Opinion

Hugo Dixon

Don’t bet on EU treaty change

Hugo Dixon
Mar 31, 2014 09:14 UTC

Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union’s treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.

The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin’s pet projects – a treaty that restricted borrowing by euro zone countries – unless it was given guarantees to protect the City of London.

But have the two countries really found a formula that simultaneously solves the EU’s two main problems? There are reasons to be sceptical.

Schaeuble and Osborne wrote in a joint article in the Financial Times that the euro zone needs a common fiscal and economic policy. Meanwhile, as it integrates further, those EU countries that don’t use the single currency such as Britain shouldn’t be put at a “systematic disadvantage.”

What this meant was that “future EU reform and treaty change must include reform of the governance framework to put euro area integration on a sound legal basis, and guarantee fairness for those EU countries inside the single market but outside the single currency.”

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.

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.

Independent Scotland won’t keep the pound

Hugo Dixon
Feb 3, 2014 09:44 UTC

An independent Scotland will not keep the pound. That’s despite this being the express wish of the Scottish government, which is campaigning for independence in September’s referendum. The reason is that it’s hard to see the rest of the UK agreeing to such a deal – except on terms that would affront Scotland’s amour propre.

One can understand why Edinburgh is keen not to change its monetary arrangements. If Scotland had its own free-floating currency, it would be less economically integrated with the rest of the UK. Given that 60 percent of its exports and 70 percent of its imports are with the rest of the UK, such a separation would hit hard.

A separate currency would also cause trouble for the outsized Scottish banking sector. Banking assets are more than 12 times GDP – nearly double the ratio for Iceland, Ireland and Cyprus before their banking industries blew up. The Scottish people might also worry that a Scottish currency could fall in value, devaluing their savings.

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.

The City has huge scope to expand

Hugo Dixon
Oct 28, 2013 10:14 UTC

Finance has rightly been in the sin bin for the last six years. And the cleanup job isn’t finished. But Mark Carney, the new Bank of England governor, is correct to stress how a large and expanding City of London is good for Britain, Europe and the world – provided it is properly organised.

Carney’s comments, in a speech last week, will seem heretical to many – maybe even to his predecessor, Mervyn King, who showed a barely disguised disdain for financiers. Would it really be healthy, for example, for the balance sheets of British banks to reach nine times GDP, double the current ratio – as Carney projected they could by 2050?

British public will have some big questions about the potential resurgence of finance. Will taxpayers be asked to swoop in again to bail out bust banks? If a rescue is needed, would the government have the wherewithal to support a gigantic sector? Is it wise for the UK to put so many of its eggs in the finance basket?

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.

Vodafone deal days back with a twist

Hugo Dixon
Sep 2, 2013 09:17 UTC

Vodafone’s deal-making days are back – with a twist. The UK mobile giant still holds the record for the world’s biggest deal – its $203 billion hostile acquisition of Germany’s Mannesmann in 2000. It is now on the verge of taking the number three slot as well, by selling its minority stake in Verizon Wireless, America’s largest mobile phone company, for $130 billion to Verizon Communications, which owns the rest.

Over its 31-year life, Vodafone has completed an astonishing series of deals. As so often with mergers and acquisitions, it has been a better seller than buyer. The same is likely to be the case with the Verizon deal.

Vodafone began its life when Racal Electronics, a UK defence firm, won a licence to provide cellular communications in Britain in 1982. As mobile communications started to boom, it soon became the jewel in Racal’s crown – so much so that Cable & Wireless, another UK telecoms group, tried to buy Racal in 1988.

Cameron, UK hurt by Syria vote fiasco

Hugo Dixon
Aug 30, 2013 09:26 UTC

Rarely has a UK prime minister done so much damage to himself in a single week as David Cameron has with his mishandling of a vote authorising military action against Syria. Cameron may cling onto power after his stunning parliamentary defeat on Thursday night, but he will cut a diminished figure on the domestic and international stage. In the process, he has also damaged Britain’s influence.

Cameron’s litany of errors began with his decision to recall parliament from its summer holidays in order to give the green light to British participation in a military strike designed to punish Bashar al-Assad’s murderous regime for its alleged use of chemical weapons against its people last week. The decision to get parliament’s approval was right, even if not constitutionally necessary. The mistake was to rush things before all the evidence of Assad’s culpability had been gathered and published. In France, which is also contemplating military action, the parliamentary debate is scheduled for next week.

To be fair, Cameron tried to achieve political consensus. He initially persuaded Ed Miliband, the Labour leader, to back military action. He also got Nick Clegg, the deputy prime minister and leader of the Liberal Democrats, to sign up. Both of these are also partly to blame for the fiasco. They should have attached many more conditions to their support.