How Britain could win EU reform

By Hugo Dixon
March 3, 2014

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.

That much was clear from the German chancellor’s day-trip. She disappointed some British eurosceptics by arguing against “fundamental reform of the European architecture.” She does want revisions to prevent another euro crisis. But, for her, treaty change should be “limited and targeted.”

What’s more, Merkel is only one voice among 28 leaders, albeit the most powerful. Every single country has to agree treaty changes. This means that trying to revamp the treaties to suit the desires of British eurosceptics has zero chance of success.

If the treaties are reopened, of course, Britain should have its wish list. But, at most, it will be able to secure changes such as giving national parliaments a greater say in Europe-wide legislation. Cameron will waste his political capital if he makes this his priority.

A better approach is to work with Merkel and other leaders to set a clear agenda for what they want the EU to achieve over the next five years, as the German leader proposed. After elections to the European Parliament in May, the leaders and the parliamentarians will have to agree who will run the European Commission from the start of 2015. They should also agree what it should do – and what it should not do.

The priority should be to make Europe more competitive. This has several elements. Top of the list should be to complete the single market. At present, there are few barriers to trade in goods, but many to the trade in services. Although services account for over 70 percent of the EU economy, they are often not efficiently provided – one of the main reasons Europe lags America.

Other measures should include: agreeing ambitious free trade deals with other parts of the world, especially the United States, Japan and China; cutting red tape; and helping capital markets play a bigger role in financing the European economy.

At the same time, the next Commission must stop interfering in things best left to national governments. Not only do proposals such as its - thankfully abandoned - plan last year to ban olive oil jugs in restaurants get up the noses of national politicians; they absorb a lot of energy that could be better used on things that really matter.

ZEITGEIST

A full-blown competitiveness agenda would certainly be ambitious. But it is achievable because it goes with the zeitgeist. There is widespread acceptance that the continent needs to pull its socks up. Otherwise, it won’t just be left with high youth unemployment in so-called peripheral countries; it will languish as other parts of the world grow faster.

Merkel gave many indications of being open to, or even keen on, such an agenda on her trip to London. She spoke out in favour of renewing the EU to make it stronger and more competitive. She said it must further dismantle barriers to trade, especially with the United States. She advocated cutting red tape.

The German leader even spoke favourably of the City, saying: “London is very important for the European single capital market and thus for the economies of all European countries.”

Cameron should view these remarks as a golden opportunity to put forward concrete plans to help capital markets grow as a source of finance and so fill the gap being left as European banks shrink. He should also secure Merkel’s agreement to make a new push to complete the single market in services – something she has yet to commit herself to.

Meanwhile, the chancellor was strong on the need to stop the Commission meddling. She said it “must only regulate matters which cannot be adequately regulated by the member states themselves.”

It’s not just Germany that is keen on such ideas. The Netherlands is pushing a similar agenda and other countries are open to elements of it too. So the opportunity is there.

The British government is a coalition between Cameron’s Conservatives and the pro-European Liberal Democrats. The latter cannot agree to the radical plans for treaty change being advocated by some Conservative eurosceptics. Hence, Cameron’s plan to wait until after the 2015 general election – which he hopes, somewhat implausibly, to win on his own – to push these ideas.

But the prime minister probably can get the LibDems to agree to a competitiveness agenda. And the time to push it is now. After all, the mandate for the new Commission will be set in the next 10 months. If he waits until after the next election, he will have missed the boat.

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What a mess. Awesome Hugo. L.

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