UK prepares for possible EU failure

By Hugo Dixon
July 16, 2014

David Cameron looks to be preparing for the possibility that his plan to renegotiate Britain’s relationship with the European Union will fail. The UK prime minister would then campaign for the country to quit the EU in a referendum he plans to hold by 2017. That seems the best way to interpret his appointment of a eurosceptic foreign minister and the nomination of a little-known former lobbyist as Britain’s European commissioner.

This is not to say that Cameron wants to take Britain out of the EU – which would be a historical mistake. It is rather that he apparently thinks quitting could be an acceptable Plan B that would keep him in his job and his Conservative party reasonably united.

The British premier has never publicly said how he would campaign if he doesn’t manage to reform the EU and the country’s relationship with it. He used to dodge the question by saying he was confident of securing significant changes, while being fairly woolly about what reforms he was actually looking for.

But since last month’s fiasco when Cameron went out on a limb to block Jean-Claude Juncker’s appointment as president of the European Commission and failed, the calculations have changed a bit. The prime minister immediately warned that it would be harder to keep Britain in the EU, because it would be more difficult to reform it.

Now Cameron has appointed Philip Hammond as foreign secretary and nominated Jonathan Hill as Britain’s member of the Commission. Neither decision displays confidence in his Plan A of securing a good new deal with the EU and then campaigning to stay in.

Hammond has gone a step further than Cameron. He said last year he would be in favour of quitting the EU “if the choice is between a European Union written exactly as it is today and not being part of that.” Such language almost sounds like a threat: “reform or we’re out.” It is not likely to go down well with Britain’s EU partners, some of whom interpreted Cameron as making a similar threat when he tried to junk Juncker.

Meanwhile, Cameron’s nomination of Hill for the European Commission has had almost everybody scratching his or her head. Juncker’s office said they’d had to turn to Google to find out who he was. Nigel Farage, leader of the UK Independence Party, hit the nail on the head, tweeting: “Lord Hill – Who are you?”

Hill is not a hardline eurosceptic. He knows the EU well and he’s reputedly good at building alliances. But he is still a bad choice because Britain is now in an even worse position to get a top job in the Commission – which, in turn, will further diminish its chances of reforming the EU for the better.

Cameron wants Hill to get a big economic portfolio such as the single market, trade or competition. But why would Juncker agree to this? Not only will he want to reward those leaders who backed his candidacy. He has now been presented with a candidate who is low profile, male (which won’t help him increase the proportion of women in the Commission) and a former lobbyist (which won’t endear Hill to the European Parliament).

Cameron should have nominated a heavy-hitter: ideally William Hague, the outgoing foreign secretary; or Malcolm Rifkind, another former foreign secretary. It’s not clear why he didn’t. But one suggestion is that Hague didn’t want the job. What’s more, either case would have required a by-election which the Conservatives might have lost. That isn’t so with Hill, as he is in the House of Lords. But what sort of message does that send to Britain’s EU partners: that Cameron prefers to send a second-tier politician to Brussels rather than risk losing a single member of parliament?

All this also sits oddly with Cameron’s argument when fighting Juncker’s appointment: that Europe needed a dynamic leader to push through urgent reforms. His partners may now think he’s not being serious because he doesn’t practice what he preaches.

The campaign to reform the EU is not lost because it is not just Britain that wants a more competitive and decentralised Europe. There’s pretty much common agreement on this among all leaders.

Juncker is also on board. His manifesto setting out the priorities for the next European Commission, published on July 15, stressed the need to complete a free trade deal with the United States, make progress on completing the single market, cut red tape, and stay out of policy areas best left to national governments. The president-elect also extended an olive branch to Britain, stating that he was prepared to negotiate which powers could be repatriated from the EU to national capitals.

Meanwhile, Juncker advocated a “capital markets union,” saying: “To improve the financing of our economy, we should further develop and integrate capital markets. This would cut the cost of raising capital, notably for SMEs, and help reduce our very high dependence on bank funding.”

This initiative is potentially very valuable for the UK as London is by far the largest capital market in the EU. If a capital markets union becomes a reality, Britain will handle most of the non-bank financial services such as shadow banking and securitisation.

But will the UK still be in the EU to take full advantage of such reforms? Cameron’s latest decisions – which seem to put personal and party ambition above national interest – make that a little less likely.

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Cameron fought against the appointment of Juncker because a) he is an old fashioned federalist that no one wanted and b) he had the backing of Angela Merkel. She changed her position due to domestic politics leaving Cameron out on a limb. Most European leaders do not want Junckers but in the odd wau that the EU works, they got him.

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