A British insurance against the EU with a wish the euro area to survive
Adelina Marini, January 18, 2011
Do you remember in the wake of the crisis how much was written and commented about how Britain would finally knuckle down and ask to join the euro area? By the way, exactly with this motive Iceland applied for EU membership - to rescue itself from the crisis, sheltered in the euro area. However, now the situation looks as if turned to 180 degrees - Britain feels happy that it has not taken the fatal decision two years ago and is now boldly lecturing its European partners. And not only that but the country is planning to insure itself against stupidity in the future.
In the very beginning of the year in the Financial Times the Chancellor of the Exchequer, Mr George Osborne, wrote a very interesting text, which can be interpreted in two ways. On the one hand this is a text entirely in defence of the EU and even sounds like support, which would be a paradox for the tories who are anti-EU by default. On the other, however, this is a lecture which Mr Osborne gave for his European partners with the only aim that "Europe must put its house in order", because the euro area was important. No matter which interpretation of the two you would choose, the euro area in particular is very important economically for Britain as almost 40% of its exports go to this economic zone.
According to Osborne the affirmation of the UK’s triple A credit rating, and the fall in market interest rates, shows that it is possible to earn credibility with a convincing deficit reduction plan. The chancellor underlines, though, that it is necessary action at European level to be matched by difficult domestic decisions. Although it is too early to assess the result from the new measures the conservative-liberal coalition in Britain has introduced in the end of 2010, George Osborne writes in the Financial Times that Downing Street 10's plans already bear fruit with the necessary increase of the VAT to 20% from the beginning of the year.
He again stresses that European economies also need both European Union and domestic measures to open up product markets, liberalise labour markets, support enterprise and reform welfare. "These measures alone will not be enough to restore sustainable growth without a credible plan to reform and strengthen Europe’s banks, the second difficult issue that must be confronted. Weak banks act as a brake on recovery. The inability of many European banks to absorb losses on their balance sheets was at the heart of the crisis and underpins much of the current market uncertainty", George Osborne writes further.
He recommends the EU not to repeat the same mistake again and to hold more serious stress tests, covering a three-year period and time testing liquidity. In the longer term it is necessary the European banks to be strengthened so that taxpayers do not pick up the bill for future crises, which, by the way, the European Commission is trying to do with its latest proposal on the banks.
The spirit of the article of the British Chancellor of the Exchequer is in a sharp contrast to that in the text of Foreign Secretary William Hague for the Telegraph. In it Mr Hague explains why the government, right after beginning to tackle the urgent matters, it started working on another pre-election promise - the passing of a legislation called "EU", which in fact could be interpreted as anti-EU. The purpose of the draft is to prevent any future government of Britain to provide more powers to the EU without, before that, asking citizens in a referendum.
"The disillusionment of British voters with politicians has many causes: expenses scandals, economic pressures and the failures of the last Labour Government. But high on the list of such causes is the sheer undemocratic arrogance with which a European treaty of huge significance - the Lisbon Treaty - was rammed into law two years ago with no mandate of any kind from the people of this country", William Hague writes in his article.
Moreover, Hague is even defending the European Union by pointing out that Labour's cynical behaviour over that Treaty, the denial of any say for voters and the absurd pretence that this was nothing ordinary people should be allowed to concern themselves with was a very grave blow to the European Union's democratic credentials in Britain.
"The EU Bill we are bringing forward will put into the British people's hands a referendum lock on any further changes to the EU's Treaties that hand over powers from Britain to the EU, a lock to which only they will hold the key", the first diplomat of the United Kingdom explains. Besides, the Parliament will also receive a say on any changes in the Treaty. If any minister would dare not to abide with the new requirements, he would be prosecuted, the bill foresees. Every British citizen will be able to appeal if his voting rights would be skipped.
If you feel any contradiction in the approaches of two of the key ministers in David Cameron's cabinet, here is another explanation of William Hague's on the EU draft: "Such a defence for our nation's democracy is a necessary complement to our and active engagement within the EU, an engagement which is already delivering solid results in our national interest: tough, targeted EU sanctions on Iran, a free trade agreement with South Korea and the beginnings of some financial reality in the EU budget".
In fact Britain's vision about the European Union from the very beginning is about a well functioning single market. The problem is, though, that it cannot be realised without several important components, which the political union has ignored - coordinated economic policy, common interests, common values and high competitiveness. Allowing countries in the Union that do not have even one of these components, led to we see what.
Besides, from a national point of view the British position is not just worth hailing but is even admirable. From the point of view of the EU, its future and influence in the world, however, this is calamitous because, after all, the EU as a whole is being perceived as the largest market in the world. Furthermore - it is being called the largest economy. This is exactly the way to measure global influence. The British are also aware that they would hardly cope on their own in the world of the "big" (China, India, the US, Brazil, Russia, etc.). Something like this says the very detailed analysis of the famous economist and New York Times columnist Paul Krugman with regard to the euro area crisis:
"It has been 60 years since the Schuman declaration started Europe on the road to greater unity. Until now the journey along that road, however slow, has always been in the right direction. But that will no longer be true if the euro project fails. A failed euro wouldn’t send Europe back to the days of minefields and barbed wire — but it would represent a possibly irreversible blow to hopes of true European federation. So will Europe’s strong nations let that happen? Or will they accept the responsibility, and possibly the cost, of being their neighbors’ keepers? The whole world is waiting for the answer".
A European federation - this is the way that looms ahead as the only exit from the current situation with the euro. And such a federation will for certain emerge but the question is which countries will take part in it, as well as what its governance will be. Britain could be managing well, for now, to protect itself both from external influences through strong internal policies and from European failures. For how long, however, this balance will be kept?