25 November 2012

Wolfgang Münchau: Britain's bluster serves the eurozone well

By insisting on an EU budget freeze, Mr Cameron is ultimately doing the eurozone a favour, comments Münchau in his FT column. By undermining the EU, Mr Cameron provides further incentives for the eurozone to grasp its collective interest.

Today’s EU has two important functions left. Some readers may find my list shockingly short. The first is that it provides the institutions and legal framework for the eurozone to muddle through to a solution of its crisis. I am not saying that the eurozone will necessarily achieve that goal. There is a non-trivial probability that it will not.

But if it does, it will end up usurping the single market, and possibly turn it into something useful. The banking union could be a first step towards a single market for finance at eurozone level. Ultimately, I would also expect a single market for labour and for services, all at eurozone level. If there is a fiscal union, its budget will end up not only bigger than the EU’s, but also different in composition – to fulfil the purpose of macro-economic stabilisation.

The EU’s second important function is to serve as a waiting room for Member States who are not yet in the eurozone, but are willing to enter it at some point in the future. The real dividing line in the EU is not between the 17 eurozone members and the 10 non-members, but between the group of the “ins” and the “pre-ins” and the group of the “outs”. Britain is clearly in the latter category and so is the Czech Republic. Denmark and Sweden are also in there, but are a little closer to the fence.

In the end, it does not matter whether the outs leave the EU formally, linger compliantly on the fringes or whether the eurozone leaves them. A messy divorce of some sort will take place, at some point, possibly still quite a few years away. It could take numerous forms. A formal separation is only one of several possibilities. But it is not sustainable for a group of permanent outsiders to enjoy permanent co-decision rights, even though the EU is endlessly patient when it comes to accepting transitional arrangements. The reality is that there is no sustainable biosphere that is outside the eurozone, but inside the EU.

© Financial Times