Dutch government: "Time of ‘ever closer union’ in every possible area is behind us”

Dutch PM Mark Rutte (VVD) and Foreign Minister Frans
Timmermans (PVdA) discussing what the EU should
and should not be doing?

For anyone involved in the EU reform debate, this is a must-read. The Dutch government has today published its “subsidiarity review” – an assessment of what the EU should and shouldn't be involved in. Again, we're first to the punch in publishing an English version of the document on our blog.

This is likely to be welcomed with open arms in Whitehall – and should be studied carefully by MPs in Westminster. Though not all good news for David Cameron’s renegotiation strategy – the Dutch have explicitly said they don’t want EU treaty change for example – this is clearly a major step towards a reformed Europe.

First, it shows that discontent with the EU status quo is not simply a UK phenomenon – or a Tory problem as some commentators would have us believe. Secondly, the ideas the Dutch are putting forward are in themselves pertinent, and would go quite some way in achieving a better functioning, more democratic and better focused EU. Finally – and this is where it gets really good news for Cameron - countries like Sweden. Denmark and Germany are far more likely to be persuaded down the reform path if the Dutch are prepared to take a lead with the UK.

So what does the document say? Well, it sets out nine broad principles and 54 specific recommendations, relating to what the EU should and shouldn't do. Many of the proposals have also been championed by Open Europe in various forms (it’s worth re-visiting our “European localism” paper). Most significantly, in the press release, the Dutch government proclaims that the “time of an ‘ever closer union’ in every possible policy area is behind us”. This is not going to go down well in certain corners in Brussels.

The guiding principle is described as “European where necessary, national where possible”, and the tone of the entire document chimes well with Cameron’s EU speech, calling for a “European Union that is a more modest, more sober and at the same time more effective.” Interestingly, it notes that the Dutch EU Presidency in the first half of 2016 “could play a role in promoting such an agenda” – this could coincide with the beginning of the EU referendum campaign in the UK should Cameron be in power.

The 9 general principles include:

• Where the European Court of Justice interprets EU law in a way that EU legislators had not provided for and/or did not intend, then this should be possible to address by amending the EU rules on which the Court based its ruling (this could well be a key plank in Cameron’s renegotiation strategy. An example of where the ECJ ruled in precisely such a way is the Working Time Directive, where the ECJ's interpretation of rules governing on-call time and rest periods for doctors has caused havoc in the NHS);
• Every EU intervention needs to be motivated by a clear legal basis in the EU Treaties, and the Commission shouldn't be making proposals on a legal basis that is tenuous or insecure. The Dutch Government explicitly mentions the English term “creeping competences” (this is very similar to what the UK government wants); 
• EU legislation should focus on main points to achieve shared goals rather than to prescribe in detail how those goals should be achieved (again echoes Cameron’s speech);
• When there are widely shared objections to EU legislation, there should be a mechanism to stop the Commission taking any further initiative in that area – this is a bid to stop new EU laws in areas where national governments don’t want them.

As regards the 54 specific recommendations, they mention individual measures where EU power should be scaled back. There are many overlaps with UK ideas. These include:

• Halting the further harmonisation of social security systems. The document says: “It is necessary to combat the negative impact of labour migration, including the abuse of social security systems” – an issue UK Home Secretary Theresa May has been keen to highlight; 
• Limiting the EU budget - the Dutch hint at scrapping the EU's Globalisation Adjustment Fund and structural funds outside of the poorest regions in the poorest countries on the basis that these do not demonstrate added value (the latter is a proposal Open Europe has championed and which the previous Labour government had pushed for. It’s also gaining traction amongst Tory backbenchers) 
• No expansion of agencies’ remits and no increases in their budgets – Cameron was very critical of EU quangos in his EU speech;
• Working conditions, which should only be regulated in broad outline (health and safety and working time, for example);
• No EU regulation of media pluralism; 
• A two-year freeze in salaries of EU officials;
• Sunset clauses should be incorporated in EU proposals (an old UK demand);
• The Financial Transaction Tax is heavily criticised, because "it has been designed in such a way that even parties outside the FTT area, like Dutch pension funds, will be taxed when they trade financial instruments issued in FTT countries";
• CO2 emissions should be dealt with at the global level rather than via EU legislation.  

There are also some further detailed examples of where the EU has gone too far and where powers should be rolled back. For example, the suggestion is made that flood risk management should only be harmonised at European level for truly trans-boundary water courses. The report also recommends the phasing out of the EU programmes for school milk and school fruit, and heavily criticises the recent proposal to ban refillable olive oil jugs from restaurant (which was eventually dropped by the European Commission).

However, the document also sets out clear limits to what the Dutch government says it is prepared to consider and it does not does call for entire policy areas to be returned to national governments. The Dutch government also says it is “not interested in treaty change or opt-outs” for itself.

Nonetheless, the fact that one of the EU’s founding members has stated that "the time of ever closer union is behind us" is clearly a major development.

Is the UK winning the argument on EU regulation?

Yesterday afternoon Open Europe hosted Business and Energy Minister, Michael Fallon MP, the man responsible for pushing the UK's 'smarter regulation' agenda in Brussels. This is a subject close to Open Europe's heart as we have produced a number of highly detailed reports on the cost of EU regulation - £124bn gross between 1998 and 2010.

In his speech, Fallon argued that while the single market had the potential to be the "greatest platform for economic growth", overly burdensome regulation coming from the EU was choking off potential jobs, growth and competitiveness, and as argued by David Cameron in his EU speech, Europe could not afford this in the global context. "The burden of unnecessary costs" was carried more heavily by Europe than by its competitors, he said.

He argued that this burden falls particularly hard on SMEs, citing a consultation which found that many had to employ a dedicated member of staff simply to process the workload stemming from the EU's REACH (Registration, Evaluation, Authorisation and Restriction of Chemical substances) Directive. Other areas of EU legislation identified as particularly onerous were the Working Time Directive, the Agency Worker's Directive and other social and environmental rules.

During the Q&A session he pointed out that leaving the EU was not a panacea - as UK companies exporting to the EU would still have to comply with many of these regulations without having any say over them, something currently vexing the Norwegians (see here for a more detailed look at this issue).

Fallon argued that progress had already been made on over-regulation on both the UK and EU fronts, pointing to strong support from other member states including Germany, which resulted in the recent letter signed by twelve member states calling for a reduction in the overall EU regulatory burden. Fallon pointed out that as a result of the crisis, many member states had become a lot more receptive to UK-style reforms, with France and Poland adopting a 'one in, one out' approach to regulation based on the UK model. He was also hopeful that Mediterranean countries would become allies in this fight given their need to restructure their economies and said he was disappointed they had not done so already.

On the UK front, Fallon claimed that the coalition's six-point transposition plan for EU laws had resulted in the elimination of costs associated with gold-plating, i.e. that when adopting new EU laws, the UK would only impose the minimum standards necessary to comply.

However, as Fallon acknowledged, there is still more to be done, arguing for example that EU impact assessments ought to be independently verified, and that a "cultural shift" needed to take place in Brussels.

The case for bringing back some powers from Brussels... by Nick Clegg

As we noted in our guest piece over on Lib Dem Voice last week, if the Coalition needs inspiration for what to put in its "half-time" report or ideas for what reforms to target in Europe, a good place to start would be  revisiting Nick Clegg's chapter in the Orange Book. As an MEP in 2004, he put forward some sensible and innovative ideas for EU reform, including the repatriation of certain powers.

For example:

General approach to EU powers:

“A liberal approach to the allocation of responsibilities to the EU should be founded on a rigorous application of the principles of subsidiarity and proportionality… the EU must only act if there is a clear cross-border issue at stake, or when collective EU action brings collective benefits to all member states that they would not be able to secure on their own… This would help correct the lopsided nature of the EU and so make it more logical and comprehensible to British voters.” 

On Agricultural policy and farm subsidies:

“It would be more logical for the EU to wield strong powers in the manner in which agricultural products are traded across Europe, especially to guarantee high quality and animal welfare standards, whilst leaving much of the system of production support to national governments themselves, subject to EU rules on subsidies and fair competition.” 

On regional policy and the structural funds:

“There is a danger that the system of EU regional subsidies has reached a point of such excessive complexity that the value added of collective EU funds is being undermined. The founding logic of the so-called EU structural funds remains compelling – that the richer parts of the EU should help provide resources to those parts in dire straits, especially in helping to cover high infrastructure investment costs. Yet, in practice, regional funds are still being channelled to all member states, even Britain, France and Germany who are the main contributors in the first place. Logically, those governments should take full responsibility for the channelling of funds to their own regions, rather than rely on the recycling of funds via the EU… That, in turn, would allow the EU structural funds to concentrate wholly on those countries where the economic need for financial assistance is overwhelming.” 

On EU involvement in social and employment law:

“While it is, of course, entirely understandable to support EU measures because of their beneficial effects – working time and parental leave legislation spring to mind – doing so in order to supplant the normal domestic policy making process risks undermining the basic tenets of democratic accountability. If the EU were to be used systematically as a means to bypass domestic political debate, voters will be even more perplexed about who is responsible for what… It disrupts the key relationship between voters and those elected to public office if domestic issues with no obvious EU dimension are arbitrarily shuffled off to Brussels for resolution. For these reasons, there is a compelling case to curtail the EU in its responsibility in the social policy sphere.” 

On the EU budget:

"The multitude of small and dispersed EU budget lines, in everything from youth programmes and tourism, should substantially be reduced. It is highly doubtful whether their marginal benefits justify the scarce personnel resources in the European Commission allocated to them".

It's hard to disagree, and indeed we have echoed many of these points our reports over the last 18 months, for example on employment law, structural funds, CAP, the EU budget and EU 'localism'.

Time to get to work? 

Britain has the perfect chance to work out how to loosen its ties with Brussels

Open Europe Chairman Lord Leach of Fairford has an op-ed in today's Times, where he argues,

If Britain pulls out of the EU, that will be as much due to our condescending Eurozealots, who have called every turn wrong for 30 years, as to UKIP. Both alike tell us that radical change in the European structure is out of the question.

Moderate sceptics, who want to stay in the EU but might want “out” if the Government can’t negotiate a changed relationship, are the majority of the electorate, but their voice is too seldom heard. The BBC neglects them, presumably calculating that pitting Nigel Farage against Denis MacShane does more for its audience ratings than analysis of the most important issue facing the country.

Circumstances, however, have conspired to deliver our fate to the moderates. While the eurozone faces a polarised choice between economic union or break-up, Britain has three options: “more Europe”, exit or renegotiate. And since “more Europe” has become unthinkable, the effective option is exit or reform. In a word, the Europhiles have lost. The sceptics, however, have not yet won. For this, the coalition is to blame for its failure to articulate a constructive vision of a Europe that would meet the aims both of the integrationist countries and of those that put self-determination first.

Whether Britain withdraws or remains, it will have to negotiate terms with an EU that has lost its way after the triumphs of its first 50 years, when tariffs were cut, enemies reconciled and a haven given to victims of dictatorships. Its icon, the euro, has awakened resentments unknown since the Second World War. Unemployment in the South is at 1930s levels, with nothing but depression and endless financial chicanery in sight. The region has slid inexorably down the global economic league tables.

Brussels treats the catastrophe predictably as a pretext for “more Europe”, but Germany’s reaction, caught between the appeal of European solidarity and reluctance to be the milch cow for Mediterranean indiscipline, has been cautious and ambivalent. There is nothing in Berlin’s response to suggest a closed mind to a new deal with the countries outside the eurozone. They know that a British government that signed up to deeper economic integration wouldn’t last a week. They also read the polls, showing UKIP neck-and-neck with the Lib Dems. It is not in Germany’s interest to drive Britain to withdraw, depriving the EU of its financial centre, its principal advocate of democracy and free trade, and one of its two foremost military powers, not to mention its highly lucrative market.

Germany is ripe for change. After two thirds of a century’s atonement, it no longer has to disprove a wish for domination or to pretend that without uniformity there can be no peace in Europe. It can admit that the proudest European heritage - German music, Italian painting, French civilisation, English literature - is utterly removed from the integrationist obsessions of the European political class. Liberated from guilt, Germany begins to recognise again democracy’s ability to reconcile voters to political defeat, to repeal unworkable laws and dismiss bad leaders, and to tackle difficulties with the grain of national traditions, institutions and instincts, not by the imposition of one-size-fits-all European-level solutions.

The shape of a new Europe therefore writes its own script - a neighbourly alliance, partly federal, partly by treaty between independent states, in which those who want to share a currency and economic sovereignty and those who just want co-operation would be equally welcome. Only trade, the bedrock of the original Common Market, would be universal.

In truth, it is not the eurozone that is the “core” of Europe - it is the single market. In the new, flexible model for EU integration, the UK would remain a full member of the customs union and single market and maintain its vote on making Europe’s trading rules. But it could limit Brussels’ involvement in areas such as policing and crime, fisheries, farming, employment law and regional policy. 

The EU’s institutions would be adapted so as not to discriminate against countries who have chosen to be less integrated. Likewise, the UK would not vote on EU laws that did not apply to itself. The presumption of travel towards a common destiny would cease to apply, since all forms of EU membership would be equally legitimate. 

 Instead of institutional tinkering and going round in circles on the euro, national democracies would start working out how to succeed in the globally networked modern world. Each country would find its own way back to prosperity. That, after all, was how Europe became rich and civilised in the first place. Relieved from unwanted legislation and desperate sacrifices for the euro, we would rediscover the amity of neighbours. 

We might even find that a confederate EU had become a magnet for Norway and Switzerland. That would be a delicious irony - sceptical Britain bringing about a strengthening of Europe that has eluded the zealots. 

Missing the target: The Commission and TUC respond to our report on EU social policy

This is a long post, but for anyone with an interest in growth and jobs, labour market laws, and/or the repatriation of certain EU powers, we recommend you bear with us.

Following the publication of our report, "Repatriating EU social policy: the best choice for jobs and growth", both the TUC and the European Commission have issued responses.

We published this report in order to trigger debate, so we very much welcome the Commission's and the TUC's responses.

It does help, however, if the responses relate to claims or arguments that are actually in the report. Unfortunately, we struggle to see what the Commission's response was actually aimed at. A spokesman said:

"Open Europe's figures are highly misleading. All regulation has a cost, but weak laws in this field would have massive costs, through injury, illness and even death and through higher healthcare costs and welfare benefits."

Okay, well, the first paragraph of our report states:

"Social and employment law is necessary and clearly comes with benefits. However, on balance, it remains unclear that there is any significant merit to deciding these laws at the EU level rather than nationally or sometimes locally."

Elsewhere in the report we say:

"Well-targeted and effective regulation creates the necessary conditions for sustainable economic growth and employment, providing employers and employees alike with a level playing field on which to compete and create wealth. Ideally, where social law does impose burdens on businesses, these costs are transferred as benefits to employees, resulting in better conditions or pay, which may be viewed as wider benefits to society."

So, we're not sure what the Commission is trying to counter. We go on.

The Commission spokesman also said: "This body of law is decided by national ministers and MEPs - not `bureaucrats'."

Nowhere in the report do we mention the word 'bureaucrat'. We do, however, spend a great deal of time explaining the new voting dynamics in the Council of Ministers, so if anything we over-emphasise that the laws are decided by national ministers (hence the need for a 'double lock'). We'd also add to the Commission's response that the European Court of Justice has had a key role in EU social law.

Commission spokesman: EU social law "ensures a level playing field. It protects responsible companies in the UK from social dumping by less good employers elsewhere in Europe."

Okay, a bit better, since it at least addresses something that we bring up in the report. This is a valid debate that needs to be had - which is why we mention the Laval case for example (p. 14 in the report). Unfortunately, the Commission chooses not to go in to the substance of the arguments on 'social dumping'.

The Commission also picks out the specific example of the Working Time Directive which it says “protect[s] not only workers but public safety - for example from exhausted lorry drivers who could cause accidents or doctors who have not slept for days.”

Well, the Working Time Directive hasn't exactly improved working conditions for junior doctors for example, and the Royal College of Surgeons has also expressed its concerns about patients' safety. There is clearly a case for the WTD to be amended following several ECJ rulings - 14-15 member states are using the WTD's 48 hour working week opt-out to get around these rulings. Amending it is also a stated aim of the Coalition Agreement. Even Nick Clegg told MEPs last week that,

“There are questions we need to ask about certain employment laws. Is it really essential or desirable for the healthy functioning of a thriving Europe to have EU legislation insisting people work a 48 hour week, regardless of whether they want – or need - to work longer? Or European laws laying down how our builders should – or should not – use their ladders?”

But in any case, we do say in the report:

“Should the UK Government decide to, and succeed in, repatriating social policy, these laws – or the benefits and costs stemming from them – would not magically disappear overnight. The UK Government and Parliament would probably want to keep many of these laws in part or in full.”

So, again, the Commission fails to respond to the substance of the argument.

Commission spokesman: "EU social and employment legislation is an intrinsic part of the EU single market, which is worth up to GBP90 billion to the UK economy every year."

This is pretty ridiculous. To label EU social policy as an "intrinsic part of the EU Single Market" by quoting estimates of how many jobs have been created by the single market (estimates based on similar logic - reduced cost goes into increased productivity - that we use to estimate the benefits of deregulation, discussed below) but without drawing a consequential link or providing evidence of why the two go together, is simply arbitrary. If all these laws disappeared tomorrow, which again we're not advocating, it would not in any way reduce market access for businesses across Europe. Now, again, there is a political discussion to be had about EU social policy as a "sweetener" to push through single market measures. We discuss this on p. 17-18 of the report, which again the Commission omits.

To be honest, the Commission's response feels more like ideological ranting than a serious response that takes the debate forward. We're genuinely sorry to say so because we had hoped for a more high-level and grown-up discussion.

On the Touchstone blog, the TUC’s Owen Tudor, who clearly has at least made an effort to read the report, makes some specific and general criticisms. Leaving aside the somewhat hyperbolic tone, he makes some valid points. His first issue of contention is methodology. He argues,

“To calculate the cost of EU employment and social affairs regulation over the past 13 years, the researchers didn’t actually measure the effect, they simply added up the predictions of the costs published by the European Commission in advance of the introduction of the regulations. These regulatory impact assessments are notoriously little more than guesswork and there are many critiques of the process by which they are derived…”

This is clearly a fundamental point. We have indeed used impact assessments (from the UK Government not the Commission) to assess the cost of these regulations. The fact is this is the only comprehensive body of data available for measuring the cost (and benefits of regulation). Impact assessments are not an exact science - and having studied 2,300 of them we know that pretty well by now. But Mr. Tudor seems to hint at this meaning that the costs are over-estimates - this is far from certain. In fact, the opposite is probably true. For example, IAs do not assess the knock-on effects of regulation, merely the direct administrative or policy costs. They also do not capture potential future additional costs. For example, impact assessments on the WTD did not account for the ECJ’s future rulings on on-call time and rest periods, which are a huge source of cost.

But, revealingly, while the TUC has argued that impact assessments are not appropriate for assessing employment and health safety law, it is no stranger to using evidence in Government impact assessments when it suits. See for example this TUC press release on child tax credits which relies on a Government Equality Impact Assessment or this report on climate change policies produced for the TUC, which relies heavily on evidence from impact assessments.

Mr. Tudor also argues, "...Open Europe claim that all employment rights cost the British economy money, and create unemployment..."

Well, not quite. In fact, what we claim is that deregulating would lead to a boost in economic output (which we have modelled based on our £8.6bn figure for the cost of EU social and employment regulation using an economy multiplier). This boost in output has to come from one or a combination of three things: labour, capital or productivity. Since it is not going to come from increases in capital, we have offered two scenarios. This is how we reach our finding that a 50% cut to these regulations could generate a boost in output equivalent to 140,000 jobs or equivalent to 60,000 jobs and an additional £4.3bn in economic output through increased productivity.

Ultimately, it is difficult to prove exactly how this boost to output would be accounted for in terms of productivity and employment, but our figures illustrate the potential mix of outcomes.

Referring to an OECD study on workers' rights and economic growth, Mr Tudor also argues that there's no adverse relationship between workers' protection and growth, while confusingly citing what he considers the inaccurate claim that the EU's Services Directive would create 600,000 jobs around Europe. First, ironically, this is an estimate from the Commission - the same Commission that calls our estimates misleading (based on similar methodology that it uses when estimating positive effects of EU liberalising measures). Perhaps the TUC and the Commission should talk.

Secondly, the OECD findings could equally be used as an argument against EU-level intervention. Take Sweden, a country that combines high levels of workers' protection and union presence with economic growth (4.6% last year). There are a whole range of reasons why Sweden manages to pull this off: well-targeted regulations (though not without exceptions) and a moralist culture, but one clear reason is its labour market model of voluntary collective bargaining, without state intervention, which has served Sweden for decades. EU interference in the Swedish labour market is effectively messing with a well-functioning, pro-growth model. Both the Laval case on unions' right to strike (disliked by the left) and Agency Workers Directive (disliked by the right) now legislate in an area that was previously the domain of the social partners. Why not just allow Swedes to decide for themselves, as that has clearly led to both growth and workers' protection?

Lastly, he concludes with:

"There are differences of opinion in the labour movement about the benefits or otherwise of the European Union. But almost everyone agrees that if we have a European labour market, then we need European-level rules for that labour market. And the suggestion that because we are unhappy with the European Union’s current neo-liberal austerity drive, we would prefer our employment rights to be decided by a national Government committed to exactly the same policies stretches credulity."

This is clearly the political heart of the debate. Who decides? The answer to this argument is that, if one is confident of their case, surely it should be possible to win approval for it in a national democratic debate.

2010: a better year for Europe?

Happy New Year - some thoughts on 2009 and the new year ahead from us over on Conservative Home.