by Jonathan Todd
Labour modernisers have been largely pro-European since Neil Kinnock made them so. The role of the EU in advancing Labour’s goals has often, however, been vaguely defined. As UK relations with the EU head towards various crunches, this seems likely to be inadequate.
The issues that are most important to people will determine the next general election: the economy, jobs and public services. Nonetheless, debate about the EU is going to get hotter. As this happens, the connections between EU policy and the things that people care most about are likely to become more apparent.
Most immediately, the European Union bill, over the short to medium term the euro-zone crisis and the longer term need for the UK to adapt to the rise of Asia could all bring UK/EU relations to the boil. The first of these pressure-points diminishes UK influence in the EU at the same time as the second poses not only an existential crisis to a currency to which we don’t belong, but a union to which we do and our largest trading partners.
Either disintegration of the euro/EU or consolidation of the euro as both a fiscal and monetary union seem more likely outcomes of this crisis than perpetuation of the status quo. Either way, British business has only just begun the adaptation that it must undergo to prosper in a world whose centre of gravity lies ever more firmly to the east.
Liberal Democrat MEP, Andrew Duff writes of the European Union bill, which is being taken through Parliament by the government of which his party is a part: “The blunt truth is that if this bill becomes law, no future EU treaty revision will be possible if the UK remains a full member of the Union.” This could yet create serious splits within and between the two parties of government, which Labour should encourage by robustly opposing the bill and reaching out to pro-European Lib Dems and Tories (who may have died off in the Commons but still exist in the Lords).
At some stage in the management of the euro-zone crisis, irrespective of what finance ministers may insist, haircuts for bondholders and state debt restructuring seem virtually inevitable. Because some euro-zone members are too over extended; the bailout facilities available to them too finite (the largesse of even the IMF must know some limits); and the austerity that follows these bailouts too terrible (the wretchedness of all of Ireland is increased for the sake of sparing bondholders any pain, as Fine Gael, the likely winners of the national election expected in March, argue).
While she may be concerned with German interests, rather than troubled by the austerity misery that seems set to extend beyond Greece and Ireland, Angela Merkel appears to understand this. It was market recognition of this understanding, and fears of Germany imposing haircuts on Irish bondholders, that weakened the Irish such that they had to accept a bailout and austerity. An attempt will have to be made to confront the necessity for haircuts while minimising the fever of market reactions to this confrontation.
If German politicians wish to minimise their fiscal transfers to the rest of the euro-zone, their officials may be discretely working on the details of such an attempt. French leaders appear increasingly sanguine about the consummation of such a fiscal union and much greater co-ordination of economic policy by members of the euro. To Germans this may seem like France trying use German money to pick French “winners”, which could make any fireworks between the Tories and the Liberal Democrats appear relatively tame.
Undoubtedly, economic turbulence will persist in the euro-zone until some massive political choices are faced. The UK must act responsibly and avoid gloating. The short to medium term interest of the UK is minimisation of this turbulence and our longer term interest is in whatever kind of Europe best enables us to adapt to our Asian age. This means, if Germany is as determined to keep the euro together as it claims, encouraging Germany to face the full consequences of this, which probably requires both a convincing plan for haircuts and an enduring framework of some kind for fiscal transfers within the euro-zone.
It is easy for George Osborne to say that Ireland will be the only euro-zone member to be bailed out by the UK – a position that will come under considerable pressure as the turbulence endures and which won’t be strictly true once the IMF are in Portugal. But it is harder for him to engage with Germany on the steps that ought to be taken, as they would probably necessitate treaty change and, under the European Union bill, according to Duff, an end of full EU membership for the UK.
While defending UK membership of the EU, Labour should demand an EU best equipped to enable us to adapt to Asia’s rise. As Asia gets more serious about curbing carbon emissions, for example, we should be selling them the green manufacture that enables this. However, innovation in green manufacture will be undermined so long the EU-ETS remains as ineffective as it is in establishing a carbon price. Labour should seek to provide the leadership to change this and have the EU focus more intently upon areas such as this where it really can add value. Rather than devoting its energies to less controversial policy areas in which the added value of the EU is much less clear.
Jonathan Todd is Uncut’s economic columnist.