9 November 2015

David Cameron will struggle to sell a reforming EU to his party

By Roger Liddle

On the face of it, David Cameron should not have too much difficulty in demonstrating progress in making the EU “a source of jobs, growth, innovation and success, rather than stagnation” as he put it in his June Commons statement.

The Juncker commission has grasped the nettle of economic reform with more determination than any commission since that of Jacques Delors. The European council has endorsed a five-year agenda of policy goals that meets virtually all the British demands for the extension of the single market and new free trade agreements. And the European parliament has signed off its agreement in principle.

The commission has already produced ambitious plans to take forward the projects of a digital single market and capital markets union. It promises enforcement action to ensure member state compliance with the 2005 services directive. Its actions on competition policy have been unexpectedly robust under the new Danish commissioner Margrethe Vestager.

On the trade agenda it is sticking to the objective of an ambitious transatlantic trade and investment partnership (TTIP), despite an unprecedented campaign orchestrated by NGOs (which has drawn considerable support within the European parliament) against the dispute mechanisms designed to secure investor protection.

In addition, to complement this burst of economic reform activism, the commission has dramatically cut back on its proposals for new legislation and regulation.

Under Frans Timmermans, the commission has produced a ‘better regulation’ package in line with longstanding British ambitions. Juncker’s appointment of Timmermans, the former Dutch Labour foreign minister, as his deputy is a highly significant and positive change from Cameron’s perspective. It puts a key British ally, who is totally committed to keeping the UK as a member of the EU, in a crucial position on a subject of huge UK sensitivity.

It remains to be seen of course how much of this agenda is implemented. Promises of reform have been made before, as in the first year of the Barroso commission in 2004, yet progress was limited. However, in the term of the 2014-19 commission and parliament, there may be a more favourable political opportunity. Juncker is on record as having talked about him presiding over the “last chance commission” for Europe.

While the eurozone has stabilised since 2012, lack of sustained growth has created a renewed impetus for structural reforms to raise productive potential. In key member states, attitudes towards economic reform are much more positive than they once were, particularly on the part of the governments that came to power in France and Italy in 2014 under Manuel Valls and Matteo Renzi respectively.

Cameron could demonstrate progress towards his goals by signing agreements with other member states supporting key aspects of his reform agenda, as he succeeded in doing with Spain in September 2015. At the European council, he could attempt to secure deadlines for agreement on crucial pieces of legislation.

Yet the great unknown is how Cameron intends to take advantage of this new reforming mood for the purposes of his renegotiation. There remain critical difficulties for him in doing this, arising from a clash of (mis)perceptions within his own party.

The British Eurosceptic perception of Brussels is as an overmighty agent of bureaucracy and regulation. In their mindset, the European commission and parliament are seen as having a single-minded mission to regulate business, to stifle enterprise with red tape, and lumber onto companies burdensome obligations to strengthen consumer protection, corporate governance requirements, employment rules, environmental sustainability, and health and safety provisions – all adding to business costs and reducing competitiveness.

No one would dispute the genuineness with which these views are held. They represent a yearning for a model of raw, free enterprise capitalism, redolent of Britain at the height of its economic success and power in the mid-19th century – before the rise, first, of organised labour, then of social liberal and social democratic parties committed to the creation of a welfare state, culminating in the Keynesian/Beveridge postwar settlement.

This also the marked the start of the era in which Britain’s long relative decline became apparent. For British Eurosceptics, the Thatcherite 1980s were a miracle of economic renaissance: with trade union power vanquished, the nationalised industries privatised, the City liberalised and top tax rates slashed, the enterprise spirit was reborn.

The simultaneous advance of globalisation gave Britain the opportunity to rebuild the commercial strength it had once enjoyed at the height of empire. Yet in the Eurosceptic mindset two factors continued to hold Britain back: the attachment of the British electorate to public services and a welfare state that even politicians of the mettle and courage of Margaret Thatcher were unwilling to challenge head on; and Britain’s entrapment as members of the European Union.

This vision has little if no resonance on the continent. Business people, heading some of the most successful international companies in the world (of which there are far more than in the UK), happily sign up to the European concept of a ‘social market’ economy. They may complain about high taxes and object to particular laws and regulations, but they do not challenge the basic assumptions of social partnership, nor the idea that open markets should be subject to proportionate cross-border regulation.

Indeed, they see regulation that demands high standards as assisting competitiveness and acting as a barrier to low-cost competition. The most important feature about the single market from their perspective is that it has abolished the alternative – which would be 28 sets of different national regulations, and that the EU as bloc is able to use its economic power to ensure fairer trading terms than would otherwise be available for their businesses in global markets.

The critique of the ‘social market, single market’ consensus on the continent comes generally from the left, not the business community. From that quarter, the common continental argument is that the EU has been too uncritical a handmaiden of globalisation and liberalisation.

German political economists of the eminence of Fritz Scharpf and Wolfgang Streeck argue that the founding ‘four freedoms’ of the Rome treaty, as backed up over the decades by European Court of Justice jurisprudence and the commission’s exercise of its competition powers, now represent a significant neoliberal threat to the European nation state’s ability to maintain a social and economic order that reflects the underlying principles of a social market economy. These intellectual critiques of the European model are of course echoed in the raw anti-Europeanism of the populist right and left.

Cameron and George Osborne therefore face considerable barriers of ideological understanding in persuading their supporters that the EU has now grasped the nettle of improving European competitiveness. Conservative Eurosceptics (though this is not true of Cameron and Osborne personally) have never properly understood the difference between a free trade area and the much deeper economic integration that the single market makes possible.

Previous British governments of all parties have traditionally supported the rights of the commission to open up markets and the European court to enforce fair trading rules, because of the UK national interest in a strong competitive single market. However, persuading Eurosceptics that this is the way forward to a more competitive Europe will not be easy.

Rather, Eurosceptics traditionally argue for an agenda of repatriation and deregulation, combined with greater discretion for member states. This is frankly contrary to a rational view of the UK national interest.

Cameron and Osborne must realise that the only way through this clash of perceptions is not to set out on an impossible mission to rip up or repatriate the EU acquis, but rather to ensure that the commission has a strong reforming agenda which the British government should back with all possible vigour. They should also welcome the commission’s efforts to ensure EU laws and regulations are proportional to their purpose and fairly applied in all member countries.

This is the Timmermans agenda, on which Cameron should hope to build. Yet how Cameron and Osborne seek to convince the Conservative party of this is as yet unclear. When Conservative Eurosceptics talk of a ‘reformed’ EU, they imagine British membership of an entity which is confined to the limited purposes of ‘trade and cooperation’.

There is no way Cameron and Osborne can in practice deliver on this aspiration. The question is how far they will press for mere symbols.

This article is an adapted extract from Roger’s forthcoming book The Risk of Brexit: The Politics of a Referendum

Roger Liddle is co-chair of Policy Network and a member of the House of Lords