Opinion

Hugo Dixon

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.

Labour’s move is also good for democracy. Holding referendums is only democratic when a big constitutional change is under discussion or when the people demand one. These conditions are currently not met on the topic of Britain’s EU membership.

While it is true that most of the electorate says it would like a referendum, Britain’s EU membership is low on their list of priorities. Meanwhile, there are no plans for a major treaty change that would alter Britain’s relationship with Brussels.

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.

Euroscepticism may have silver lining

Hugo Dixon
Feb 10, 2014 09:43 UTC

Many eurosceptic treatises, such as the recent report saying the Netherlands would be better off quitting the European Union, are exaggerated and unconvincing. But mounting euroscepticism could still have a silver lining if it helps those wishing to reform the EU advance their agenda.

Few people think the Netherlands is close to quitting the EU. In this way, it is different from the UK, where exit is a genuine possibility. That said, euroscepticism is on the rise following years of economic stagnation. The right-wing Freedom Party, led by Geert Wilders, is leading in the opinion polls and is likely to be the largest party in May’s European Parliament elections. Other eurosceptic and nationalist parties such as France’s National Front and Britain’s UK Independence Party are also likely to perform well.

To see what is wrong with the eurosceptics’ arguments, look no further than the study on “Nexit” – the Netherlands’ potential exit from the EU – commissioned by Wilders and written by Capital Economics, a London-based consultancy. Although the case for Nexit has been dressed up about as well as it is possible to do so, it is still full of holes.

UK Tories mishandle EU relationship

Hugo Dixon
Jan 23, 2014 10:16 UTC

A year after David Cameron promised a referendum on EU membership, the British prime minister and his Conservative party are alienating potential allies across the Channel. He needs to pitch reforms that benefit the whole bloc, not just pander to eurosceptics. Otherwise an “Out” vote looks more likely.

Cameron promised to hold a referendum by the end of 2017, assuming he’s still in power. His original hope was to first renegotiate the terms of Britain’s EU membership sufficiently so that he could then sell the advantages of staying in to a sceptical electorate.

In such a scenario, the expectation was that much of Tory press would rally round – or at least mute their criticism. Meanwhile, business would campaign to stay in, alongside the Liberal Democrats, the junior partners in Cameron’s coalition, and the opposition Labour party.

Europe’s post-crisis challenge

Hugo Dixon
Dec 16, 2013 10:28 UTC

The hot phase of euro crisis may be over. But the zone will limp on for years with low growth and high unemployment unless further action is taken on three fronts: bank balance sheets must be cleaned up, monetary policy loosened and more free-market reforms adopted.

The latest news from the euro zone’s various battlefronts is fairly encouraging. GDP in all the problem countries, with the exception of tiny Cyprus, is expected to grow next year. Budget deficits, one symptom of the crisis, are being cut. Current account deficits, the other main symptom, are coming into balance.

Ireland, the poster child of the harsh recipe of fiscal austerity plus structural reform, has just exited its bailout programme. Portugal may do so next year. Even Greece is toying with the idea of issuing government bonds towards the end of 2014.

EU should refine its welfare policy

Hugo Dixon
Sep 9, 2013 09:16 UTC

The European Union is underpinned by the so-called “four freedoms”: the free movement of goods, services, capital and people. There’s little controversy over the first three. But the free movement of people has become a hot political issue in many countries, often whipped up by nationalist parties. Some people who want to keep immigrants out are racists. There are also two supposed arguments for keeping foreigners out: that they take both “our jobs” and “our benefits”.

Immigration is a particularly live issue in the UK. In the European Commission’s latest Eurobarometer survey, 32 percent of the British people questioned thought it was one of the two most important issues facing the country. The average for the EU as a whole was 10 percent.

In a poll for The Independent last month, two-thirds of those questioned thought British firms should give UK citizens priority over other candidates from elsewhere in Europe when hiring new workers – even if this meant Britain had to leave the EU. Just 16 percent disagreed. The UK Independence Party, which wants Britain to quit the EU, has heightened anxiety by arguing that there will be a wave of immigrants from Romania and Bulgaria after the last restrictions on their citizens’ movements are lifted at the end of this year.

EU ripe for single-market push

Hugo Dixon
Jul 29, 2013 09:25 UTC

The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the EU’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the EU – killing two birds with one stone.

It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the EU all the way back in 1957? Did the EU not complete the single market in 1992? And wasn’t a directive pledging free trade in services passed in 2006?

Well, yes and no. Free trade is not just about lifting intra-EU tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.

How to legitimise EU: decentralise

Hugo Dixon
Jul 22, 2013 08:41 UTC

The European Union is facing a crisis of legitimacy. This is evidenced in a decline in support for the EU among citizens in pretty much every member country. The most extreme manifestation is in the UK, where pressure is mounting to quit the EU.

There are two main schools of thought about how to restore trust in Brussels. One is to increase the direct say citizens have over what the European Commission does – say by giving yet more power to the European Parliament or by having a directly elected European Commission president. The other is to stop Brussels interfering in things best left to nation states.

The former school of thought is based on a misconception. The EU does not have a demos: few Europeans feel European rather than Italian, German, French or whatever. Witness the low turnout for European Parliament elections. Trying to construct a democracy without a demos is artificial and so won’t solve the legitimacy problem.

City should fight Brexit

Hugo Dixon
Jul 15, 2013 09:24 UTC

It is becoming increasingly likely that the UK will have a referendum on whether to stay in the European Union. It’s not just that David Cameron, the prime minister, has promised to hold such a vote by 2017 assuming he is re-elected. The drumbeats from the opposition Labour Party that it too would hold a plebiscite are becoming louder. Opinion polls show that Britons would currently vote to quit.

Of the many industries that would be hurt by such a “Brexit”, the City of London is the most prominent. The damage would range from moderate to severe, depending on the extent of the amputation.

The City is not just the UK’s financial capital. It is also Europe’s financial capital and vies with New York to be the world’s financial capital. The UK accounts for 74 percent of the EU’s foreign-exchange trading and 40 percent of global trading in euros; 85 percent of the EU’s hedge-fund assets; 42 percent of its private-equity funds; and half of pension assets and international insurance premiums, according to a recent report by TheCityUK, which represents the UK’s financial services industry.