European Scrutiny CommitteeWritten evidence from European Movement UK

1. This submission argues that the Prime Minister’s negotiating strategy at the European Council meeting in December 2011 risks isolating the UK in Europe and has increased, not diminished, the threat to the City of London.

2. The European Movement is Britain’s pro-European campaigning group. It was founded in 1948 by Sir Winston Churchill. It is an independent organisation and its members come from all parties and from none.

The Summit

3. On 8 and 9 of December EU member states came together to debate the treaty changes necessary to restructure the governance architecture of the eurozone to ensure that the debt crisis engulfing certain eurozone member states and has caused turmoil in the markets does not occur again.

What Was On the table?

4. The proposals on the table were in fact focused on the Eurozone, with the intention of enshrining in EU law the prerequisite that Eurozone member states must run balanced budgets. This initiative is part of efforts to reform the governance of the Eurozone and re-instil confidence in the markets about its medium and long term prospects.

5. The proposals themselves were not (and still are not) binding on non-eurozone member states. They would only apply to eurozone states and those non-eurozone states that wished to subscribe to them. There was no question that the provisions of the new treaty might apply to the United Kingdom without the explicit assent of the British government.

6. The single market as a whole or any aspect of it, applying as it does to all 27 EU member states, was not in fact on the table.

The Prime Minister’Strategy

7. The Prime Minister went into the Summit with a wish-list, which was closely guarded and remained secret from his EU partners until the 11th hour. Here lies the first failure in the Prime Minister’s strategy. By keeping the content of his proposals from his EU partners he did not allow time for him to make his case and win allies. The other member states were, understandably, unwilling to make a commitment when they had not had time to consider the implications. When the British demands were presented it was far too late.

8. The Prime Minister’s other mistake is that he went too far. His demands amounted in some cases to a treaty change to reverse areas of single market policy covered by Qualified Majority Voting (QMV) and reinstate them under the unanimity rule. This was seen by many as a step too far as it undermined the foundations of the single market itself. Requiring certain aspects of financial services legislation to be covered by unanimity rather than QMV opens the Pandora’s box because it can lead to similar requests by member states that wish to protect other areas of economic activity. Mrs Thatcher understood that the completion of the single market was only possible if the liberalisation of European economies and the opening of markets were governed by QMV. Despite Mr Cameron’s claims that the preservation of the single market is his top priority his actions proved the opposite. In fact it should be recalled the City of London has prospered in the past 20 years under the EU regulatory regime.

9. Had the Prime Minister allowed time for evaluation, explanation and discussion of these proposals, a mutually acceptable compromise might have been attainable. As it was, a combination of poor timing and excessive demands led to failure.

What are the Consequences of the Veto

10. The Prime Minister went to the EU Summit with two objectives, first to protect British interests, especially the interests of the City of London, and second to ensure that the Eurozone member states adopt the necessary measures to resolve the sovereign debt crisis in some Eurozone states.

11. By the end of the day he had failed to achieve both his objectives.

Consequences for Britain’s interests.

12. The Prime Minister’s decision to use the veto and leave the room limited his ability to influence negotiations and protect British interests. Even though Britain was subsequently given observer status, not having a vote, together with having marginalised many of Britain’s natural allies in the European Council, means that Britain’s ability to form coalitions and protect the policy areas important to the government and the British economy has been limited significantly.

13. Furthermore, the Prime Minister’s efforts to move law-making covering the financial services sector from QMV to unanimity has send the message that Britain cannot be relied upon to maintain the integrity of the single market, opening the door for other member states, less committed to the liberalisation of markets in the EU, to pursue a protectionist agenda.

14. The regulation relating to the City of London that the Prime Minister fears is adopted under the rules of the single market, ie by QMV among the 27 member states. Up until now, Britain has never lost a significant vote in the field of financial regulation because Britain’s know-how and expertise in the area of financial services is respected and it has been generally recognised that the City of London is an important asset not only for the UK but for the European Union as a whole. It is the City that enables Europe to be globally competitive in sophisticated financial services.

15. As a result of the Prime Minister’s veto, financial services regulation remains subject to QMV, but the sympathy and understanding of other EU member states—necessary allies – has been sorely tested. This is the worst of all worlds.

Consequences for the Eurozone as a whole

16. By vetoing the proposed treaty the Prime Minister in fact made it more difficult for Eurozone countries to move forward with reforming the Eurozone. The other 26 EU member states that agreed on drafting an international agreement will have to do so outside the framework of the EU treaties, complicating their efforts to resolve the crisis. This has contributed to the sense of uncertainty and insecurity that has engulfed the financial markets, adding further to the complexity of the economic situation in Europe and beyond, which in turn could further negatively impact the UK.

Britain’s Role in the EU Going Forward

17. The outcome of the December EU Summit compromised Britain’s ability to influence the outcome of negotiations on the new international agreement currently discussed between EU member states.

18. It has also created bad faith between Britain and some of its allies in the European Council of the EU. Member states like Poland are increasingly viewing Britain as an unreliable partner. Mr Cameron’s negotiating stance is considered as rigid and unrealistic so member states turn more readily to others when building alliances. That makes it harder for Britain to find allies when it needs to promote policy in areas that it considers important. Furthermore it has led some to question Britain’s commitment to the single market. Those member states that share Britain’s commitment to open markets and liberalisation of the EU’s economy fear that Britain is prepared to sacrifice efforts to extend the single market to services, energy and on-line trading, all hugely important for the creation of growth and jobs in the UK and across the EU, for the sake of one sector.

19. Last but not least by forcing member states to seek agreement outside the framework of the EU treaties Britain has weakened the role of the European Commission. It is widely accepted, even within Whitehall, that the Commission is an important ally when it comes to efforts to extend the single market in new areas and to liberalise the EU’s economy. If the European Commission is weakened, so then is its ability to defend the single market.

20. Nevertheless, Britain remains an important part of the EU and ever since the December Summit efforts have been made by a number EU member states to ensure that Britain is involved in the talks, hence the invitation to participate in negotiations as an observer.

21. The British government should redouble its efforts to build bridges and mend relationships with its EU partners if it is to make a constructive contribution in efforts to promote a growth and employment agenda throughout the EU, upon which half of our exports depend.

22. It is also important that Britain does not hinder proposals to eventually incorporate the international agreement into the EU treaties. The current draft has such a close, proposing that the agreement becomes part of the acquis within five years after it comes into force. Allowing the new treaty to become part of the treaties does not imply that it should also become binding on the UK: that is and will remain a decision to be taken separately.

Conclusion

23. The use of the veto and the strategy employed in the run up to the summit were both ill-conceived and failed to produce the desired results. In fact the veto served only as a way to remove Britain from the negotiating table, rendering it less able to defend its interests and pursue its policy priorities.

24. Going forward Britain must engage constructively in efforts to reform the Eurozone and promote policies that have growth and employment at their core. Instead of tilting at windmills the British government must work on building alliances if it is to win arguments and influence policy.

13 January 2012

Prepared 30th March 2012