Tuesday, 13 December 2011

New EU deal faces multiple referendum threats

A recent EUobserver article has highlighted how the 'fiscal compact' deal agreed at last week's EU summit could yet be scuppered by referendums and legal delays in numerous participating countries.

The deal is designed to extend EU control over the tax and spend policies of the elected national governments of its member countries by transferring greater power over national budgets to EU institutions.

Due to David Cameron's veto, the deal will now have to be agreed between the 'euro-plus' group of participating countries outside the institutions of the EU.

But according to EUobserver, "serious obstacles are beginning to materialise in Ireland, the Netherlands, Austria, Romania and Denmark, while Finland, Latvia and the Czech Republic may also present the process with additional hurdles."

Treaty hurdles

In Ireland, aspects of the deal are being put to the country's attorney-general for a verdict on whether a referendum is required, but the Irish Europe minister, Lucinda Creighton, has fed speculation by saying there is a 50/50 chance of a public vote.

Today the
Irish government has said that a decision on a referendum will not be made until March, once a final text of the deal is agreed.

In the Netherlands, prime minister Mark Rutte has insisted that a referendum would not be needed. But with a highly EU-critical party as his partner in a coalition government and the opposition Labour party saying that new elections would be required if the deal amounts to a transfer of power to Brussels, Mr Rutte may face problems getting the deal through the Dutch Parliament. The country's Socialist Party and the Greens have also called for a referendum.

In Austria, government officials have also indicated that the creation of a fiscal union would require a referendum and, in Romania, while supporting the deal, President Traian Basescu has said that a new treaty would need a two-thirds majority in the Romanian parliament and approval in a public vote.

In Finland, prime minister Jyrki Katainen has dismissed any talk of problems in ratifying the deal. But the country's constitutional committee has ruled that replacing unanimity by majority voting on the EU's bailout funds would be unconstitutional, since it could result in a loss of parliamentary control over Finland's financial contributions. According to EUobserver, a Finnish official has said that it would be "impossible" for the government to negotiate this problem away.

Denmark’s new prime minister, Helle Thorning-Schmidt, has so far not commented on whether the deal would provoke a Danish referendum, but leaders of the other two parties in her governing coalition have said that a vote might be needed. Crucial to a Danish decision may be the Red-Green Alliance, a key part of the governing coalition, which is a strong opponent of the EU’s "neo-liberal policies".

Denmark rejected euro membership in a referendum back in September 2000, so moves to allow the EU to govern the country's economic policy may be seen as a breach of this settlement.

In Latvia, the government has signed up to the 'fiscal union' deal, but many politicians have voiced a sense of betrayal over the imposition by the EU of strict austerity measures and cuts in EU structural funds. Raising the spectre of a referendum as a bargaining chip to win additional EU aid would only take the votes of 50 of the 100-member Latvian parliament.

Finally, the Czech Republic is of course home to Vaclav Klaus, the national president who
caused the EU so much trouble over the Lisbon Treaty. While a referendum would not be automatically required on the changes, President Klaus has the power at least to delay the law-making process by holding back his signature, which must be applied to all new legislation.


It looks like the EU could well be in for yet another lengthy period of introspection over their bid to create 'fiscal union' and, even if the hurdles above can all be overcome, the deal still does nothing to address the core underlying problems of the scale of debt and low growth causing problems in several eurozone economies.

It's precisely because the EU seems far more interested in itself than in advancing the measures European countries need in order to prosper in the fast-moving, 21st century world that calls in Britain for an EU referendum - such as are being advanced by groups like the People's Pledge campaign - and support for a new deal with the EU are only likely to grow.

Friday, 9 December 2011

Cameron's veto will feed demand for an EU referendum

Why should the EU be given the right to govern and tax (arguably out of existence) what is, in Europe at least, a predominantly British-based industry that makes a huge contribution to our economy?

That's the question critics of David Cameron's actions at the recent EU summit will have to answer, if they hope to make a case against the Prime Minister's use of Britain's veto.

In a remarkable move during the EU's latest bid to resolve the bloc's debt crisis, Nicolas Sarkozy and Angela Merkel have chosen to risk their ability to quickly implement measures that would increase eurozone fiscal discipline over an attempt to impose EU regulation and a transaction 'Tobin' tax on Britain's financial services industry.

Confronting Britain in this way and provoking use of our veto over a bid to gain control over, and income from, the majority of Europe's financial sector that is based in Britain is an extraordinary demonstration of misplaced priorities from the EU at a time when the urgency of eurozone restructuring is paramount.

If the EU is serious about finding quick solutions to the eurozone debt crisis, they would surely have dropped such intrusive demands to interfere in another country's affairs in order to use the far speedier existing treaty mechanisms available?

But instead of coming away from this latest summit with a deal to calm market fears of national defaults and the disintegration of the euro, the determination of the 'Merkozy' partnership to regulate Britain's financial services industry has introduced a delay of more than three months for replacement 'fiscal compact' structures to be planned.

UK industry

A look at how vital financial services are to the UK economy shows clearly why David Cameron had to resist this arrogant 'Merkozy' push to take over and tax the City.

Referencing a PriceWaterhouseCoopers report, a recent Open Europe study highlighted that in the 2009-10 tax year the UK financial services sector made a tax contribution of over £54 billion, or 11.2% of the government's income from all taxes during that year.

The industry also contributed a £35bn trade surplus in 2010, playing a critical role in Britain's trade balance and, according to TheCityUK - an independent membership body promoting the UK financial services sector - nearly 2 million jobs are at stake.

Euro greed

But it's also clear from the same Open Europe report why other EU leaders want to force Britain to concede to EU government in this area. The City hosts a huge proportion of European and indeed global activity in many financial markets.

It's home to the largest foreign exchange market in the world, the largest insurance market in Europe, dominates the private equity industry and around 80% of the European-based hedge fund assets are managed in the UK.

There is clearly little point in a European financial transactions tax, the proceeds of which EU institutions hope to pocket, and proposed regulation if the UK is excluded.

New structures

Unless the EU relents on its stubbornness over financial services, a separate deal outside the EU's architecture will now have to be established by the countries who wish to participate in the new eurozone 'fiscal compact'.

This will not just set down new rules imposing stronger EU controls over national budgets but also how to enforce them. No mean ambition.

Either other EU leaders will realise the scale of the task ahead of them in respect of putting together such an inter-governmental deal and will conclude that it was stupid to push Britain away over financial regulation.

Alternatively, the countries who have expressed a wish to participate in the new 'fiscal compact' will forge ahead regardless and the result will raise new questions about how that will affect the balance of power between Britain and the other 26 EU members.

Should such a new voting block, doubtless also working informally within the European Union institutions as well as outside, be willing to consistently out-vote Britain in a range other EU policy areas, this will only feed demands for a proper reconsideration and referendum on the totality of Britain's membership of the EU.

If it becomes clear that we have even less influence over EU law-making than is already the case, then there is no remaining reason why we should wish to accede to the rules that come out of the EU nor pay the billions of pounds every year that Britain contributes to the EU's budget.

Beneficially, the result of this latest summit could be that holding an 'in/out' EU referendum - such as the one demanded by the People's Pledge campaign - and forging a new, 'free trade plus voluntary co-operation' deal will start to look all the more appealing.

Wednesday, 7 December 2011

New euro 'masterplan' already showing flaws

The EU is this week limbering up to reveal a last-ditch 'masterplan' to save the euro.

Over many months, a succession of summits have invented ever bigger sums of money the EU intends to throw at the eurozone debt crisis without any concept of how to achieve them.

So far the EU's only strategy seems to have been to try to intimidate the markets into submission rather than come up with a coherent solution to the euro's glaring flaws.

Clearly, and unsurprisingly, that hasn't been working. Not only has the lack of detail behind every EU pronouncement failed to convince, but the perpetual indecision by the EU has demonstrated amply what has for some time been a central tenet of eurosceptic thought.

Namely, that the EU as a decision-making structure is too rigid and incapable of acting with the dynamism required to secure Europe's success and prosperity in our fast-moving 21st century world. The EU, being a 1920s idea founded on a 1950s view of the world, has never looked more out of date.

In this context, it's hardly surprising that the ratings agencies have continued to criticise and downgrade the credit-worthiness of euro member countries.

Flawed auto-sanctions

But this week, the EU has finally changed tack. Talks led by the 'Merkozy' partnership of the French and German leaders have shifted from broadcasting fantasy funding plans to discussing 'refounding' the EU through treaty changes that will enforce 'fiscal union'. The plans are being touted as what the eurozone needs to survive in its current form.

More details will emerge later this week, but one of the key measures already being proposed is the idea of automatic sanctions against those countries that breach eurozone borrowing rules - particularly the rule that budget deficits should not exceed 3% of GDP.

Yet, 23 EU countries, including 14 eurozone members, are already in the EU's 'excessive deficit procedure' as a result of breaching this 3% rule which, under the current Stability and Growth Pact, should already have provoked sanctions.

This is despite the fact that the rules of the original Pact were softened in 2005, with 'exceptional circumstances' being permitted for deficits above 3%, 'other relevant factors' allowed to be taken into account before a deficit is considered excessive, and longer deadlines for corrective action.

According to the EU Treaty, sanctions can include requiring euro countries to publish additional information before issuing bonds and securities; inviting the European Investment Bank to reconsider its lending policy towards the country; requiring the country concerned to give the EU a non-interest-bearing deposit until the excessive deficit has been resolved; or, finally, imposing fines of an "appropriate size".

If auto-sanctions are approved in the looming negotiations, unless made retrospective, only Finland, Luxembourg and Estonia would potentially be subject to them as only those countries are not currently in the excessive deficit procedure.

This would render the proposal effectively usless towards having a short term impact on problem countries nor, in any case, will they be any solution to the underlying debt and growth problems of economies in difficulty. They simply punish, don't resolve.

Key questions

Now EU leaders are lurching back towards toughening the Pact up again, this provokes a series of further questions.

Firstly, given sanctions for excessive deficits have been available to the EU since the euro launched, why exactly have none ever yet been applied under the current Stability & Growth Pact rules?

Secondly, will the 14 euro countries already suffering 'excessive deficits' be let off auto-sanctions until they get back on track and then fined only after future transgressions? How much will future breaches cost them?

More broadly, how will automatically imposing financial sanctions on these countries help them get out of their debt and low growth problems that tend to provoke excess deficits in the first place? Won't such sanctions simply make their economic problems worse, and is that why none have ever yet been applied?

Referendum unlocked?

Finally, this proposal also provokes a key political question for David Cameron on the question of a referendum, since what is being proposed, in respect of auto-sanctions at least, is basically a beefing up of the existing EU Stability and Growth Pact.

Despite not being in the euro, Britain is subject to the Stability Pact rules and committed to "endeavour to avoid an excessive government deficit", although we are not bound by the penalty clauses should our endeavours fail. This was a key element of our opt-out from euro membership. We are, however, one of the nine non-euro countries also currently listed as being in the excessive deficit procedure.

If the mooted treaty changes centre on amending the Stability Pact clauses, the Prime Minister had better ensure our euro opt-out protocol is amended to exclude Britain from the new measures. If we are drawn into the new auto-sanctions, it will impossible for David Cameron to avoid holding a treaty referendum, since his 'referendum lock' will have been prised open.

Reality check

As Conservative MEP Roger Helmer put it this week, asking whether the euro can be saved "is like asking a cancer patient how we save the tumour. The euro is the disease, not the patient."

Prosperity and democracy on our continent are what needs to be saved and that's more likely if the rigidity of the euro is abandoned for at least several of its current members.

It's time for Europe's political leaders to drop attempts to save their ill-judged euro project, admit it's doomed at least in its current form, and start instead planning how to mitigate the effects on the financial system of several departures.