Leaders of major economies are sleepwalking towards another crisis. Herman van Rompuy, the president of Europe, hasn’t enjoyed the kindest press. In Britain at least, the “richly comic” “blustering Belgian”, a “garden gnome” and “dwarf” “straight out of Gilbert and Sullivan” has been treated as a sort of joke created largely for the benefit of tabloid headline writers. Mr van Rompuy may never come to match, say, Vince Cable in the glamour stakes – but people who knew him in his previous job always warned that the “Mr Nobody” gibes were misplaced. As Belgian prime minister, Mr van Rompuy helped to bring together his notoriously divided country, and sharply reduced its budget deficit. Now, he has similar steely ambitions to unite and discipline Europe. Last week, in Berlin, Mr van Rompuy proclaimed an EU leader’s strongest message of federalism yet. He said that after the financial crisis, “the national and the European interest can no longer be separated: they coincide… today, we have to act on [that] fact… in every [EU] member state, there are people who believe their country can survive alone in the globalised world. It is more than an illusion – it is a lie.” Mr van Rompuy’s “action on that fact” is something he and his supporters call “European economic governance” – essentially, a political semi-union giving the EU sweeping new powers to impose economic policy on its members. As he put it bluntly in Berlin, “one cannot maintain a monetary unity without a political union…” Three weeks ago, almost unnoticed in Britain, a taskforce chaired by Mr van Rompuy called for a “fundamental shift” in this direction, with a “wider range” of sanctions, fines and other punishments for countries that do not follow economic prescriptions laid down by Brussels. Ultimately, some suggest, economic governance could mean the harmonisation of tax and benefit levels, and forced redistribution of funds from rich to poor EU countries on a scale far greater than now. Fully fledged economic governance would apply only to members of the euro. But the van Rompuy taskforce also recommended that “all EU member states”, Britain included, should be subject to “deeper macro-economic surveillance”, including an “enforcement framework” of “corrective” measures “designed to enforce the implementation of remedies” for countries that stepped out of line. One of the members of the taskforce was George Osborne, Britain’s Chancellor of the Exchequer. In his first six months as Prime Minister, David Cameron has largely managed to keep Europe out of the headlines. But now, with a series of Euro-issues lining up to face him, the E-word is back. Two weeks ago, Mr Cameron suffered his biggest back-bench revolt as Prime Minister – by 37 of his MPs – after he agreed to increase the EU budget by 2.9 per cent next year (he’d promised to freeze it). And last week, it seemed that Britain could not even guarantee to hold the increase to 2.9 per cent after talks with the European Parliament, which has the power of co-decision on the budget, broke down (the MEPs had wanted a 6 per cent rise). The wrangle over the 2011 budget, though the most publicised of the Euro-problems facing Mr Cameron, is easily the least important. For Britain, a 2.9 per cent rise is only about £400 million – annoying, given shrinking national spending, but still relatively small change. On the budget, the real battle will come over the next seven-year settlement, due to start in 2014. MEPs are already limbering up for that fight – the main reason talks with them collapsed last week is that in exchange for their agreement on next year’s spending, they want national governments to start thinking about a whole new EU tax to finance future massive budget rises. In EU-land, economic downturns never bite. Last week, too, the financial crisis facing Ireland dramatically worsened. The cost of the country’s huge borrowing soared as the markets bet that it (and Portugal) will be the next Greece. Ireland could well be heading for an EU or IMF bailout, with the real prospect that Britain could be drawn in. Ireland is our nearest neighbour, with an economy closely linked to ours. And Britain is part of the new “European stabilisation mechanism” for the euro, agreed during the currency’s most recent meltdown in May while British attention was on the Lib-Con coalition talks. Under the mechanism, British taxpayers do not have to hand over any money up front – but we do have a liability of up to £6.8 billion if Ireland, Greece, or any other troubled euro member should default on an EU loan that is made to them. The dreadful crisis of the euro – which has been happening, sticking-plastered but not cured, for most of the last year – is what lies behind the drive for “economic governance”. The idea of the new rules is to stop countries like Greece and Ireland getting themselves into such a mess in future. A few weeks ago, Mr van Rompuy’s plan got a massive boost. Angela Merkel, the chancellor of Germany, said she wanted a treaty revision to make “economic governance” and supervision permanent features of the Union’s make-up. And France’s Nicolas Sarkozy agreed. But for all the fears of British Eurosceptics, this may be more of an opportunity than a danger for those Britons who oppose the relentless growth of EU power. Economic governance will affect Britain far less than most other countries. Yet if there is to be a treaty revision, it will need Britain’s consent – giving Mr Cameron significant leverage. Mats Persson, director of the Open Europe think-tank, says that Britain should use that leverage to get back some powers from the EU in return for agreeing to allow economic governance for the eurozone countries. “In this fluid situation, Cameron should play politics,” he says. “He should say to the French and Germans: we will give you what you want if you give us back some things. There are real opportunities for reform here. We don’t think it’s inevitable that powers will always go in one direction.” The Government last week published proposals for a “referendum lock”, which ministers say will give the British people a veto on all future transfers of power to the EU. But many Eurosceptics are still suspicious of the small print of this promise, worried that not everything will be covered. And as well as preventing future moves of power, they want ministers to “repatriate” some of the powers that have been given away already. New EU powers over the financial services industry, openly touted by France as a way of attacking the City of London, are one thing that Mr Cameron could try to take back, Persson says. The role of national parliaments, or just the British Parliament, could be strengthened – to give MPs more scope to object to EU law. Regional funds could be brought back from the EU budget to national budgets. The trouble is, the British Government doesn’t seem particularly interested. Even since the election, to the anger of many Tories, the Coalition has given away more powers. It agreed to the European Investigation Order, under which courts and prosecutors in other EU countries can order British police to carry out investigations, house- and body- searches and surveillance in this country on their behalf. And in 2014, before the next general election, ministers will have to make a big decision about whether to accept or reject the entire suite of European justice and immigration “harmonisation” measures, which will horrify civil libertarians and the Right. “I think the Government just wants to ignore Europe as an issue,” Persson says. “They’ve decided not to talk about it, and they find it difficult to recognise the opportunity they’ve got in front of them.” Mr Cameron used the trivial issue of the 2011 budget to divert attention from the real issue of repatriating powers, some say. There are understandable reasons why the Prime Minister is reluctant to follow his Eurosceptics. Europe has always been toxic in British politics – one of those issues that strongly excite a small number of voters, but confuse and bore the majority. Attempts by the Tories to play the “Europe card” in elections have always backfired. Since coming to power, Cameron has been mending fences with Merkel and Sarkozy, after his provocative decision in opposition to stop sitting with their parties in the European Parliament. Adopting Persson’s advice to “play politics” with economic governance, an issue that affects the eurozone more than Britain, would “antagonise” our partners all over again, says Katinka Barysch, deputy director of the Centre for European Reform think-tank. It would also, she says, “damage Britain’s own interests. The eurozone is Britain’s biggest export market – and as Europe’s biggest financial centre, the City stands to lose if turmoil returns to debt markets.” Above all, perhaps, there is the delicate balance of the Coalition itself. A now almost totally Eurosceptic party – the Conservatives – is in government with the most pro-European people in British politics, the Liberal Democrats. Nick Clegg, the Deputy Prime Minister, has set his face against repatriation of powers. “We are not going to reopen this issue,” he said last month, on the Government’s behalf. But Mr Clegg’s own Euro-friendliness, and his Eurocrat background, could in fact make him the ideal, non-threatening negotiator to get some powers back for Britain. And whether Mr Cameron likes it or not, Tory Eurosceptics, who have seldom been more powerful than now, are determined to press the issue. The E-word still has plenty of scope to make life difficult for a Tory prime minister.Tea Party brews trouble for world currencies
Herman van Rompuy: The man who wants to control your finances
The European president Herman van Rompuy offers a tempting target for jokers. But his call for for the imposition of a common economic policy, backed up with surveillance and punishments, has a decidedly sinister ring .
Sunday, 14 November 2010
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