In the sweep of history, this is no surprise – eurosceptics and europhiles alike had forecast that merging currencies would lead to the merging of tax and spending. The UK is in the fortunate position of watching from the sidelines, rather detached from what is going on, as is our traditional way with Europe.
It is clearly massively in our interests to have stability in the European economies – and hopefully even a return to growth. The apocalyptic scenarios that economists are predicting if Greece does default, with knock-on consequences for Portugal, Italy and Spain, might give eurosceptics a moment of schadenfreude, but as the government keeps pointing out, it would not be good for Britain.
But the UK cannot watch the emergence of fiscal union in the Eurozone with a complete lack of concern. It will have big consequences for the way the EU operates, and in turn have big consequences for us.
It is possible the Eurozone’s fiscal union would splinter the EU into competing factions and differing layers of influence. It could easily lead to a central caucus of Eurozone countries, who reach policy agreements outside normal EU institutions.
This caucus will, inevitably, be dominated by France and Germany, who are far less enamoured of free markets than either the UK, the Eastern European countries, or the European Commission – who would all be out of the loop.
EU analysts believe this could lead to a protectionist sentiment dominating such a Eurozone caucus. The new grouping would use its unity and its suspicion of economic liberalism to push for more regulations and the raising of trade barriers.
And it would likely succeed. This caucus would be in a very strong position to get its protectionist policies adopted across the EU, through qualified majority voting.
As an example of what that could mean for Britain, Eurozone nations could decide to agree among themselves to adopt tougher regulation on financial services, and as a result force its adoption across the EU – including the UK. An example of what that might include was the announcement yesterday by Jose Manuel Barroso, the Commission president, of a Tobin tax on financial services, which would be totally antithetical to London’s interests as Europe’s financial capital.
Britain would then be in a position of being forced to accept legislation that it has had very little say over, even though it directly affects our main strategic industry, and has a far greater impact on us than any other country. This would certainly not be a satisfactory or even politically sustainable state of affairs. Those that say we should sit on the sidelines and let the Eurozone engage in fiscal union without interference assume that it will have no impact on us, but that is not the case. The UK should watch developments in Europe very closely, game play the different scenarios in any new treaty negotiations, and be prepared to defend our national interests if necessary. This is not petty nationalism, just doing what all European governments would themselves do.
Anthony Browne is former Europe correspondent for the Times, and author of The Case for European Localism, which was published last week by Open Europe.