Cause and Effect in European Politics and Law

David Cameron: Europe Needs the British Boldness

Ralitsa Kovacheva, January 30, 2012

Britain has undertaken bold steps to get its economy back on track. Europe should follow suit, British Prime Minister David Cameron said with unconcealed self-confidence at the annual meeting of the World Economic Forum in Davos. The pathos of his speech was aimed to show that London did not feel a second-class EU member at all, after what happened at the last European Council in 2011, but that Europe was far from being the most important priority of the United Kingdom.

"To those who think that not signing the treaty [the fiscal compact] means Britain is somehow walking away from Europe let me tell you, nothing could be further from the truth. Britain is part of the European Union. Not by default but by choice. It fundamentally reflects our national interest to be part of the single market on our doorstep and we have no intention of walking away."

What the EU needs is competitiveness, its "Achilles heel", according to Mr Cameron. "As measured by the World Economic Forum, more than half of EU Member States are now less competitive than they were this time last year while five EU Member States are now less competitive than even sclerotic Iran." Therefore, David Cameron insisted, the overall burden of EU regulation should be reduced, unnecessary barriers to trade in services should be prevented and the number of regulated professions should be slashed. As to the financial transactions tax (FFT), without denying the necessity of taxing the financial sector, the British prime minister believes that other countries might follow the British example without proposing the FTT. Because "even to be considering this at a time when we are struggling to get our economies growing is quite simply madness."

What is particularly important, according to the British prime minister, is to get global trade moving. Because, he admitted, although the last year was crucial in our efforts to complete the Doha Round of negotiations, "it didn’t work". But Europe has room for manoeuvre at a bilateral level: to finalise EU Free Trade Agreements with India, Canada and Singapore by the end of the year, which would add 90 billion euros to Europe’s GDP. And a potential agreement between the EU and the US could have a bigger impact than all of the other agreements put together, David Cameron argued.

Within the World Trade Organisation (WTO) the EU should work to prevent a return to protectionism, while seeking new partnerships, like the Trans-Pacific Partnership, "but why not also an ambitious deal between Europe and Africa? Or even a Pan-African Free Trade Area?"

Significantly, global trade got an advanced place and more time in the prime minister’s speech than the problems of the euro area. David Cameron synthesised solving the crisis in three words: Greece, banks and firewall (the uncertainty in Greece to be brought to an end, Europe’s banks to be recapitalised and the eurozone bailout fund to be increased). Apparently the British prime minister has learnt from previous cases, when in response to his calls "the big bazooka" to be taken out French President Nicolas Sarkozy advised him to refrain from making recommendations regarding the euro. So this time the British prime minister referred to solid sources:

"As the IMF has said, the European firewall needs to be big enough to deal with the full scale of the crisis."

"You need the support of single currency partners – and as Christine Lagarde has set out, a system of fiscal integration and risk sharing, perhaps through the creation of Euro area bonds to make that support work."

"As Mario Monti has suggested, the flip side of austerity in the deficit countries must be action to put the weight of the surplus countries behind the euro."

In fact, Europe has a problem not only with the budget discipline, but also with large imbalances in the common currency area, the British premier noted. So, what is needed is "a system of fiscal transfers and collective debt issuance that can deal with the tensions and imbalances between different countries and regions within the union."

"Yes, tough fiscal discipline is essential. But this is a problem of trade deficits not just budget deficits. And it means countries with those deficits making painful decisions to raise productivity and drive down costs year after year to regain their competitiveness. But that does not happen overnight. And it can have painful economic and even political consequences. Nor is it sufficient."

Of course, some will immediately recall that last I month vetoed the fiscal compact, the British head of government did not miss to mention and once again he pointed his argument out that he could not accept the new treaty, without proper safeguards for British interests. And they are mostly “making Britain the best place in the world in which to start or grow a business.” That is why, David Cameron concluded, "in this special Olympic year for Britain", my message to you is "Come to Britain. Invest in Britain."