than a few hints that we naysayers were seriously unhinged.
Will the euro survive this year? Who knows? But what I find so fascinating about the current debate is that the question is increasingly being asked, undermining the currency at every turn. The IMF’s Christine Lagarde’s attempt to defend the euro last Friday, when speaking to journalists in South Africa, sounded rather tepid, if not unsure. “Will 2012 be the end of the euro currency? I seriously don’t think so,” she said.
In the absence of any hard news about the beleaguered currency, the aftermath of last December’s summit, the Cameron veto and the forthcoming treaty mainly designed to strengthen fiscal discipline in the Eurozone, rumbles on. The latest episode relates the likelihood of a new confrontation between David Cameron and Nicolas Sarkozy, after the French president insisted that the EU member states signing the new fiscal treaty should be allowed to set their own policies for the Single Market, with Britain excluded. It is French Presidential year after all.
The latest draft of the treaty has apparently been amended to commit the signatories to “enhanced governance” to enable “deeper integration in the internal market.” One does not need to be paranoid to believe that the Single Market in financial services will be a prime target. Look out, City of London, the EU really is after you.
The Economist warned in its latest edition of the risks to the City, to its credit. Its analysis was solid, if unexceptional, and the EU was not let off the hook. Of the many challenges to the City they wrote “…the thrust of many proposals coming out of Brussels looks harmful”. Well that is certainly true. But, as a Europhile journal, it cannot allow itself to come to the brutal and inevitable conclusion that if the City is to be saved from the EU’s regulatory zeal Britain must leave the Single Market. There really is no alternative.
The Single Market is just one of two “legs” of economic union with the EU which is meant to bring such unalloyed joy and benefits to this country. The EU’s Customs Union, the other leg, is much less frequently discussed. When we joined the EEC in 1973 there were arguably net benefits from membership as tariffs were high and the EEC was then a very important part of the world economy. But tariffs are now low, international trade is conducted under the World Trade Organisation (WTO) umbrella, trade between non-EU and EU countries thrives, and Europe is in secular relative decline. Any benefits are diminishing by the day.
Meanwhile the opportunity costs of being part of the Customs Union grow by the day as Europe falters. As a member we cannot negotiate our own trade deals with favoured partners – the EU’s Trade Commissioner does it on our behalf. Perhaps this would be satisfactory if Britain’s interests coincided with the EU’s. But too often this is not the case, for example, the EU’s protectionist stance on agriculture (which incidentally damages poor countries). Britain, with its unique international links, should leave the Customs Union and negotiate its own free trade deals. The USA and the Commonwealth countries would be an extraordinarily good place to start. We have much in common with these countries, their demographics are favourable and their growth prospects healthy. The North American Free Trade Agreement (NAFTA), comprising the USA, Canada and Mexico, by the way is a bigger trading bloc than the EU27. Its lead can only grow.
A full debate on “options for Britain and the EU” is long overdue. The main ones include:
- Staying in the EU and trying to repatriate powers. I fear that this will not prove a great success. In fact, it’s a non-starter.
- Staying in the EU and reforming it in our own image. Even more of a non-starter.
- The “Norwegian” option, which would involve staying in the European Economic Area (EEA), which comprises the EU27 and three EFTA members (Norway, Iceland and Liechtenstein). The key features of the EEA are that all members participate in the Single Market and, secondly, the EFTA EEA members have even less influence over Single Market legislation than we do. The “Norwegian” option is not my option of choice. The costs of Single Market membership easily outweigh the benefits. And the City is too valuable.
- The “Turkish” option, which would involve staying in the Customs Union. In addition to the EU27, Turkey and three mini-states (Andorra, Monaco and San Marino) are also members. I think not. The prospects of free trade beyond Europe’s shores is simply too beguiling.
- The “Swiss-style” option, based on free trade and mutually beneficial bilateral agreements. Switzerland, the fourth EFTA country, is outside both the Single Market and the Customs Union but is actually more integrated with the EU27 for trading purposes than we are. Switzerland’s close economic ties are a strong rebuttal to the loose talk that “it really would be very difficult to trade with the EU, if we left” or, sillier still, “they wouldn’t trade with us” – even though “they” have a whacking trade surplus with the UK and the UK is a big and prosperous market for EU products. Suffice to say I favour such a relationship, tailor-made for us.
So a Swiss-style relationship, outside the Single Market, outside the EU’s Customs Union and indeed outside the EU, should be seriously considered for Britain’s intra-European relations. For extra-European relations, a Commonwealth Free Trade Agreement and/or joining NAFTA should suit Britain’s needs very well. If the FCO really has Britain’s interests at heart it should be working on such options now.
And if the FCO isn’t working on such options, the Treasury won’t be either. More is the pity. Thumbing through my copy of Hugo Young’s This Blessed Plot recently, I read the following: “The Treasury… remained officially against British entry. That is to say, its judgement of the economic consequences was negative, and it submitted a paper to that effect.”
Alas, the Treasury was over-ruled. And the irony was that we were joining the EEC for “economic” reasons.