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.