16 October 2012

Robin Niblett: Britain must engage with a multi-tier EU

The British Government is in the early stages of an audit of the impact of all EU legislation on Britain. This study, it has been argued, will provide the ammunition for Britain to negotiate a repatriation of certain EU powers in return for British acquiescence in the establishment of the fiscal union under a formal EU treaty.

There are two problems with this approach. First, other EU members have little interest in allowing Britain to repatriate powers in the sorts of areas that Conservatives are seeking. They fear this could open a Pandora’s box of similar requests from other members. Just as important, the majority of other EU Member States are about to tie their economic fates more closely together than ever before. This is hardly the moment to hand Britain further commercial advantages.

Euro members already resent the fact that Britain was able to let the pound devalue at the start of the financial crisis, making its exports to eurozone members that much cheaper.

Britain, with new opt-outs on working time regulations and other labour laws – which are top of the list for Conservatives – but with continuing unfettered access to the single market, could suck jobs and investment away from its EU partners. And new safeguards for the British financial services sector could concentrate EU financial services further in London.

EU members might conclude that it would be better to call Britain’s bluff. They could refuse to negotiate a compromise, open the door to a British referendum and, if a recent Chatham House/YouGov survey were to be proved accurate, accept the likely British popular decision to leave the EU. Britain would then find itself still inside the EU’s single market, but excluded from designing the rules that would determine its access to that market.

For some EU members, this would be a positive outcome – Britain may become a relatively less attractive destination for foreign investment; and London could lose some if its appeal for European banks, which might build an alternative EU financial centre. Pressure to open up the EU services market, resisted by France among others, would decline. The case for further enlargement of the EU would diminish.

The second problem with the Government’s approach is that it appears to overestimate the cohesion of the eurozone. Yes, Britain may find it harder to defend its corner in some aspects of EU decision-making if a majority of EU Member States haggle their way into a fiscal union. But it may not find itself relegated to impotence in an EU second tier.

Indeed, an integrating eurozone will still contain the same tensions that the EU has carried since its inception: between big and small states; between those that want an ever-deeper European political union and those that want to preserve as much national sovereignty as possible; between those that are already competitive and those that are struggling to become so; and between those that foresee the eurozone becoming a genuine transfer union and those, including Germany, which resist this notion.

These tensions mean that Britain could continue to find receptive partners to promote a range of EU policies that would benefit its economic prosperity and security. This includes liberalizing the single market, reforming the EU budget, promoting a more interconnected EU energy market, striking trade agreements with increasingly assertive emerging powers, and implementing powerful EU sanctions regimes against countries such as Syria and Iran. The idea that a British Government can deliver a better future for its citizens sitting outside these areas of EU decision-making than it can inside is fanciful.

In place of the drift that we see in Britain’s relationship with the EU, British politicians should start to think and act strategically. Recognising that Britain will remain a major player in a multi-tier Europe, the Government should build alliances today with other Member States and within EU institutions on policies that do not form part of eurozone competence, but that continue to be of direct interest to Britain.

In contrast, a plan designed to call other EU members’ bluff on repatriating powers from Brussels could force this or the next government into an in-or-out referendum on membership whose result may reflect people’s near-term frustrations about the EU and the government of the day rather than an assessment of Britain’s long-term interests.

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