Howarth: It's Crunch Time for Britain and the EU

Open Europe's Christopher Howarth wrote the following article for Ireland's leading business paper the Sunday Business Post

With MPs in the UK passionately discussing holding a referendum on the UK’s membership of the EU you could be forgiven for thinking that the UK/EU relations have just taken a decisive turn for the worse. That should be a sobering thought.

However, in truth these issues have been a long time in gestation. Ever since the UK decided not to join the euro divergence between the UK and the EU became inevitable. Unease at the direction of European and eurozone integration is felt most acutely by Conservative MPs but poses questions for all UK parties. How can the UK find a role for itself in an EU increasingly dominated by the politics of the eurozone? How can a state reliant on services exports align its interests with an EU built around a single market in goods? How can the UK’s interests as a financial centre be reconciled with financial regulation set with other interests in mind? And above all, how can MPs in Westminster address the serious democratic deficit built up in the UK’s relationship with the EU over the past decades?

All these issues are beginning to find their way into the mainstream of UK political debate. In Ireland a series of EU referendums provided an avenue to openly discuss the EU. In the UK we have not had the same level of public debate. Instead of debate we saw the Lisbon Treaty, like those before it, rolled into law at the behest of Government whips. These European chickens are now coming back to roost.

When the Lisbon Treaty came into force the then shadow foreign Secretary William Hague said cryptically that “we will not let matters rest there”. King Lear would perhaps have added “I will do such things. What they are, yet I know not: but they shall be the terrors of the earth” but the effect on EU Governments would have been the same. Demanding treaty change, except of course for the centralising type, was unthinkable.

Now after three years in power we are a little clearer as to what terrors the Conservatives had in mind. David Cameron has said he wishes to attempt to reform the EU, renegotiate the UK’s membership terms and then hold a referendum on the UK’s membership after the next election but no later than 2017.

Despite setting out this plan frustration among Conservative MPs has continued to build. In an attempt to defuse weeks of pressure Cameron has now agreed to back and vote for a Bill to put the 2017 referendum into law. Why legislate now? You might be forgiven for thinking Cameron’s MPs do not trust him. Some don’t. But, what concerns them most is that the electorate will not trust them to deliver a referendum after the 2015 election. That matters with UKIP gaining 26% of the vote in the recent local elections.

The desire for a referendum is real but a referendum only allows for a yes/no answer. There are those in the UK, in both the ‘pro’ and ‘anti’ EU camps who want this and dismiss the possibility of reform. Some pro-EU integrationists believe that the status quo does not need to be changed and a referendum will (if it cannot be avoided) will deliver an ‘in’ vote without any substantial changes. This is referred to as the Harold Wilson gambit, after his token 1975 renegotiation. Those in the ‘out’ camp also hope that reform is impossible believing EU intransigence will convince people to leave. Like the Baptists and bootleggers in prohibition US, both sides have a common interest in reform failing.

However, public opinion in the UK is not yet that polarised. The majority of business and public opinion does not wish to leave the European Union but is also not happy with the status quo. Instead they wish to see reform.

The task David Cameron has set himself is achieving new terms that the majority of the UK public would be happy to endorse. This is a tough task, but Cameron believes that if pushed, states such as Germany who value the UK’s advocacy of free trade and liberal economics would back reasonable reforms. So the million euro question is what could a durable EU-UK settlement look like?

First, the power of national parliaments over EU decisions needs to be radically strengthened, to reconnect the EU to voters. Secondly, as the Eurozone integrates further, the UK and other non-eurozone countries need safeguards to make sure euro countries don’t start to write the rules for all 27 member states, in which the case the UK almost certainly will have to leave. There’s also a very strong case for revisiting areas where the EU’s powers have gone too far, such as in crime and policing or employment law.

However, in some areas “more Europe” may be needed. For example, a big move on liberalising services would help make the EU more relevant to an increasingly sceptical business community. The EU services sector is one of the bloc’s great untapped resources, but for too long, protectionist-minded member states and the European Parliament have blocked a dynamic single market in services, to the disadvantage of services-oriented economies like Ireland and the UK. A quirk in the EU Treaties – so-called enhanced cooperation – could be used to press ahead with more services liberalisation involving like-minded countries. If only 12 countries did this, it would still lead to a 1% permanent boost to the EU economy.

Make no mistake, the risks of reform failing are profound. Advocates of ‘in’ would be deprived of their best tune and a UK exit would be far more likely once the British public is finally asked. States in favour of open markets and free trade would lose a strong ally.  The EU could then chart a new course more centralised and protectionist than before. 

But rather than engage and negotiate with Cameron perhaps the best strategy is to sit tight and hope for a Labour victory in 2015? That may paradoxically be the worst option for those wishing to avoid a UK exit. Not only would the Labour party come under immense pressure to hold its own referendum, but would be destined to hold a referendum without having attempted or achieved any meaningful reform. Worse, a mid-term Labour Prime Minister campaigning for an ‘in’ could be faced with a new post-Cameron Conservative leader campaigning for an ‘out’. As for the Liberal Democrats, Nick Clegg recently told Parliament that treaty change is a matter of “when not if” and would trigger a UK referendum. The worst of all worlds, a treaty change dreamt up with no UK input being put to the British people – the answer to that would be a decisive ‘out’.

So will the UK leave the EU? This is not a certainty but the real possibility should concentrate the minds of those who share some, if not all, of the UK’s interests. Rethinking the EU’s direction of travel, re-centring it on a single market that works for services as well as goods, economic competitiveness, less regulation, decentralisation and the legitimisation of the positions of non-euro states could be useful in reconnecting not just with the UK public but with others as well.