Opinion

Hugo Dixon

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.

The free movement of people is one of the EU’s biggest pluses. And the number of EU citizens who engage in so-called “welfare tourism” – travelling to other countries to live off benefits – is exaggerated. However, it has become such a hot potato that it would be wise to tighten up the EU’s rules on immigrants’ access benefits. This is especially so in the UK, where David Cameron suggested last week in an interview with The Times that doing so could help sway a planned referendum on whether to stay in the EU.

First, though, look at the facts. Eight Eastern European countries, led by Poland, the so-called “A8” countries, joined the EU in 2004. A wave of migrants left for richer countries, especially the UK which didn’t impose any temporary restrictions. This was beneficial for the economy because most of the immigrants were skilled and hard-working. Most weren’t so young that the state needed to pay for their education or so old that it had to pay much for their healthcare.

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.

How the euro zone can muddle through

Hugo Dixon
Jul 8, 2013 09:27 UTC

Three years on, debate still rages over what is to blame for the euro crisis and what to do about it. Meanwhile, large parts of the zone are in a deep recession and the talents of a generation of young people are being wasted.

In looking at what went wrong, some point to the profligacy of borrowers while others stress the design flaws in the system. Yet others pin the blame on how the crisis has been managed. There are still others who think that the euro zone is a victim of a credit crunch that began in the United States.

There is some truth in all these explanations. While the credit crunch did trigger the crisis, it exposed a host of problems that had been masked by a decade of easy growth. Peripheral countries had grown uncompetitive as a result of rising wages. Often there was corruption and excessive debt, while anti-competitive practices that suited vested interests kept productivity low. Almost everywhere, governments ran unsustainably generous welfare states.

Financial reform must carry on

Hugo Dixon
Jul 1, 2013 08:20 UTC

After six years of crisis, much progress has been made in fixing the financial system. There was, for example, a landmark European Union deal last week to make creditors rather than taxpayers foot the bill for bust banks. But there’s a huge job still to do.

In the years running up to the crisis, the financial system ran amok on both sides of the Atlantic. Among the long litany of problems was a clutch of distorted incentives, which encouraged banks to take excessive risks by rewarding success but not punishing failure. These heads-I-win-tails-you-lose incentives skewed the behaviour of individuals, banks and the entire system.

A crackdown on bankers’ pay is starting to deal with individual risk-taking. Compensation can be clawed back from financiers whose bets ultimately turn sour. There are also plans, mainly in Europe, to pay a chunk of bankers’ compensation in “bail-in bonds” – which will get wiped out or turned into lowly valued shares if a bank fails. That should get bankers to pay more attention to risk.

Why Draghi likes London

Hugo Dixon
May 27, 2013 09:26 UTC

When Mario Draghi was appointed President of the European Central Bank, the German tabloid Bild gave him a Prussian helmet because it admired his Teutonic anti-inflation credentials. The Sun, Bild’s British equivalent, should give him keys to the City of London because of his pro-market credentials.

Draghi likes London. The Italian still has a flat in the city, kept from his time as a Goldman Sachs banker. He is a man with a natural affinity for the markets.

Last week Draghi was in London, the scene of his July 2012 promise to “do whatever it takes to preserve the euro”. The ECB President’s message this time was that Europe needs a more European UK as much as the United Kingdom needs a more British Europe.

UK should get on front foot with City

Hugo Dixon
May 20, 2013 08:30 UTC

It is perhaps too much to expect Britain’s Conservative-led government to lead any initiatives on Europe, such is the orgy of self-destruction in the party over whether the UK should stay in the European Union. But, insofar as David Cameron manages to get some respite from the madness, he should launch a strategy to enhance the City of London as Europe’s financial centre.

Britain has in recent years been playing a defensive game in response to the barrage of misguided financial rules from Brussels. It now needs to get on the front foot and sell the City as part of the solution to Europe’s problems. The opportunity is huge both for Britain and the rest of Europe.

The chance of getting the EU to swing behind a pro-City strategy may, on the face of it, seem pie in the sky. Many people blame financiers for the financial crisis. So how could they be part of the solution? What’s more, Continental Europeans have long tended to be suspicious of financial markets.

Brexit would be bad for Britain

Hugo Dixon
May 13, 2013 09:25 UTC

Quitting the European Union would be bad for Britain. Membership of even an unreformed EU is better than “Brexit”. Quitting would mean either not having access to the single market – at a huge cost to the economy – or second-tier membership.

The debate over Brexit has moved into high gear in the past 10 days, after the UK Independence Party – which wants Britain to pull out of the EU – performed well in English local elections. The Conservative party, which rules in coalition with the pro-European Liberal Democrats, has been thrown into turmoil because UKIP has been winning votes largely from the Tories.

What’s more, many Conservatives would like Britain to quit the EU too. Last week Nigel Lawson, one of Margaret Thatcher’s finance ministers, argued the case for Brexit. Boris Johnson, the mayor of London who is the Conservatives’ most popular politician, also shuffled a little further in a eurosceptic direction – although he stopped short of calling for an exit.

Hugo Dixon: How to respond to UKIP’s surge

Hugo Dixon
May 6, 2013 02:33 UTC

By Hugo Dixon

(Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.)

The UK Independence Party will not come close to winning Britain’s next general election. The populist anti-Europe, anti-immigration party may not even win a single seat, despite last week’s surge in English local elections where it won nearly a quarter of the vote – running a close third to Labour and the Conservatives. That’s how the maths of Britain’s first-past-the-post voting system works.

Nevertheless, the rise of UKIP could have profound consequences for British politics and business – in particular, for the UK’s relationship with the European Union. This is because UKIP is mainly taking votes away from David Cameron’s Conservatives. A calculation by Sky News suggested that, if the local election results were translated into a general election, Labour would win an overall majority. Even though UKIP might win no seats itself, its popularity would damage Cameron’s prospects for reelection in 2015.