Conclusions and recommendations
Introduction
1. Our Report examines the key overarching principles of Government policy for the UK's place in the EU, for as long as the UK may remain a Member State. It also starts to explore some of the implications of the Prime Minister's major EU speech of January 2013, in which he outlined policy to be pursued by any Conservative Government elected in the 2015 General Election. Our Report is not an examination of whether the UK should remain in the EU or withdraw. We did not include the 'in/out' question in our terms of reference, which we agreed well before the Prime Minister's speech, and as a Committee we have expressed no view on the 'in/out' question as part of our inquiry. We intend our Report to help inform the public debate on the UK's EU policy in coming years. (Paragraph 13)
2. Before the first reports arising from the Balance of Competences Review are published in summer 2013, it is too soon to assess the usefulness of the exercise. However, as long as the Review is conducted transparently, impartially and on a wide evidence base, we feel that it has the potential to help improve understanding in the UK of the nature of the country's EU membership and possible future EU policy choices. (Paragraph 19)
UK influence in the EU and the December 2011 European Council
3. Differing assessments of the extent of the UK's influence in the EU are likely to feature heavily in the arguments both for and against the UK's continued EU membership in coming years. There is no readily available objective measure of a Member State's overall influence in the Union. However, the point of a Member State having influence in the EU is to achieve EU policy outcomes that realise its interests and objectives. Policy outcomes are thus a useful indicator in the debate. We therefore recommend that, in the reports which the Government will publish arising from the Balance of Competences Review, it should indicate, in each policy area, the extent to which UK policy preferences have or have not been fulfilled. This could help to inform public debate. (Paragraph 32)
4. At the December 2011 European Council, concerns in principle about the possible implications for the UK of closer Eurozone integration led the Government to request safeguards in return for agreeing to EU Treaty change. We regard the Government's concerns as legitimate. Furthermore, the haste with which Member State governments—including that of the UK—were obliged to react to proposals for EU Treaty change in December 2011 posed significant diplomatic challenges. However, some of the specific requests which the Government put forward at the December 2011 European Council appear to have been misjudged for the circumstances. In some respects, the UK Government 'got ahead' of its EU partners and was seeking to mitigate risks for the UK which had not yet arisen, at a time when other Member States were more immediately focused on shoring up the Eurozone. The Government's diplomatic preparation for the December 2011 European Council, in terms of finding allies, appears to have fallen short. (Paragraph 42)
5. We conclude that the longer-term significance of the December 2011 European Council was twofold:
First, other Member States are willing politically to move to further integration without the UK when they are legally able to do so; and avenues may be available for them to do so under certain circumstances. In December 2011, for Eurozone states, meeting the perceived needs of the Eurozone took priority over negotiating EU Treaty change among all 27 Member States. For its part, the UK Government was prepared to see EU Treaty change fail at the negotiating stage—for the first time since the UK joined the then-European Economic Community in 1973—and other Member States move to a negotiation without the UK.
Second, given the prospect of closer integration within the Eurozone, the UK Government now considers that protecting the UK's interests in the Single Market may no longer be possible under qualified majority voting, and that tougher decision-making thresholds may be required. This represents a significant shift in the position which the UK has held on the Single Market since the Single European Act of 1986. (Paragraph 47)
6. We have not found that, by itself, the Prime Minister's veto of EU Treaty change at the December 2011 European Council has so far had a decisive overall effect, either way, on the UK's ability to exercise influence in day-to-day policy-making in the EU. Although broader factors also carry weight, it is necessary—and may be sufficient—for a Member State to construct such influence on a case-by-case basis, by developing well-prepared positions and alliances. (Paragraph 52)
The Eurozone and the EU
7. Against the background of a history in which the UK has often appeared to underestimate the political determination of continental European states to move ahead with integration, we judge the Government's expectation of further integration in the Eurozone to be a correct assessment of the longer-term direction of travel. We commend the Government for its realism in this respect. (Paragraph 57)
8. The issues facing the Eurozone states as they contemplate closer integration are technically and politically very difficult. As yet, the Eurozone has no 'grand plan' towards a desired or necessary end point. Rather, there are serious differences of approach among its members, and serious strains arising between and within them as a result of the steps being taken to tackle the crisis. We expect further Eurozone integration to take place incrementally to a great extent, and over a considerable number of years. The Government must reckon with the fact that reforming the Eurozone in coming years will take up much of the time and political resources of its EU partners. (Paragraph 61)
9. Assuming that it remains in the EU, the UK is likely to be part of a sizeable group of Member States outside the Eurozone for at least another decade. However, most other non-Eurozone states are under a Treaty obligation to adopt the Euro at some point, and appear to wish and expect to do so. The assumption that they will one day be in the Eurozone does not at all rule such states out as allies for the UK in particular EU policy areas. However, it is likely to push their longer-term orientation in the EU away from the UK and towards the Eurozone 'core'. (Paragraph 66)
10. In the face of more far-reaching Eurozone integration, it could be difficult for the UK and other non-Eurozone Member States to preserve their capacity to shape decisions affecting the Single Market. The Government is correct to have identified this risk for the UK and to have adopted a strategy of seeking to mitigate it by protecting the rights of non-Eurozone states. However, tighter integration in the Eurozone is far from rendering the UK's position in the EU impossible or worthless. The Eurozone is not a homogenous bloc, and Member State alliances around the EU continue to vary from issue to issue and to straddle the boundary between the Eurozone and the rest. (Paragraph 78)
11. The Government's stance towards greater Eurozone integration requires it to tread a very delicate line—both encouraging further Eurozone integration but also preventing the process from damaging UK interests; and distancing the UK from the Eurozone while maintaining that the country has an interest in developments in the single currency area. The Government can minimise the risk of causing aggravation and maximise the prospect of exercising influence by adopting a constructive and cooperative tone and approach. (Paragraph 81)
12. The agreement on the Single Supervisory Mechanism (SSM) which was struck among EU Finance Ministers in December 2012 was significant on several grounds. It shows what the UK can achieve, in terms of protecting its position in the Single Market, through close and constructive engagement and innovative policy solutions. We note that the deal went some way towards entrenching the kind of safeguard against discrimination in the Single Market that the Government failed to secure in the December 2011 negotiations on the 'fiscal compact'. We also note that the arrangements that were agreed to protect non-Eurozone states—on this occasion, for 'double majority' voting in the European Banking Authority—responded directly to a concrete proposal (in this case, one which gave rise directly to a risk of caucusing). Finally, we note that the SSM agreement protected the interests of non-Eurozone states by moving away from qualified majority voting: the deal established a decision-making rule that operates on the basis of the different statuses of two different groups of Member States, those participating in the SSM and those not. (Paragraph 87)
13. We recommend that, when the issue comes onto the agenda, the UK Government should support the incorporation of the provisions of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) (the 'fiscal compact' treaty) into the EU legal framework, including through EU Treaty change if necessary, assuming that this could be achieved as part of an overall Treaty amendment package that includes appropriate safeguards for the UK. With appropriate safeguards, the incorporation of the TSCG into the EU Treaties would, at the least, not be more damaging to UK interests than the existence of the TSCG outside the EU Treaties; and it would also open the way to an EU Treaty renegotiation process. (Paragraph 92)
The Prime Minister's agenda: reform, renegotiation, referendum
14. We commend the Prime Minister for launching an ambitious agenda for EU reform in his January 2013 speech, and especially for couching his language explicitly in pan-EU rather than UK-only terms. With the Eurozone and several of its Member States in crisis, and popular disaffection with the EU on the rise, it would be hard for others in the EU to argue that change is not required. (Paragraph 101)
15. We conclude that there is support for some of Mr Cameron's reform ideas around the EU, and that there is significant scope for further progress on deepening the Single Market, pursuing free trade agreements with third countries, and improving the quality of the EU's regulatory practice. Pursuing reforms may allow the Prime Minister to be seen to be committed to the UK's EU membership and to build influence. Mr Cameron's main challenge will be to make the case that some elements of his agenda, namely more differentiated integration in the EU and the repatriation of powers from the EU, are workable and can help the Eurozone states, in particular, to overcome the problems they face. (Paragraph 106)
16. The Balance of Competences Review seems likely to remain a primarily UK rather than pan-EU exercise. As such, it may still provide a substantive basis for a UK contribution to a debate over EU powers and competences. (Paragraph 109)
17. Given that the Prime Minister and Foreign Secretary have not spelled out in any detail the content of the "new settlement" that they might seek for the UK in the EU, and given that it is over a year, at least, before any major EU Treaty reform process seems likely to get underway, it is impossible to assess the likelihood of the Prime Minister securing the kind of "new settlement" that he might seek. However, we are clear that UK proposals for pan-EU reforms are likely to find a more favourable reception than requests for further 'special treatment' for the UK. We are sceptical that other Member States would renegotiate existing EU law so as to allow the UK alone to reduce its degree of integration, particularly where this could be seen as undermining the integrity of the Single Market. The Government must reckon with the fact that the body of existing EU law is a collective product in which 27 countries have invested. (Paragraph 113)
18. The nature of some of Mr Cameron's ideas for a "new settlement" for the UK in the EU, and the general terms in which he is currently setting them out, might leave him room to negotiate a "new settlement" without EU Treaty change. However, some of the "new settlement" ideas which have been floated would clearly require EU Treaty amendment. (Paragraph 116)
19. Many Member States would be reluctant to embark on a major EU Treaty amendment process under current rules, because of the amount of time involved and the risk of any new Treaty failing at the ratification stage, especially if one or more referendums were to be held. There appears to be a growing body of opinion that EU Treaty change requiring unanimous agreement and/or ratification by all Member States may no longer be possible. (Paragraph 127)
20. Precedent suggests that the Prime Minister's envisaged timetable for the negotiation of a "new settlement" between 2015 and 2017 might be achievable: some recent EU Treaties have been negotiated in under two years. However, much would depend on whether the EU Treaty amendment process would involve a Convention: some of the reforms that the Prime Minister might seek as part of a "new settlement" would require the type of amendment process that normally involves a Convention, and we find it difficult to envisage the European Parliament consenting to waive this element of the procedure. The last time that a Convention formed part of an EU Treaty amendment process, on the failed Constitutional Treaty, the process took nearly three years. (Paragraph 132)
21. We agree with the Prime Minister that, in principle, a more flexible and differentiated model of integration might accord better with the demands of diversity and democratic consent in the EU than the traditional homogenising model. However, the demands of a pan-EU Single Market without discrimination would appear to place limits on the degree of flexibility that might be achievable. The institutional implications of more differentiated integration are also complex. (Paragraph 143)
22. Our sense is that other Member States want the UK to remain an EU Member. However, we do not think that a UK Government could successfully demand 'any price' from other Member States for promising to try to keep the UK in the Union. (Paragraph 148)
23. We recommend that the Government should conduct and publish an assessment of the impact on business investment in the UK of the Prime Minister's commitment that a Conservative Government elected in the 2015 General Election would hold an 'in/out' referendum on the UK's continued EU membership by the end of 2017. (Paragraph 151)
The Single Market and the EU: Norwegian and Swiss options
24. In Europe's current institutional architecture, any decision as to whether the UK should remain in the EU would to a significant extent be a decision about whether the UK should remain in the Single Market—that is, a common area of free movement for goods, services, capital and people. This engages profound questions of economic, social and regulatory policy that were beyond the scope of our inquiry. (Paragraph 163)
25. We agree with the Government that the current arrangements for relations with the EU which are maintained by Norway, as a member of the European Economic Area, or Switzerland, would not be appropriate for the UK if it were to leave the EU. In both cases, the non-EU country is obliged to adopt some or all of the body of EU Single Market law with no effective power to shape it. If it is in the UK's interest to remain in the Single Market, the UK should either remain in the EU, or launch an effort for radical institutional change in Europe to give decision-making rights in the Single Market to all its participating states. (Paragraph 164)
Conclusions: maintaining UK influence in the EU
26. We recommend that the Government should always bear in mind the extent to which exercising influence effectively in the EU can depend on administrative and diplomatic capability and coordination. (Paragraph 170)
27. We welcome the Government's recognition of the importance of fostering bilateral relationships widely with other Member States around the EU. We commend the Government for devoting increased resources to this objective, in the form of FCO Ministerial time. We particularly welcome the establishment of a regular meeting between junior UK Ministers and their German counterparts. We recommend that the Foreign Secretary and Europe Minister should encourage ministerial and senior official colleagues from other Departments also to visit EU capitals widely, to help to build alliances in support of key pieces of EU business. (Paragraph 174)
28. In conclusion, we reiterate the importance of the Government's tone, language and overall approach in retaining influence in the EU. We recommend that the Government should frame its approach and its language in pan-EU rather than UK-only terms; and should remain constructive, positive and engaged. (Paragraph 175)
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