Cameron’s euro dilemma

Prospect Magazine

Cameron’s euro dilemma

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It’s in Britain’s interests to be more involved in Europe

Take a leap of faith. Assume that, despite the woes in Greece, Italy and elsewhere, the roughly sketched out eurozone rescue plan succeeds in saving the currency union, in some form. Assume that the eurozone, whoever is in or out, is set decisively on the path of closer fiscal union and collective debt liability. Assume that all the consequent decisions about eurozone structural reform and the difficult political adjustment required are put in place. If the euro crisis is to be resolved in the long term, these things have to happen. Where does this leave Britain?

For most British Eurosceptics, the fact that Britain has found itself drawn into supporting the troubled eurozone, either through the International Monetary Fund or directly, as it has with the Irish bailout, is the unacceptable price of European union. Euroscepticism has been the majority view in the Conservative party for the last 20 years, but it is now the unanimous view, Kenneth Clarke notwithstanding. October’s parliamentary revolt by backbenchers over a referendum on British membership of the European Union was chiefly a disagreement over tactics, not principle, that divides a Eurosceptic government from its extremely Eurosceptic dissenters.

Whatever your views on European integration, Britain’s euro dilemma may be about to get a lot worse. Eurosceptics, however, are missing the point. As the British debate about “renegotiating” our ties with the EU rears its head again, the reality is that the eurozone will renegotiate its ties with Britain and the other non-euro EU states—whether we like it or not.

The tension in Britain’s position was perfectly captured by the sight of David Cameron provoking a reproof from French President Nicolas Sarkozy at the Brussels summit in October, for appearing to want to have it both ways. Britain doesn’t want in, but it wants to have a say on the way the eurozone solves its problems.

In a sense, Cameron’s concern is totally understandable. Britain’s economy is symbiotically linked to that of the eurozone. British banks are directly or indirectly exposed to the weaker European sovereigns to the tune of hundreds of billions of pounds. Purely on economic grounds, the health of the eurozone’s constituent economies is vital for Britain’s own fragile economy and key to its long-term prosperity.

However, a more integrated eurozone will fundamentally change the dynamic of the EU. The assumption has long been that the EU could tolerate member states moving forward at their own speeds on co-operative projects that suited their interests. This has happened in areas including defence and border control. But a fiscally unified eurozone is an entirely different proposition. It will be not so much a multi-speed EU, as a multi-objective one. The caravans will no longer be moving to the same point at different speeds: they will be pretty much headed in different directions.

The Eurosceptics say “fine, Britain’s interests lie in free trade with this group, nothing more.” This assumes that Britain’s interests in by far its largest market can be defended from outside the most important councils and governance bodies of that market. It assumes that British exporters are best served by waiting for standards and rules, set in Brussels, to be emailed to London so that they can comply with them. This is what the EU feels like for free-trade partners like Norway.

Whatever the justifiable frustration Britain might feel at the sometimes overbearing scope and reach of some areas of EU policymaking, the reality is that a genuine free-trade area cannot exist without common rules and standards. One regulatory regime is ultimately better than 27, even if it means making those rules collectively. Britain’s implicit strategy since joining the EU has been to use its influence in Brussels, in the European Commission in particular, to shape the direction of Europe and its single market in a liberal, reformed, Anglo-Saxon way. Broadly, the net benefits have outweighed the costs.

Any credible long-term path to recovery for the eurozone, whichever countries are in or out, will be a direct challenge to this strategy. The governance of the eurozone will develop its own instruments and working methods which depend less on the European Commission—France and Germany will see to that, because of their antipathy to the Commission and their desire to keep the direction of the eurozone the purview of Paris and Berlin. Inexorably, the institutional motor that has set the EU’s direction since inception will be weakened in favour of the eurozone. Further monetary and fiscal integration, which is a condition for eurozone survival, would have the perverse effect of diminishing Europe’s traditional institutional foundation.

Those that choose to stay outside this bloc will no doubt argue that the single market will continue to be shaped by all 27 EU states, but the massive weight of the eurozone can only weaken—probably dramatically—the influence of the outriders. Except in the fantasy world of the Eurosceptics, it is hard to imagine a self-excluded Britain dictating single market terms to eurozone members, especially when they have seen a eurozone bailout effectively help keep British banks and the British economy afloat.

There are no easy political or economic answers to this dilemma. Britain won’t join the euro. But if the integration of the currency bloc is going to take a serious step forward with Britain on the outside, then the government needs to focus entirely on ensuring that Britain does not pay too high a price in influence. This means—counter-intuitively for Conservatives—helping to strengthen the hand of the European Commission in the coming debate, and using existing Brussels institutions more, not less, in order to build alliances to counterbalance the weight of the eurozone bloc.

It may be that the destiny of the EU—or at least of “core Europe”—is now moving decisively out of Britain’s control. But that does not change the economic reality. Britain may well find itself stuck between choosing between second and third class status in the world’s biggest market, and in its own economic backyard. It is time to stop pretending that this is a problem that can be solved purely by exercising a little more “sovereignty.” Anyone who thinks that this is the moment for Britain to renegotiate a looser, more detached place in this complex, grand bargain that will define our economic future is missing the point.

  1. November 17, 2011

    Matthew

    Haven’t you done enough damage to this country Mandelson? Go away.

  2. November 17, 2011

    Cogito Dexter

    “This means—counter-intuitively for Conservatives—helping to strengthen the hand of the European Commission in the coming debate, and using existing Brussels institutions more, not less, in order to build alliances to counterbalance the weight of the eurozone bloc.”

    Your argument is bound to be manna from heaven to those who love ‘big state’ and power to unelected mandarins, but for Britain the best that can be said about your proposition is that it is the ‘least worst’ of the options you’re prepared to countenance.

    For me, the opportunity dividend of backing away from the EU into an EFTA relationship with Europe includes the doing-away with inexorable sovereignty creep and overbearing and costly regulation. It would allow us to set our own terms of trade to our best advantage, and make no mistake, it’s only trade that makes money, not regulation.

  3. November 17, 2011

    Jim

    What an idiot you are.

  4. November 17, 2011

    Aaron D Highside

    The self belief of Gordon Brown, the self interest of Tony Blair and the moral authority of ‘Baroness’ Ashton. Go away.

  5. November 17, 2011

    Derek Emery

    Look at the EU in for the long term.
    The money engine is Germany. All of the EU has ageing demographics that mean a dwindling workforce supporting a booming retired class. The lowest birth rate is in Germany so long term where is EU money to come from? Immigrant will never take on the Germanic attitudes that support their industry. Growth in the EU will be low because of debt and a disinterest in competing in the rest of the world. Within a decade ageing demographics will be having a much bigger negative effect.
    Growth in the rest of the world is close to 10% whereas in the EU it is nearer 1-2%. A decade of growth at 10% makes the economy 2.5 times bigger. The EU economy will be increasingly unimportant in Global terms. The rest of the world is moving up the economic food chain and producing a professional class which will make much cheaper world beating products and services. The EU is likely to be increasingly priced out by a far bigger range of cheaper foreign products and services. It is doubtful the EU will be able to maintain its lifestyle where it costs several times as much to produce the same goods and services. There are massive economic changes in the offing where the EU is on the losing side just as the rest of the world will win out.

  6. November 17, 2011

    AndyN

    “It assumes that British exporters are best served by waiting for standards and rules, set in Brussels, to be emailed to London so that they can comply with them.”

    That’s exactly what happens already, even with an army of bureaucrats supposedly going in to bat for us.

    “This is what the EU feels like for free-trade partners like Norway.”

    That would be the Norway whose economy was described by the OECD as “particularly resilient during the financial crisis with a relatively shallow recession”. Yeah, they really suffered by not having a seat at that table.

    These are just two of the dozens of points I could pick out of this heap of bilge Mr Mandelson. Just give it up – you’re demonstrably wrong about practically everything.

  7. November 17, 2011

    Ethan

    Are you utterly insane? The answer to any crisis is always more EU? Just go away Mandy you’ve destroyed enough of my country already.

    Ps it was hilarious seeing Paxo destroy you the other day. You stated the Euro was a sustainable success and we should join immediately. Fast forward a bit and it’s a total disaster. Then you tried to wriggle out of what you said. You must realise the games up Mandy when EVEN the BBC see through you. And they LOVE the EU more than you obviously do.

  8. November 17, 2011

    Alan Douglas

    [comment deleted by moderator]

  9. November 17, 2011

    GaryBaldy

    Mr Mandelson, you are effectively arguing that instead of heading for the lifeboats, after the Iceberg has been hit, we should head for the Bridge of the Titanic so that we can share in the decisions. For once would you please forget your EU pension and look at the bigger, World picture.

  10. November 17, 2011

    LabourNutter

    Spoken like a true Technocrat.

  11. November 17, 2011

    MattNW5

    Hmm… China doesn’t have the same rules and standards as the EU, and seems to managed to export to it just fine. What a load of total tosh.

  12. November 17, 2011

    Barbara

    You are paid to parrot’More Europe’, so your opinion is tainted.
    Can’t we just dispense with this charade – we know this will be your standard answer to everything, at all times, so you don’t need to keep on saying it.

  13. November 17, 2011

    Mark, Edinburgh

    I find this emphasis on it being vital to be at the “trading standards table” is somewhat strange, coming as it does from a former EU trade commisioner.

    Don’t most industries, ranging from oil and gas, to motors and electronics set their standards through international industry bodies, on which the EU, as opposed to the UK, now sits along with USA, Japan, China etc.?

    In fact the EU is simply our “rep” on the various international committees, rather than ultimate decider, and it then imposes the agreed international standards in the EU area.

    Whether it makes sense to ask the EU go on being our rep (as Norway does) or resume our own seat on these bodies (which our volume of international trade would justify) is merely a compromise between vital interest and admisnistrative cost.

    So in summary I think the trading standards argument is really a bit of a “canard”.

  14. November 17, 2011

    Barry

    “It assumes that British exporters are best served by waiting for standards and rules, set in Brussels, to be emailed to London so that they can comply with them. This is what the EU feels like for free-trade partners like Norway.”

    Norway is a member of many intergovernmental bodies that are expressly set up to determine international policies and standards on all manner of things and as such carry substantially more standard setting authority than the EU.

    For Norway, Brussels is a convenient conduit for those internationally agreed standards (generally done under a UN banner of some description eg UNECE, or the World Health Organisation) but there is scope for Norway to introduce those standards direct from the intergovernmental body if they choose to. NOBODY expects Norway to withdraw from the UN or WHO or others so why persist with such a flimsy claim?

    “One regulatory regime is ultimately better than 27, even if it means making those rules collectively. ”

    Without competition in regulations and a proper separation between competing units systemic risks are far more costly because they necessarily can affect a much, much larger system. The response to such problems is then slowed down by an over reliance on sclerotic centralised decision making.

    The damage isn’t just from attempting a one size fits all solution either but comes earlier in the process – it is that there can only be one solution at a time coming from the centre and the centre must wait for sufficient feedback before deciding whether a policy is working. We have seen precisely this rapid spread of disaster and ungainly and distant decision making with the banking crisis.

    Collectivism is fine so long as it is by choice. Then you are free to take part, free to adopt those values if they chime with yours in working towards a goal and crucially, free to exit the community if it no longer suits your purpose.

  15. November 17, 2011

    Major Bonkers

    Unbelievable. Are Mandelson and Ken Clarke the only two people who still believe that the way out of this hole is to keep furiously digging? It all reminds me rather of General Haig’s philosophy, circa 1916: what we need is just one more big push to win the war – more men – more guns – and after the inevitable failure, double the figures and repeat, ad infinitum.

    We’ve had 30 years of ceding democratic accountability in return for (what Mandelson still describes as) ‘influence’. Show us the benefits for 30 years-worth of Euro imposed socialism, and you’ll carry the argument: but all the rest of us can see is the destruction of our fishing industry, huge carbon taxes, and a gravy train for French peasants, Italian mafiosi, and second-rate politicians (no offense).

  16. November 17, 2011

    Sandy Jamieson

    And tomorrow in Prospect, Vidkun Quisling on Rebuilding Post-War Norway

  17. November 17, 2011

    The Meissen Bison

    “Assume that…the… eurozone rescue plan succeeds”

    It won’t.

    “Assume that the eurozone…is set …on the path of …collective debt liability”

    No, I’ve tried but I can’t manage to do that.

    “Assume that all the …decisions about eurozone structural reform and the difficult political adjustment required are put in place.”

    Ha ha ha!

    “If the euro crisis is to be resolved in the long term, these things have to happen”

    Well there’s a greater chance that you will marry my sister than that there will be a resolution to the Euro crisis, a catastrophe inflicted on a benighted Euroland by economically illiterate ideologues like Peter Mandelson.

  18. November 17, 2011

    Madasafish

    This means—counter-intuitively for Conservatives—helping to strengthen the hand of the European Commission in the coming debate, and using existing Brussels institutions more, not less, in order to build alliances to counterbalance the weight of the eurozone block.

    In other words, centralise power to Brussels.. to an unelected Commission..

    Mr Mandelson is urinating into a hurricane.

  19. November 17, 2011

    magot fish

    So far, I have read opinion of Peter Mandelson and the comment from Cogito Dexter. In my opinion the latter is the correct one. We joined the ‘Common market’ in the early 1970s and I recall the political comment at the time: Ted Heath claimed that he had a mandate because he was elected Prime Minister despite the fact that the Conservative party manifesto made no mention of joining that organisation. At that time, I recall that the Chancellor of Germany was Willie Brandt. Germany was also at that time the most powerful member of the common market, despite the protestations of the French government. Willi Brandt said that if Britain did not join the Common market the only sensible thing to do would be for the Common market to seek some agreement with the EFTA countries. In my opinion that is what should have happened then and I still stand by that. I contend that they would not have been one 10th of the trouble that they are now in if that had been the outcome. I am not in business any more, I do community work now, but my opinion has not changed at all. The European common market was designed to try to prevent Middle Europe from engaging in war in future, if you ask me. When we joined the Common market it caused my opinion that we heard Gifford hit exactly what he wanted and that opinion has been the same ever since. I can see no reason to change it. You may contend that the German people did not think very much of Willi Brandt. If you are asked their opinion of the present Chancellor I very much doubt if it would be as high as even that.

    The world is changing now and the balance of power lies with the Pacific. The reason? They have more people, who have to work for less money when you think of it that is the only way societies ever won this particular battle.

    There is a chain of thought which believes that the system must change. If it does, it will have to be a great deal more equal throughout the world.

  20. November 17, 2011

    harmonicaman

    The wilful blindness of the EU apologists is astonishing. Democracy maters not to the EU, they have usurped two elected leaders so far, Mandy no doubt has no problem with stifling democracy, but then no doubt he sees himself partying with champagne and caviar in his dascha while the plebs queue for bread. The mans is one of a disgraceful cabal, images of Caucescu will come to many minds if this lot are not careful.

  21. November 18, 2011

    J Huddleston

    Looks like we’re going to have to buy tons of pain-relief and just jump in. The idea of having no say in our largest market, and in the rules and regs of the largest trade zone on earth, is just unbearable.

  22. November 19, 2011

    John Ellis

    Very much the pragmatic view – and none the worse for that. As a relative oldie, it makes me weep to have witnessed the lazy growth of a whining nationalism in England (Wales has benefitted hugely from the EU) to the extent that we have almost created an ‘other’, an enemy almost, across the channel. We joined the EU having fought our way past de Gaulle’s blocking and have blown our chance to be a more important player and benefit even more. Anglo-Saxon employers seem content to want preWWII work standards in pay and hours, which runs counter to the need to employ more people rather than run a few into the ground leaving others jobless. We need a new paradigm but it not going to come from conservatives who have not left the nineteenth century.

  23. November 19, 2011

    Chris

    Yousay the is missed but the point is that we may have to concede Euro product standards[without influence [ probably very limited already in a group of 27 - soon to be 33] but we will not be weighed down by excessive euro regulations, the CAP and billions of contributions [set to increase] to the EU for which we receive little or no benefit . Moreover you fail to point out that the EU may be a large market, but it is in structural decline in relation to Asia and elsewhere eg US Latin America where UK exports have a better prospect of growth. Growth in the EU is likely to sclerotic for decades to come- the Euro one size fits all policy plus deflation and population decline will see to that.

  24. November 19, 2011

    Chris

    You say the pint is missed by sceptics but the point is that whilst we may have to concede Euro product standards[ our influence is probably very limited already in a group of 27 - soon to be 33] BUT we will not be weighed down by excessive european regulations, the CAP and billions of £ contributions [set to increase] to the EU for which we receive little or no benefit . Moreover you fail to point out that the EU may be a large market, but it is in structural decline in relation to Asia and elsewhere [eg US Latin America] where UK exports have a better prospect of growth. Growth in the EU is likely to sclerotic for decades to come- the Euro one size fits all policy plus deflation and population decline will see to that.In 20 years the EU will be an economic sideshow and social democratic paradise unable to pay its welfare bills without high taxation and probably less competitive than it is now [ with the possible exception of Germany ]

  25. December 2, 2011

    Sebastian Dégardin

    I totally agree with Lord Mandelson;
    my greatest wish for the UK is to have it more closely linked to the Eurozone, even if this may be hard to imagine at the moment, given the turbulences we are prone to.
    But I am convinced that the EU will end up strenghtened by the crisis, so that it is in the British interest to rely on its partners on the Continent for the future.
    The UK and the EU are in need of a new era of rapprochement, not the opposite.

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  1. Eurozone crisis: live blog | The World | International affairs blog from the FT – FT.com11-17-11




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