Owen Paterson: Has he called for #Brexit or #EUReform?

BBC reports is is #Brexit

Former Cabinet Minister Owen Paterson has just made a hard hitting speech on the UK’s relationship with the EU. He made a familiar case that the EU is as much a political union as an economic one. He concluded that the UK should remain in the ‘economic’ Single Market but remove itself from the political union.

A clear position? Well, staying in the Single Market, while removing the political aspects of the EU can mean different things – it could mean remaining in the EU while pairing back the worst aspects of the EU’s state building or leaving altogether and negotiating instead a trade agreement in order to retain access to the Single Market.

There has been some understandable ambiguity in the reporting of Paterson’s position, this is our under-standing:

Times reports it is "reform"

Firstly, Paterson believes the issue should be solved via a referendum in 2017. But his proposed question is not entity straight forward. His preferred options are:

Yes: The UK leaves the EU and joins the EEA, like Norway; or
No: The UK stays in the EU and joins the euro

An interesting choice, that excludes the possibility of better EU terms or even continuing as a non-Euro state. However, it is clear that Paterson’s negotiation is not a ‘re-negotiation’ but a simple negotiation for #Brexit. He favours joining Iceland, Switzerland, Lichtenstein and Norway in EFTA and joining EFTA’s deal with the EU – known as the EEA (of which Switzerland is not part). And in order to conclude his exit terms and EEA membership he seeks to use a provision of the Lisbon Treaty that allows a two year period after notifying the EU of an intention to exit to attempt to finalise continuity terms – Article 50. We're sceptical of the EEA model as an alternative for the UK outside the EU, at least as currently set out, but let's leave that one to the side for the moment.

It has been argued previously that Article 50 could be used to trigger a full renegotiation of the terms of the UK’s membership within the EU. However Paterson’s proposal is more straightforward – he wants to immediately start to negotiate Brexit terms in 2015 so that a clear proposition is on the table for the 2017 referendum. That may have the benefit of providing the clarity that has so far been lacking in the ‘out’ case – but has three obvious drawbacks.

1. What happens if the other EU states do not wish to negotiate prior to a referendum outcome – they cannot be forced to.
2. What happens if the UK votes to stay in – would the other EU member states be compelled to cancel the exit application? Perhaps but at what price?
3. Article 50 isn't a great negotiating tool. We have previously weighed up the pros and cons of using Article 50 below, but what's clear is that it's giving away a lot leverage over the UK's terms of exit (for example, the final deal will be decided by a qualified majority vote of which the UK won't be part).

Source: Gaming Europe's Future by Open Europe

Paterson may however argue that Article 50 is a legal mechanism and something as important as the UK’s membership will ultimately be decided politically, in the UK and the EU level.

The UK's Lord Hill is approved as EU financial services Commissioner - What next?

The final discussions and votes in the European Parliament's committees over the nominees for the new European Commission are currently taking place with most of the results already in.

As expected, Lord Hill has been approved as new EU Commissioner for financial services by 42 to 16 votes. The vote was on his actual portfolio, meaning that despite some speculation, he wasn't stripped of any of the responsibilities (i.e. ones relating to the banking union).

What does this mean for the UK? 

As we argued here, the appointment of Lord Hill as EU Commissioner for financial services is a victory for the UK - but not a make-or-break issue in the wider context of David Cameron's EU renegotiation strategy. The key negotiations will remain between national governments. We would also caution against drawing too much from Lord Hill's comments in front of the European Parliament - as we noted, this is ultimately an exercise in telling the European Parliament what they wanted to hear and trying to please everyone. The key will be to judge Lord Hill on what he does and how he works with the likes of Frans Timmermans in trying to change the culture of the Commission. Clearly, however, it will be important for Hill to not forget to mind public opinion at home as, for better or worse, he will be seen as some sort of a bellwether for the UK's approach.

What are the other verdicts of the day?

As for the other nominees, Finland's Jyrki Katainen was approved for his role as Vice-President for Jobs, Growth, Investment and Competitiveness by 98 to 52. A surprisingly close vote, possibly reflecting a weaker than expected performance in the hearings from someone of whom many had high expectations but also the fact that he failed to convince the left that he is no longer an arch proponent of the austerity approach.

In spite of all the controversies about his ties to the oil industry and his declaration of financial interests, Spain's candidate Miguel Arias Cañete has been approved as Energy Commissioner by 77 to 48 votes, but may face supervision by Commission Vice-President Frans Timmermans.

France's Pierre Moscovici also got the green light from MEPs as new Commissioner for Economic and Financial Affairs, Taxation and Customs Union by 31 to 15 votes. There may be some less than enthusiastic reactions in the German media tomorrow, so keep an eye out for our daily press summary. 

As expected, MEPs have rejected Slovenia's Alenka Bratušek by an overwhelming 112 to 13 votes. Bratušek had been proposed as Vice-President for Energy Union, but has been judged 'not fit' to be a Commissioner, meaning that she will have to be replaced.

The vote on Valdis Dombrovskis will take place later tonight, but he's also expected to go through.

Therefore, Bratušek is the only real 'victim' of the hearings. In addition, MEPs have also demanded that the Hungarian nominee, Tibor Navracsics, be given a different portfolio. Navracsics had been proposed as Commissioner for Education, Culture, Youth and Citizenship.

What happens next?

• The priority will be to find a substitute for Bratušek. At the moment, it's unclear who will replace her, and how long the process will take. Slovenia had put forward four nominees. The list of names included another woman, centre-left MEP Tanja Fajon. However, Fajon may not be seen as senior enough for a vice-presidency. Furthermore, she comes from a different political group (the European Socialists and Democrats, S&D). Bratušek belongs to the liberal ALDE group, which is likely to demand that she be replaced with someone from the same political family. Over the past hour, the name of Violeta Bulc, currently serving as Slovenia's Deputy Prime Minister, has also emerged as a possible candidate to replace Bratušek.

• Once Slovenia puts forward a new candidate, and provided that he/she gets the go-ahead from the European Parliament, there are broadly three possible scenarios:   

1) Timmermans becomes Cañete's supervisor: It has been reported that Frans Timmermans could, in addition to his current portfolio, also become responsible for 'sustainable development'. This means he would de facto supervise Cañete, and would also probably involve scrapping the post of Vice-President for Energy Union - meaning that the new Slovenian nominee would be handed a 'lighter' portfolio. As per Navracsics, he could perhaps keep the Education portfolio while being stripped of the Culture and Citizenship briefs.

2) Mini-reshuffle: Some reports have also suggested that Slovakia’s Maroš Šefčovič could become the Vice-President for Energy Union. Navracsics would become Commissioner for Transport and Space, and the new Slovenian nominee would get the Education portfolio. An alternative could be to make Austria’s Johannes Hahn the Vice-President for Energy Union, with Navracsics becoming Enlargement Commissioner and the new Slovenian nominee again taking the Education portfolio.

3) Tweaking portfolios: Another solution would be to give Navracsics, as in the first scenario, a ‘downgraded’ portfolio (i.e. without the Culture and Citizenship briefs), and keeping the new Slovenian nominee as Vice-President for Energy Union. However, the concerns over the seniority of the person and the ability to provide oversight of Cañete would remain significant.

• The European Parliament's final vote on the whole Commission is scheduled for 22 October. It may be pushed back if finding a substitute for Bratušek takes too long, but that looks unlikely.

• The new Commission will enter office on 1 November.

Things are progressing in a broadly positive way for the UK and the wider EU reform agenda. However, whether the Commission will in the end deliver reform - and whether it can function well internally given the new structure - very much remains to be seen.

The Swedish election results may be a net neutral for Cameron’s EU renegotiation plans

The Swedish election results were a mess. The Social Democrats and two other opposition parties, the Greens and Left, garnered 43.7% of the vote, against 39.1% for the sitting centre-right Coalition. The anti-immigration Sweden Democrats won 13% of the vote, up from 5.7% in 2010. The leader of the Social Democrats as well as two minor centre-right parties have ruled out a grand coalition, meaning that the most likely outcome is a fragile, minority centre-left government.

There’s a lot one can say about the result. Without a doubt, the big story is the rise of the Sweden Democrats. It’s fair to say that Swedish media and politicians are this morning pretty much panicking, at the prospect of SD holding the balance of power – despite an absolutely massive media campaign against the party leading up to the elections. As expected, all seven mainstream parties have declared that they won’t deal with the Sweden Democrats but, with the party now controlling 49 out of 349 seats in the Riksdag, is this sustainable? And will it hurt or help SD in future? The metropolitan elite ganging up on SD hasn’t worked well so far. In several Councils in southern Sweden, SD won around 30% of the vote, which is concerning.

Some UK media has gone with the headline “Cameron has lost a key EU ally”. Others have argued that the leftist shift in Sweden has further undermined Cameron’s prospects for renegotiation. This is not quite telling the full story. As a whole, a centre-left government including the Greens, drawing on support from the Far Left – two parties that up until recently opposed Swedish EU membership – may in fact become more Eurosceptic. Swedish unions, at least on a membership level, are a hotbed for euroscepticism. On the euro, the Left is much more sceptical than the right. Though the euro debate is dead, this matters politically as the less Sweden perceives itself as a “pre-in” (remember, Sweden doesn’t have a legal opt-out from the euro), the more sympathetic it might be to UK objectives to define the EU as a club beyond the euro. Remember, Moderaterna still had people like Carl Bildt who recently said that Sweden should and will join the euro. On issues like the EU budget, democracy and transparency a centre-left government will be just as helpful as the Reindfeldt government.

Still, a centre-left government might be less keen on free trade and dynamic financial markets, though in truth, any Swedish minority government would and will have to work hard to get through an ambitious services directive for example. And by simply belonging to a political family, the willingness to strike deals may be tempered. Also, Reinfeldt and Cameron did get along on a personal level, though that relationship was strained recently (as it became between Anders Borg and George Osborne).

Instead. the significance of the Swedish elections was the fragmentation of the centre, and the rise of an anti-establishment party, that the mainstream still has no convincing answers to. In that sense, Sweden just became a bit more European – and we don’t mean that in a good way in this instance.

EU referendum to be held in 2016 or 2017...No, not that one!

Swiss President Didier Burkhalter (see picture) has today announced that Swiss voters will be asked to vote on the future of their bilateral relationship with the EU "by the end of 2016 or the beginning of 2017."

There have been long-running negotiations over the Swiss-EU bilateral deals, with the EU keen on greater supranational oversight, but these talks gained more urgency in the wake of February's referendum in which the Swiss electorate voted in favour of renegotiating rules on the free movement of persons.

The result stipulated that Switzerland will have to renegotiate its bilateral accord with the EU on free movement within three years or revoke it. This in turn could threaten Switzerland's other bilateral agreements with the EU.

Last week, the EU told Switzerland that it was not prepared to negotiate quotas on free movement. In other words, in that choice between accommodating Swiss demands or playing hardball that we identified back in February, the EU has definitely opted for the latter approach. Interestingly, the decision not to negotiate was apparently reached by unanimity amongst EU governments, meaning that the UK opposed allowing the Swiss to 'renegotiate'. This is awkward for David Cameron, he was left with a choice of either giving Better Off Outers fresh ammunition ("see what the Swiss can do outside the EU") or accusations of denying the Swiss a similar right to which he wants to give Britain. In addition, in that old EU tradition, the Swiss are effectively being asked to 'vote twice', with a view to them voting 'the right way' the second time around.

In any case, faced with this impasse, the Swiss government's approach seems to be to put a 'take it or leave it' package to the public in the hope they vote to renew the bilateral relationship with the EU, even if this means little or no change to the rules on free movement.

Given that Switzerland is already outside the EU, a rejection of the package by the Swiss electorate could see relations return to square one - what that means is anyone's guess at this stage.

If David Cameron is re-elected, Switzerland's 'renegotiation and referendum' could coincide or foreshadow the Conservatives' efforts, which could be interesting.

Is the UK's new man in Brussels a dark horse?

On his Telegraph blog, Open Europe Director Mats Persson looks at Lord Hill's nomination as the UK's next European Commissioner:

This morning, Brussels watchers, virtually in unison, typed the following name into Google: Lord Hill. David Cameron’s long-awaited nomination for the UK’s next European Commissioner was hardly a household name.

In 2009, Gordon Brown nominated Baroness Ashton for the post – the then leader of the House of Lords, known to few people outside of Westminster. As it turned out, Ashton grew in the role and will leave Brussels with a relatively good reputation. The main problem was that Asthon’s position – EU foreign affairs chief – meant long absences from Brussels. This proved critical as, whether we like it or not, working the Brussels corridors and getting stuck into the agenda-setting “College of Commissioners” are absolutely vital if the objective is to make as many EU proposals as possible come with a UK flavour. Some people hate this stuff – including William Hague who just refused to go anywhere near the role despite being the most obvious candidate – but others thrive on it.

I was always in favour of Cameron sending a high-profile figure to Brussels. It would have sent a strong signal that EU reform is for real and improved the likelihood of the UK getting a top economic job – internal market, competition or trade. Lord Hill lacks the obvious external gravitas and high profile, so in that sense, his appointment has reduced the chances of the UK getting a top job. Cameron has been criticised for not sending a sufficiently strong signal of intent. However, not least since I expect several portfolios – including internal market – to be broken up or altered, the job allocation is unusually unpredictable, and we shall have to wait and see. Also, sending someone with a lower profile may work in the UK’s favour. A heavy hitter – particularly with a Eurosceptic reputation – in combination with a big portfolio may have been too much for EU partners and Juncker to swallow, not to mention the European Parliament. And Lord Hill is hardly a novice, having worked across departments and at the heart of government, including as Chief of Staff to John Major, during which he was involved in negotiating the Maastricht Treaty.

On making EU reform happen – which remains the key objective – Lord Hill is a clever operator with a fantastic reputation in Westminster circles. Brussels is a very different place to Westminster, but if he can replicate his operational style over there – winning people over, striking deals – then perhaps he’s exactly the type of person the UK should be sending. Opting for a Viviane Reding-type, who does a lot of shouting but achieves little, wouldn’t be ideal either.

There's still no denying that choosing someone less known remains a gamble. But Lord Hill may yet surprise plenty of people both at home and abroad.

Timing, not substance, is the biggest obstacle to David Cameron's reform agenda

Our Director Mats Persson writes on his Telegraph blog:

In a recent Sunday Telegraph article that received surprisingly little attention at the time, David Cameron came close to setting out a “shopping list” of what he wants to change in Europe. He outlined seven areas, though they were more principles than policies: powers flowing back, a beefed-up role for national parliaments, less regulation and more free trade, limiting the influence of European judges (possibly opting out of the ECHR, which is not an EU institution), tightening welfare benefits for EU migrants, tougher controls on future EU accession countries and no more “ever closer union”.

Nick Clegg – in a strange kind of way – has almost endorsed the plan, saying that "Now [Cameron] doesn't even talk about repatriation, instead proposing a mild seven-point plan, most of which wouldn't even require treaty change." European Commission President Jose Manuel Barroso has said that the EU wants to "cater" to the UK without "threatening the Union’s coherence" (though he was all over the place on EU treaty change). And in the Financial Times this week, Jean-Claude Piris, former legal guru of the European Council – the key decision forum for EU leaders – concluded that Cameron's changes could pretty much be done without actually changing the EU treaties.

For Cameron, this is a double-edged sword. Sceptics at home already see Cameron’s starting position as a “sell-out” – mere presentational changes that will allow him to recommend a “Yes” vote in the 2017 referendum. This is a premature accusation as there’s a huge range within the Sunday Telegraph piece, from token reform to sweeping changes.

Cameron could cobble together a decent package without changing the EU treaties. First, areas like toughening up rules on access to benefits, removing trade barriers, signing free trade deals or scrapping red tape – key planks in Cameron’s renegotiation agenda – just fall under normal Brussels decision-making (which doesn’t meant it will be easy. Think European Parliament). Secondly, “repatriating” powers wouldn’t necessarily require EU treaty change but could still be meaningful, for example devolving the EU’s irrational regional policy (saving UK taxpayers £4bn over an EU budget period) or exemptions from maddening working time rules for the NHS.

Finally, the EU specialises in legal acrobatics. When pushed – say when the bloc’s second largest economy risks leaving – it can be amazingly creative. For example, it created a €440bn bailout fund out of thin air and via so-called political agreements, the Danes got four surprisingly effective opt-outs after having rejected the Maastricht Treaty in 1992, which were incorporated when the next EU treaty came around. Something similar can be done for some of the reforms currently being discussed, including giving national parliaments the right to block or revise EU laws.

So it's right that Cameron seeks to maximise the reforms that can happen without EU treaty change. However, not only would a Treaty change be a form of political insurance to the Tory party and public that things have changed but it's also needed since the treaties simply aren’t fit for purpose. With a more integrated eurozone, we need new organisational principles and practical measures to avoid the EU becoming the eurozone, while allowing powers to flow back to countries that wish to be less integrated. A 2017 referendum should be the start of a slimmed down, flexible Europe, not the end destination. A quick and dirty solution will only bring us back to where we are today – and could well generate a referendum result too close to call, solving nothing.

Ironically, the strongest and most plausible contender for a Treaty change is one measure that Cameron – oddly – didn’t mention in his piece: safeguards against the Eurozone writing the rules for the rest of Europe, which will also effectively kill the notion of "ever closer union". Exactly how this principle will be organised needs careful thought (ideas here), but it’s highly desirable that this principle is firmly enshrined in EU law.

Since it’s the eurozone that is now changing the rules via banking union and other measures, not the UK, Cameron would be given a fair hearing in national capitals on this point. It is conducive to a "grand bargain": the Germans and French solve their catch-22, agreeing to beefed up supervision in the Eurozone in return for Berlin underwriting the euro, while the British ask for safeguards against Eurozone stitch-ups in return for nodding through EU treaty change at 28 (which Berlin still prefers). In this scenario, it’s the German-led EU treaty change that may trigger a referendum in France, not the UK’s.

It's whether it can be done before 2017 that remains the biggest question.

Bonjour Monsieur Cameron, there are potential allies on EU reform on the other side of the Channel

Henri Guaino, a French MP from the centre-right UMP party and a former special advisor to President Nicolas Sarkozy, has an interesting interview on Europe in today's Le Figaro. Here are some key excerpts:

Q: What is the European Union, according to you?

A: The EU is France, Italy, Germany, Spain, Belgium...The [European] Commission, Parliament, Court of Justice are just institutions at the service of the states and the peoples of Europe. It doesn't make sense to speak of a general interest of the EU that transcends the interests of these peoples and these states. Institutions never transcend anything.

Q: Europe is peace...

A: It's not the EU that created peace, it's peace that created the EU, and the idea that one guarantees peace on the continent by weakening the states is a dangerous one: for years, the weakening of states has been going hand-in-hand with the rise in Europe of populism, extremism and social tensions. Let's be wary that the federalist dream doesn't turn into a nightmare.

Q: Are the European institutions in need of reform?

A: The institutional Meccano has hit its limits: every reform has just given birth to a bit more bureaucratic monster. There are only two democratic institutions: the [European] Council of heads of state and government, and the [European] Parliament. The Council is more democratic than Parliament because heads of state are more accountable to their fellow citizens than MEPs. It is not certain that democracy has gained a lot from shifting from an assembly composed of delegations from national parliaments to a directly elected assembly. But if there were only one decisive reform to be made, it would be to eliminate the prerogatives of the European Commission and turn it into an administration under the authority of the Presidency of the Council.

On subsidiarity, Monsieur Guaino said:

[Subsidiarity] is working the wrong way round. The EU tends to leave to member states what it can't do. On the contrary, it needs to be asserted that the EU is only destined to do what member states can't do. This principle must allow member states to take competences back from the EU, which has too many.

He also suggested that the principle of 'variable geometry' (in plain English, different levels of integration within the EU) should be "applied systematically".       
 
Finally, asked whether the EU "contributes to making politicians look increasingly powerless", Guaino replied:

Yes...The EU has buried the historical, geographical, cultural and demographic realities underneath the rules, the bureaucracies and the procedures. But realities always avenge themselves when they are ignored.

To put this interview into context, Henri Guaino belongs to the same party as pro-integration MEPs such as Alain Lamassoure or Joseph Daul - which illustrates that 'Europe' is an issue that cuts across parties in a number of countries, not just the UK. Secondly, David Cameron may have allies in unlikely places, which if cultivated could prove helpful in a future negotiation.

ECJ sets important legal precedent by striking down Data Retention Directive

The European Court of Justice (ECJ) has this morning struck down the EU's Data Retention Directive by declaring it "invalid". The ECJ had been asked by the Irish High Court and the Austrian Constitutional Court to rule on whether the Directive complied with the EU's Charter of Fundamental Rights.

In one sentence, the Data Retention Directive requests telecommunication services providers and operators to store certain categories of information (date and length of phone calls, senders and recipients of e-mails, etc.), but not the content of conversations, for a minimum of six months to a maximum of two years. It was introduced in 2006 to help national authorities fight serious crime and terrorism.

Interestingly, the UK has 'gold-plated' the Directive by fixing the data retention period to twelve months. But other EU member states were less zealous. Last year, Sweden was issued with a €3 million fine from the ECJ itself for failing to transpose the Directive into national law in time. Germany has been taken to court by the European Commission for the same reason. 

According to today's ECJ ruling,

By requiring the retention of those data and by allowing the competent national authorities to access those data, the Directive interferes in a particularly serious manner with the fundamental rights to respect for private life and to the protection of personal data.

The statement goes on:

The retention of data required by the directive is not such as to adversely affect the essence of the fundamental rights to respect for private life and to the protection of personal data [...] However, the Court is of the opinion that, by adopting the Data Retention Directive, the EU legislature has exceeded the limits imposed by compliance with the principle of proportionality. 

One of the reasons cited by the ECJ is:

The Directive covers, in a generalised manner, all individuals, all means of electronic communication and all traffic data without any differentiation, limitation or exception being made in the light of the objective of fighting against serious crime.

Therefore, the real problem for the ECJ seems to be the violation of the proportionality principle. Or, put differently: the rationale behind the Directive is correct, but its scope is disproportionate. Now, we would argue, this is a problem affecting many other pieces of EU legislation (think, for instance, EU employment and health and safety rules) - which is what could make today's ruling an important precedent.

Article 50: a trump card or joker?

We have today published the full report assessing the implications of our EU ‘wargame’ which simulated the negotiating dynamic under two scenarios: first, a UK-EU renegotiation from within and, second, under ‘Brexit’. As we’ve stressed before, the fact is that unless the UK wants to simply fall back on WTO trading rules and unilateral free trade, renegotiation and withdrawal will both require a negotiation with other EU states and the EU institutions.

The only formal way to the leave the EU is via the so-called “Article 50” exit clause of the EU Treaties, which stipulates a two-year timeframe within which to potentially conclude a continuity deal. In our simulation, after their initial hostility, all other member states recognised the need to strike a new trade deal with the UK with economic incentives trumping political rhetoric. Britain is unlikely to face the ‘worst case scenario’ of having to fall back on World Trade Organisation rules.

However, as our simulation showed, the initial new deal would likely fail to replicate the full access to the EU single market currently offered by full membership:

• A Norway-style deal – effectively single market membership but with no formal political influence – is likely to be rejected by EU partners and is in any case a bad deal for the UK as it amounts to “regulation without representation”.
• While a reciprocal trade agreement for goods, where the UK has a sizeable trade deficit of £56.2 billion (2012) with the EU, would be relatively easy to strike, access to the EU’s services market – where the UK has a trade surplus of £11.8 billion (2012) – will be far more difficult.
• Access for UK financial services would be a particular concern since a third of the UK’s trade surplus in financial and insurance services in 2012 came from trade with other EU member states – of the total £46.3 billion UK financial and insurance services trade surplus, £15.2 billion was with the EU and £14.5 billion with the US. Perhaps over time, further bilateral deals on market access could rectify this but the political resistance from France and some others could be high.

While Article 50 of the EU treaties has the benefit of definitely triggering negotiations – which isn’t guaranteed under Cameron’s renegotiation plan – it comes with several drawbacks:

• Article 50 is a one way street – once it is triggered, and even if the deal available at the end of the process proves unsatisfactory to the UK, there is no way back into the EU except with the unanimous consent of all other member states.
• It is likely to put the UK on the back foot in any negotiation. The remaining EU member states would be in charge of the timetable and the European Parliament would have a veto over any new agreement. Therefore, while having to fall back on WTO rules entirely is unlikely, it would remain a possibility.
• As the UK will not take part in the final qualified majority vote on whether to accept the new deal, protectionist-minded member states could have greater influence on the degree of market access the UK could secure post-exit – particularly on services (see graph below).

Compared to renegotiation from within, Article 50 therefore cedes more control than what is often thought.

Ultimately, though, while a high transaction cost is undeniable, the big question is if there is a point – and if so when – at which the high one-off cost of Brexit would be outweighed by the long-term benefits of more economic and political independence over areas such as financial regulation, agricultural policy or criminal justice, particularly if the eurozone comes to dominate the wider EU and the necessary reform proves unattainable.

Clegg can’t just take on Farage – He also needs to spell out his own vision for EU reform

Ahead of the first EU debate between Deputy Prime Minister Nick Clegg and UKIP leader Nigel Farage, Open Europe's Pawel Swidlicki has written this piece for Lib Dem Voice:

Like all political obsessives up and down the country I’ve stocked up on popcorn ahead of Nick Clegg and Nigel Farage’s upcoming duels over Europe in anticipation of some captivating political theatre. However, from my more sober perspective as a political analyst, such a binary, ‘all-or-nothing’ debate over Europe is fundamentally flawed as it does not speak to where the majority of the British public are at. Polls have consistently shown that when respondents are offered options beyond staying in on the current terms or leaving altogether, the option of staying in a reformed/slimmed down EU proves the most popular across the political spectrum.

People hold different views about how they would like to see the European Union develop. Which of these statements comes closest to your view? (click to enlarge)

Source: YouGov poll for Open Europe, February 2014

As the polling demonstrates, the public is split over the question of the UK’s future in Europe, although staying in a less integrated Europe is by far the single most popular option across the political spectrum, including among Lib Dem voters (more so than among Labour voters!) and even among a substantial chunk of UKIP voters. The concern is that the debates will focus on whether the UK ought to leave or stay in at any cost, thereby ignoring the wider debate about how best to achieve EU reform.

David Cameron’s EU policy may suffer from a number of shortcomings but to his credit, he is at least trying to achieve the reforms that a majority of the public want. Nick Clegg has also acknowledged that the EU needs reform on a number of occasions and he recently set out a “bold” three-pronged agenda based on further trade liberalisation within the single market as well as between the EU and the rest of the world, slimmed down EU institutions and less regulation, and greater democratic accountability via an increased role for national parliaments. This is welcome, even if it falls short of the more ambitious and comprehensive vision for EU reform – with powers flowing back to member states – that he set out back when he was an MEP.

However, at the same event, he undermined his own message by claiming that the most that Cameron’s reform strategy could achieve – which includes all the objectives set out by Clegg himself – as “a few crumbs from the top European table… a little tweak here and there”. This is hugely unhelpful as it plays into the narrative that the UK has virtually no influence over the direction and development of the EU and must take what it is given.

Moreover, there are large gaps in Clegg’s argument when it comes to the future of UK-EU relations. How would the Lib Dems react if the UK were to lose an EU legal case over the safeguards it applies to prevent potential abuse of the UK welfare system by EU migrants? The party supports the so-called ‘right to reside test’ so would they accept its axing at the behest of the European Commission and Court of Justice? Likewise, the party supports safeguards to prevent the rules of the EU’s single market from being set by the Eurozone bloc to the detriment of non-euro member states. Would Lib Dems still insist on staying in if in the longer term the EU became an extension of the Eurozone?

This all matters because in the event of the Coalition being extended post-2015, the two parties will have to hammer out a common position on EU reform/renegotiation prior to a 2017 referendum which Cameron has made clear is an absolute red line for him. Hopefully, Clegg will use the debates to flesh out his ideas for EU reform in greater detail instead of repeating discredited claims about 3 million jobs being lost in the event of an exit. Ultimately, with the public more or less split down the middle on the in/out question, reform is not only not only worth pursuing as an end in itself, but also as a means of securing an ‘in’ vote when the referendum eventually comes.

EU migrants' access to benefits: A cross-party concern in Denmark

We flagged up last week that the debate on EU migrants' access to benefits was kicking off in Denmark - potentially leading to a row with the European Commission.

New figures have been unveiled that will do little to assuage political tensions. According to the Danish Employment Ministry, government spending on unemployment benefits to migrants from Eastern and Central Europe has increased tenfold between 2008 and 2012 – from DKK 32 million to DKK 345 million.

The data prompted criticism from across the political spectrum - confirming that EU migrants' access to state welfare is very much a cross-party issue in Denmark.

Claus Hjort Frederiksen, a former centre-right Danish Finance Minister, commented: 

We need to discuss what kind of protection we're able to offer in these cases. It's not a problem that will disappear.

Nadeem Farooq, the spokesman of the governing centre-left Social Liberal Party, warned:

The figure has risen quite dramatically, so we must take it seriously. We cherish freedom of movement, which makes Denmark wealthier. But we're also prepared to introduce controls and the necessary safeguards.

Interestingly, a proposal by the left-wing opposition Red–Green Alliance to make sure that EU citizens also pay Danish social insurance contributions in order to create "a level-playing field to qualify for unemployment benefits" is being supported by the anti-immigration Danish People's Party.

Meanwhile, the European Commission has announced that it will take legal action against Finland, which has a similar welfare system to Denmark and will therefore be backed by the Danish government in the legal challenge. The Commission has said it hasn't yet had time to look properly at how the Danish system currently works and what is being proposed (check out our previous blog for more detail), but informally it has said that the newly proposed measures look "illogical".

This looks set to run and run...

When Ukip's recruitment sergeant number one came to town...

Update 15:00 Nigel Farage himself speaks:

After hearing Commissioner Reding admitting 70% of our laws are made by the EU I am willing to sponsor her doing a UK tour
— Nigel Farage (@Nigel_Farage) February 11, 2014

Update 11:50 - We've come across a video (h/t @hughbs) in which Reding very much stands by the 70%-80% estimate.

Update 11:15 - The Telegraph's man in Brussels, Bruno Waterfield, has gotten in touch to say that he asked Reding specifically about the 70% figure:

@OpenEurope I asked her about the 70% figure, she said EP 'co-decides' on 70% of all EU legislation rather than what she said
— Bruno Waterfield (@BrunoBrussels) February 11, 2014

However, at a similar event in Stockholm last year, she argued that:

"Did you know that 80% of Swedish laws are not Swedish laws? They are European laws that have been translated into Swedish legislation."

We've already examined this claim here, but it seems Reding is at best confused about the extent of EU legislation (worrying for an EU Commissioner) or being purposefully misleading.

UKIP's most effective recruitment sergeant?

Original post:

Where to start with Viviane Reding? She visited London yesterday as part of her so-called 'Citizens’ Dialogue' – which is neither about citizens nor a dialogue – and gave a very impressive performance. Somehow, she managed to offend absolutely everyone.

• The British public by questioning whether they "know what they are going to vote about" in a potential 2017 EU referendum, 
• The British media by suggesting it “completely distorts the truth” over Europe, 
• The British government by rubbishing large parts of its strategy, most notably on the crime and policing opt out and EU free movement, 
• Europhiles by suggesting that “70% of the laws in this country are made, co-decided, by the European parliament" (meaning that the share of EU laws, according to Reding, must be higher since not all EU decisions are made jointly with national parliaments) – a “euro myth” that ivory-tower types in the UK have spent years trying to “dispel”, and ironically, used as Exhibit A in their accusations of “misinformed media” (“6.8% of primary legislation” and all that),
• The Ukrainian protesters by praising their brave, pro-EU stance, and then later saying she has, unlike the UK, "never pushed for further enlargement" instead favouring deeper integration. 

So in short, the British are too ignorant to vote, British media all misinformed and 70% of UK laws are made in Brussels. As one person put it on Twitter, it’s hard to think of better “rocket fuel for those who want to quit the EU”.

Apparently, Reding got her bag stolen from her car while engaging in the “dialogue”. Fortunately, her papers, hopefully including the source for the “70% of all laws” claim, were left untouched.

Switzerland's free movement referendum could provide key test of what life outside the EU is like

On Sunday the Swiss electorate will be asked to vote in a referendum on whether to impose migration quotas on European Union and European Economic Area nationals – a system the country currently uses for non-EU/EEA migrants. The referendum question doesn't specify how large or what shape the quotas would take, but would instruct the Swiss Parliament to draft legislation addressing the immigration issue within the next three years.

Ahead of Sunday’s vote, it is looking very tight with 43% expected to vote in favour of the quotas and 50% against, according to a recent poll by GFS.Bern. If the referendum result goes in favour of introducing quotas, not only would it potentially end free movement between Switzerland and the EU as we currently know it, there could be much wider ramifications for the Swiss-EU relationship that would provide a landmark test case.

The Swiss-EU agreement on free movement was part of a bundle of agreements known as ‘Bilaterals I’, which covered six other areas including the Mutual Recognition Agreement, which simplifies the admission of Swiss products in to the EU market, trade in agricultural products and civil aviation (other aspects of Swiss-EU relations are governed by a 1972 free trade agreement and there is also a Bilaterals II – in total there are 20 main and 100 subsidiary agreements in place). Crucially, Bilaterals I contains a ‘guillotine clause’ stipulating that the contents can only take effect together: if one of the agreements were not to be prolonged or terminated, the others would also cease to have effect.

Nothing will happen immediately on Monday morning, irrespective of the referendum result, because if the Swiss government is mandated to impose quotas it would have to decide what form this would take. Nevertheless, it would set up a very difficult negotiation with Brussels, which, if it wants to play hardball, could scrap the entirety of the rest of the agreement.

Now, it is not difficult to see why this could have consequences beyond Switzerland's relations with the EU (some would argue, it will also be another test of how the EU responds to referendum results). But, should the row escalate and other aspects of Switzerland's trade cooperation with the EU be cut off, many would argue that it illustrates that a pick and mix UK relationship with the EU from outside (particularly a carve out from EU immigration that UKIP would favour) would be difficult or impossible to pull off. If, on the other hand, Switzerland was able to renegotiate its relationship to impose some form of restriction on EU migration, however minor, this would give those who favour UK exit an important precedent to point to.

For this reason, we suspect the EU will take a very hard line with the Swiss government if the Swiss people vote for quotas on Sunday.

German Foreign Minister welcomes discussion on EU Treaty Change

German Foreign Minister, Frank-Walter Steinmeier, is visiting his counterpart, William Hague, in London today. Although the visit doesn't seem to have received much media coverage, we've just been at the press conference, and Herr Steinmeier had some interesting things to say. Unsurprisingly, Steinmeier said he wanted the UK in the EU.

Further Eurozone integration

Steinmeier said that the UK could play a pivotal role in making the EU more effective and competitive, but he also said that it was important not to "backtrack on European integration", but it was not clear if he was referring to Eurozone integration – which the UK actually isn’t against. Hague opened the press conference, saying that both government agreed to work together to ensure a "fairer system" to all Member States in the EU.

Repatriation of Powers 

Steinmeier also made clear that the EU should govern on the "big questions" - that it should rule where it is most effective. In this context, then, he said that there should be a further discussion on which competences would be best regulated on the national level. It was unfortunate that we didn't get a chance to ask Herr Steinmeier to comment on CDU's draft European Parliament election manifesto, which Handelsblatt reported on today as explicitly saying:

“A repatriation of competences to the national level should be possible.” 

Treaty change

The German government – particularly the CDU/CSU wing continue to insist on Treaty Change in some form to provide more central control in the eurozone over spending. At the same time, Cameron wants a Treaty Change to institutionalise flexible integration including the possibility to pursue “less Europe”. The idea is to combine the two in a new grand bargain. Remember, last week French President Francois Hollande restated that Paris didn’t see Treaty Change as a “priority” for fear of a referendum (which would be politically hard to avoid due to the German-style Treaty Change, not the British one). This created headlines in the UK.

Steinmeier said that discussions over Treaty Change are far more nuanced than a polarised vision of Britain on one side asking for the all the Treaties to be opened up, and France on the other, resisting any such discussion – which is exactly what we’ve said. In fact, Steinmeier said he "welcomes a debate" and is "not against discussing an adaptation of the Treaties." He added that there’s a debate raging in Germany at the moment over how to put Eurozone integration on a constitutionally and politically sound footing.

However, he also said that Germany and Britain aren’t completely aligned over Treaty Change, and, somewhat uncomfortably for Hague et al, argued that any major revision to the Treaties along the lines of what the UK is calling for, should perhaps be deferred until the eurozone stabilises further.  "It's not just to do with the UK and Germany that some things are stalling," said Steinmeier.

When asked the crucial question whether he believed that Treaty Change would coincide with David Cameron's 2017 timeline, Steinmeier said it "was too complicated a prognosis" to be able to give a straight answer.

Free movement 

Steinmeier said that the Bundestag has set up a working group to present solutions on how square sensible rules on access to benefits with free movement. He said that the debate in Germany on free movement – while it was definitely was an intense debate - was in "sensible boundaries", a nod to the UK press and its handling of Romania and Bulgaria.

Rückführung alert: CDU says repatriation of EU powers must be possible

This is interesting from today’s Handelsblatt. The paper has apparently seen the CDU’s draft manifesto ahead of the European elections. As a reminder: the CDU is Angela Merkel's party, which, along with its sister party, the CSU, won a landslide with 41.5% of the vote in the last federal election. It's what you would call the very definition of mainstream. 
 
The CDU manifesto calls for an “an effective regulation brake” with decisions needing to be “effective and more transparent.” Interestingly, the CDU manifesto suggests that the European Commission should be required to scrap an EU law if a majority of national parliaments says it could be handled better at the national or regional level . This seems to be very similar to the idea of a “red card”, which we long have argued for and which Dutch Foreign Minister Frans Timmermans, for example, has championed.

Perhaps even more interestingly, according to Handelsblatt, the CDU draft manifesto  also explicitly states that:

“a repatriation of competences to the national level should be possible.”

This is significant since German politicians tend to avoid using the word “repatriation” – or Rückführung – since it has strong connotations, instead preferring a range of other more guarded expressions including Dezentralisierung, Regionalisierung, Übertragung, Subsidiarität and Verhältnismäßigkeit.

Handelsblatt’s take on this is that that the :

“CDU is reacting to growing euroscepticism in the country” including to anti-euro party Alternative für Deutschland (AfD).

However, the take of CDU's campaigners is (as to be expected) that the party is simply becoming more realistic - which is a neat way of putting it:

 
Meanwhile, the Today programme has an interview with Hans-Olaf Henkel – formerly the head of the BDI (The German equivalent of the CBI) – now with AfD.

Henkel argues that though he wants return of EU powers, he also wants Germany to stay in the EU. Today's take on this is that "British sceptics may be disappointed" if they look to Berlin, concluding that “Even the German sceptics are not very sceptical when compared to their British counterparts.” Now, this isn't necessarily right nor wrong -- but just not very insightful.

• First, as we’ve argued before, the main clash in Germany is not between the “pro-European” and “anti-European” schism that the BBC is constantly looking for, but rather between two key pillars of post-WWII Germany: Europe and sound money.
• Secondly, is the BBC saying that the definition of “Eurosceptic” is now wanting to leave the EU?  If so -- it will have made a lot of "Better Off Outers" very happy. However, that also means that it can no longer use the "Eurosceptic" label for a whole of host of other actors, including large chunks of the current Conservative government which, irrespective of the rights or wrongs, want to stay in a reformed EU.

This isn't becoming too complicated for black-and-white labels, is it?

Is the Tory Party becoming its own worst enemy in Europe?

Our Director Mats Persson writes on his Telegraph blog:

Many commentators have rightly noted that infighting over the EU and immigration could cost the Conservatives the 2015 general election. There's a second dimension to this, however: by tearing itself apart, ironically, the Tory Party also risks becoming a greater obstacle to the new settlement in Europe (that a vast majority of its MPs want) than anyone in Paris or Brussels.

Make no mistake: if that In/Out EU referendum comes in 2017, the Tory Party will – as Virginians say – split like a Baptist Church. I reckon there are about 30 Tory MPs who are “out no matter what”, 20 who are “in at any cost” and the rest are “swing voters” who would probably prefer to stay in a heavily reformed EU. Most Tory MPs will make up their minds based on what deal David Cameron can get in Europe.

Remember though, it’s not unusual for parties to split over Europe – particularly if referenda are involved. In part, this is a sign of a functioning democracy. In the 2003 Swedish referendum on the Euro, the governing Social Democrats were deeply split, with Ministers from the same government even campaigning on different sides. The French socialists were infamously divided over the European Constitution and in the 1975 EU referendum in the UK, Labour was all over the place.

Cameron yesterday again fought off a Tory EU rebellion, with two amendments to the Immigration Bill being backed by significant numbers of MPs. Dominic Raab’s amendment in particular – limiting the grounds on which foreign criminals can appeal deportation – encapsulated the ongoing clash between European "rule of law" (in this case the ECHR, not the EU) and Parliamentary democracy. It would be odd for the Tories not to discuss this, and it was a fully legitimate amendment.

However, there clearly comes a point when the Tory Party can become its own worst enemy in Europe. It's one thing for the Tories to split when that referendum comes, another to rob itself of the very opportunity to test the limits of EU reform ahead of the vote.

There's a vicious circle at play here. The UK media never seems to get tired of Tory split stories. It only takes a handful of vocal backbench MPs to create a “Tory rebellion” headline. English being the lingua franca, European politicians and commentators read the UK press, drawing the conclusion that, this is really all about a party talking to itself about itself. The many good reform ideas coming out of the UK are dismissed as a matter of “domestic politics” – an image happily (sometimes dishonestly) conveyed by a whole host of special interests, including those who have invested personal prestige in the EU project and seek to maintain the status quo. Cameron, meanwhile, is seen as an unreliable partner not in control at home. This perception is then fed back to the UK press, as a sign that Cameron is “isolated”, in turn hardening backbench opinion.

How to avoid this? Backbenchers need to be aware that every split – manufactured or real – reverberates far beyond the UK’s borders, often working against their ultimate objective. When the UK presents a united front, it often wins in Europe. Secondly, as I’ve argued before, Cameron just has to stop jumping from headline to headline. He’s giving his European partners whiplash. Finally, European commentators and politicians themselves need to be more intellectually honest. Surely, beyond the headlines, they must understand that the UK’s Europe debate is multi-faceted. Don’t use the Tories as an excuse not to engage on substance in the crucial debate about how to reform Europe.

Open Europe Chairman Lord Leach: We can't do nothing. Only #EUReform will work

Open Europe Chairman Lord Leach of Fairford has an article in today's Times, trailing this week's unprecedented Open Europe-Fresh Start Project pan-European Conference on #EUReform. He argues,

There will be no escaping the European question this year. The European Parliament elections in May will be followed by the selection of a new Commission, the EU’s executive arm and spiritual home for federal-minded officials. This is also the year when the Prime Minister will set out his negotiating strategy for Europe ahead of next year’s general election and the promised referendum in 2017.

Voters across the Continent will be assured by EU leaders that the euro crisis is over. It isn’t. A financial and currency crisis has simply morphed into a social and economic crisis, with youth unemployment running at 50 per cent in parts of Southern Europe. The European elections will return sceptical parties in record numbers.

These flashing warning lights illustrate voters’ deepening frustration with the status quo. An out-of-touch Brussels political elite will no doubt try to frame the debate about Europe’s future as a struggle between moderate idealists who see the EU as an end in itself, a staging post on the journey to a United States of Europe, and dangerous “extremists” who oppose it lock, stock and barrel.

That would be a grave mistake. Without radical change, the legitimacy of the EU will continue to decline in every member state. And if there is a referendum in Britain it will be so close as to leave the issue undecided and half the country feeling resentful and disenfranchised.

However, here’s the good news: as economic and democratic realities mount, the momentum for reform is growing. National politicians increasingly sense that they risk ending up on the wrong side of history if they settle for the “do nothing” option. In an unambiguous sign of the changing mood, Open Europe and the Fresh Start Project of UK MPs are this week hosting a conference for more than 250 leading politicians and opinion-formers from all 28 EU member states. Though we won’t agree on everything, we have a common mission: reform.

For years Europhiles have used conferences to set the agenda, talking to themselves about themselves. No more. For the first time, reformers are joining forces in large numbers to call for sweeping change.

This event is about substance. Beyond the simplistic ideological divide between those who want a superstate and those who want break-up, what is the most effective way to organise Europe, practically, democratically and economically?

Over two days the focus will be on competitiveness and democracy, a testing-ground for fleshing out which concrete EU reforms the Prime Minister can achieve ahead of the 2017 referendum. Our European friends will have constructive ideas of their own.

Countless statistics show how the EU is losing out in the global race. Yet it is not hard to see how to make Europe work for prosperity, rather than against it. A liberalised market, not least in services, with each country free to make its own successes and mistakes, would provide fresh competitive edge. Returning labour market laws to the domestic shop floor, dropping the centralised European management of farm subsidies and national energy policies, ending the grossly inefficient recycling of regeneration subsidies through Brussels and cutting needless regulation across the board — all these would immediately help growth and jobs.

Above all we need a new constitutional settlement to square national democracy with European co-operation. That means facing the existential question that was posed when the euro was created: what is the common cause that defines the EU? Is it the single currency, and its ideological parent “ever closer union”? Or the Single Market?

If the EU becomes a political extension of the euro, sooner or later the UK electorate will vote to leave. Yet there has been acknowledgement — from Berlin to Rome — that it is in no one’s interest to convert countries into first and second-class members, still less to sleepwalk into the exit of one of Europe’s main powers. However, in what will be a long battle, the UK needs allies. They will be worth listening to.

Jumping from headline to headline isn't a Europe strategy

Our #EUwargames exercise has already received extensive coverage, but today we'll publish our own, widely anticipated, analysis of the simulation (within the next hour or so).

In the Times, Open Europe's Director Mats Persson trails the analysis. Bringing the simulation back to reality, he argues:

David Cameron heads to another EU summit today. The focus will be on the eurozone’s stuttering “banking union” but the PM will be stalking the corridors seeking support for EU reform. The good news is the appetite for change across Europe is growing. The bad news: Mr Cameron risks wasting the opportunity.  

In a unique exercise, Open Europe has just “war-gamed” UK-EU negotiations and the results were instructive. Once the posturing is over, there’s scope for a range of reforms, including cutting the cost of Brussels and veto rights for national parliaments. Mr Cameron has achieved an EU budget cut and financial services safeguards but the exceptional statesmanship required forsweeping reform is lacking.  

First, he’s fallen behind the curve. In January, he gave a good Europe speech but there was no follow-up plan. Mr Cameron had years to change the rules on benefit entitlements prior to Romanians and Bulgarians gaining full free movement rights but only now are changes being rushed through. Last-minute panic action will never deliver substantial reform.  

Second, there are government malfunctions. On EU migration the Home Office, the Department for Work and Pensions and No10 have pulled in different directions. All governments suffer from internal tensions, but multi-party coalitions such as the Dutch or Finnish are far more joined up on Europe.  

Finally, there’s a failure to understand EU partners’ interests. In our simulation, presented with evidence that France has the most to gain from limiting EU regional spending, Paris was open to budget reform. The UK must identify the reforms that could allow others to buy anygrand bargain. The deals are there to be done.  

Mr Cameron should appoint a lead negotiator or an EU reform task force to co-ordinate work across all departments and tour national capitals testing ideas. France has successfully defended agricultural subsidies for decades using this technique. Jumping from headline to headline may work for domestic issues but on Europe, it’s a sure way to end up pleasing no one.