Opinion

Hugo Dixon

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.

The EU also responded to the 2009 shutdown by building “interconnectors” between different countries. As a result, it is easier to shunt gas and electricity from countries that have excess energy to those that face a shortage – though these connections are still patchy and need to be built up.

This is relevant in what some pundits, such as Rem Korteweg of the Centre for European Reform, consider a possible escalation scenario: that Russia cuts supplies of gas through Ukraine but continues pumping it via its other two pipelines to the West – one through the Baltic and the other through Poland.

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.

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.

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.

Brexit process would be messy

Hugo Dixon
Oct 21, 2013 08:58 UTC

Imagine the British people vote to quit the European Union in the referendum David Cameron has promised to hold by 2017. What happens next? What, if any, special relationship would the UK seek to retain with the EU? Would it be able to negotiate what it wanted? And how would the economic damage unleashed by years of uncertainty be kept to the minimum?

These questions aren’t just troubling British businesses, the vast majority of which want to stay in the EU so they can enjoy full access to its single market. They are also worrying some eurosceptics who are concerned that, even if it would be good for Britain to quit the EU, the process of getting from A to B could be messy.

Hence, the launch of a 100,000 euros prize by the Institute for Economic Affairs, a UK eurosceptic think-tank. It will announce later this month the shortlist for the best essay to answer the question of what measures are needed to ensure a free and prosperous economy after an “out” vote in a putative referendum.

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.