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Britain’s European Destiny

LONDON –The toughest challenge in politics right now is resolving the tension between the best long-term policy and the best short-term politics. Nowhere is this tension clearer than in Britain’s debate over Europe.

Europe has disturbed and divided British politics for years. But this time is different. Now mainstream politicians from the governing party are openly making the case for Britain leaving the European Union, or at least radically changing its relationship with it – which may amount to the same thing – with the sympathy of some of our nation’s leaders and far wider support among the public.

The reason for this resurgent skepticism and hostility toward the EU is not hard to fathom. Europe is in crisis. The euro’s design flaw – an economic union motivated by politics but expressed in economics – has become manifest. Structural changes to economies that experienced a sharp fall in interest rates when they joined a Germany-dominated currency bloc now must be made quickly, in crisis, and without the luxury of devaluation.

The pain that this policy is causing has been revealed in protests across the continent and in the bitter impact on many struggling families, the young, and the elderly. The foundation of the pro-Europe case was partly the promise of ever upward prosperity. At present that promise is severely in question.

So Europe’s flagship policy is listing dangerously. To save it, I believe, requires a kind of “Grand Bargain” approach, rather than incremental steps, with Germany agreeing, effectively, to some form of mutualization of debt, while the debtor countries carry out profound structural reforms, and the ECB stands fully behind the bargain. There are some signs that this may happen. Even if it does, Europe will suffer for some time to come.

The truth is that much of the criticism leveled at Europe is justified and is shown to be justified now.

So the public’s attitude toward Europe is explicable and understandable. Add to this the fight over the EU budget. While such rows are, frankly, absolutely routine – and inevitable in Europe’s current economic circumstances, in which all countries, including Britain, will vigorously defend their interests – they nonetheless reinforce the sense of European malaise.

The short-term politics is clear: being anti-Europe is today popular. But leadership is not about conceding to short-terms politics. It is about managing short-term politics in the pursuit of the right long-term policy.

“Europe is in crisis, therefore leave” may win a majority in an opinion poll. But, in the leap to “therefore” lies a chasm of error. I believe that such a policy would be politically debilitating, economically damaging, and hugely destructive for Britain’s true long-term interests. Our country faces a real and present danger by edging toward exit. The correct policy is to engage with Europe, to make it clear that Britain intends to be a strong participant in debates about Europe’s future, to build alliances, and to shape an outcome that is consistent with the right way forward, not just for Britain but for Europe as a whole.

In fact, the rationale for Europe today is stronger, not weaker, than it was 66 years ago, when the project began. But it is different. Back then, the rationale was peace; today, it is power. Back then, it was about a continent ravaged by a war in which Germany was the aggressor and Britain the victor; today, it is about a world in which global geo-politics is undergoing its most profound change in centuries.

Power is shifting from West to East. China has a population that is three times larger than that of the EU and an economy that will eventually be the world’s largest. India has more than a billion people. Indonesia’s population is three times that of the largest European country, and a host of countries – including Russia, Brazil, Mexico, Vietnam, the Philippines, and Egypt – have more people today than any EU member state.

This is crucial, because, as technology and capital become globally mobile, a realignment of GDP and population will occur: the larger a country’s population, the bigger its economy. The United States remains extraordinarily strong, with its military easily the world’s largest and best equipped, but its status as the world’s only superpower will become untenable.

That is the big picture. The case for the EU today is that member countries, including Britain, need its heft in order to leverage power in economics, trade, defense, and foreign policy, as well as to address global challenges like climate change. The EU gives Britain a weight collectively that it lacks on its own.

It really is that simple. I admire the idealism of Europe’s early founders, but the rationale for Europe today has nothing to do with idealism. It is brutal Realpolitik. In a world in which China and India both have populations 20 times that of the United Kingdom, Britain needs the EU in order to pursue its national interest effectively. With it, we count for more; without it, we count for less.

So the real question should not be whether the EU, but what type of EU. And here there is no doubt that Europe needs fundamental, far-reaching reform. Many of these reforms – for example, that of the social model – are precisely what the UK has been arguing for. Some, it should be pointed out, are being made. Spain’s labor costs have declined substantially since the crisis began. Italy has grasped crucially important reforms in areas like pensions. Greece has cut spending by a larger amount, relative to GDP, than any country in Europe since World War II.

Other reforms – especially political reforms – will be hotly contested. The UK takes a more nation-state view of the EU; others defend a federalist concept.

Some reforms are now certain to follow from the euro crisis, like enhanced fiscal cooperation among the eurozone members and a banking union.

Thus, over the next 2-3 years, there is bound to be a vast, churning debate about Europe’s future, irrespective of what happens to the euro. If it survives, big changes will happen; if it breaks up – and I hope it does not – the consequences for Europe and its institutions will be dramatic.

This is not a one-way debate. It never is. It doesn’t take a political genius to work out that, as strong as Europe’s Franco-German motor is, it is not always sparking in synch. Europe embodies differences between north and south; large and small; and those who favor a more conservative fiscal approach and those who favor a more lax one. Differences also abound on a range of topics from defense to labor market reform. As Britain has just discovered in the EU budget debate, it can make powerful allies.

Indeed, when it comes to the future shape of Europe – economically, socially, and politically – there is not a pre-destined consensus. There is, instead, a tumult of debate, discussion, and dissension.

This is the worst conceivable moment for Britain to start talking about leaving. That would mean quitting the field just as the game starts, and marginalizing ourselves at the very moment when we should be at the center of things.

Instead, Britain should be building alliances and, more than that, originating ideas, not just responding to them. The truth about Europe’s public opinion is that when Britain argues its case about Europe in Europe, its proposals turn out to be far more popular than those advanced by many others. But when Britain makes a case against Europe, it deprives itself of the credibility to win the arguments that matter.

The essential concept of a balance between integration and the nation-state is widely shared. Most people in Europe would support an approach by the EU’s leaders that focuses on clear outcomes in specific areas, along with changes to the eurozone. This agenda would include completion of the single market to create jobs; a common defense policy in an era in which national budgets cannot meet global ambitions; energy and the environment, where the gains, financial and otherwise, of cooperation could be enormous; the fight against illegal immigration and organized crime; and art, culture, and higher education, where Europe is struggling to match the US.

An approach that asks first what we want Europe to do, and then lets us design mechanisms to do it, would draw support across the continent. Right now, when most EU institutions and member states are rightly concerned with the euro crisis, the field is wide open for the UK to seize the initiative, rather than waiting passively to consider an agenda set by others.

It is in Europe’s interest that the proposals for the single supervisory mechanism for banks, the integrated financial and fiscal framework, and the integrated economic framework are correct. But it is also in Britain’s interest. Considering what might happen next year, let alone in the next 50 years, is it not in Britain’s interest to influence this debate too?

If the strategic rationale for Europe remains strong, then it cannot be in Britain’s interest to be marginal to the debate about its future or indifferent to the outcome.

But if we British want to participate, we do so not just as Brits, but also as Europeans. That, of course, depends on Britain recognizing not just the strategic rationale for Europe, but Britain’s strategic interest in being part of it.

Here it is no longer good enough for us pro-Europeans to claim that only atavistic Little Englanders make the case for leaving, or to pretend that, outside the EU, Britain would collapse or disintegrate.

Britain could have a future outside of Europe. The question is whether it should – whether leaving would be sensible in terms of Britain’s long-term interests. Nor should we exaggerate the economic impact of leaving. I can imagine how Britain could create an economy that operates effectively in the global market. But, just as we should not exaggerate the consequences of a British exit, so those in favor of this course should not understate them.

Let us first demolish one delusion, namely that Britain could be like Norway or Switzerland. Norway has a population of around 4.9 million and a GDP of $485.8 billion. It also has a sovereign wealth fund currently valued at over $600 billion and set to rise to $1 trillion by 2020, owing to vast reserves of oil and gas. If the United Kingdom, with a GDP of $2.4 trillion, had a wealth fund of roughly $3 trillion, all of the arguments would change. But it doesn’t. And no serious case can be made that Britain could become like Switzerland, a unique case politically and economically.

That is not to say that Britain could not develop its own unique brand. But Europe accounts for 50% of British trade, and Britain’s social systems, though different in detail, still broadly similar in principle to those in Europe. Given this, those who say that Britain should have its own unique position outside of Europe should at least spell out the economic and social policies that would need to be implemented to create such a future.

Britain outside the EU would face three major disadvantages. First, it would lose its global leadership role. There should be no illusions about this. Britain’s EU membership affects how it is seen by the world in general and its allies in particular. Any US President I know would regard Britain’s exit as folly. The idea that it would then seek new relationships with the likes of China and India is fanciful. Of course, the bilateral relationship with both is strong, offering great trading opportunities. But neither country would ever subordinate its relationship with Europe to a relationship with a non-European Britain. British trade with India depends hugely on Europe negotiating the free-trade agreement – Germany currently exports more than twice what Britain does to India and China, and France (and even Italy) exports more to India.

Second, despite Britain’s close economic links to Europe, leaving the EU would exclude it from the decision-making process determining the rules of the single market. British companies know this; so do global companies that use the UK as a European base. When we in government looked closely at the risks to London as a financial center from being outside the euro, we concluded that there was no compelling case that it could damage us. But we were never in any doubt that being out of Europe altogether was a completely different matter.

Yes, special arrangements can be negotiated, but each must be negotiated individually. And, for the record, Norway is a major net contributor to the EU budget – the price of its negotiation, despite not being a member. I doubt that other European countries would allow Britain to operate like some offshore center at the edge of Europe, free from Europe’s responsibilities but participating fully in its opportunities. Any country within Europe could say no, and no would therefore be the likely answer. We should think long and hard before we put ourselves in that position.

Finally, Britain would lose the opportunity for cooperation and added strength on issues that it cares about: climate change and the environment; trade negotiations; foreign policy, where sometimes it suits us to have European and not just US support; and bilateral disputes, where, as was seen recently with Argentina, Europe’s solidarity counts. Britain would cut itself out of future developments in Europe at a time when countries around the world are seizing the opportunities offered by regional integration. From the Association of Southeast Asian Nations – now with roughly 600 million people and looking to get a single market underway – to the African Union and South America’s MERCOSUR and UNASUR, countries everywhere are coming together in regional blocs. Will Britain drift away from the one on its doorstep?

The reason this case has to be made now is integral to understanding how political decision-making works. Sometimes decisions are taken at a moment in time, expressly and obviously. But political decisions can also be taken by a process of effluxion that begins with an attitude, turns into a series of tactical steps driven by the attitude, and then results in a decision that is strategic in effect but almost imperceptible at any one moment. That is the risk now.

Let us be very clear, too, about “renegotiating the terms of membership,” the refuge of those who want to leave but want to persuade people that it really is just an adjustment of the relationship. When, in the course of the “adjustment,” the going gets very rough (as it will), they will say, “Well, it’s a pity, but now it seems that adjustment is not enough.”

If Britain focuses over the next few years not on how it can help Europe recover and prosper, but rather on how it can change its own relationship with Europe, there should be no doubt about the temper and frame of mind that our current partners will bring to that negotiation. There will be varying degrees of politeness. But they will not thank us and will not accommodate us. So Britain must not go down this path unless it is prepared to follow it all the way to the exit.

There is a lesson from history. In 1946, when Europe was debating its first tentative steps toward integration, Winston Churchill gave his famous speech calling for a United States of Europe. But it is important to note that he was passionately in favor of France and Germany coming together to found this new Europe, which he believed was the route to peace after the horrors of war. He wished the enterprise well; but he did not intend that Britain would be part of it. So it wasn’t.

But Britain spent the next two decades and more trying to join it; and when, eventually, it did, many of the rules and much of the institutional infrastructure were already set in stone. I have no doubt that if we could have foreseen the future in 1946, we would have wanted to be in Europe from the beginning.

Europe’s current turmoil will produce a new settlement probably as momentous as any since that moment 66 years ago. Britain should not make the same mistake twice. This time, whatever the challenges, we should put our shoulders to the wheel and be part of the collective effort to make Europe strong and effective once more.

Europe is a destiny that Britain will never embrace easily. But doing so is essential to remaining a world power, politically and economically. It would be a monumental error of statesmanship to turn our back on Europe and abandon a crucial position of power and influence in the twenty-first century.

This article is adapted from a speech on Europe and the United Kingdom.

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