Life in the Fast Lane

The Washing Machine/ German Finance Ministry

The threat of a two-speed EU with the UK “relegated” to the slow lane is often raised when discussing the UK’s approach to the EU. In the context of the serious difficulties being faced by the eurozone countries the issue has become a live one in recent days and weeks. However, what is not so clear is whether the assumption that being in the slow lane is bad is correct.

This depends on the direction the EU is travelling in. If it is travelling towards ever-closer economic and political union it is important for the UK to decide whether this is something of which it wants to be a part. Being in the fast lane going in the wrong direction is obviously not a good idea. It is not at all clear that the UK as a whole is keen on this direction. Nor is it without controversy to suggest that this direction is a good one.

Short of an unambiguous call for leaving the EU (either with or without a referendum – if continued membership is considered an unequivocally bad thing it is hard to see the logic of pressing for a referendum which risks giving the “wrong” answer) all of the options involve different calibrations of the negotiating stance that the government should take. Although there is a stated commitment to resisting further transfers of competence from the UK to the EU and preventing these unless passed in a referendum, there is no clear position as to what is already objectionable about the EU which the UK ought to be seeking to reverse.

In most times that would be a relatively academic question. However, as it appears to be fairly likely that the resolution of the eurozone’s problems may need some degree of renegotiation of the TFEU there is now the opportunity and risk for HMG involved in working out what position to take in such a renegotiation. The Economist article linked above sketches the pitfalls out.

Before even getting there, what would be helpful would be an understanding of what the UK would actually like to change about the EU and then to look at what parts of that might be realistically achievable. This is where the difficulties really start. I’m not really sure that merely reversing opting into the Social Chapter would satisfy anyone very much. It would send the UK back broadly to the relationship it had with the EU after the Maastricht Treaty. That relationship itself was not enough to placate the eurosceptics in John Major’s government, putting it mildly. It also would not do very much to boost the UK’s economy now even if it were practicable for the government to reverse the primary legislation that implemented many of the increases in worker protection that flowed from opting into the Social Chapter. If changes to public sector pension contributions and retirement ages leads to mass strike action on November 30th then it is not out of the question that weakening employee protection more generally would be greeted similarly.

More realistically, for the idea of renegotiation and repatriation of legislative competence from the EU were to be a core aim, it would need to involve rolling things back further to the Single European Act of 1986 which introduced the scope for a wide range of harmonisation legislation to iron out national differences in the treatment of cross-border trade and made them subject to qualified majority voting at the EU rather than requiring unanimity (and hence removed the general veto held by each of the 12 Member States at the time). Moving to a system of mutual recognition of other Member States’ domestic laws rather than each country increasingly being required to abide by a common set of EU directives and regulations would have a significant impact. However, given that it did not find favour in an EU with half its current membership and in which the UK was a proportionately more significant part, it is hard to see how it could be agreed now. Some of the arguments against relying on mutual recognition at the time, such as that it encourages a “race to the bottom” would be if anything even stronger now when there will be serious temptations for EU countries to reduce regulations in some areas to boost their competitiveness. That doesn’t mean it would be so bad to do – economically it may well be very effective in providing economies like Greece (and the UK!) with opportunities to become more competitive. Instead of a two-speed EU we’d have a 27-speed one.

An alternative approach has been proposed by Douglas Alexander MP in a speech earlier in the week seeking to strike a balance between the UK’s interests and being pro-EU. In that speech, or at least in some commentaries to it the approach the UK ought to adopt is:

“The UK should, in his view, have two goals: extending the single market into services, the digital economy and energy; and to realise Europe amplifies the UK’S voice on a world stage dominated by America and China.” and “The lodestar on which the UK makes judgments [must be] jobs and prosperity in the UK.”

However, it is obscure how this could be achieved. For the present I will leave aside the question of the extent to which there already is a single market in services (etc) and the likelihood that formalising this would involve an even more extensive treaty renegotiation than currently being contemplated (it would need a new fifth “fundamental freedom” to be inserted alongside the free movement of workers, capital and goods, and freedom of establishment). The surprisingly difficult or perhaps illusory goal is the suggestion of the UK making judgments about EU law and policy on the basis of their impact on jobs and prosperity in the UK.

I say surprisingly because this would appear to be just what all UK governments, unless they were pursuing a deliberately perverse strategy, ought to be doing anyway. I doubt whether any UK PM since the establishment of the EEC has taken any other view, whether it be Attlee declining the opportunity to join at the outset (“the Unions will never buy it”) or Thatcher or anyone anywhere else on the political spectrum of post-war Prime Ministers. The goal is perhaps illusory because of the extent to which national advantage is constrained by membership of the EU by definition. An essential part of the nature of the EU is to provide mechanisms to stop individual countries deciding on the basis of what is best for them above what is best for the EU as a whole. As I doubt Mr Alexander was intending to be radically sceptical about the EU and aligning with John Redwood’s views linked to earlier (mutual recognition of each other’s laws coupled with the freedom for each state to decide in its own best interests would fit this “lodestone”) I think the proposal is rather empty of meaning.

Does it matter?

The short answer is, unfortunately not. Without a major party committing to exit as being overall in the UK’s best interests and planning on subsequently behaving inconsistently with the underlying economics of the EU (eg the Labour 1983 Manifesto) the differences in approach and the premiums the UK might receive from renegotiation of the TFEU and achievable repatriations of powers from the EU are fairly limited. There would also be a small financial gain in no longer needing to pay for EU membership.

There would, in my opinion be a strong and potentially politically powerful case from the Left for EU exit coupled with a commitment to subsidising British industry, restricting EU immigration and its pressure on jobs, and generally moving away from neo-liberal economics towards a more protectionist model.

From the Right the argument is less clear cut because, red tape aside the fundamental economic approaches that would be adopted would be very similar to those that underpin the EU. Even the red tape aspect would be of limited practical value because in order to sell freely into the EU there would be a need to abide by the laws the other 26 Member States had put in place. Any boost would therefore come from trade outside the EU and within the UK which could notionally be done on a more liberal basis than at present. It is not clear whether we have many industries that need such a boost or which are presently hampered in their ability to compete outside the EU by EU rules applying domestically. There is perhaps even an argument that complying with less restrictive UK rules as well as producing according to EU standards and those of other major markets could lead to reduced efficiency or an incentive for exporting manufacturers to build to the standard of the most regulated market and so lose the supposed benefits of UK deregulation.

A Financial Transactions Tax might be a candidate for a regulation clearly specifically against the UK’s interests in that its effects might fall disproportionately on the UK. It would be a brave eurosceptic who argued that protecting our bankers (boo! – well we nearly are in Pantomime season) was a good reason for exiting the EU.

One thing which is clear though is that the fear of being in a two-speed EU should not be overplayed. Provided that there is no scope for those in the fast lane to impose restrictions which the UK is harmed by, why not let them speed off on their road to nowhere? This should be the approach for the Prime Minister to focus on – make sure that the EU can do no harm before looking to repatriate or renegotiate. Otherwise, any such repatriation or renegotiation would only be compensation for the harm that we are allowing to be done to us.

The fear that our supposed friends in the EU would do this, along with the suspicions of even apparently pro-EU politicians, unions and commentators that other EU countries are happy to bend the rules to suit them while we foolishly stick to them even when they hurt might suggest that it isn’t such a good club to be part of even if we are supposedly involved in its decision-making. If those fears are realised in the current negotiations I’d hope that David Cameron would come back urging exit.


One thought on “Life in the Fast Lane

  1. Pingback: Review of 2011 – 1. Yerp | botzarelli

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