Opinion

Hugo Dixon

Don’t bet on EU treaty change

Hugo Dixon
Mar 31, 2014 09:14 UTC

Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union’s treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.

The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin’s pet projects – a treaty that restricted borrowing by euro zone countries – unless it was given guarantees to protect the City of London.

But have the two countries really found a formula that simultaneously solves the EU’s two main problems? There are reasons to be sceptical.

Schaeuble and Osborne wrote in a joint article in the Financial Times that the euro zone needs a common fiscal and economic policy. Meanwhile, as it integrates further, those EU countries that don’t use the single currency such as Britain shouldn’t be put at a “systematic disadvantage.”

What this meant was that “future EU reform and treaty change must include reform of the governance framework to put euro area integration on a sound legal basis, and guarantee fairness for those EU countries inside the single market but outside the single currency.”

How EU can wean itself off Russian gas

Hugo Dixon
Mar 24, 2014 10:10 UTC

European Union leaders at the summit last week made a commitment to cut their dependency on Russian gas. The Ukraine crisis has highlighted the issue: about 30 percent of the gas the EU consumes comes from Russia.

Not that there is any immediate risk of the Kremlin turning off the taps. After all, Russia gets around 14 percent of its entire export earnings from gas it sells to other European countries.

What’s more, the EU is better placed to withstand a disruption of gas supplies than it was in 2009 when Moscow last cut off gas supplies to Kiev. Then 80 percent of Russian gas was routed via the Ukraine, according to the Oxford Institute for Energy Studies. Now it is around 50 percent, largely because of a new pipeline that connects Russia to Germany via the Baltic Sea.

Cameron lowers Brexit risk

Hugo Dixon
Mar 17, 2014 11:28 UTC

Angela Merkel’s visit to the UK last month seems to have worked wonders. Within three weeks of the German chancellor’s speech to the House of Commons and her private meetings with political leaders, the two most risky “Brexit” scenarios are now less likely.

First, the Labour opposition has virtually ruled out holding a referendum on Britain’s European Union membership if it wins power in 2015. Such a plebiscite might well have led to an Out vote given that, in such a scenario, the Tory party and press could have formed a united front opposing membership.

The second risky scenario was that David Cameron would win reelection and set “impossibilist” demands for how he wanted to reform Britain’s relationship with the EU. But he has just come out with a list of reforms which, while wishy-washy, are moderate. He has also said that, if he gets his way, he will campaign for an In vote – which means the people are less likely to vote Out.

Europe should give Cyprus a hand

Hugo Dixon
Mar 17, 2014 10:51 UTC

Sunday marked the anniversary of Cyprus’ shock plan to raid the tiny island’s bank deposits. The envisaged tax, backed by the euro zone, covered all banks and all deposits, whether insured or not.

Although that unwise scheme was later rescinded, much damage was done to a country already deep in financial crisis. Uninsured deposits of the island’s two large troubled lenders still suffered big haircuts. Capital controls were imposed as well.

These restrictions were supposed to be a short-term measure, not that this ever seemed likely. A year on, the most important controls – preventing people or companies taking more than small sums of money out of the country – are still in place and depressing the economy’s animal spirits.

Labour has just shrunk Brexit risks

Hugo Dixon
Mar 12, 2014 10:24 UTC

The risks of a Brexit have just shrunk a lot. Ed Miliband, the UK’s leader of the opposition, has virtually ruled out a referendum on Britain’s European Union membership if he becomes prime minister in 2015. David Cameron’s Conservatives will need to win an overall majority in the next general election and then lose an In/Out vote to allow the UK to quit before 2020.

This is good news for business: a plebiscite, coming after a populist campaign, might easily produce the “wrong” result. An Out vote would put Britain at risk of losing full access to the EU’s single market, with which it conducts almost half its trade. It would also unleash a long period of uncertainty. Whoever is prime minister then will have to resign, likely to be replaced by a staunch eurosceptic who will then engage in acrimonious divorce talks with the rest of the EU. In the meantime, business would sit on its hands, and the economy suffer.

Meanwhile, Miliband’s priorities for reforming the EU – boosting competitiveness, tackling youth unemployment, completing the single market and decentralising power – are broadly pro-business.

EU’s half-baked bank union could work

Hugo Dixon
Mar 10, 2014 16:12 UTC

The European Union’s half-baked banking union could be made to work – even though it wasn’t strictly needed to solve the euro zone’s problems and what has been agreed isn’t what the designers wanted.

The original advocates of banking union saw it as a way to prevent the euro collapsing during the dark days of early 2012. The idea was that a well-funded, euro-wide deposit insurance scheme would stop savers panicking. Meanwhile, if banks got into trouble, a strong euro-wide safety net would be able to bail them out.

During the crisis, savers and investors lost faith in the ability of weak governments to rescue their banks. That’s why banking union enthusiasts wanted euro-wide support systems.

How Britain could win EU reform

Hugo Dixon
Mar 3, 2014 10:41 UTC

Angela Merkel’s visit to London last week has been viewed by many as a snub to David Cameron’s aim to reform the European Union. But it all depends on what one means by reform.

The British prime minister last year promised a referendum on the UK’s membership of the EU by the end of 2017. He vowed to renegotiate Britain’s relationship with Europe in the meantime – the idea being that, on the back of such reforms, he would be able to persuade a sceptical electorate to vote to stay in.

If Cameron focuses on subjecting the EU’s treaties to open-heart surgery, he will be disappointed. But if he puts his energy into making the bloc more competitive – something that would be hugely beneficial for Britain – the prize of reform may well be within his grasp.