21 October 2012

Simon Nixon: Cameron at the mercy of European events

Without a strategy, bereft of allies and facing determined opposition within his own party, Mr Cameron looks increasingly at the mercy of events rather than their master, comments Nixon in his WSJ column.

Mr Cameron's difficulties are compounded by the nature of modern Tory euroscepticism. A movement forged in the heat of the battle against the single currency has now hardened into a tribal, emotional hostility to the EU itself, fuelled partly by triumphalism at the crisis in the eurozone and a fervent hope the project will fail. What is missing from the debate is recognition that EU membership has been a remarkable success for the UK.

The EU's greatest achievement—the single market—was a largely British invention and the UK has arguably been its biggest beneficiary. The City's modern renaissance largely reflects its emergence as the centre of a pan-European capital market—a process that has further to run as industries consolidate and companies turn to bond markets rather than banks for finance. And the UK will continue to be the biggest beneficiary of the development of the single market as it extends to services and the digital economy where the UK is strong.

Also missing is any clear idea how a renegotiated relationship with the EU would help address the UK's current economic woes. The EU did not regulate the U.K. banks, inflate its housing market, insist it run deficits during the boom or expand public spending to 50 per cent of GDP. The structural rigidities holding back the UK economy—a dire educational system, a broken banking system, a benefits system that creates disincentives to work—are all domestic problems requiring homegrown solutions.

In recent public statements, Mr Cameron has indicated he understands the importance of EU membership and his responsibility to defend it. In 10 Downing St, his advisers are not only discussing whether to hold a referendum but also how to win one, says a senior minister involved in the plans. But the weakness of his political position means he cannot rule out leading a campaign to take the UK out of the EU if his renegotiation demands are not met.

That puts him in a perilous situation. His hopes for a successful renegotiation rest largely on the belief that the eurozone's only hope of survival lies in full political union and the mutualisation of debts. But this may be a miscalculation: Much of the fiscal and banking union needed to resolve the crisis are already in place and much of what remains to be done can probably be done within existing treaties, as it was with the fiscal pact. Even if Mr Cameron had a radical agenda, the rest of the EU may see no need to indulge him—particularly if, as last December, no UK interests are at stake.

Full article

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