7 January 2016

Britain’s renegotiation with Europe can be a success


Everyone knows that the Conservative Party – and the country – are divided over the merits of EU membership. So Prime Minister David Cameron was merely recognising reality in allowing cabinet members to campaign for either side of the upcoming In-Out referendum, once the renegotiation of Britain’s membership is complete. The hope is that a deal can be clinched at a summit of EU leaders in February, in good time for a referendum in June or July. That is feasible, with flexibility on all sides.

For sure, the renegotiation deal is not going to satisfy those who want a radically different relationship with the EU. Cameron is not demanding that UK law have primacy over EU law. Nor is he seeking quotas on EU migrants. With good reason. If national law had primacy over EU law, there would be nothing to stop France and others enacting protectionist measures and the single market would soon collapse. And since EU migrants benefit the British economy, as I have explained for CapX, protectionist quotas would be harmful. Limiting freedom of movement would also be a blow to the million or so British pensioners living in Spain and benefiting from free healthcare there. Such demands are not only undesirable. They are clearly unachievable, since they go against the principles of the EU club and the national interests of the other 27 members. Other EU leaders want to keep Britain in – but not at any price. So advocating unrealistic demands is tantamount to wanting to leave the EU, a political figleaf for those who wanted to pretend to give the prime minister (and the EU) the benefit of the doubt.

But both the substance and the symbolism of the renegotiation can still make a significant difference. Much of what Cameron is seeking on business competitiveness, sovereignty, safeguards for non-euro members, and migration is achievable. Some of it is vital. And polls, which currently show the Remain and Leave camps neck and neck, suggest that the prime minister’s endorsement for staying in a reformed EU could win over many wavering Conservatives.

There is broad support for Cameron’s quest for an EU that lifts barriers to enterprise. Several of the items on Cameron’s wishlist are already EU priorities this year: the digital single market (flawed as it is, as I explained for CapX), steps towards a more complete single market in services, the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the United States, and creating a capital-markets union that would make it easier for businesses to raise capital across Europe, encourage more cross-border portfolio investment and provide growth opportunities for the UK financial sector. Reducing unduly burdensome business regulation is also a priority for Jean-Claude Juncker’s powerful deputy at the European Commission, Frans Timmermans. So Cameron’s demands go with the grain of what’s happening in Brussels.

On sovereignty, some of Cameron’s demands are symbolic. The words in the EU Treaty about “ever closer union” among the peoples of Europe are an aspiration, not a legal commitment. They clearly don’t apply to Britain, which has a permanent opt-out from the euro, EU asylum policy and much else. So making this explicit shouldn’t be too problematic.

Cameron also wants to give groups of national parliaments the power to veto unwanted EU proposals. This “red-card” proposal is trickier, because EU governments and the European Parliament, which together must approve almost all legislation proposed by the Commission, don’t want national parliaments trampling too much on their turf, and because many fear that adding another legislative brake would make the EU grind to a halt. But it can probably be finessed. National parliaments can already give the Commission a “yellow card.” The Commission could agree to work more closely with them to address their objections, without quite giving them a veto.

Cameron’s most important objective is ensuring that euro members cannot gang up on the UK and other non-euro countries. On vital issues where EU decisions are taken by qualified majority, notably the single market, the 19 eurozone countries could outvote the nine non-euro ones. It hasn’t yet happened – not least because countries such as Germany and Greece hardly see eye to eye. But if the eurozone were to integrate more, and create more common institutions, it might seek to impose its will on non-euro members. That’s a particular worry for the City of London and the UK financial sector more generally.

EU leaders will doubtless agree to confirm that nothing the eurozone does should damage the single market and that Britain won’t be forced to contribute to eurozone bailouts. An additional concession would be a double-majority voting system requiring the consent of both euro and non-euro members, like the one adopted during the creation of the eurozone’s banking union. Another would be a form of emergency brake that stops short of an actual veto.

Cameron’s most controversial demands concern migration. There is support in many countries for tightening the screws on unemployed EU migrants’ access to welfare benefits. But there is fierce opposition to denying EU migrants access to in-work benefits for four years, notably tax credits for low-paid workers. Germany and others object in principle to discriminating against EU citizens, and countries such as Poland and the Czech Republic are set against measures that would disproportionately harm their citizens. The obvious solution would be to deny Britons access to tax credits for four years as well. After all, young people already have to wait until they are 21 to be entitled to the full minimum wage. But after the U-turn over tax credits last year, the government may be wary of any new changes in this area. If so, flexibility will be needed here.

The good news is that a renegotiation deal is doable. The sooner it is done, the better, so the campaign proper can begin. Ministers who support leaving the EU are chomping at the bit to speak out. And Cameron, George Osborne and other heavyweights can then start making the broader case for staying in: that even a deeply flawed, crisis-ridden EU provides greater economic benefits, political influence and national security than the uncertain and unappealing alternatives.

Philippe Legrain, who was economic adviser to the President of the European Commission from 2011 to 2014, is a visiting senior fellow at the London School of Economics’ European Institute and the author of European Spring: Why Our Economies and Politics Are in a Mess — and How to Put Them Right.