Opportunity or threat #4 – Has Sarkozy’s EMF revived Cameron’s EU plans?

The euro crisis rumbles on, with the Greece bail-out 2.0 entrain and still no real solution to the currency union’s problem. In a marked change from a generation of Conservative policy; that we should be at the heart of europe to ensure they don’t make a pigs ear of it, we know have George Osborne arguing for a two-speed EU, with Britain in the slow lane. Welcome aboard George!

Is this the promised land, where British democracy becomes accountable once more?

Possibly, but it rather hangs upon whether Germany doesn’t torpedo matters first.

It has been suggested by some that the price should; include Britain’s escape from the Social Chapter, the Common Fisheries Policy and the European Convention on Human Rights, but we cannot ignore the Tory’s coalition partners. The Lib-Dem’s are, not to paint with too broad a brush, largely in favour of the acquis communautaire principle whereby once a ‘competence’ has been granted to the EU it cannot come back. Clegg it would appear holding this point on principle:

“Anything now which suggests we are somehow trying to distance ourselves from that, I think in the long run could be economically self defeating.”

His problem is that merely by maintaining our current status, during a process of economic fusion within the eurozone we will, de-facto, be creating a two-speed europe. In itself this is a fine thing, for while this blog is sympathetic to the notion of being in the EU long enough to shape europe’s future towards a healthier course, the strong british free-market presence in the commission being a good example, perhaps we are reaching the apogee of what that purpose can achieve. We now how an EU with new members favourable to free market solutions, and we can no longer continue to play at the centre without ceasing to be a sovereign nation state. More to the point, it is not for Britain to frustrate the legitimate ambitions of our partners across the water, if economic union is both desired and required then we should not stand in its way.

However, the principle of a two-speed europe, while desirable, is not what this blogger is interested in; what matters is the price that is extracted by Britain for assisting this transition. George has some thoughts on this front already:

“It is not yet clear how far or how fast eurozone countries will want to go on fiscal integration, but as they decide, this Government will constantly be alert for opportunities to protect and advance our national interests. We must make sure we are not in any way excluded from key decisions on issues, such as the single market and financial service regulation, that should remain the exclusive preserve of all 27 EU states. We must get the EU focused on the positive agenda that matters to its citizens of creating jobs and prosperity, by becoming a far more competitive continent in which to do business.”

What price fits the notion of the national interest?

Which of those does not conflict with the goal of a free and open single market for goods and services?

From the Conservative manifesto we have the following:

1) The referendum lock
2) A United Kingdom sovereignty bill
3) A guaranteed say for MP’s if Ministers want the EU to extend its powers
4) Opt out from the charter of fundamental rights
5) Return of powers over criminal justice
6) Repatriation of control over social and employment legislation

The general verdict was that pledges one to three were easy crowd-pleaser’s, little political capital both at home and abroad would be required in implementing them, and by the same token they would have very little effect given that Lisbon was to be the last constitutional tinkering for at least a decade.

Where it gets tricky for Dave, so the received wisdom goes, is pledges four to six because they effectively require unanimous agreement from all EU nations that Lisbon be exhumed from its final resting place in order that Cameron can further dismember the remains.

The easiest direction to pursue are those elements that are compatible with the coalition agreement, as noted in the previous article:

  1. 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. 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.

Whereas previously they were merely aspirations that could remain in the long-grass forever, the opportunity has finally arrived for them to become bargaining points. What is truly interesting is whether the specific ambitions above such as the Working Time Directive can be achieved without regaining our opt-out of the Social Chapter, and whether desired reform to our criminal justice system represents an opportunity to exit European Convention on Human Rights……..?

Does this opportunity really exist and do we really wield sufficient leverage to repatriate these competences? A valid question given the eurozone summit on the 21st of July that purports to salve all wounds and bring compromise to opposed views.

The answer is yes, for in true euro-politics style the result was smoke and mirrors with many of the fundamental problems masked by soaring rhetoric. To quote Jacques Cailloux and his team at RBS (hat-tip FT Alphaville):

1. Greece Bail Out II now detailed, rolling crisis still likely: The Euro Summit was first and foremost a summit aiming at concluding the negotiations surrounding Greece Bail Out II. This is now done. The political will of some countries to get PSI at any cost won the day which will have a number of negative side effects (rating downgrade for Greece and potentially other countries, ECB requirement for additional guarantees for Greek collateral, market perception that PSI might be a template for other countries) while not bringing substantial economic benefits. Indeed, after almost 3 months of negotiations and effort, the Greek debt load will be at best reduced by 10 to 20 percentage points of GDP to what will still be seen as an unsustainably high level. Overall, this will have been an expensive political decision. In the end, Greece will likely continue facing a rolling crisis around IMF quarterly reviews. Doubts about the trajectory of the economy and the ability to raise privatisation receipts anywhere near the targets will persist.

2. Toolkit to respond to euro area contagion rushed out: The statement clearly gives the impression that euro area policy makers are increasingly ‘getting the message’, with 3 new tools being created: a precautionary programme, a lending facility for non programme countries to recapitalise banks and a bond buying programme in the secondary market. However, the level of detail provided is low, making it hard at this stage to really tell how the new tools will work in practice and how efficient they will end up being. In particular, there is insufficient information available to tell how preventive those tools will end up being deployed and this is related to the lack of clarity surrounding the so called “appropriate conditionality” that will be imposed on member countries accessing these new help mechanisms.

3. Nice tools but no firing power: In our view a key limitation of the announcement is that it did not address the size of the EFSF. We have recently argued that a prerequisite to increase the flexibility of the EFSF was to increase very significantly its size with a view of ultimately having a lending capacity of around Eur2trn. Indeed, under the amended EFSF which will aim at having a lending capacity of Eur440bn, and given current and likely commitments, the EFSF will be left with a little more than Eur300bn of lending and or buying capacity – a too small amount to restore investor’s confidence that the euro area has once and for all dealt with its sovereign crisis. The crisis will in our view linger with markets likely to test the EFSF firepower.

Will the Lib-Dem’s let the coalition partners extract concessions from europe for merely doing the right thing?

Will the Tories really wish to push the coalition partners so inconsiderately for the return of some small powers?

On the former, provided it is within the coalition agreement then they cannot really complain for they are shackled to the wheel of political rehabilitation, determined to prove by 2015 that they are once more a responsible party of government. If broad exemptions from social, employment and criminal justice legislation are necessary to enact the small measures listed in the fine print, then regardless of their distaste they at least have a fig-leaf to hide behind. Is the social-chapter incompatible with a non-compliant Working Time Directive? Is the area of freedom, security and justice incompatible with our proposed sentencing policy?

On the latter point; a bit of judicious Euroscepticism would play well across the political spectrum, appealing to Labour voters and Tory alike, and provided it stays broadly with the generous headings of the coalition agreement they can be fairly sure their partners in government will have to swallow it as long as they are wallowing in the polls.

Do either of these conflict with the stated desire we should not be excluded (or exclude ourselves) from key decisions on issues, such as the single market and financial service regulation? It would appear not.

Where does Germany enter this equation?

The EU is neither representative nor accountable, owing to the fact that there is no common demos, so the german people have no common bond, or familial sentiment, with which to accommodate themselves to a transfer union wherein vast sums of taxpayer moneys are used to subsidise their neighbours indefinately. This is not an abstract concept to the German electorate who have spent 187 Billion euros on the reunification tax for the former East Germany.

The proposed measures to rescue the eurozone will not be detailed before September, and the next German federal election is going to be held within two years of that, so if it takes twelve months to ratify all these measures in the Bundestag, as the Karlsruhr will likely demand they must, then German politicians will be entering a general election have just signed their own death warrant.

If that happens, then everyone will be far too busy attempting to avert financial Armageddon to take time debating exemptions for us fractious Brits!

In summary, the very nature of the crisis is certain to create a two-speed europe, it is merely a matter of whether this momentum can be used to regain that which is essential for the operation of a sovereign nation state, albeit a 21st century version. Being without the Schengen area and the Eurozone, and having boxed security and defence into intergovernmental avenues, with the potential for social, judicial and economic freedom, the potential for an independent Britain certainly exists.

Spare a thought for the transnational progressive, for whom the idea of an al-a-carte europe is an anathema, for their dreams are dust. Where Britain leads countries on the periphery with follow, for ever-deeper-union relied on a sense of inevitability and that spell is now broken.

Update – 2011.08.09 – John Redwood pops up with a jolly good idea:

“what is required would be for this country to surrender its right to veto what the other EU states want to do – whatever it may be and however much power it may take from member states – in return for the right to opt out of anything they do which does not suit us. We could retain our place at the table for new measures, and make our contribution to the debate. If we reached agreement, we would apply it as well; if we could not go along with the majority, we would simply apply our opt-out. The potential opt-out should also apply to any power already given away, so we can restore proper democratic control over what has previously been lost.”

One response to “Opportunity or threat #4 – Has Sarkozy’s EMF revived Cameron’s EU plans?

  1. Having our cake and eating it, its a nice optimistic thought and the conditions should provide sufficient leverage to try for it, so whats to lose. Better that than nothing.
    However this term ‘two-speed’… it suggests wed still be heading to the same place, just slower. That is surely not the idea, if it is then whats the point?
    What is even the point of existing in a second tier? To live in hope that everyone else will see how cool it is, realise how silly they’ve been all along and abandon the integration agenda? Realistically that is not going to happen. There are only two options in the long run for Britain. In or out. Pick your side.

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