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Tuesday, July 03, 2012

The Conservative Party should drop its short-sighted support for Euro Fiscal Federalism

Open Europe's Christopher Howarth has written the following article for the website Conservative Home

Following interventions by David Cameron and Liam Fox most Conservatives now think that EU renegotiation and an EU-related referendum are necessary, though they may differ on timescale. As I’ve set out before here, there are a number of different options for an EU referendum that can go into the next Tory manifesto but on substance, the final outcome of any negotiations will largely depend on the nature and speed of eurozone integration, and the Treaty change that entails (over which the UK will have a veto). Judging from his remarks over the last few days, David Cameron genuinely wants to reform the UK’s relationship with Europe.

However, on one point the Conservative leadership is a bit lost: its explicit support for Euro fiscal federalism, which threatens to complicate any renegotiation.

Sir Humphrey: "Britain has had the same foreign policy
objective for at least the last 500 years" - until now

Preserving the balance of power in Europe was a traditional British policy, practiced ever since Henry VIII who effortlessly switched from traditional support for Spain to France in order to prevent the emergence of a continental hegemon. However, like a lot of British tradition, it has (despite Sir Humphrey’s attempt at revival) gone out of fashion. But it is still startling to hear a Conservative Prime Minister and Chancellor – alongside euro socialists such a Francois Hollande or EU federalists such as Jean-Claude Juncker - leading calls for a European fiscal union, albeit one in which the UK would not be involved.

It is true that it was widely predicted, not least by the current Foreign Secretary, that currency union would lead to a common government, but for the Conservatives – some of the greatest opponents of giving EU more powers - to actively support moves to Eurozone fiscal integration is contradictory and risks locking the UK into a weak negotiating position over future EU reform.

First, it amounts to ‘do as we say not as we do’. Why in the world should a state take Britain’s advice to undertake further integration when it is clear Britain believes, for itself, this is harmful? Do we even believe that backing up the Eurozone with tight fiscal rules, eurobonds, a banking union and ultimately fiscal transfers can produce political stability or the structural, pro-competitiveness reforms that Europe so desperately needs? Present experience, as well as fiscal conservative economic thought (i.e. the need for budget responsibility and risk of free riding), would say no. Debt pooling in the Eurozone would probably take the pressure off Spain, Italy and others to reform.

But more fundamentally, the Conservatives, including the current Foreign Secretary, were vocal opponents of implementing the Lisbon Treaty without the consent of voters. They’re now asking eurozone leaders to pursue a “single economic policy”, despite the fact that public opinion in many euro countries is clearly against such a move. 80% of voters in Germany are against Eurobonds according to a new opinion poll – that’s more than the share of Britons opposed to the UK joining the euro.

Finally, a full-scale banking and/or fiscal union probably requires treaty change – possibly a series of treaty changes - something Britain has pledged to veto unless it gets safeguards to protect its interests. In particular, a banking union would most likely cut across the single market in financial services, something again that Britain has pledged to prevent. In other words, this locks Britain into a weak negotiation position over the type of reforms both Cameron and Fox probably have in mind. How can Britain stake a claim for a new relationship with the EU, in return for acquiescence in a treaty change we were the foremost supporter of?

So why is the Coalition backing Eurozone integration? Fear of something worse? A desire to pin the blame for the UK’s own slowdown on the Eurozone? Fear of the short term damage caused by Eurozone breakup, or simply the desire to say something – the culmination of the politician as a commentator on rather than an instigator of action?

Whatever the motivation, it is short-sighted. After having spent a decade in opposition, calling for a more dynamic European economy and a slimmed-down, more democratic EU, the Conservative leadership has now invented a new political belief-system: Eurosceptic fiscal federalism.

Instead, whatever their personal thoughts, the Conservatives should leave this question about further fiscal integration open to the eurozone to decide. It should tell Germany and others the following: we understand the need for you to seek guarantees in return for how your money is being spent in Europe. But Britain has legitimate requirements as well. Since we will never join the euro, Britain will need a different – and more flexible – set of arrangements than euro members. This is the only way to reconcile continued EU membership with UK public opinion. Let’s strike a deal.

Rather than waste his time irritating the Germans, David Cameron needs to set out the vision for the UK in a new Europe, which he himself – encouragingly - now has called for. Tactical support for Euro Fiscal Federalism is not it.


IAC381 said...

It is very difficult for a British PM to set out an alternative vision for Europe while Britain will only tolerate a loose association, in the medium and longer term.

But you are right that the Tories should not be encouraging fiscal union, especially not in the context of saving the EZ, which is unrescuable on the timeline necessary for fiscal union. At best fiscal union will be another botched EU project that will disappear up its own irrevocables and likely as not lead to abandonment of the EU by many otherwise 'good European' states.

I fear Cameron is using his support for FU (that is what it will be) in order to be seen to be constructive, whereas what he should be saying is "if you want to save the Euro you must undo it today in order to rescue the long term strategic sense of economic and political union tomorrow. If you do not, you will bring the world economy to its knees and with it the death of the entire European project".

Anonymous said...

The author of this article makes this too complicated:

Cameron is a bankers' New World Order lackey, and he is doing what he is told to do to help them create their New World Order.

This has been obvious and consistent for many UK governments, particularly with respect to the
UK's" policy on the EUSSR.

There is no "sense" to be made of what's going on in the EUSSR these days, if we ontinue to ignore the obvious.

Rollo said...

This is not short sighted: it is blindness. It is the deliberate blindness of those who will not see.
The EU is a disaster: good, lets have more of it.

Rik said...

1. Like Cameron's talk isnot really helpful to gain support in the EZ for any British plans, but nobody is paying really attention to it, so it is roughly the same here. At least for the possibible influence he has, which is negligible.
2. Anyway a fiscal union (if there ever be any) is most likely only short term an advantage for the UK. A break-up would have more short term negative economic consequences which would undoubtedly affect the UJ.
3. Longer term it would likely make the EZ a zombie-region (because the ones with growth potential transfer their growth away while the ones with urgent need for structural reforms do nothing as long as the easy money from the north comes in.
4. Getting involved means that you are more likley demanded a contribution (direct or via EU), which is also not very helpful.
Also politically the EU would be more or less taken over by the EZ, which is not in the UKs interest.

Denis Cooper said...

It should be obvious that the existence and continued expansion of the eurozone is a deadly threat to our vital long term national interests, and the present UK government policy is so insanely contrary to our national interests that you really have to start asking whether those advocating it are:

a) insane; or

b) traitors.

In neither case should they be in government.

How can a government which says in public that the euro was always a very bad idea nonetheless sign an EU accession treaty for Croatia which puts that country under a legal obligation to join the euro at the earliest opportunity?

And how can the Tory members of that government turn a deaf ear to the pleas of their allies in the Czech Republic that they should be relieved of that legal obligation, imposed as a condition for being allowed to join the EU?

Why is that government so willing to give German government EU treaty changes which it wants to preserve the present eurozone intact, without insisting on other EU treaty changes to protect our long term national interests?

Why is that government pressing for the vile anti-democratic ESM to come into operation as soon as possible, and why is it now pushing the Bill to approve the enabling EU treaty change through Parliament without a referendum?

The radical EU treaty change quietly agreed by EU leaders, including Cameron, on March 25th 2011, the subject of this e-petition calling for a referendum:


Bugsy said...

Well put Dennis.
Why is Cameron dangling us with a referendum while all this is happening. If he is supportive surely he knows the result of any referendum will lead to less Europe in the UK.

christina Speight said...

I like the simplicity of Rollo's posting but it's Denis Cooper who has it in full and right.

It;s time for the government (Clegg permitting and if he doesn't ditch the Coalition) to wipe out ALL its foolish stances and start again with a 'hard man' approach. Veto everything in sight and if it pulls down the whole Euro that would be greatest service to Europe we could offer. The PIIGS_+C would benefit at once and Germany+Netherlands +? would also prosper more. The world economy could then start on the long recovery.

Butwhat are the chances of Cameron seeing sense. My reckoning is NIL. So it's doom for all then.

Anonymous said...

Let's be honest. The Conservative government is actively supporting moves to Eurozone fiscal integration, because that is what it wants to do.
The rest is just talk to decieve those who want to be deceived, those who want to believe the Conservative Party is serious about opposing the EU.
We need to leave the EU - now!

Patrick Barron said...

Well said, Mr, Howarth.

Why does Mr. Cameron issue such staements? Professor Yuri Maltsev explains it as simply intergovernmental support, no matter how misguided it may be. One government feels obligated to voice support for another, sort of cheer leading. There is no real support behind such statements; therefore, they can only be misunderstood.

Anonymous said...

Doing favours for the EU increases the chances of riding the EU gravy train. Quislings dont have a consience.

"Pegtops" said...

I am a Conservative and DO NOT WANT TO JOIN THE E.U. What happened to the P.M. promise to have a referendum if he became PM., what has become of integrity. For goodness sake stand up and do your job properly and let the people decide their future. Other countries are doing well by keeping out of the EU so what is the problem by taking that step. I think there are too many people in top positions in parliament who are wealthy and therefore looking at their future rather then the counties future. Thankyou, Tony Abbott. (I am a direct descendant of Wiliiam the Conqueror but NOT in the wealthy bracket.)