Downing Street’s strategic mistakes on Europe put our national interest in danger

Sir Bill Cash
IN THE midst of the European crisis, the government has made a strategic error by advocating fiscal union and economic governance for the Eurozone.

The European summit proposals agreed on 26 October do not have any real legal basis and simply reflect the determination of Germany and France to go ahead, whatever the rules may say, with their own kind of Europe. As Angela Merkel has said, she wants “a new Europe” but unfortunately the Prime Minister and the chancellor have both advocated a fiscal union of the Eurozone – this is a major strategic error.

Germany simply cannot afford to bail out Italy or Spain. The fiscal union is doomed to failure, both because it cannot generate growth as a result of overregulation and as strategic fault lines within the treaties themselves prevent the cohesion that Germany and France seek. Both countries are also facing elections. The instability of the fiscal union will generate further instability throughout Europe as a whole.

There is a further and for Britain, equally perilous situation. While we are bound into the EU’s treaties, most recently the Lisbon Treaty, we are faced with the prospect of solidarity voting by the 17 countries in the fiscal union. Together they represent 213 votes as against 132 for the rest. With 50 or so regulations on financial services in the pipeline, we have next to no chance of rectifying the fundamental errors and dangers that they represent to the City of London and the UK financial services sector as a whole, which provides 12 percent of the exchequer’s total tax receipts.

And make no mistake about it, France and Germany have been eyeing our competitive advantage in the City of London for decades – this is economic warfare by any other means. As Roland Vaubel of Mannheim University indicates, the single market often operates by alliances between member states, raising rivals’ costs and even regulatory collusion. There is a further problem, which is that the coalition government acquiesced in the transfer of the jurisdiction to the EU of the financial services sector, just as they acquiesced and advocated the concept of fiscal union in the Eurozone itself. It is no consolation to hear the Prime Minister at the Guildhall this Monday calling for reform when the government itself has acquiesced and advocated these policies.

What this situation requires is not only the repatriation of powers such as social and employment legislation to the UK, but as I said in the Eurozone crisis debate in Westminster Hall on 15 November, we require the fundamental renegotiation of our relationship with the European Union. The causes of our problems with Europe are about the operation, effect and damage that the treaties do to our national interests.

Fiscal union will not stabilise or put right the chaotic European Union economy or the euro-periphery’s debt crisis and bailouts as riots and protests grow, nor correct the EU’s overregulation, or the UK’s acquiescence in a low/no-growth Europe or prevent other members’ finding ways of breaking the rules.

I warned about these dangers during the Maastricht debates – and as Martin Wolf has recently written, “If policymakers had understood two decades ago what they know now, they would never have launched the single currency.” They did not listen then and they are not listening now. The coalition government’s policy has trapped Britain on the sidelines – like a game of cricket, it is as if the captain of the team is sitting in the pavilion and has decided to drop himself in the batting order from No. 4 to No. 10 in the hope that somebody else will score the runs as the wickets tumble. The government should get out and bat for Britain’s interests.

The government is refusing a referendum, despite the rebellion of 81 Conservative MPs two weeks ago. Indeed, under the European Union Act, passed last year, a referendum is explicitly excluded under section four where a European Treaty is tabled but applying to member states other than the UK. Such a treaty is proposed for December and the Euro-leaders are using all devices possible to pretend it is a limited treaty that does not affect the UK’s vital national interests when the creation of a new two-tier Europe most emphatically has that effect.

The problem is therefore economic, political and constitutional. We are told repeatedly of the virtues of the single market and that we do 40 per cent of our trade with other member states. The truth is that in 2009, our current account deficit with the EU countries was -£12.9bn and the deficit with the rest of the world -£7.5bn – while in 2010, the current account deficit with the EU was -£51.7bn and the surplus with the rest of the world £15bn. There is no growth in Europe because of the intrinsic manner in which the treaties operate. The solution is within our grasp but it does not lie with reaffirmations of our commitment to the European Union.

Bill Cash MP is the chairman of the European Scrutiny Committee in the House of Commons.