Opportunity or threat #3 – Has the coalition scuppered Cameron’s EU plans?

How things have changed since the previous article in March asking what a Cameron led government would with its EU policy pledges; we now have a Conservative / Lib-Dem coalition, the EU apparently fire-hosed 750bn Euro’s at its sovereign-debt problem, but the financial markets smelled a rat when rumours emerged the bailout package wasn’t as watertight as they had been led to believe, and as a consequence have been punishing the euro for the last week.

Where then does this leave Camerons six EU policy pledges?

First we must look at the coalition agreement and compare it against the original policy pledges:

6) Repatriation of control over social and employment legislation
We agree that there should be no further transfer of sovereignty or powers over the course of the next Parliament. We will examine the balance of the EU’s existing competences and will, in particular, work to limit the application of the Working Time Directive in the United Kingdom.

1) The referendum lock
3) A guaranteed say for MP’s if Ministers want the EU to extend its powers
We agree that we will amend the 1972 European Communities Act so that any proposed future Treaty that transferred areas of power, or competences, would be subject to a referendum on that Treaty – a ‘referendum lock’. We will amend the 1972 European Communities Act so that the use of any passerelle would require primary legislation.

2) A United Kingdom sovereignty bill
We will examine the case for a United Kingdom Sovereignty Bill to make it clear that ultimate authority remains with Parliament.

5) Return of powers over criminal justice
We agree that we will approach forthcoming legislation in the area of criminal justice on a case by case basis, with a view to maximising our country’s security, protecting Britain’s civil liberties and preserving the integrity of our criminal justice system. Britain will not participate in the establishment of any European Public Prosecutor.

The only obvious casualty is the fourth of Camerons EU policy pledges:

4) Opt out from the charter of fundamental rights

However, it is arguable that pledges five and six are no longer clear statements of intent to return power from Brussels, and the pledge regarding a UK sovereignty bill is clearly been kicked into the long-grass, so this is no longer the manifesto upon which the Conservatives were elected, that much is certain. The new governments language when discussing EU matters is also distinctly emollient, with several public statements indicating that they have no wish to pick a fight with the EU.

Second we must ask whether these changes actually matter, and for that we must look at the policy pledges to which remains an unambiguous commitment:

For all that the UK sovereignty bill has been referred to a commission there is still a clear intent to make any substantive change in EU policy subject to primary legislation, and thus to Parliament, so regardless of the delay in the commissions report and regardless of the commissions eventual conclusion Parliament will de-facto have a much greater say in EU matters.

Far more important however is the absolute commitment to the referendum lock on future treaty changes, the effect of which has been seen most recently during Cameron’s visit to Germany where he flatly refused any further transfer of economic competences to Brussels whilst noting that any change would require the agreement of all 27 EU states:

“There is no question of agreeing to a treaty that transfers power from Westminster to Brussels. That is set out 100 percent clearly in the coalition agreement. It goes without saying that any treaty, even one that just applied to the euro area, needs unanimous agreement of all 27 EU states including the UK, which of course has a veto.”

Clearly, if there are to be treaty changes needed that will better allow the Eurozone to manage monetary union then this will be subject to a referendum in Britain, regardless of whether we are within the the Eurozone or otherwise, which means that Cameron must be able to sell this referendum to the British electorate. For Cameron to successfully campaign for a “yes” vote to yet more treaty changes will require an incentive with which he can ‘bribe’ the British electorate, the alternative is to watch the referendum fail as a disgusted electorate treat it as a statement of contempt for Cameron’s government.

Third we must ask ourselves how likely it is that the EU will require treaty changes to rescue the Euro, and how likely it is that the electorate would vote against reforms that would rescue their largest trading partner from ruin.

To deal with the latter question first; the very fact that Cameron has given so much ground on EU policy in the coalition agreement paradoxically strengthens his hand, for once again a broadly eurosceptic electorate will have its suspicions confirmed that the political elite are willing to sell-out the principles upon which they were elected to defend, thus requiring Dave to have to work that much harder to win a “yes” vote at any future referendum. As to the matter of whether the British people would cut off their nose to spite their face, by voting against essential Eurozone reform; given that the alternative is ever-deeper-embroilment in a transfer union where countries like Germany pay for the profligacy of countries like Greece it may well be viewed as the better alternative.

Are such structural reforms really required that they will necessitate amendments to Lisbon, and has not the 750bn Euro bail-out package saved the day already? Of course not, the 750bn Euro’s are probably good for two years of club-med public-sector borrowing during which the Eurozone will be cutting public spending, it is the only option as club-med cannot live beyond its credit-rating in perpetuity, but can fiscal contraction happen at the same time as the rapid growth needed to pay of long term structural debt (as opposed to short term deficit spending)? The answer is probably not, especially when all your major trading neighbours are also contracting fiscal policy in a way the will depress growth continent wide. To put this another way; the value of trade in goods and services between Britain and the EU/RoW is split 52/48 percent respectively, and we will be hammered if the Eurozone suffers sovereign defaults, how much trade do the PIIGS do with the EU as a percentage of the total? Quite a lot more is the suspicion of this blog!

Regardless of how much borrowing needs to be done this year, the problem for club-med in particular is how much debt is maturing in the coming years, Portugal, Italy, Greece and Spain will need to find an additional 323bn Euro’s in 2011, and a further 270bn Euros’s in 2012 just to rollover this maturing debt in addition to what is needed for ongoing deficit spending. Monetary union without economic union is an absurdity, and either this is fixed or the enterprise will collapse. This is not to say that the entire Eurozone economy would collapse, but the weaker nations would be of necessity be ejected and that would cause a collapse of the political ambitions that created the Eurozone in the first place, a prospect that is nearly as frightful to the architects of european political union.

It has not escaped the markets attention either that the bail-out has two gigantic escape clauses:

Markets have been rattled by reports in the German media that the Greek rescue deal contains two secret clauses. The package will be “immediately and irrevocably cancelled” if it is found to breach the EU Treaty’s “no bail-out” clause, either in a ruling by the European court or the constitutional courts of any eurozone state. The second clause said that if any country finds it cannot raise funding for the rescue at interest rates below the 5pc charge agreed for Greece, it may opt out of the bail-out.

Can these actions already taken, in addition to the reforms yet to come, just be swept under the carpet in order that we will all pretend they didn’t happen, and thus have no treaty implications? No, because Germany’s constitutional court clearly won’t fail to notice that which France’s Europe Minister has so astutely perceived:

Whether intended or not, Mr Lellouche may have pulled the detonation plug on EMU by boasting that Europe’s politicians had created an EU debt union on the sly. “It is expressly forbidden in the treaties. De facto, we have changed the treaty,” he told the Financial Times. How will that go down at Germany’s constitutional court, already facing a growing in-tray of claims that these bail-outs breach the Maastricht Treaty?

So no, the current measures are indeed a band-aid, and the reforms necessary to save the Euro are both unavoidable and fundamental, so the condition must arise where a referendum is required.

Finally, the original article in this series asked whether any putative European Monetary Fund be limited in the scope of its economic management to those economies that are within the Eurozone?

On this question there has been much confusion in recent weeks, with many confusing and contradictory statements from various EU politicians quoted in a multitude of european newspapers, some which is no doubt due to genuine misunderstanding, but most of which is down to conflicting ambitions of the pragmatists versus the transnational progressives. Der Spiegel at least is fairly clear who is driving the argument at present, and it would seem to be the pragmatists in Germany with their demands for a greater economic integration of the Eurozone as opposed to the EU, mindful no doubt of Cameron’s referendum lock:

According to the document, Germany would like to see annual budgets in euro-zone countries undergo a “strict and independent check.” Berlin proposes that the job be taken over by the European Central Bank or by a collection of economic research institutes. In addition, the draft proposes stricter penalties for those countries that transgress euro-zone rules. “Euro-zone member states that do not conform to deficit reduction rules should temporarily be disallowed from receiving structural funds,” the draft reads. In extreme cases, that funding could be permanently eliminated. Many of the measures proposed in the draft paper would likely require amendments to the recently passed Lisbon Treaty, a prospect that only recently would have dampened enthusiasm for far-reaching changes given the difficulties associated with approving that treaty.

In conclusion, Cameron’s six EU policy pledges still appear eminently achievable even under this coalition government and not only because of the leverage Britain wields, but also due to a growing pragmatism on the continent regarding what the EU’s purpose and limits should be. Germany in particular appears to be waking up to the fact the the european economic community was a means to achieving peace in europe, not an end goal to be striven for regardless of the disharmony it causes its Demos.

Update – 03/06/10

People are starting to consider a post-Euro existance, with a new ‘pooled’ currency similar in status to that of the Ecu before it morephed into the Euro as a single currency, this would surely require treaty changes, no?