Fact check: Has Germany's Foreign Minister really "isolated" Cameron on EU migration?

Update 1:20pm: The FT has told us that it was the German Perm Rep in Brussels that sent the FT the quote, in reply to the question: "I'm trying to understand what the German position is on this matter and I'd be keen to know whether Berlin shares the UK view of curbing free movement of European Union workers." If that's the case then the German Perm Rep should obviously share some responsibility for recycling the quote and not being clear about the source or context of it. That said, we still think it's an odd basis for such a major splash and, as we argue below, conflates the issues involved since Cameron has not actually advocated a cap on current EU migration.

The FT's front page claims David Cameron "faces EU isolation on anti-immigration stance". Exhibit A in the paper's case is a quote from Germany's SPD Foreign Minister Frank-Walter Steinmeier:

“Germany has benefited tremendously from this and surely more than others. Now many young people from southern Europe are coming to us, to learn and study. That benefits us and also helps the states from which they come. Whoever questions that damages Europe and damages Germany.”

However, a little digging in the German press reveals that there's something fishy about Steinmeier's apparent criticism of Cameron.

Firstly, his comments were first reported on 2 January by German daily Sueddeutsche Zeitung, so this is not a new quote. Secondly, and much more importantly, his comments were not in response to anything proposed by the UK at all. In fact, he was responding to proposals from his CSU coalition partner. The original story made no mention of Cameron or the UK. So, unless Steinmeier repeated the quote to the reporters, the FT effectively extrapolated from a quote that was given specifically in the context of German Coalition politics.

It so happens that the CSU's ideas on EU migration quite closely resemble much of what the UK Government would like to do to tighten rules on access to benefits. Nevertheless, Steinmeier appears to be quoted completely out of context. This was a domestic German dispute about tackling the abuse of EU free movement (the German coalition fought fiercely about this at the turn of the year).

Even disregarding this (which is pretty difficult), the article is unclear on what issue Cameron is isolated over. It mentions outright "curbs" on EU migrants. We agree talk of this is unfortunate and that there's very little appetite for this across Europe. Fortunately, curbs are neither an official Tory or Coalition policy. The article also makes a specific reference to beefed-up transitional controls on migration from future EU accession countries, based on new economic criteria (potentially a GDP per capita threshold) before their citizens are eligible for full free movement rights. We don't know how much support there is for this proposal.

And finally, it also cites rules on access to benefits, for which there is support in Germany and elsewhere (though the extent is still unclear).

Now, we may agree or disagree with Cameron's stated policy on EU migration, and as we've argued before, No 10 could have handled this situation a lot better.

But using a quote taken completely out of context as the key basis for a major splash does nothing to boost the quality of the wider political debate about the EU and immigration.

Token negotiations risk an indecisive Yes or even a weak No

Given all the talk about an EU referendum, with many on both sides attempting to pre-judge the outcome, we thought this letter by Nigel Smith in today's FT was worth flagging up. Mr. Smith is unusually well qualified to comment on this area given that he chaired the cross-party campaign for a 'Yes' vote on Scottish Devolution in 1997, advised the Northern Irish referendum in 1998 and chaired the UK Euro No campaign between 2002 and 2004.

Here is the letter in full:

Sir, Gideon Rachman’s view that a British referendum on Europe would “strongly resemble” the last one in 1975 and would be likely to produce the same result is flawed (“Don’t panic – Britain would vote to stay in the EU”, January 3). Does he really think that another token renegotiation will produce the same decisive Yes to Europe as it did in 1975 – a 67 per cent majority – a result that has carried a doubting nation through 40 years? 

Roy Jenkins, the senior cabinet member leading the Yes side, shuddered with embarrassment at the tokenism. But it worked as the hinge for a reversal in opinion partly because a sceptical public feared a No vote would trigger an economic crisis and partly because the blanket support of the media for staying in Europe made them unwilling to expose the charade. The idea that tokenism will again go unchallenged after 40 years’ experience of the EU is not tenable. 

Mr Rachman also sets great store by the three main party leaders being on the Yes side – despite Europe being littered with examples where voters have rejected their elites in referendums. Even in 1975, in a more deferential age, opinion moved in favour of his “fruitcakes” on the No side. Because Yes started in the lead, with 74 per cent supporting renegotiation, it could afford a little erosion in support. There is no prospect of the next referendum starting with the same level of support for tokenism.

Given these differences, token negotiations risk an indecisive Yes or even a weak No. The latter would have the negotiators scampering back to Brussels for the substantive negotiations they should have conducted in the first place and, of course, another referendum. There could hardly be a worse prospect, but the record shows it to be a typically EU approach to referendums.

If the EU and Britain decide on renegotiation then it must be substantive in nature and transparent in process. This approach will also prove educative for the public so that, even if negotiations deliver little change, the referendum that follows will be honest and informed, and the consequences of a No vote clear. 

Nigel Smith, Glasgow, UK

UK would not be ‘biggest loser’ of EU budget failure

We have a letter in the FT today pointing out that the UK would not be the biggest loser if there is no positive outcome from the talks on the EU's long term budget - a fact we have noted at length in two recent flash analyses. We have also highlighted in recent blogs that the UK is far from alone in threatening a veto.

In an article a couple of days ago the FT suggested that if there was no deal on the long term budget the UK would be the biggest loser since the current budget framework would rollover (increasing for inflation), thereby taking it above the UK government's demands and increasing the UK's contribution.

See below for our full response letter:

Sir,

You say that “if there is no agreement” in on-going talks over the next long-term EU budget, the UK could become the “biggest loser” (“EUbudget: the trillion-euro split”, Analysis, November 21). This is incorrect. It is true that “the 2013 budget ceiling would be repeated – plus inflation – for each successive year” and that this would be higher than the freeze the UK has called for. However, this scenario would be far worse for other countries than for Britain.

First, newer member states would probably lose out on a large share of the cash that is due to be allocated to them in the new budget period. Second, unlike the UK’s rebate, all other correction mechanisms – such as the Swedish or Dutch – expire in 2013 and would need to be renegotiated under unanimity rule. Finally, and most importantly, the UK’s net contribution under a rollover is about €3bn higher than under the current proposal by European Council president Herman Van Rompuy. However, the Van Rompuy proposal also includes a reduction in the UK rebate of between €3.5bn and €7bn, meaning the UK contribution would overall be lower under a rollover.

Suggested reading material for the Commission

Bearing in mind that it is often said that someone's choice of newspapers reflects their particular political prejudices, the details of the newspaper subscriptions of the EU Commission’s spokespeople, revealed by Handelsblatt’s Ruth Berschens, are very telling indeed. Ruth writes that:

"All 32 spokespeople and their deputies read the British Financial Times, at least eleven order the French Le Monde, while six order the Italian Corriere della Sera and the Spanish El País. German papers on the other hand do not reach such lofty readership heights in Brussels. Currently not a single spokesman has a subscription to for example, the widely circulated Süddeutsche Zeitung”. 

Now of course, you can read a paper without a subscription and we're sure that the Commission keeps an eye on the German debate in various different ways. Still, it's an indication of something. While all the papers above are certainly respectable and informative, they are limited by the fact that they are all quite close to the establishment in their respective countries, and also generally afford the Commission relatively favourable coverage. Limiting your reading to the above papers will certainty not give you the widest perspective of what is really happening on the ground. There is also a great big German-sized geographical hole.
 
As Ruth herself goes on to point out, this leaves the Commission flying blind in the face of public opinion in the EU’s most crucial player: 

“How can EU officials and European politicians understand German sensibilities, if they do not speak any German and do not consult the German media? Short summaries of German newspaper article translated into English are not enough to suddenly make eurocrats experts on Germany. The flip-side of this low sensitivity to the domestic political constraints of the federal government are the completely exaggerated expectations of Germany.” 

Here are a few recent comments from the German media from the last few months that the Commission’s spokespeople may have missed: 

“Eurobonds undermine confidence in the fact that we can learn any lessons from the causes of the crisis. Athens’ sloppiness and denial would be tolerated while inaction would be seen as an attractive course in other countries. Why bother with reforms, why bother to make welfare systems, labour markets and the public sector sustainable when money will just fall from the sky?”- Florian Eder, Die Welt’s Brussels correspondent, 25th May 

“Hands off ‘Made in Germany’… this label is the envy of the world…Made in Brussels is the exact opposite – expensive regulations that shackle the economy.”- Prof. Ernst Elitz, founding director of Deutschlandradio, writing in Bild, 17th January 

"In dealing with Member States, the European Commission is rigorous. There is no measure that is too harsh when it comes to restructuring their budgets... However, when it comes to the salaries of the 45,000 EU officials, they exercise anything but restraint - this not only damages the credibility of all savings claims, but the reputation of the EU as a whole.”- Hendrik Kafsack writing in FAZ, 2nd March 

“In wanting to protect taxpayers, the UK is on the right side in the debate over bank capital rules... If Europe does not lead the way, the next crisis will again be an expensive one for taxpayers.”- Alexander Hagelücken, Süddeutsche’s economic correspondent, 4th May 

While we would encourage the Commission to go directly to the source and consult as many original German newspapers as possible, they could do far worse than signing up to our daily press summary which pulls together various sources from all over Europe…and it's free!

Business support for Cameron's EU veto loud and clear

Much was said about business' opinion of Cameron's EU veto in the immediate aftermath of this month's summit but, now that the dust has settled, the picture is starting to become much clearer.

Today, in a letter to the FT, orchestrated by Open Europe, 20 leading business figures express their support for Cameron's veto and his willingness to "stand up for an outward-looking and competitive Britain."

Here it is in full:

Sir, It is impossible to know just how European politics or economics will develop at this juncture. However, since the UK prime minister’s recent veto of a new European Union treaty, one major point of principle is clear: Britain does not want, or intend, to be dragged deeper into a more centralised and over-regulated EU with ambitions to become a political union.We therefore believe that David Cameron deserves the full support of the business community. On this occasion, he was seeking safeguards for the financial sector, still one of Britain’s biggest industries, employing more than 1m people and contributing more than £50bn in tax revenues, but the principle is applicable to many other sectors of our economy, including manufacturing, which employs more than 2.5m people.

Those who would portray Mr Cameron’s use of the veto as bad for jobs and growth or as leaving the UK “isolated” are mistaken. The real threat to employment is the euro crisis, which was unaffected by his veto and which the recent summit did little to address. Britain has great potential to compete across the globe, if freed from badly targeted and trade-hampering government intrusions, whether from London or Brussels. Irrespective of the fate of the euro or the ability of weakened southern European economies to prosper under severe austerity programmes, it is most welcome that the prime minister has shown himself willing to stand up for an outward-looking and competitive Britain.

Rodney Leach,

Chairman, Open Europe

Anthony Bamford,

Chairman, JCB

John Barton,

Chairman, Brit Insurance Holdings

Roger Bootle,

Economist, Capital Economics

Mark Darell-Brown,

Managing Partner, Brown Vanneck

Douglas Graham,

Chairman, Express & Star Midland News

Gerard Griffin,

Portfolio Manager, GLG Partners

Robert Hiscox,

Chairman, Hiscox Underwriting

John Hoerner,

Former Chief Executive, Tesco Clothing

Geoffrey Howe,

Chairman, Jardine Lloyd Thompson

Luke Johnson,

Chairman, Risk Capital Partners

Tim Martin,

Chairman, JD Wetherspoon

Nigel McNair Scott,

Finance Director, Helical Bar

David Ord,

Managing Director, Bristol Port Company

Neil Record,

Executive Chairman, Record Currency Management

Nigel Rich,

Chairman, Segro

Hugh Sloane,

Co-founder, Sloane Robinson

Brian Williamson,

Simon Wolfson,

Chief Executive, Next

Signed in a personal capacity

Meanwhile, an IoD poll has revealed that 77% of its members agree with the PM’s use of the veto, with only 19% disagreeing. The survey found that 63% of IoD members would like to see the UK in a looser relationship with the EU, including 42% who would like to see a repatriation of some powers.

Add to this our recent poll of financial services managers, before the summit, which showed that 69% supported the introduction of a British veto on EU financial rules even if it reduced access to the Single Market, and the picture is one of widespread business support not only for Cameron's veto but for a more liberal and competitive Europe.

Guilty Men's lessons from the past

In this week's Spectator, Peter Oborne and Frances Weaver trail their forthcoming book, "Guilty Men", which, judging by today's article, does a comprehensive job of lampooning the UK's pro-euro lobby. It will certainly make uncomfortable reading for those, including Mr Clegg, who still claim that "no one could see this coming".

The opening paragraph is the premise on which they make their argument:

"Very rarely in political history has any faction or movement enjoyed such a complete and crushing victory as the Conservative Eurosceptics. The field is theirs. They were not merely right about the single currency, the greatest economic issue of our age — they were right for the right reasons. They foresaw with lucid, prophetic accuracy exactly how and why the euro would bring with it financial devastation and social collapse."

There were of course those on the Labour side who made similar arguments but Oborne and Weaver hold no punches, especially when it comes to institutions of the establishment such as the FT and the BBC (We made our own attempt to highlight the folly of the pro-euro arguments in "They said it" last year):

"Even as late as May 2008, when the fatal booms in Ireland and elsewhere were very obviously beginning to falter, the paper retained its faith: ‘European monetary union is a bumble bee that has taken flight,’ asserted the newspaper’s leader column. ‘However improbable the celestial design, it has succeeded in real life.’ For a paper with the FT’s pretensions to authority in financial matters, its coverage of the single currency can be regarded as nothing short of a disaster."

Oborne and Weaver's research illustrates just how far the 'EU ideal' had permeated much of the political and media establishment - to the extent that those who disagreed where dismissed as "cranks".

"As Rod Liddle, then editor of the Radio 4’s Today programme, said: ‘The whole ethos of the BBC and all the staff was that Eurosceptics were xenophobes and there was an end to it. The euro would come up at a meeting and everybody would just burst out laughing about the Eurosceptics.’ Liddle recalls one meeting with a very senior figure at the BBC to deal with Eurosceptic complaints of bias. ‘Rod, the thing you have to understand is that these people are mad. They are mad.’"

And, in this respect, there is also an important warning for the future:

"One urgent lesson concerns the BBC. The corporation’s twisted coverage of the European Union is a serious problem, because the economic collapse of the eurozone means that a new treaty may be needed very soon — plunging the EU right back into the heart of our national politics."

We would perhaps add that the EU is already at the heart of national politics, something of which we're now reminded daily. Regardless, with the flaws of the eurozone now plain for all to see, more open-mindedness than in the past is a necessity when it comes to future debates about the best model for European cooperation, as well as UK's relationship with Europe - which faces a defining period in the coming years.

Blind faith is no longer an option.

An un-makeable bond?

In today's FT columnist Chris Giles suggests that Britain should not only back eurobonds - but also issue some of them itself.

He argues:

"There is much less difference between the British position and Germany’s than the chancellor cares to admit. For someone who believes eurobonds are a necessary feature of a rescue plan for the whole of Europe’s economy, there is an easy option to help remove blockages to their creation – offer to take part."

And how would this work? Simple, says Giles:

"Mr Osborne could pledge the UK issues as many eurobonds as it issues index-linked gilts over the next five years. In 2010-11 that would have meant issuing about £34bn, about a fifth of the deficit. It would lend Britain’s triple A credit rating to roughly six times this amount of eurobonds issued by other countries.

...To limit the risk Britain has to stump up for Italian debts, the eurobonds should have a dedicated tax stream as collateral, as suggested by Barclays Capital, which would apply even if a country defaulted."

And the quid pro quo?

In return for this generous offer, Mr Osborne could demand a voice in European fiscal consolidation efforts and that the eurozone goes further in issuing joint sovereign debt.

"Such a suggestion will leave as many in the Conservative party spluttering, but the logic of Britain issuing part of its sovereign debt in eurobonds is compelling", notes Giles.

Really, only the Conservative party? Credit to the columnist for coming up with something thought-provoking, but this idea is politically and economically flawed.

For the UK:

- Total Eurobond issuance would likely be in the region of £1-2 trillion per year, depending on the proportion of national issuance retained - a £34bn UK share, as Giles suggests, would hardly be enough to give Britain substantial influence over the eurozone, under Giles ‘pay to play’ logic. It's clear in the eurozone that the biggest guarantor (Germany) gets the final say in many matters, why the UK would get a influential role without putting up the necessary gurantees is far from clear and seems a massive assumption on Giles' part.

- Giles also suggests that the UK's Triple-A rating could boost that of eurobonds as a whole. But again, given the small issuance on the part of the UK and therefore its small share of guarantees this seems unlikely. As the EFSF and other Eurobond proposals show the ultimate rating of these instruments will be determined by the share of guarantees provided by higher rated countries. Adding the small share of the Triple-A rated UK into the mix won't make much of a difference.

- Economically, at a time of uncertainty, it would be illogical for the UK to expose itself to the exchange rate risk that comes with borrowing in euros – on any scale - effectively linking part of its debt to the ECB’s monetary policy. This is because part of the UK's debt would be determined in euros, the value of which is ultimately impacted by the ECB's decisions and the overall health of the eurozone economy. This may settle after eurobonds, but given the lack of clarity in this plan it is far from certain. In any case, the suggested benefits of issuing in euros is likely to be minimal at best.

- Similarly, the idea that these share of eurobonds would act as an inflation deterrent for the UK or an guarantee against inflation for investors seems overblown given the overwhelming amount of issuance still in pounds sterling.

For the eurozone:

- Apart from the huge legal and political hoops (i.e. national democracy), it's a heroic assumption that eurobonds would actually solve the current eurozone crisis - at least in the form they're currently being discussed. As Alvaro Nadal of the Spanish Partido Popular, on path to win the national elections there in October, recently told an Open Europe event, Eurobonds would be “suicide” for Spain as they discourage fiscal discipline while possibly even increasing overall borrowing costs, as the national share of the bonds pick up the slack. (We've detailed this problem and many more with eurobonds generally here).

As with most of the eurobond ideas out there, this one is undermined by taking the half-measure approach and failing to fully reconcile the economic and political shortcomings. More time and print space should be given to workable proposals, which so far have been few and far between.