UK-EU Negotiations should Start by Clearing the Fog

 

The tone of Teresa May’s letter to Donald Tusk, the president of the European Council, invoking the EU’s Article 50 to leave the EU is reminiscent of the old adage “Fog in the Channel. Continent isolated”. There is also a lot of fog around the debate in the UK especially as to what the EU’s Single Market actually means, despite the fact that the Single Market is largely a British invention. Mrs Thatcher wanted to spread her free market philosophy across the EU and to do so agreed with the then president of the European Commission, Jacques Delors, that a British expert, Lord Cockfield be appointed is Single Market commissioner to implement the Single European Act enacted by all member parliaments in 1986 which provided for majority voting to overcome resistance in countries like Germany and France where regulation of services, especially financial services, was devised in deference to the cartel power of big companies to keep out foreign companies.

 

Markets have to be regulated

It is often thought that a free market means a market unregulated by law. In fact a free market can only exist under the rule of law. A tragic example of not understanding this was the advice given to the Russian government by Western economists immediately after the break-up of the Soviet Union in 1991 to go for rapid privatization and deregulation. Deregulation in the UK and US had always been a misnomer, since under Mrs Thatcher more new legislation was passed than in any previous equivalent ten year period and the US has and remains one of the most legalistic countries in the world. But it was applied literally to Russia with the result that it became a kind of Wild East with massive new wealth and massive new poverty and unbridled corruption.

Adam Smith, the original protagonist of free economic markets, himself strongly believed in the rule of law to regulate its participants and ensure competition. He once said that rarely do men of commerce get together even for a purely social gathering than it ends up in a conspiracy against the public. So the point of the Single Market is that the rules that regulate commerce are the same throughout the participating countries so that one country’s laws cannot act as barriers to another country’s companies from trading there. Most of these rules are to those not involved in the particular sector technical and seemingly of relatively little consequence. But added together they can make the difference between an open market with a level playing field or one with a tilted playing field or sometimes even one with effective barriers to entry.

If the logic of this argument is accepted then it is should be clear that the objective of the minister for exiting the EU, David Davis, that the UK should end up with the same access to the Single Market as a participant in the Single Market can never be met however much all sides might want that. There is room for debate over much UK companies would be disadvantaged within the EU (and EU companies within the UK) but no possibility that they would not be disadvantaged at all. There is a possible approach the UK could take which would make something like an associate participant in the Single Market but that would mean Teresa May reversing her statement that the UK would not be part of any bits of the EU and would be completely untouched by EU law.  Norway is formally a participant in the Single Market but is technically not subject to decisions of the European Court of Justice but rather a special Court of Arbitration for the so called European Economic Area. However this still means it has to implement the decisions of the Court of Arbitration, decisions which themselves have to take account of the ECJ’s judgments.

 

A deep partnership cannot exist without participation in bits of the EU

Both the UK and EU-27 are taking over-rigid approaches which make any agreement keeping the UK and the EU close together in what Mrs May has envisaged as “a deep and special partnership” impossible, unless the two sides are willing to change. Mrs May said that the UK is leaving the EU completely without remaining parts of any “bits” of the EU but a real partnership should involve being part of “bits” of it. For example there is an overwhelming case from the UK’s point of view, to remain part of the research and innovation policies which give grants for joint research and innovation programmes in which institutions or companies from two or more different countries collaborate. The UK is host to more such activities than any other EU member state. Other non-EU countries are involved in these policies so UK participation without being a member of the EU should be possible.

The letter invoking Article 50 said that failure would hurt security cooperation which some saw as a threat not to collaborate informally. The government however said it related to existing EU policies on Justice and Home Affairs of which Mrs May when home secretary favoured “opting in” even though it had the choice then to opt in or opt out. If she does as implied intend to favour continuing to be part of such policies that amounts to being part of “bits” of the EU.

 

EU-27 claim that Internal Market is indivisible not backed up by precedent

The EU-27 has not clarified its stance on the UK playing a part on such EU policies perhaps because the British government has not made any formal requests so far. However on the matter of the Internal Market the EU-27 stance is that the market is indivisible so if the UK insists on controlling the movement of labour it cannot be part of the Market. Given that immigration, which is linked to but not the same as free movement, was the most important reason for the Leave vote in the UK referendum, it is politically essential for the UK government to win concessions on the issue. There are however precedents for the Market not being indivisible. Norway is in theory considered fully part of the Market but has its own policies for agriculture, fisheries and oil and gas extraction and production, all of which impact on the Market. Switzerland goes further by having sectoral agreements which effectively make it part of the Market in some areas, although not the key one of financial services. Even within the EU, provinces of Austria can limit investment in property, so that holiday resorts are not bought up by foreigners, provided such restrictions apply to people from other provinces in Austria. The UK can argue that it has taken, and is likely even outside the EU to continue to take more net immigration from EU countries, than most other EU member states do. It can also point out that migration where it becomes permanent has a deeper impact on a country’s society than the other three forms of movement. It could point out that Estonia now has a movement to reduce emigration.

As free movement of labour is indeed one of the four pillars of the Internal Market along with goods, services and capital, taking complete control of movement of labour would make it difficult to justify enjoying the advantages of the other three. However, it would not be reasonable in any fair partnership for the UK to insist on the right to select only those who are most desired which would imply having had the most spent on them by the other EU countries on education and training. Moreover it is evident that the UK needs immigrants for its health service, its care services, the hospitality and catering sector and research and technology. An agreement which effectively allows the UK to participate at least in parts of the EU Internal Market should therefore be possible.

UK government resistance to Court’s role must be modified if any progress is to be made

The UK government has however also made a big issue over the role of the EU’s Court of Justice (ECJ). This is a major issue for the minority of Conservative members of parliament who have always campaigned to leave the EU, but it is doubtful whether more that 2 or 3 per cent of the UK electorate could mention a single judgment of the Court which they do not like. It has also played an essential role in opening EU markets and it is not possible any international trade agreement including the World Trade Organisation without some form of arbitration. In addition to its role in the Internal Market, the ECJ also has a role in policies on cooperation on crime and security. The UK government will therefore need at least to modify its position on the ECJ if it really wants “a deep and special partnership”. It should look carefully at what issues it thinks that ECJ decisions have or could affect UK sovereignty in a way that actually matters to the electorate. It may as with Norway be possible to replace it in theory with another court but it would not be possible to pretend that such a new court would be ignore ECJ decisions.

Much has been made as to how long the negotiations will take and that they may overrun the two years envisaged in the EU Treaty’s Article 50 and the UK has argued that it wants talks on the future relationship to start before the thorny issue of settling financial accounts is complete. That is a reasonable request, but the UK will have to make a big change to the stance which it takes in some of its statements if the talks a to have a chance of achieving much more than a zero tariff agreement in non-agricultural goods. The EU-27 should also  be prepared to be more flexible than at present on participation in the Internal Market.

Referendum should not be accepted as fair democratic process but where do Remainers go from here?

Four reasons why the referendum lacks legitimacy:

We Remainers are told we should accept the result of the referendum with good grace and start thinking optimistically about the future of an isolated Britain (or England and Wales) hankering after the glories of its imperial past. There are actually four reasons why the referendum lacks legitimacy each one of which on its own would be sufficient on its own.

it undermines parliamentary sovereignty

Clem Attlee, the prime minister who created the National Health Service and greatly strengthened the welfare state said that referendums are “devices for demagogues and dictators” a phrase which was strongly endorsed by Mrs Thatcher in 1975. (To my knowledge she never did a U-turn on the matter.) Attlee it should be said was against the UK joining the forerunners of the present EU. While one can never know what a historical figure would have thought about present issues the best assumption is always that he or she would still have the same opinion so Attlee would still have thought joining the EEC in 1975 was a mistake and would have wanted to leave. But he also would have kept his opinion on referendums so he would have deplored the use of a referendum for this as for other purposes.

The campaigners to leave said that they wanted to return sovereignty to Parliament. But in fact by allowing a vote of 38% of the electorate to overturn a large majority in Parliament in favour of Remaining in the EU, the use of the vote to decide the future position of the UK in Europe and the world amounts to the biggest attack on parliamentary sovereignty since the 17th century.

 

One option was clear, the other encompassed contradictory aims

Second, the referendum was presented as a binary choice between Remain and Leave. But in fact while the choice to Remain was for a very clear known outcome, the choice to Leave opens at least two entirely different options. One is that the UK should remain a country of high immigration, but with the larger amount the comes from outside the EU being increased in relation to that from in the EU and with the UK moving forward on the basis of competition in open markets despite the evident costs to those left behind struggling in low wages and with inadequate public services. The other is of a country drastically reducing immigration so as to protect those with poor education and skills who have found it difficult to compete in open labour markets and have lost jobs due to competition from countries with much lower labour costs. If the referendum had separated these very sharply different visions of the future for the UK outside the EU and thus given the electorate three choices it is almost certain that Remain would have come out top of the three in a first post the post election. Even if the Alternative Vote system was used allowing a second choice to be used to decide between the two front runners it is very unlikely that most of those who voted for one Leave option (free labour and other markets as opposed to measures to protect British workers from competition) would have put the opposite option as their second choice.

The vote divides the generations

Third the referendum was intended as determining the future of the country for a period of 30 years or more, a very different proposition than a general election whose outturn lasts for a maximum of five years. The fact that all surveys show a large majority of those under 40 who will live longer with the consequences voted to Remain is an unacceptable binding of their future by an older generation.

Voters were misinformed in some cases deliberately

Fourth, the British people were misled and in several instances told outright lies by the Leave campaigns.

First, they were told that Turkey IS joining the EU in large posters prominently displayed. Turkey IS NOT joining the EU. Eleven years since negotiations opened in 2005 Turkey has completed only one of the 35 chapters which are preconditions for being considered for accession. Turkey as other countries can never join the EU without the parliamentary approval of every member country including not only the UK but also Germany, France and Austria where opposition to Turkish membership has traditionally been far greater than in the UK. (In fact British governments have long supported the principle of the possibility of Turkish membership and this position was not questioned by the Leave members of the British government before the referendum campaign).

There is no possibility in the near future that Turkey could come to a position in which member parliaments would be asked even to consider it for membership. This was a very distant prospect in 2010 and since then President Erdogan has made a large steps away from meeting EU membership criteria related to human rights, freedom of speech, rule of law and treatment of minorities. .

 

Second, the people were told that Leaving would give Britain control of its borders. In fact Britain has control of its borders: people coming into the country go through passport control. The UK can and has turned back people, including EU nationals,with criminal records or considered a threat to security. Whether the new electronic system is effective is open to question but that was always a choice only for the British government. To significantly strengthen such controls would require either a massive increase in border staff to subject travellers to intense scrutiny and long queues or some way of cutting the number of visitors.

Third, the Leave campaign’s battle bus was emblazoned with a statement that Britain would save £350m a month by leaving the EU and that this will be used to increase funding for the NHS. When Dr Sarah Wollaston, a Conservative MP and medical doctor, changed sides from Leave to Remain during the campaign in disgust at this flagrant lie, the Leave campaign announced that their position had not changed and the sum to go to the NHS remained on their bus. Immediately after the campaign it was dropped like a hot cake because they know that leaving the EU will save less than half the £350m and given other demands no government could afford to increase spending on the NHS to that extent without raising taxes.

Where now?

Those amongst the 48% who voted Remain who feel strongly about the matter should never accept the Referendum as a legitimate exercise of democratically accountable governance for the reasons given in the article and particularly because far from returning sovereignty to Parliament it critically undermines the sovereignty of Parliament by pressuring MPs to vote contrary to their own judgment on a matter of fundamental importance to the future of the country and possibly even the very existence of the country. One reason for non-acceptance is to try to prevent it acting as a precedent for referendums both in principle and in the manner of their conduct on other issues in the UK and across Europe.

However saying this provides little guidance of how Remainers should act in the coming months and years. Despite the reluctance of leading Brexiteers to move quickly to activate Article 50 of the Lisbon Treaty to set in motion divorce proceedings it remains probable that the UK or what remains of it will leave the EU in due course. It must require an Act of Parliament but probably enough MPs have promised to follow the referendum outcome rather than their own judgment so probably passing such an Act.

 

Maintaining any special access to single market will be difficult outside the EU

Then will follow negotiations on leaving and subsequent economic relations with the EU. The least bad outcome from the point of view of Remainers of such negotiations would be to retain substantial access to the single market. But this will be highly difficult to obtain. Since the UK will now refuse full access to the single market for other EU workers—given that this was the biggest substantive issue in the campaign, it must inevitably accept limitations on its own access to the market in the 27 remaining member states. A new government may still hope that it can negotiate access to important parts of the single market like financial services and the digital economy but it will not be at all easy. Any deal requires the agreement of every one of 27 countries all subject to their own pressures and lobbies. If the UK was negotiating with the German Industry Association (BDI) which has called for a good deal for the UK the task might be easy. But it is not. Even the German government if it had sole negotiating rights would want to maintain a rules-based single market, and Germany is not able to dictate to other countries despite the myth to that effect in the UK. With regard to euro zone bail-outs it has much power as the leading creditor but that power does not extend to other policy areas as seen in its attempt to push for a common sharing of refugees across the EU.

At present more access to the single market than countries like the US and Canada (in the present situation with as yet no TTIP) seems impossible as all EU countries and institutions are taking an all or nothing approach. In my opinion the other EU countries were a bit too rigid in what they allowed David Cameron in his renegotiations. However, there are in fact very good reasons for the EU’s apparent rigidity. The EU is not, as portrayed in the British media, a monolithic entity but a framework for achieving the very difficult task of enabling 28 independent member states to work and cooperate in some areas as well as compete fairly in others. The fear of those who want to hold the EU and its single market together is that, once one breach in a rulebook is made, there is a high risk that other countries will want their own exceptions eventually making the single market a shell with more holes than substance.

It seems that many Leave voters did see their vote as compatible with a close relationship with the single market. If such an agreement can be reached it could gain political and popular support in England and Wales, provided it included a significant restriction to free movement (probably a cap, a points system to cherry pick migrants would not be likely to be acceptable). However, if no such agreement can be reached, the UK will be faced with a stark choice of having at best the same access to the single market as the US or Canada, or and arrangement like Norway’s or Switzerland’s that does not achieve any of the major aims of Brexiteers. By then the impact of Brexit on the UK economy may be more visible especially if investors begin to expect no or few remaining privileges for the UK to be agreed.  Brexiteers might present this as the EU punishing the UK but in fact it would just reflect the normal self-interest of parties to any negotiations. It is precisely to overcome the stumbling blocks that arise when negotiations are based only on each country looking after its self -interest that the structures of the EU were created. The Conservative government should be held to account by pro-EU opposition parties – acting with at least some cooperation – for the consequences for the British economy of every disinvestment or other adverse consequence brought about by the referendum result.

 

The forgotten parts of England and Wales that turned the vote

One domestic aspect of the June 23rd vote is particularly notable . It was always expected that prosperous rural and many suburban areas that usually return Conservative MPs would vote Leave. What was less expected were the Leave majorities in poorer parts of England and Wales that have lost mining or manufacturing industry over the last 30 to 40 years. Most larger towns, apart from Birmingham, voted Remain. But smaller depressed post-industrial towns that have long been safe Labour constituencies voted Leave, a good example being the first significant Leave vote in Sunderland in the north-east, but included towns in the West Midlands, Lancashire, Yorkshire and South Wales. A Panorama programme on BBC on July 4th gave some glimpses of the way people in these towns feel. They feel left out and forgotten and the phrase “Give me my country back” appeared to resonate, but what do they mean by that? It appeared to be a nostalgia for when the towns were thriving manufacturing centres and the high streets full of local shops. There was almost nothing these respondents said in the programme that actually had anything to do with the EU, (such towns are not major magnets for immigration) but nevertheless they appeared not just to be giving a protest vote but to actually believe that leaving the EU would lead to a revival of their towns. Somehow it would seem that UKIP and possibly even Conservative campaigners found ways of raising such hopes. Such hopes are not going to be fulfilled by UKIP and probably not by the Conservatives, but others particularly Labour politicians cannot just wait and let them experience another disillusion. There does need to be concerted efforts made to give back hope to these towns. It should be based on encouraging local initiatives supported from outside. At least for another two years some outside money may continue to come from the EU.

The vote clearly reveals that many English and Welsh people are deeply discontented and implies that the UK’s apparent success in terms of job creation and low overall levels of unemployment hide a labour market which is not functioning as well as people in all major parties have believed. This applies both to areas of high immigration and economically-depressed areas. Minimum wages paid holidays and rights for part-time and temporary employees (some derived from EU legislation) need to be better enforced.

The question Where Now? has only been very partially addressed and will have to be addressed again in the future

Guest article by Mark Hudson: The Immigration Myth

Arguably, voting on June 23rd for most people will be dominated by fear. Either fear about the economy or fear about immigration. One of these will trump the other.

Of course there are lots of other issues, but when they are alone at the booth, faced with putting an ‘X’ in one space or another, most voters will fall back on what they fear most. Most people are not passionate about this issue one way or the other.

It is in this context that it is worth stressing that the real immigration issue in Britainif one is worried about immigration (which is not a major issue for me) – is immigration into the UK from non-EU countries. This key point has not been picked up by the Vote Remain camp.

These are the facts, sourced from government and anti-migration sources (see below).

1. Non-EU immigration accounts for more than half of immigration into the UK - which is entirely within the control of the UK Parliament, subject to national opinion.

The anti-migration website Migration Watch shows that even today more than half of immigrants into the UK still come from outside the EU (177,000 from non-EU in calendar 2015 against 170,000 from the EU.)

Between the 2001 and 2011 censuses the UK population grew from 58.8 million to 61.7 million. Over this time the non-EU born population grew by 1.5 million to 4.9 million (8% of the total) while the EU-born (excluding UK-born) population in the UK grew by 1.1 million to 2.6 million (4% of the population). So while immigration from the EU grew over this decade, the majority or 56% of the growth in the foreign-born UK population was due to the 1.5 million extra non-EU immigrants.

According to the Office for National Statistics (ONS) Labour Force Survey estimates for 2015, there are 3.3 million EU citizens in the UK – 1.6 million from the EU14, 1.3 million from the EU8, 300,000 from Romania and Bulgaria and the remainder from the other EU countries of Malta, Cyprus and Croatia[1]. There are 2.1 million UK citizens living in other EU countries (http://www.migrationwatchuk.org/briefing-paper/354) so the net effect of EU migration is to increase the UK population by only 1.2 million.

 

2. The real cultural challenge is in integrating non-EU peoples.

I would argue that what is sparking most concern in the UK regarding immigration is the recent wave of Muslim immigrants into Europe (from Syria, Afghanistan and Africa), their relative lack of integration and the connection in many people’s minds with fanatic terrorism. This is allied to ongoing worries about the relative isolation of the large Pakistani, Bangladeshi, Somali and other Muslim communities in the UK.

There are now 3 million Muslims in the UK (5% of the total population), around half of whom were born in the UK. This is a fact which we cannot ignore or wish away, even if we were so inclined. The real challenge for the UK is how to welcome and facilitate the deeper integration of Muslims into UK life, involving compromise on both sides, and including full acceptance of key European values of tolerance, equal treatment of women and LGBTs, the paramountcy of secular law and respect for human rights.

However, this is completely irrelevant as far as the EU Referendum is concerned, since immigrants from the EU are from a European cultural and Christian heritage. There are no EU rules about non-EU migration and virtually no Muslim migrants from within the EU.

 

3. EU immigrants are not generally competing for housing

The majority of immigrants from EU countries do not compete with UK national for council accommodation, but go for private rented accommodation. This is because:

- they stay generally for less than 5 years (though of course others stay longer or permanently), and so it is not worth applying for council housing. Studies show that one third of EU immigrants return home after less than a year (typically, farm-workers, students, bar-istas) and more than half return home before they get to pension age.

- many are wealthier and/or get better paid jobs.

 

4. The NHS, schools and welfare would be worse off without EU immigrants

A persistent scare story is that EU immigrants are straining the UK’s health, welfare and education services.

This is simply wrong:

-       Study after study has shown that EU immigrants contribute much more in taxes than they take in benefits, and proportionately more so than UK citizens. The UK is a net gainer in budgetary terms. EU citizens come here overwhelmingly to work, not to scrounge or get healthcare.

-       EU immigrants help support the NHS since they contribute more taxes; and two thirds are in work and so use the NHS less, proportionately, than the UK-born or non-EU born populations. It should be  added that the NHS would also be much worse off without non-EU immigrants, who make up a big chunk of the workforce

-       EU immigrants arrive having left school and often are university-educated, so they are not using the education system. EU students are of course paying their way (through the nose).

-       EU immigrants are for the most part better educated than the UK average and therefore have a broadly positive impact on the quality of the UK workforce.

 

Sources: https://en.wikipedia.org/wiki/Foreign-born_population_of_the_United_Kingdom; various FT articles; http://www.migrationwatchuk.org/statistics-net-migration-statistics; the ONS.



[1] The ONS Labour market statistics estimate that of the EU born migrants in the UK, 2.1 million were working.

 

 

 

With the EU in crisis Commission and other member states should show more solidarity with Greece

 Asylum crisis threatens to weaken EU 

In an interview with the BBC, Manuel Valls, the French prime minister, said that the EU itself was under threat from the crisis posed by pressure of refugee seekers. This on the face of it would seem exaggerated. If some member states are more generous than others in accepting refugees why should that undermine their capacity to work together within the framework of the EU treaties? The Schengen system of borderless travel across most EU member states has already partially broken and could completely break down as member states try to stop or regulate the flows of external migrants. This is a serious blow given the impact of the Schengen agreement on everyday life and symbolism in breaking down barriers. It does not mean that end of the EU, but the fact that people like Mr Valls are talking in these terms is evidence of a deep crisis.

 

At a time of several other difficulties 

The challenge of the asylum seekers is highlighting the differences between and within EU countries and comes on top of several other problems. One of these is the forthcoming UK referendum on whether to stay in the EU, with UK opinion polls suggesting that those likely to vote to stay in or leave are quite evenly divided. A vote to leave would deprive the EU of a major player, which has made a particularly important contribution to the development of the EU’s single market. Furthermore its departure would set a precedent, which would give impetus to anti-EU sentiment on other countries where it is already strong including France, Italy and Poland.

Another major problem is posed by the fact that some of the countries that acceded to the EU in 2004, notably Poland and Hungary have weakened their compliance with political criteria under which they were allowed to join, such as the impartial rule of law, as for example in the packing of Poland’s constitutional court with its own sympathisers by the newly elected Law and Justice government. The attempt by the European Commission to monitor such measures has provoked increased hostility to the EU in Poland and Hungary, and this has become meshed up in hostility to the EU’s strongest country, Germany.

A third problem is the euro zone crisis. Although the threatened departure of Greece from the euro zone was averted last year there are still considerable tensions between countries of the south with high debts and northern countries. Recently there has been an increase in tensions between Italy on the one hand and Germany and the European Commission on the other.

Differences over how to tackle the refugee influx is exacerbating the other differences. There is no simple answer: one policy extreme would mean that the EU abandons any pretence to stand up for human rights of those not already EU residents; the opposite of free entry for all genuine refugees would create unsupportable social and political tensions even in countries like Germany with an initially welcoming attitude. A muddled middle way is the only one that can hope to avoid one or other such consequence.

 

Commission takes wrong approach to Greece

But there are ways in which the EU could do better. In particular the key role of Greece in the crisis should be acknowledged. On January 27th the Commission published a report highly critical of Greece, threatening to expel in from the Schengen zone if it did not do better. This followed a proposal to help Macedonia man its frontier with Greece without consulting the Greek government. Even if the Greek economy were not experiencing the most severe economic crisis any member state has experienced since the early days of the EU, it or any other country would struggle to cope in a humane manner with the huge numbers crossing the sea onto Greek islands. In contrast to the Commission’s attitude a group of academics have put forward islanders that have rescued and helped refugees forward has a candidate for the Nobel Peace Prize.

 

Greece should be praised for what it has done rather than rebuked for what it has not done, and given far more funding to help it manage camps and processing centres to separate refugees from economic migrants and provide migrants in Greece with basic needs in the meantime. It may be that it is will be no longer practical to keep fully open frontiers with Greece given the amount of migrants arriving there, but this should not be portrayed as a punishment but rather as an unavoidable necessity in which Greece needs far more support from its partners.

 

 

Immigration risks British exit

John Major speaking to the Konrad Adenauer Stiftung in Berlin said on November 13 that he considered there was a near 50% chance of the UK leaving the EU, the main reason being the allegedly excessive level of immigration. If the chances of the Conservative Party doing well enough in the May 2015 UK election to form a new government and carry out its promise to hold a 2017 referendum on EU membership are 50% then the implication is that if the referendum is held there is a near 100% of it leading to exit. This would be surprising given that an Ipsos-Mori poll on showed a large majority in favour of staying in. However, John Major’s assessment could prove right. In late November David Cameron came close to making demands that were self-contradictory. On the one hand he seemed about to demands a reform of the priniciple of free movement of labour to the extent of applying and the other hand he rightly called in his speech to the CBI on November 10th for the “safeguarding the internal market” amongst all 28 members at a time when the majority euro zone countries are developing closer integration amongst themselves.

The internal market which was designed in 1985 and 1986 by the commissioner appointed by the then British prime minister, Margaret Thatcher, Lord Cockfield, has four pillars, the free movement of goods, services, capital and labour. If quotas can be introduced on the free movement of labour one of the four pillars is fundamentally weakened and the precedent set for a member state (or the whole euro zone towards countries outside the euro zone) to introduce quotas on the movement of capital, services or goods.

On November 28th Cameron stepped back for calling for immigration quotas calling instead for more reasonable limits to in-work benefits but he could yet be persuaded into making such a demand.

The issue is linked to other government policies

How has immigration, particularly from other European countries, become such a concern in the UK? Germany has had similarly large numbers of immigrants from other EU countries in recent years and as a relatively strong economy is also likely to remain a magnet for immigrants. But immigration in Germany is not now a major political issue, although the leading governing party, the Christian Democratic Union used to insist that Germany was not an “immigration country”.

There are a number of reasons that those concerned about immigration put forward as reasons for their concern, of which the most substantial are that it puts a strain on health and social services, it reduces job opportunities for existing British citizens especially young people and reduces wages, and that adds to the problems caused by the shortage of housing in parts of the country, especially the south-east. The first concern, though possibly true in particular localities, does not stand up to evidence overall. As a recent study by University College, London, has shown EU immigrants put more into tax to fund social services than they take from them and from welfare benefits. Moreover many of those working in the health and care sectors are immigrants, both from in and outside of the EU. With regard to schools, it has been noted that schools with large immigrant intakes as in London or other inner cities are performing better than those in rural areas with low immigrant intakes.

Arguments that immigration depresses wages for the lower paid and that it puts pressure on housing cannot be so easily refuted. In both cases, however, the problems are also linked to longstanding aspects of UK government policy.

Although the UK has done well, compared with many EU counterparts, in increasing the number of jobs and so in limiting unemployment, it is being increasingly noted that the wages and conditions of these jobs is often low and may be deteriorating. The UK has prided itself on a very flexible labour market and there is little doubt that this leads to lower unemployment, especially of young people, than countries in southern Europe. Certainly the UK does not want to copy the labour market conditions of southern Europe which have resulted in low employment rates and high youth unemployment.

However, the extent to which the scales are weighed in favour of employers in relation to employees, and the behaviour of employers in boosting profits, and pay for higher management, at the expense of wages and conditions for most employees, especially those at the bottom, has gone too far. This means not only that wages are often very low, and subsidized by tax and welfare benefits provided by the UK taxpayer, but also that other conditions, such as the reliability of income as a result of the prevalence of zero hours or very short term contracts, and the provision of training, are now very poor and despite government efforts to squeeze welfare benefits for unemployed, are very unattractive to British citizens. They are more attractive to people from eastern Europe because they send money back to their own countries where living costs are much lower and when they see themselves as only temporarily based in the UK are willing to live in crowded or low standard accommodation.

One example is given by the road haulage sector. With EU rules on working hours coming into force after a period of exemption for the UK, representatives of the sector complain they do not have sufficient numbers of trained drivers. But this is because they have failed to invest in their staff by providing adequate conditions and training to attract British citizens, relying instead on the use of agencies providing temporary work often to foreigners. It is not just a matter of wages, but the lack of a reasonable degree of job security (it is accepted that jobs for life are a thing of the past, but employees should be able to look forward in normal circumstances to staying in the same place for at least 12 months unless the company they work for is in acute difficulty); training; and other conditions such as pressure to work excessive overtime at the expense of long-term health and family life.

This is not a call for massive new regulations. Legal changes such as the imposition of a minimum wage can be successful in achieving modest improvements in conditions without reducing employment opportunities, but they need to be carefully thought and can only achieve limited improvements. They cannot change the labour market culture to one like Germany where employers feel that providing good training, working under a meister (mentor) and time off to study, are a part of being respected in the locality to which they belong, where works councils are considered a normal part of governance which helps to overcome difficulties and seize opportunities and where unions are seen as part of a “social partnership”. The latter certainly looks far-fetched in the UK but improvements are possible. The government does have a role for example in the message it sends by the way it treats its own employees. The practice of outsourcing public services which do the same as previous government agencies but save money purely by reducing the wages and conditions of employees carries a lot of responsibility for sending the message that poor employment conditions is good business practice.

Another element of government policy which links with the concerns of those who claim that immigration is too high is housing. Since the 1980s social housing has been sold without the proceeds of sales being used to replace the stock so that social housing provision is inadequate. Instead a large part of public money spent on housing goes on subsidizing the rents of those on low to moderate incomes. Whereas no-one would expect immigrants to jump the queue for social housing they have been entitled to the rent subsidies. Given that these subsidies are part of government policy to provide housing to those already resident but inadequately housed the government ought to be able to justify requiring a substantial delay before providing such subsidies to new immigrants, but it should also do more to boost the availability of social housing in areas of need.

Tomorrow October 7th could be key date for UK’s future in the EU

Tomorrow, October 7th, will be an important day for Britain’s future prospects of remaining in the EU, if the Conservatives again lead a government the next election. Jonathan Hill, the former leader of the House of Lords, who has been put forward by Jean-Claude Juncker as commissioner for financial services in the next Commission, is being recalled to Parliament to face further questions, the only commissioner to have been recalled so far  although there are question marks over a few others). The reasons for his recall include the fact that he will have to learn quickly since he is not an expert in financial services, although he answered all the questions competently. Apparently controversially he said he had no view on eurobonds or taxation, but these are both matters with which he will be primarily responsible and which are highly political so any non-anodyne remark would have been likely to have been criticized. While some of Mr Juncker’s selection of commissioners are highly expert such as the transport and health commissioners, Maros Sefcovic (Slovakia) and Vytenis Andriukaitis (Lithuania), there are others without significant experience such as the environment commissioner, Karmenu Vella (Malta)  or who have little experience and the energy commissioner, Miguel Arias Canate, has had experience mainly with the oil sector on which he will be supposed to reduce dependence.

There is actually a good case, given the failure of practitioners with high levels of expertise to have spotted the weaknesses in banks and other financial companies, for someone coming from the outside with a fresh, common sense approach.

Mr Hill, coming from a country outside the euro zone would not be best suited to have a major role in running the euro zone banking union. But supervision of banks will be the responsibility of the European Central Bank and with regard to legislation, Parliament has already agreed to a flawed compromise on winding up unviable banks. Any future legislation will be determined primarily by what is acceptable to member governments rather than anything the Commission does.

The fact that the UK is able to act as the financial services centre of the whole EU,including the euro zone despite not being party of the euro zone, is potentially controversial. Nevertheless, it is accepted that a fundamental principle of the EU is free competition throughout member states. Given that Mr Juncker has put forward Mr Hill as an olive branch to the British following David Cameron’s unjustified attacks on Mr Juncker’s own appointment, his rejection would be seen widely as a slap in the face for both Mr Juncker and the British government which would create very unfavourable conditions for the referendum on EU membership which any Conservative led government intends to hold in 2017. The recall of Mr Hill probably reflects political maneuvering within the European Parliament. From one point of view it might be argued that the UK government can hardly complain since its own EU policy is largely formulated as a result of political maneuvering to try to hold together the Conservative Party and head of the threat to the Conservatives from the UK Independence Party. However, Parliament will have to consider the huge potential consequences that a rejection of Mr Hill could have for the UK’s continuing membership of the EU.

The Junckernaut is no federalist juggernaut

The move to choose the former Luxembourgeois prime minister, Jean-Claude Juncker, as the next president of the European Commission has received an enormous boost from David Cameron’s cack-handed diplomacy but fears that he represents a federalist drive in the EU are entirely misplaced. For most people in the core EU countries, and especially Belgium and Luxembourg, homage to pro-integration rhetoric is almost like that of Christians to the creed or of British Conservatives to resisting the alleged onslaught of legislative red tape emanating from Brussels (even for those who would be hard-pressed to think of a single example which actually affects their lives). That it should be such an article of faith is unsurprising from citizens of countries that have been overrun by invading armies twice in the last century. In practice, however, Mr Juncker is highly pragmatic.

What is federalism?

The word federalism needs to be defined. In a technical sense, it means that there are different powers for different layers of authority. In that sense the EU and its forerunners have been federalist since the setting of the European Coal and Steel Community in 1951, for which the pooling of sovereignty was the fundamental basis of the French initiative to set up the ECSC and was the reason why the UK stayed out, why it attempted the alternative European Free Trade Area and why when the UK did accede to the European Economic Community and ECSC in 1973, it was so controversial as to provoke a referendum in 1975.

In practice, the term federalism has been used both by its proponents and its opponents to mean a much more integrated political body, comparable in some degree to existing federations such as the US and the Federal Republic of Germany. It is hard to imagine a serious move in this direction without a major impact on taxation or expenditure. At present EU expenditure is limited to 1% of GDP which is less than a fortieth of average public expenditure in member states, compared to more like half in the US or Germany. From the point of view of taxation, the only important unifying factors originally were external customs duties and the fact that all member states are required to impose value added tax, though at rates and coverage which they could choose. Some harmonisation of VAT rates was agreed as part of the 1992 Single Market Programme, but with the sole purpose of eliminating the need for varying rates to result in member states keeping border controls on the movement of goods and services. The single market programme did also in other ways result in some more authority moving up to the EU level. Such powers were drawn up by the British internal market commissioner at the time, Lord Cockfield, who had been appointed by Mrs Thatcher, who fully supported the changes.

Juncker resisted tax harmonisation

Apart from VAT, any moves to harmonise taxation across the EU require unanimity. This has remained the case as a result of the opposition to harmonising tax from a number of countries, including Luxembourg. Under the leadership of Juncker, Luxembourg  strenuously resisted moves which would limit its ability to attract investment and otherwise benefit from low corporate and other tax rates. Indeed it was only very reluctantly and after many years of resistance that Luxembourg agreed to comply with measures to limit its provisions for bank secrecy which were obviously designed to enable depositors to evade taxation in the EU countries to which they belonged.

On the EU expenditure side, there is no possibility that it could rise even slightly above 1% of GDP during the term of the next Commission because it is so limited by the Framework Budget for 2014-20 which has been enacted by the Council and Parliament.

UK arguments cut no ice

The main reason why Juncker was being pushed by the European Parliament is as an answer to the EU’s alleged democratic deficit, since he had the backing of the largest party emerging from the May 22-25 EP elections, the European Peoples’ Party. As a way to increase democracy in the EU, the move is deeply flawed (not least because at the time of the Parliament elections at the end of May less than 10% of the electorate had actually heard of Juncker). The case against the justification of Juncker by the argument that it would make the EU more dramatic has been made by almost all UK commentators including highly pro-EU ones, in the British press. The fact remains that, however cogent these arguments may seem to the British, opinion in other EU countries especially Germany is very different. There are a number of reasons for the different German view, but they have been given a decisive push by Cameron’s attempt to veto Juncker. When asked whether they would agree with Cameron that the European Parliament should not impose its own choice as Commission president, 60% of Germans disagree (ie 60% support Juncker). This answer clearly relates to how the question was put, but as a result of Cameron’s public attempt to veto Juncker, the question is now seen in Germany in large part as one of the right of the rest of the EU not to be subjected to a British diktat. In the UK much of public opinion sees the EU debate in terms of whether the UK should be dictated to by “Brussels”. In some EU countries, the UK question is increasingly seen as whether the UK should dictate to the rest of the EU. Most opinion in these countries would like the UK to remain in the EU–but not at the cost of being told what to do by the UK.

A UK right of opt-out from any substantive further powers being given to the EU is acceptable to its partners. But the UK may have to accept a Juncker Commission, particularly following Cameron’s faux-pas. Juncker is probably not the best candidate for the job but whether or not he is chosen will not have much impact on whether other member states want to move further down the path of integration and will have no impact whatever on the UK’s right to opt out of any such moves. In regard to whether a Juncker Commission might be unsympathetic to the UK, the British government has dug itself into a whole. It had better stop digging.

 

 

British-German relations are good but impact on UK objectives should not be exaggerated

The Adam von Trott Memorial Appeal and Mansfield College held a day’s seminar on November 7th under the title “Britain and Germany in Europe: What Prospects?” Adam von Trott was invited to spend a term at Mansfield College following his participation in a  world Christian student meeting in Liverpool in 1929. He later took a full degree at Balliol College as a Rhodes scholar in the trademark Oxford combination of Philosophy, Politics and Economics. During the war he wrote proposals for a post war Europe and social reform and conspired against the Nazi regime. He took part in the July 20th 1944 plot to assassinate Hitler and was executed for this.

The seminar was about the present and future and addressed a range of political themes. It was a success first in that it was well attended by people of all ages both British and German (the latter particularly German students at Oxford).  Secondly, it was an interchange of ideas involving British and German speakers, including the minister and current charge d’affaires at the German embassy, Rudolf Adam, which while not avoiding mentioning the two world wars, was notably lacking in underlying tensions.

This reflects a certain stratum of society, but British–German relations are also good at a political level. The Conservatives under David Cameron caused considerable offence to the Christian Democrats in Germany by pulling out of the European Peoples Party in the European Parliament and by vetoing the incorporation of fiscal rules affecting only euro members in December 2011, but Angela Merkel has nevertheless devoted considerable effort to establishing good relations with the British prime minister and those members of his party who want Britain to stay in a reformed EU now see Germany as an ally in its efforts to reform the EU along British priorities—focusing on the single market and trade while holding spending down and rolling back EU rules where not needed for the purposes of the single market. Even those who want to leave the EU no longer, as some older Thatcherites did, see the EU as a cover for a new form of German domination.

The Labour Party also has good relations with German Social Democrats and many of its policy makers admire German patterns of industrial relations—where unions still have a role and where there are well established forms of employee consultation in company decision-making—and the German training system.

Despite all this, the seminar did, however, point towards a possible danger in over-expectations on the British side. In tackling the euro zone crisis over the last five years Germany as the strongest economy has played a dominant role. In the EU as a whole it is economically and politically the most important country, at a time when French political leadership is weak. However, that does not mean that if the UK and Germany are in agreement they can get their way on everything. That can only happen if they are supported by a majority of other countries in the EU’s voting system. Furthermore, if Germany were faced with a choice between furthering Anglo-German relations and the maintenance of Germany’s harmonious relations with its immediate neighbours, including France and Poland, the latter would unquestionably have to take priority.

The prospects for renegotiating the terms of EU membership are poor. In 1974-75, a Labour government renegotiated the terms of the 1973 UK accession but achieved negligible concessions from eight other member states. This time 27 other member states would have to agree to any treaty change. A referendum in 1975 to stay in the then European Community was easily won but that reflected the fact the EC was then seen as an economic success while the UK was in great economic difficulty. At present the UK economy is also in difficulty but less so than in 1974, while the EU’s performance is much weaker, with the exception of Germany and some small member states. If a failed renegotiation were seen as a humiliation to the UK it could therefore have much more effect on the outcome of a referendum than last time.

The prospects for persuading other member states in everybody’s interests to reform the EU are more favourable. Already, the 2014-20 budget has for the first time been cut in real terms compared to the previous seven year period and a process of eliminating superfluous legislation has already achieved significant results (albeit only a fraction of what could be done).  One sensitive policy area, fisheries, has been radically reformed and decentralized.  There is clearly much more that can be done[i] but the UK will not get its way on everything. The controversial working time directive is unlikely for example to be eliminated though as it is essentially voluntary this is of much less importance to British business than is often claimed.

 



[i]  See Cut EU Red Tape October 2013 by a UK Business Task Force. The proposals are clear and well argued. They will not all be accepted by those who think that s competitiveness and efficiency are objectives that should automatically over-rule other objectives. But there should be general agreement that there is far too much red tape at both EU and national levels, which is not proportional to achieving environmental, health, safety or other objectives. The report could do more to clarify where its proposals are primarily to eliminate paper work and where there will be some impact on other objectives, but where it is arguing that such benefits are disproportionate to the costs.  It may be pointed out that not means all the proposals are for “less EU”.  For example proposals to extend the market in services, simplify VAT payments where two or more countries are involved, improve licensing of medicines across the EU and eliminating barriers to e-commerce, all require positive action at the EU level, overriding the rules and practices of member states.