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Europe and Britain are going in different directions ... and it could be a game-changer for the referendum

DAVID Cameron's speech on Europe is turning into the greatest speech never made.

Fortunately, from leaks and briefings we know a lot of what's in it. Cameron says he wants to address the "three crises" of Europe: the eurozone debt crisis, the democratic deficit and the loss of European competitiveness.

Taking these in reverse order, the competitiveness issue is probably the most dubious. Is Germany uncompetitive? The single market is all about competition. What the Prime Minister means is all the social protections of Europe – the working time directive, the social chapter – have placed a "burden" on business that makes Europe uncompetitive with China and Southeast Asia. But this is dubious too. Europe isn't "uncompetitive" because of social legislation, but because Europeans have higher incomes than workers who have just left the paddy fields for the factories of Shenzhen. I trust the PM does not want British wages to be cut to a pound an hour, though I sometimes wonder.

The democratic deficit in Europe is all too real because the EU is very bureaucratic. The European Parliament has very little power, and big decisions in Europe are taken by the Council of Ministers, on which member states have a veto on many issues. But is Mr Cameron proposing to make the European Parliament a truly democratic institution with legislative powers and the right to elect a government of Europe? Of course not – that would mean a United States of Europe, to which he is resolutely opposed. The PM wants less democracy in Europe, not more. He wants powers repatriated to Britain.

Which brings us to the eurozone debt crisis. Now this is clearly a serious problem, despite the recent calm on the European sovereign debt markets. The action taken by the European Central Bank in buying up the bonds of troubled states such as Spain and Greece has been successful, for now, in containing the debt spiral.

But the fundamental problem remains that the single currency needs financial integration at European level. It needs a central European treasury, with the power to issue bonds for the whole of the eurozone backed by the whole of the eurozone, and the power to intervene in member states' financial systems. David Cameron agrees with this, and has called on Europe to "get on with it". But he doesn't want to be part of fiscal union because this too would be a United States of Europe.

He even tried to veto the enlargement of the EU bailout fund in December 2011. There is no way the Coalition is going to let UK taxes and borrowing be regulated by the European Central Bank, still less let the contents of the UK Chancellor's Budget be revealed to the EU before it is presented to Parliament.

Europe and Britain are going in different directions. The EU has no choice but to become more united, but Britain is resolved to become less united. We already have opt-outs on the single currency and Schengen rules on free movement across European borders. Cameron wants to go further, into areas like the social chapter, welfare, human rights. He wants criminal justice co-operation to end, and there to be no common European arrest warrant, which will please the criminal community. He wants a presumption against any new laws coming from Brussels.

But this half-in half-out situation is becoming untenable, risible even. Countries such as the Netherlands and Finland, who have backed UK opt-outs in the past, are saying enough is enough. The PM says he wants to remain in the single market but leave the EU increasingly behind, and this is a perfectly possible objective if he wants the UK to join Norway in the European Economic Area (EEA). Norway is in the single market but out of the EU.

But this means it is subject to the rules and regulations of the single market without any say in shaping them. And most of the bureaucratic directives that Tory MPs loathe would stay if we join the EEA. If you create a single market in anything, it requires common standards, whether it's bent fruit or broadband. Moreover, it is costlier and more bureaucratic being an outside member of the market. There are complex rules about foreign companies operating in Norway that discourage inward investment. But this is the direction in which Britain is going, and Cameron is going to put his package of repatriated powers to the UK in a referendum after 2016.

How is this debate going to impact on the independence referendum? Well, this is the big unanswerable. But it could be a game-changer, if only because it undermines a key plank of the Unionist case, which is that Scotland would be thrown out of Europe if it votes Yes, and would have to go through complex negotiations to get back in again. Clearly, Scotland is just as likely to find itself out of Europe if it sticks with the UK. Scotland is not as obsessed with the European Union as England. Attitudes are very different here, not least because the Tory party is largely irrelevant in Scotland and the main parties, the SNP and Labour, are pro-European.

Scotland has also found itself on the wrong side of competition with Ireland for inward investment. This may not matter as much as it did in the 1990s, because so many of the electronics firms that located here to gain access to the EU have upped and left. But Scotland is still an outward-looking economy, fishing aside, and is much less hostile to Europe because of our history. Suspicion of the French and the Germans is part of English DNA, dating from the Napoleonic wars and beyond. Scottish public opinion doesn't feel threatened by Europe. But it will feel threatened by the loss of social protections such as the social chapter, which guarantees things such as working time limits, health and safety standards, job security and maternity leave.

A key moment will be the European elections in May 2014, months before the Scottish independence referendum. The Tories are running scared of the UK Independence Party in English constituencies, and they will be outbidding each other in hostility to Europe. This could have a significant impact on how Scots view the Union. If it were to become dominated by xenophobic Conservatives, wanting to save "England" from the clutches of Europe, the UK might look less attractive. Forced to choose, many Scots would favour the European social model to the kind of neoliberal, City of London-dominated tax-haven Britain favoured by the Tories.

The interaction of the twin referendums on Europe and Scottish independence will determine the shape of these islands for the next century. If the UK pulls through, it may be a very different place to what it has been and is now.

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