Friday, April 25, 2014
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Britain, Ireland, and Europe

Editor’s Note: The following is an edited version of the Irish Business and Employers Confederation Annual Lecture, delivered in Dublin on May 22, 2013

There are five themes running through my remarks.

First, deeply embedded trends demonstrate that, while the European Union is risky in the short term, it will be strong in the medium and long terms. The EU has a powerful logic and purpose in the twenty-first century.

Second, in the debate about fiscal consolidation and structural reform, Western economies have not yet achieved the right balance of deficit reduction, incentives for innovation, and macroeconomic stimulus, but there are signs of change coming from Brussels.

Third, politics and economics – which are pulling in opposite directions when it comes to migration, shared sovereignty, and welfare reform – need to be reconciled.

Fourth, the eurozone is not the EU, and euro reform must not be allowed to destroy the EU as an alliance of equal partners. In saving the euro, it is vital not to neglect the EU’s 27 (soon to be 28) countries in areas like trade, energy, and services. Alliances between eurozone members and non-euro EU members are needed to achieve this, and an Anglo-Irish alliance is a good starting point.

Finally, the United Kingdom and Europe will both be better off if the UK remains an EU member, but there is a real danger of a semi-detached status. I don’t think that the UK will leave the EU, but it is not in our interest or Europe’s for our potential exit to be the defining question of UK-EU engagement. The director of the Confederation of British Industry was correct in warning last week that the debate about the UK’s status is serving as a damaging distraction from growth-enhancing reforms.

Global Change

I want to start this lecture not in the thicket of the European debate, but with a broader view of global changes that affect all countries. The context of Western countries’ domestic and European policy is changing rapidly. There is the seismic shift of economic power from the industrialized economies of the West toward the emerging economies of the East and South. There is the radical democratization of access to information, which is affecting the public and private sectors alike. There is a resource crunch, epitomized by the rising prices of non-oil commodities over the last decade. There is the growing clout of Muslim-majority countries, such as Turkey, the Gulf States, and Indonesia, which means that global problems – from security to the economy to humanitarian relief (where I will be devoting my energies starting in September) – can no longer be addressed without powerful partners in the Muslim world. And then there is the development of a hyper-connected world, in which economic and social connections are expansive, deep, and instantaneous.

I want to begin with the latter point. While the view that the world is more closely connected than ever before is not seriously contested, its implications are – especially in the debate about the future of regional groupings like the EU.

According to one school of thought, the future is all about ad hoc alliances – virtual and flexible networks that take advantage of the world’s interconnectedness to forge mutually beneficial relationships. This view suggests that countries like the UK and Ireland should be looking to cooperate with South Korea as much as with Poland or Germany.

South Korea is a fast-growing democratic country with per capita income of $23,000 and a highly educated population of 50 million. (For comparison, Poland has 35 million citizens and per capita income of $13,000, while Germany has 85 million citizens and per capita income of $41,000.) But, although South Korea has a lot to teach the UK, relationships with the South Koreas of the world cannot serve as an alternative to EU membership.

The counter-argument that needs to be made is that, in this highly interconnected, “smaller” world, neighborhood matters – a lot. In fact, in a context of weak global governance, regional associations – including security cooperation, shared rules, and collective endeavors – become even more important. Regional associations not only enhance power and security; they also encourage and strengthen engagement with emerging powers outside of the neighborhood.

This is the case for the EU today, which helps member countries get the most beneficial deals for their own citizens, not at the expense of global partnerships, but in order to establish the best basis for such partnerships. In other words, unless European countries band together, we will be at the mercy of others’ decisions in the future.

Europe’s single market is a hard-won advantage in the global economy. Trade agreements are better for European countries when we negotiate together; migration can be managed only with cooperation. Indeed, Europe’s response to any international challenge is stronger than that of any single European country. The shared effort of eight European navies on piracy in the Gulf of Aden has achieved what none could have achieved on its own.

Moreover, development and emergency aid can achieve much more when pooled than when split into separate national budgets. I saw this in Brussels two weeks ago, when my new colleagues from the International Rescue Committee and I discussed the crisis in Syria and other Arab countries, humanitarian relief in Afghanistan, Pakistan, Myanmar, and Thailand, and initiatives across Africa.

Shared geography does not mean shared culture, as the conflict in Syria clearly demonstrates. But it is a driver of shared interest and, along with shared history, it can often form the basis of shared values. This is the view that I have of the EU.

The EU was not just an important peace-building project in the wake of World War II, when binding the wounds of war, especially between France and Germany, was such a challenge. Nor was it important only during the Cold War, and after, when it served as an anchor for European unity and a source of hope for the countries of the Soviet bloc (which are now the most pro-European countries of all). The EU remains an important source of support for its members’ prosperity and security in an increasingly interconnected, competitive, and, in some ways, chaotic world.

Opting out of international bodies does not help a country to regain power and sovereignty. On the contrary, it amounts to a surrender of influence. The call to strike out for independence is a mirage in the modern world. There is no opting out of the global challenges that we face; there is no chance of addressing them without our neighbors.

The Flawed Case for British Withdrawal

Former Chancellor of the Exchequer Lord Nigel Lawson has now put the opposite case high on the political agenda. But his commentary in the Times on May 7, in which he cites three reasons why the UK should exit, is deeply flawed.

First, Lawson asserts that the eurozone will come to dominate the rest of the EU. French President François Hollande’s proposal for a eurozone president exacerbates this fear. But the negative reaction to Hollande’s proposal shows the folly of Lawson’s argument that the eurozone is a unified bloc. The euro crisis has taught us that eurozone countries have different views of how to promote competitiveness – and that Germany, the Netherlands, and Ireland have a lot in common with the UK, Sweden, and Poland.

Lawson’s second argument is that there is a European plot against London. Leave to one side Chancellor of the Exchequer George Osborne’s boast that the UK’s financial regulation is tougher than that in the rest of Europe. The UK never lost an EU vote on financial regulation until this year, when our refusal to make alliances on the bonus tax left our position without supporters. The best way to retain the British financial services industry’s benefits is for the government to represent its interests in Brussels.

Finally, Lawson contends that the single market is somehow cosseting British industry, which would be more prosperous if it looked beyond the EU. But British firms’ experiences being buffeted by turbulent politics in emerging economies are not an encouraging precedent.

Moreover, this argument neglects the basic point that the rest of the world is linked to Europe through the EU’s 46 trade agreements, with the Transatlantic Trade and Investment Partnership now being negotiated with the United States. If the UK left the EU, it would have to negotiate new trade agreements independently.

Once one understands that EU membership costs each British citizen roughly £1 ($1.51) weekly, the argument that it is an untenable burden for the UK falls apart. But, if the case for EU membership is so strong, why isn’t it more popular?

Europe Needs Reform

The statistics – in Britain, Ireland, and elsewhere – are pretty clear. According to the Pew Research Center, the number of people with a favorable view of the EU fell by a median of 15% in Germany, Britain, France, Italy, Spain, Greece, Poland, and the Czech Republic last year. The poll did not include Ireland, but I would guess that the results would have been similar.

The reason for this drop is quite simple – and quite sensible. If you wanted to drain support for the EU, the ideal cocktail would include the following:

  • A long period, such as from 2002 to 2007, of preoccupation with internal navel-gazing.
  • A policy mix in the eurozone that, in wake of the global financial crisis, seems to have extended the tunnel, rather than bringing Europe closer to the end of it.
  • An institutional structure that is opaque at best, and incomprehensible at worst.
  • National interests that have blocked even the creation of a single home for the European Parliament.

The euro crisis is not over. But European leaders have demonstrated their determination to preserve the euro. The European Central Bank has shown that it can successfully confront pressure from financial markets, driving down bond spreads across Europe. And European citizens have shown remarkable resilience in the face of major blows to their living standards.

Nevertheless, the fundamental imbalances between creditor and debtor countries remain – and, in some cases, are growing. The policy mix remains too pro-cyclical, causing the deflationary impact of fiscal consolidation to drown out the benefits of structural reform.

Furthermore, banking systems in some countries remain vulnerable. In Ireland, for example, nearly one-quarter of loans are non-performing. And proposals for a banking union are being reconstructed out of timber rather than steel, to use German Finance Minister Wolfgang Schäuble’s metaphor.

This is not an encouraging foundation for addressing the challenge of recession or weak growth in the eurozone’s core economies. But the EU’s unpopularity should not drive countries to exit; it should spur reform that embraces all EU member countries and improves the way the EU functions, rather than merely tinkers with the structure.

I would prefer a more expansive list than the focus on the Working Time Directive proposed by British Prime Minister David Cameron. There was a missed opportunity on the budget, where the focus on limiting its size obscured the importance of budget reform. But there are other important initiatives that countries like Britain and Ireland could argue for together:

  • Last June, the European Council, prompted by the ECB, identified a key role for the European Investment Bank in plugging market failures in the supply of corporate credit across Europe. The Council agreed on more aggressive deployment of the EIB’s balance sheet in Europe’s periphery. But it has not yet happened, and a big push is needed.
  • While the completion of the single market is challenging, it is the right move, and it needs to be linked to strong European commitment to the trade agreement with the US. This is not just about the economic boost that the deal would bring; it is also a geopolitical statement of intent to set standards for global trade and cooperation.
  • The increasing cohesion of European engagement with Russia – with Poland more cooperative and Germany less credulous – faces no greater challenge than in the field of energy. This is high finance and high politics, with, for example, Russian pipelines’ circumvention of Ukraine speaking to deep questions of identity and political alliance.
  • In Ireland, 30% of the unemployed – some 15% of the total labor force – have been jobless for more than two years. In the EU, 26 million young people are unemployed. The European Council pledged to take action on employment at its summit last June, but we cannot afford implementation that takes years to reach the frontline.
  • European migration and border policy is critical, and must include help for countries like Greece and assurances for all European countries.
  • Budget reductions must be used to make the system more efficient and improve delivery.
  • Finally, I still hanker for real engagement by national parliaments in European decision-making. It would be smart politics, and high-minded, for the European Parliament to pursue this.

This agenda is squarely focused on how the EU works, not how it is structured. Indeed, I believe that the delivery deficit, not the democratic deficit, is Europe’s biggest problem. While the EU will not restore trust in all governing institutions overnight, strong action to restore growth, expand opportunity, protect citizens, improve efficiency, and build the economic infrastructure of the future will make it part of the solution, weakening the perception that it is part of the problem.

There is, in any case, very little enthusiasm in Europe for treaty revision, and the parliamentary and popular approval that it would entail. So changes will have to be made within the existing treaties, which leads directly back to the British debate, because the British government is banking on treaty revision by 2017.

You read the newspapers and talk to friends, colleagues, and relatives. My own diagnosis is that the widely discussed rise of the UK Independence Party is more a revolt against mainstream British parties than against Europe, more a condemnation of politics as usual – in which the EU sometimes participates – than against the EU.

But this should not be a cause of complacency. Europe is unpopular. Some grievances are real. The long-festering issue of European policy has spurred a fever in the Conservative Party. Indeed, it is impossible to get through a Conservative selection meeting without an arms race on the issue. And if the Conservative tragedy is party activists obsessed with Europe, Labour’s tragedy is the opposite: no one asks about Europe at selection meetings.

Whither Ireland

Ireland now has to prepare for two possible outcomes. One, less likely and less discussed, is that the UK leaves the EU and pursues social and economic policies – for example, concerning corporate taxes – that are deliberately intended to undercut the competitive position of Ireland and other European countries. Although some in the British government claim that the case for exiting Europe is the need to avoid costly regulations, the truth is that the minimum wage and other social policies are national – not EU creations. They can be amended from within the EU as easily as from outside.

The second, more likely outcome is that Britain remains in the EU, but with a weakened standing, causing a range of issues on which British and Irish interests are aligned to be left behind. This is the most serious danger.

I know from experience that reaching consensus in Brussels depends on the sense that all parties are committed to some version of the EU. But the UK is creating the impression that it has no such vision, creating a vicious cycle in which decisions increasingly seem to conflict with our interests, fueling more grievances. There is already evidence that, as European Council President Herman Van Rompuy put it, putting one’s hand on the exit door makes people in the room less amenable to alliances. So the real danger to the UK is diminished influence.

Big decisions – on the single market, justice and home affairs, and the composition of the next Commission, to name a few – lie ahead. All require a strong British voice. To the extent that the prime minister articulates the case for membership, he will provide it; if he is perceived as being in thrall to his backbenchers, he will not.

Conclusion

The sad truth is that the euro crisis has provided fodder for federalists and skeptics, who form a strange alliance in arguing that the euro would work only within a full-fledged federal union. The difference between them is that the federalists want it to happen but fear that it will not, while the skeptics do not want it to happen but fear that it will.

In fact, neither is an adequate response to the crisis. Federalism neglects the foundations of political legitimacy in the nation-state. Skepticism neglects the power of shared sovereignty on key issues. The EU needs both the legitimacy that comes from one vote per country, and the efficiency that comes from qualified majority voting. It isn’t neat, but it is necessary.

The political writer Timothy Garton Ash has described a “dysfunctional triangle” of national politics that is enduringly strong, European policies that seem remote, and global markets that are demanding and fickle. It is a powerful analysis. The answer is not less Europe, more Europe, or no Europe; it is a different Europe.

In pursuing this, the UK and Ireland have much to offer each other. Indeed, we need each other. We are strong allies in Europe, and long may it stay that way.

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  1. CommentedShane Beck

    It is strange that countries like the UK whose best interests business-wise lie within the European Union want to leave the EU while countries like Greece whose best interests would be to leave the EU and have a devalued currency want to stay within the EU.

  2. Commentedhari naidu

    What David Maliband refuses to acknowledge is UKs refusal to engage when Maastricht Treaty was on the table under Thatcher (PM).

    Blair (PM) became Labour PM and David was his right-hand
    on policy. They both refused to deal with Euro which was introduced in 1999. In fact, Blair claimed it was not in national interest of (City) of London.

    Now, the political rhetoric's changes to either or solution to a UK referendum on EU (2017). The result is not only out there to witness in Cameron's political jig-saw puzzle inside Conservative Party, the majority is likely to vote to get out lock-stock-and-barrel. Then what?

    Labour Party will also fail to resolve its own internal division on UK Referendum on EU. Ed Miliband, Labour Leader, so far, has refused to make a coherent argument for or against EU.

    For those of us who worked during Maastricht Treaty, in Brussels, all we heard from 10 Downing Street was that Euro was a failed project - it'd never fly!

    Obviously, the Limey's have a different perspective on Europe and EU politics, otherwise they wouldn't be so disgruntled and dishonest about their own national interest as it impacts EU-the largest single trading market in the world.

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