A level playing field

FOR 30 years Europe has been the central question in British politics. It has split political parties and paralysed governments yet the central question has never properly been resolved - is Britain’s future one of fuller and deeper integration within the European Union (EU) or should it stay semi-detached, or even become fully detached.

It is an issue which has been contained mainly within the political classes. It has taken six years since the election of Tony Blair, the most avowedly pro-European Prime Minister since Edward Heath, for this debate to truly take life among the broader public. And it has done so under circumstances not of Blair’s choosing. Just at the time that the Treasury is due to report on whether the famous five economic tests are met, and Britain is ready to enter the euro, former French president Giscard d’Estaing is getting ready to present the report of the Convention on a future European Constitution.

Suddenly, what was already a delicate political decision is threatened with being swamped by a concerted campaign from tabloid newspapers opposed to any form of greater engagement with the EU. This is undoubtedly one of the critical political decisions of our time - and it is one without any ready or easy answer. The only current certainty is that, if asked today, the majority of the British electorate would vote against Britain entering the single currency as it stands. On the surface this is a deeply depressing fact for the pro-euro camp, yet it equally offers little succour to Eurosceptics since it is, from polling evidence, a highly qualified verdict of opposition. The public’s view is probably best expressed as ‘not now, but not never’. This is a very rational position, and it is worth setting out the reasons why it is the dominant one.

Firstly, and fundamentally, there is a popular revolt against the dishonesty with which the UK’s leadership class are perceived to have handled the entire issue of engagement with Europe. At base is the strong feeling that the 1975 referendum on staying in the Common Market was manipulated, with many voters taking the advice of their leaders without thinking through all the ramifications of EEC membership. Despite the many benefits experienced since then in terms of trade there remains an underlying suspicion that there was something tricky about the referendum and many voters have vowed not to be fooled again. In many ways, 1975 was the last time that the electorate were deferential towards their political leaders and the pro-euro camp are merely reaping the effect of the decline in respect for politics as a profession.

However, it is also fair to note that there is substantial disaffection caused by the fact that no politician will tell the truth about the EU. No one seems willing to admit that on the one hand there is no conceivable future for Britain outside of Europe. To put it at its bluntest our special relationship with the US depends on us being a bridge to Europe, a position we can only fill if we are in, and actively in, the EU. Yet, on the other hand, it makes no sense for us with low unemployment and continuing economic growth to join a deflationary club of nations.

This raises the second critical issue - the much needed reform of the European Union’s institutions. The Single European Market is, when it works, a profound benefit for British companies - because our combination of flexible labour markets and shareholder driven firms gives us a massive competitive advantage where there is a truly level European playing field. And there is the rub. Were European markets for products ranging from energy to insurance actually open then Scottish firms could expand rapidly. Unfortunately, individual nation states on the continent are able to play the system to prevent real, fair competition. Yet it is only when there is real consolidation across Europe that we will have the leverage to bargain effectively to open up markets internationally, such as the highly protectionist US air industry.

In addition, perhaps even above all, the Common Agriculture Policy (CAP) cries out to be reformed. It is not just a pragmatic argument that the EU will be bankrupted when the accession countries join if there is no change, because from Poland to Slovenia they have such substantial agricultural workforces. Far more is it the sheer obscenity of the protectionism that featherbeds European farmers at the expense of developing nations. The facts are shocking - half the world’s population live on less than $2 a day, yet every single cow in the EU is subsidised to the tune of $2 a day. That is morally unsustainable, but despite successive UK governments being committed to CAP reform progress has been limited, blocked by the vested interest who benefit from the status quo.

The blockage in the ability to reform the EU is the third key issue. It remains, in many ways, a product of its history. Formed in the 1950s when a war-torn Europe had seen three Franco-German conflicts within the previous 80 years, it had as a priority transforming relations between those two troubled countries. And in this it has been a huge success, but at a cost. Simply put, almost all crucial issues within the EU can be seen as trade offs between France and Germany. The most obvious is the single currency, the euro, where the deal is fairly obvious - Germany gives up its currency but gets to run a deflationary central bank on the model of the Bundesbank. France, on the other hand, gives up its currency but its bureaucrats get to run the European institutions.

The challenge to Britain has always been to find a way to secure a seat at the table under these far from perfect circumstances. Our withdrawal - so far - from the single currency project accentuates this problem. Since we are not inside the tent we cannot tangibly impact on reforms of the framework under which the European Central Bank (ECB) operates. Yet realistically only an ECB reformed along the lines of the Bank of England, with its independent Monetary Policy Committee and its anti-deflationary policy framework, would make UK membership of the euro sensible and sustainable.

These are the core challenges of the European question. The UK cannot thrive outside the EU, yet it is hard to see currently how greater integration would add to our prosperity. Reform of key institutions is desperately needed, but at best Giscard d’Estaing’s work is a mere restatement of existing EU treaties, while at worst he may well be surreptitiously trying to extend its scope over national sovereignty.

That said, current calls for a referendum on Giscard’s proposals are seriously misplaced. Parliament has always approved treaties in the past - including the Single European Treaty and the Maastricht Treaty, both of which had far reaching effects. Additionally, everything that is in the current draft proposals is subject to detailed inter-governmental consultation.

However, the real problem with a referendum at this stage on something as complex as a draft treaty is that it would be in danger of becoming a register of disaffection with politics and the political process rather than a considered consultation with the public. That is what the Irish found in their first referendum on the euro.

The challenge remains for politicians to open up more clearly and more honestly the full ramifications of the need for a reformed structure once the ten new accession countries have joined.

And there seem few ways in which Britain can break apart the Franco-German axis within Europe, particularly after the Iraq War. However, there remains little doubt that a truly open Single European Market would be an enormous benefit to UK prosperity and that it is only within the EU that we can continue to be a powerful international player. It is time for the pace of EU reform to quicken, and for politicians to start being more honest with us about the range of options we truly have, however limited. There is no other way.