Sunday, 8 January 2012

Europe: One man down, Part II

Mr Sarkozy’s grand declarations of European strength in adversity, the 12-digit financial pledges to the EFSF and the IMF, and the commitment to fiscal integration that seemed set to make the December euro-summit the stuff of history, soon became a distant memory in Brussels as the gluvine was opened, the fairy lights went up, and the eurocrats returned to their member states for the Christmas break. As 2012 arrived, Europe seemed to have lost its assertiveness once again as news broke that Italy and Spain’s service sectors were rapidly shrinking; that inflation was up from 2.8 to 3 per cent; and that the unprecedented €489 billion in loans made available by the ECB to banks across Europe in December was re-deposited in record amounts at the same institution come January.

Despite bearing an inter-governmental treaty which will bind signatory countries in a ‘fiscal compact’, as with euro-crisis summits before it, the December meet of EU leaders will not provide a golden ticket to European recovery any time soon. In fact, the European Union is expected to slip back into recession in the first half of 2012.
If the December summit is not to be remembered as definitively bringing the euro-zone crisis under control, it will be recalled as a pivotal moment in the shaping of the UK’s relationship with the EU.

Three weeks ago, I wrote an article on Mr Cameron’s decision to veto the treaty. My initial response was one of horror: I felt that he had sidelined Britain within the EU, and that his decisions were made solely on the behalf of two parties: the City and Tory backbenchers.

I stick by my initial response: Mr Cameron certainly has isolated Britain in the sense that we are not part of what would otherwise be a comprehensive EU treaty, and his motivations for doing so were not on behalf of the UK population, but rather to gain political brownie points among his eurosceptic party members and with London’s financiers.

However, spending time in the UK over the Christmas break caused me to reflect again on Britain’s use of its right to veto. Although I almost exclusively disagree with Mr Cameron’s reasoning and motivations, and in spite of my pro-European leanings, I am not wholly convinced that, had I been in Mr Cameron’s position, I would have signed the treaty either. Here’s why:

The measures emerging from the December talks included a new fiscal compact, further economic policy coordination, and the development of EU stabilisation tools to face short-term challenges. While in principal, the inter-governmental treaty’s requirement that government budgets be balanced or in surplus seems sensible and, in fact, is a long-term policy extension of the UK’s own current austerity objectives, the move to ‘stronger policy coordination and governance’ on fiscal matters proves more problematic for me.

The statement issued by euro-area heads of state and government stipulates that ‘all major economic policy reforms planned by euro-area Member States will be [...] coordinated at the level of the euro area’. Although it is widely recognised that this move towards fiscal integration should have occurred at the advent of the single currency, the implications of this development on member states’ sovereignty must not be underestimated: this is significant step towards European federalism. Had this appeared in the Lisbon treaty, the already controversial accord would have proven even more difficult to sell to the European people.

While euro-zone countries must further integrate out of necessity: recent events show that a shared currency must be matched with a shared monetary and fiscal union, the UK, along with the nine other non-euro-zone countries should think long and hard about whether they want to sacrifice sovereignty in this historically sacrosanct area. The statement issued following the December summit is worryingly opaque, not just about the status of the non-euro-zone members which wish to participate within the treaty, but significantly, the actual fiscal implications for all signatory countries. Call me traditional, but I was always taught not to sign my name to anything I didn’t properly understand. Especially not in such a rush.

Mr Cameron’s decision to veto must not, and cannot be seen as a victory for the Brits. On a soft political level, it is true that EU member states will get used to working without the UK. Nevertheless, handing over fiscal competence to Brussels without serious consideration of the implications – both good and bad, would have been foolish of the Brits. In my mind, Cameron would have done well to take the matter back to the UK parliament. This may have given him the opportunity to better consider his strategy and to mitigate against what was ultimately considered an isolationist move.  This, as show in the case of Sweden, may have enabled him to participate in the treaty and thus retain influence in the EU, while protecting British interests by negotiating different terms than those of euro-zone member states.

By Sonia Jordan