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Tuesday, March 09, 2010

Threat or opportunity?

The German-led calls for an IMF-style bailout fund for the EU have caught most people on the hop, including the French, and the lack of detail suggests that the practicalities are only now being worked on inside the German Finance Ministry.

French officials have said that there are two fundamental issues still up for debate: whether the European Monetary Fund would cover only the eurozone or all of the EU's 27 member states, and whether the EU treaties should be amended to create the fund. Plainly, there is a long way to go before the EMF gets off the ground and the current debates are highly speculative.

But as far as the first question goes, if the proposed EMF were to include all 27 member states, rather than just the eurozone, this would obviously have significant implications for the UK as British taxpayers would be asked to underwrite other EU governments’ debts. It would also draw the UK into a system of EU 'economic government' that would potentially give the EU greater powers to interfere in monitor the Government's handling of the economy.

For both of these reasons, any UK government is likely to stay well clear of any participation in the EMF.

The second issue, over whether an EMF would require treaty change, is far from clear but there are a few hypothetical scenarios.

Paris appears cautious about any proposal for an EMF that would require treaty change. French Finance Minister Christine Lagarde reportedly said that "Other avenues should be explored" that are in line with the existing Lisbon Treaty. This suggests one of those creative legal EU solutions which confuses everyone (possibly involving the Lisbon Treaty's ratchet clause which allows for amendment of the Treaty without it being considered an actual treaty change).

However, Chancellor Angela Merkel yesterday made it clear that she thought that the creation of a bailout fund would certainly require changes to the EU treaties. "Without treaty changes we can't form such a fund," she said. And given that it would amount to a breach of the current 'no bailout' rules in the treaties, it is hard to argue with her.

Commentators are already suggesting that new EU treaty negotiations would present both Labour and the Conservatives with big problems. Gordon Brown promised MPs that after Lisbon there would not be any institutional changes in the next Parliament:

I can confirm that, not just for this Parliament but also for the next, it is the position of the Government to oppose any further institutional change in the relationship between the EU and its member states. [Hansard, 22 October 2007]

Similarly, the Conservatives announced last year that they would give voters a referendum on future transfers of power to the EU.

However, depending on how this plays out, an EMF that didn't include the UK could actually present the UK with a sizeable bargaining chip, particularly a future Conservative government. Treaty change would require the Government's consent, whether the UK is involved in the EMF or not. In other words, this could be an opporunity for an incoming Conservative government.

The Conservatives have said they want to renegotiate areas of the UK's membership, notably opt-outs from costly EU employment regulation and intrusive justice and home affairs legislation. In addition, an incoming UK Government has a lot of work to do on the EU budget and the single market issues, including financial legislation.

There is possibly a deal to be done here – the Tories could say "if want to go ahead with the EMF and closer economic integration of the eurozone you need to give us something that we want in return." In Cameron's own words, it would be the ideal opportunity to argue and demonstrate "that European integration is not a one way street and that powers can be returned from the EU to its member countries".

The tricky issue is of course that the Conservatives' promised - or at least are now percieved to have promised - that any siginficant treaty change leading to further integration would trigger a referendum in the UK. And the establishment of an EMF would be a big change, as it would create a whole new EU institution and a lender of last resort at the EU-level. This, in turn, is a clear step towards fiscal federalism, regardless of whether the UK takes part.

At the same time, if not involving Britian at all, the argument can be made that it does not involve a transfer of powers from the UK to the EU per se. Indeed, if put in the right context, it could be presented as a method of regaining powers from the EU, by taking the creation of EMF 'hostage' in EU negotiations.

The critics were quick to say that Cameron's policy was unrealistic and undeliverable, but if the proposal for an EMF gains speed he may be presented with an early opportunity to prove them wrong.

If all the pieces fall into place, he should take it.


Anonymous said...

"William Hague said on Tuesday that the Conservatives had made 'a strategic decision' not to pick a fight with Europe if they won the election, insisting that a Tory government would be 'highly active and activist in European affairs from day one'. The UK shadow foreign secretary said the priority was to sort out Britain’s fiscal crisis, which he claimed had diminished the country’s standing in the world, adding: 'We have enough on our hands without an instant confrontation with the EU.'”

Therefore, as you say: "At the same time, if not involving Britain at all, the argument can be made that it does not involve a transfer of powers from the UK to the EU per se."

And that is what the Tories will argue.

Anonymous said...

What can you expect from the same lot that sent Ken Clarke over to Brussels? More Tory Treason!

Anonymous said...

I have always said that theere are four players in the EU,Germany,France,Spain and Italy.When one of these countries puts anything forward the other three always support it...why?
The EMF is only another brick in the anti-democratic wall that these four are building.They will change laws,rules,use any means and excuses to further their aims,which is a dismantling of free speech,cultures and independence,starting with Europe and ending with...the world.

Anonymous said...

So already they are talking about another treaty proving that the Lisbon Con was half-baked in the first place.

I was under the impression that the Euro regulations already covered gross over borrowing but apparently it does not or is that they were not prepared use those regulations. FURTHER DEMONSTRATING THEIR INCOMPETENCE