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Central but decentralised

7 January 2013 By Hugo Dixon

David Cameron is planning a keynote speech on Britain’s relationship with the EU later this month. Here is what the UK prime minister should say.

The euro crisis is forcing euro zone nations to rethink how they wish to run their currency union. It is also forcing European Union countries that don’t use the single currency, such as Britain, to rethink their relationship with Europe.

We have three main options: quit the EU; move to the edge as the euro zone pushes towards closer union; and seek to stay at the heart of Europe and influence its development in a way that promotes our interests.

There are members of my own Conservative party who would like Britain to quit. There are others who would like us to move to the periphery. But I am determined to make sure that we stay at the centre.

Let me deal, first, with the argument that Britain’s interests would be enhanced if we were no longer in the EU. Being a member costs us money, partly to subsidise anti-competitive practices such as the Common Agricultural Policy; it also requires us to follow a mass of rules, some of which inhibit our competitiveness. But half our trade is with the rest of the EU. It would be madness to cut ourselves off from a rich single market of 500 million people.

Of course, leaving the EU would not automatically mean that we would lose access to the single market. Switzerland and Norway are part of the same free trade zone without being EU members. But the quid pro quo is that they still have to follow the rules of the single market. It is not in our interest to put ourselves in the same position – where we have to do what we are told without any say in drafting those rules. Look at the deal that we negotiated before Christmas to ensure our banks are not discriminated against. We wouldn’t have been in a position to cut such a deal if we hadn’t been at the top table.

What then about retreating to the periphery? This might seem an attractive way of having our cake and eating it. After all, as a response to the euro crisis, the euro zone is considering plans to add fiscal and political union to monetary union. This will involve treaty changes which everybody, including Britain, would have to approve. We could use our leverage to negotiate the repatriation of certain powers from Brussels to London – for example over social policy – and so improve our competitiveness.

I don’t exclude the possibility of repatriating powers where matters would be better decided at a national rather than supranational level. However, I am queasy about making a push for opt-outs the main focus of our policy not just because it’ll be hard to secure them. Even if we are successful, the UK would move to the outer tier of Europe. A core principle of British foreign policy for centuries has been that we should not allow continental Europe to form a bloc against us. That’s why we fought the Napoleonic Wars and two world wars.

My finance minister has talked about the “remorseless logic” of banking and fiscal union to complement the euro zone’s monetary union. But the more I think about this, the more I am convinced that greater integration among euro zone countries is neither in our interests (as it would reduce our influence) nor theirs (as it would lead to increased centralisation and bureaucracy).

There is a push for greater union across the English Channel. But there’s also resistance. The Germans don’t want to pay for everybody else’s bills; while everybody else doesn’t want to be bossed around by Berlin. Britain is not the only country with eurosceptics. At last month’s summit, indeed, nothing was agreed on this greater integration plan apart from a diluted accord to have a common bank supervisor.

How then will the euro zone survive and thrive if it doesn’t integrate? My answer is that it has to become more competitive otherwise economic activity will be sucked away to China, India and the like. Europe’s labour markets have to become more flexible; goods and services markets have to be fully open to competition; and government spending and taxation must be reined in.

This “remorseless logic” is pretty much the recipe being forced on Italy, Spain, Greece, Portugal and Ireland as they try to escape the crisis – with the one important exception that taxes are rising because of their fiscal problems. Even socialist France is being pushed in the same direction.

Such a free market agenda is precisely what Britain has been advocating for decades. This is a particularly opportune moment for us to press our case. That is why I advocate the third option: staying at the heart of Europe.

If we sit at the top table, we can advocate a more competitive single market, where the remaining barriers to trade are torn down. We can press for more trade agreements with other economic blocs such as America. We can defend our vital interests in areas such as financial services. We can argue for dismantling the regulations that tie us in knots and the subsidy programmes that waste money. And, yes, we can work to repatriate some powers – not just to London but to other national capitals. That is how we should engage with Europe.


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