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THE UK IN EUROPE Sir Colin Budd Tim Cowen Will Hutton iCES Occasional Paper 10 Institute of Contemporary European Studies


iCES OCCASIONAL PAPER 10


Sir Colin Budd Tim Cowen Will Hutton The UK in Europe Institute of Contemporary European Studies 2012 First published in 2012 by The Institute of Contemporary European Studies www.ebslondon.ac.uk/ices iCES Occasional Paper 10 © Institute of Contemporary European Studies, Sir Colin Budd, Tim Cowen, & Will Hutton, 2012. All rights reserved. No part of this publication may be reproduced in any form or by any means without the permission of the publishers. ISSN 2040-6495 (online) First published in Great Britain in 2012 by the Institute of Contemporary European Studies (iCES), Regent’s College London, Regent’s Park, London, NW1 4NS


CONTENTS Foreword Sir Michael Butler and Professor John Drew

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Seminar Contributions Sir Colin Budd

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Tim Cowen

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Will Hutton

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Background Papers The Economic Benefits to the UK of EU Membership

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Senior European Experts The Wider Benefits of UK Membership of the EU Senior European Experts

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THE INSTITUTE OF CONTEMPORARY EUROPEAN STUDIES (iCES) The Institute of Contemporary European Studies (iCES) The Institute of Contemporary European Studies (iCES) at Regent’s College seeks to build on the existing pool of research, expertise and contacts within the College in order to contribute to the debate on contemporary Europe in the wider world. iCES is organised as a network of activities and collaborates with the Senior European Experts Group (SEE) to develop seminars on European issues and to enable further distribution of the papers which the SEE produce. The challenges confronting contemporary Europe are wide-ranging: enlargement, climate change, energy, defence, financial integration, security, migration. The overall purpose of iCES is to engage actively in this debate on the construction of Europe in the 21st century and its relations with the rest of the world. The Senior European Experts Group The Senior European Experts group includes six former UK Ambassadors to the EU, former senior officials in the EU Institutions and others who have worked in senior positions connected with the EU. They produce high quality briefing and policy papers on EU topics from a UK perspective. SEE has no party political affiliation. As an independent group, it makes its papers on contemporary European and EU topics available to a number of organisations interested in European issues, drawing on the extensive knowledge and experience of its members.

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The Senior European Expert’s recent independent background papers which include: The Benefits of EU Membership and The Economic Benefits of EU Membership to the UK can be downloaded from the Regent's College website: www.regents.ac.uk/ICES/papers.

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FOREWORD "We only see what we want to see" - Ralph Waldo Emerson. He may well be right as regards the views of the UK electorate on the European Union. However there is widespread agreement that many of the challenges faced by nation states today stretch well beyond national borders. Whether energy supply, climate change, environmental issues, security or the current financial and economic global crisis it is clear with those who have eyes to see that the United Kingdom cannot alone address these issues effectively Recognising this growing need for external alliances, the Senior European Experts developed two discussion papers; "The benefits of EU Membership" and " The Economic Benefits of EU Membership to the UK." These formed the background to a joint iCES\SEE seminar and discussion led by three distinguished commentators; Sir Colin Budd, a former UK Ambassador to the Netherlands and senior European Commission official; Timothy Cowen, partner at Sidley Austin focussing on EU and UK competition law and formerly General Counsel of BT'S international businesses and Will Hutton, Principal of Hertford College, Oxford and a former editor-in-chief of the Observer and a leading economic commentator The seminar proved to be a lively, informative and entertaining discussion attended by a considerable invited audience from business, government and academe together with students and staff from Regent's College. The background papers and summaries of the remarks of the three commentators are included in this Occasional Paper which as usual will be distributed to interested external observers as well as being widely publicised on College websites for alumni, students, staff and contacts of the College. Our sincere thanks to those involved in the drafting of the papers, to our three seminar speakers and to those who worked on the successful planning of the occasion and helped produce this Occasional Paper. The Background

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Papers stand alone. The seminar speakers have commented from different perspectives as contributions to the discussion from their individual, informal and expert points of view to further the continuing debate of what sort of Europe the United Kingdom wants. Sir Michael Butler Chairman Senior European Experts Professor John Drew Director Institute of Contemporary European Studies Regent’s College, London

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SIR COLIN BUDD Former UK Ambassador to the Netherlands and European Commission Official Part of my function as one of the so-called Senior Experts is I think to commend to you their papers, but it would be very boring if I tried to summarise those papers. They are there for everyone to read and they are in my judgement really good, and I hope they help the debate. I thought it would be more stimulating if I try and address some more structural issues. I will comment briefly on the two papers to start with, but then I want to talk a bit about my views on the methodology of the national debate about Europe, about how to deal better than we do with the sovereignty issue, where I will suggest a demotic rendering of the subsidiarity principle, which has eluded us for too long. And then some thoughts on what is the best 21stCentury narrative to explain why EU membership is now for the UK more valuable arguably than ever. The benefits of course can be analysed, and often have been, in many different ways. But the two Senior Experts papers I think do it as well as anyone has for a quite long time. One is on the economic, one the wider benefits of membership. If one stands back from the detail, which is there usefully assembled, what are the key conclusions? The economic benefits are clear enough. Statistics by the yard. The level playing field of the Single Market, with its huge implications for profitability and employment. The magnetism of the EU for foreign direct investment (according to the OECD and the Bank of England, are on record as saying that withdrawal would cut inward FDI by over a third). The huge clout the Union has in world trade talks; one example there is the 2010 EU free trade agreement with South Korea, which has virtually eradicated all tariff barriers for EU exporters, and is bringing for UK business alone half a billion sterling a year of additional benefit. One could add the fairer regulation of mobile telecoms, the deregulation of air travel - but there is much, much more of course, including the possibility of big gains to come if there is further liberalisation of services. The story goes, as many

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here are all too well aware, far beyond the purely economic. Membership palpably improves our ability to take action to make the environment better. It brings all sorts of freedoms, including the freedom to travel, live and work anywhere in the EU. The health and social pluses. Cooperation over crime and justice. Also the wider strategic imperative: the whole question of how best in this century to maximize the UK’s global influence and authority, in a world in which so many of the key problems cross national borders. Here the key sentence in the SEE paper is: “As a Member State in the EU the UK exercises far greater influence internationally than it could on its own”. All this is of course very well-trodden ground. Battle rages on these issues inside, as well as between, all three of our largest parties – but much of it is muffled, not least because of the perceived need to project a façade of public party unity. The result is much less clarity than our public needs and deserves. I think it is hugely important to have clarity, first of all, on the sovereignty issue. In his Hugo Young lecture of 2004, Philip Stephens rightly stressed that unless and until we take the sovereignty issue head on, we will never properly be able to make the case for European engagement. Here we have to confront the legendary narrative of what one might call “This Blessed Plot”. The favourite of those happiest if the UK goes it alone. The bulldog corner. Overtones of Elgar, Twickenham, We Happy Few, “We shall fight on the beaches”. Not altogether a comfortable narrative for those who espouse it. For one thing, it involves de facto being content to see the UK as a larger version of Norway, Switzerland or Canada, rather than anything more. It also clashes with another powerful legendary narrative – that based on the balance of power, and this country’s profound determination for many centuries that no other country should be allowed to dominate Europe. You can cue there Elizabeth I, the Duke of Marlborough, Wellington, Montgomery and Churchill again. The choice of those who find it inconceivable that we should leave Europe to renewed Franco-German, or German, domination.

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But what I want to stress this evening is that the killer arguments have nothing to do with legend, and everything to do with the lessons of common sense and experience. Those who have tried to project British influence in the world in the last half century conclude by a large, large majority that the option of independent action is a mirage; that with globalisation has come inescapable interdependence; and that real sovereignty is not the ability to say “no” but the power to maximize – sometimes by pooling sovereignty - our national strength and capacity in the world. Sovereignty should be employed for our national advantage – and intelligent pragmatists know that sometimes means pooling it, as we have done for a long time in NATO. Hence the conclusions to which most of the leading Conservatives of the 1970s came, as we approached EC membership. Sir Alec Douglas Home, 40 years ago, said very clearly that he had always thought it misleading to talk about sacrificing and surrendering sovereignty. He spoke then of about what he described as “the world of the year 2000”, in which it would in his view only be as part of a strong and determined Europe that Britain could thrive. As Chris Patten has more than once reminded us, integration does involve pooling and sharing sovereignty – but for good reasons. It is a familiar story: I won’t elaborate it further. That leads to what Bagehot in The Economist of 12 April labelled the Cutty Sark vision for Britain. That school of thought about the UK’s place in the world which is focused not on Europe at all – which some, to quote Bagehot, see simply as a “sclerotic, ageing, debt-crippled dead-end.” Rather on connections old and new outside Europe. But as Bagehot rightly concluded, talk of European irrelevance to our economic future is deeply misguided. Eurosceptics may like to roam the globe, untethered to Europe. But they will still be 21 miles from France, and profoundly affected by European rules, with the UK exporting more to Ireland than to all four BRICs put together. In 2011, the BRICs, just to remind you, took just 7 per cent of British exports, over half of which went to the EU. Only the latest example of what the EU can offer us is the EU-US agreement of 10 April 2012 on a blueprint for open and stable investment climates round the

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world. Note that the EU is the largest recipient of FDI in the world, and that Ireland alone - this is fascinating - has more US investment (124 billion euro) than the US has in China, India, Russia and Brazil combined. Needless to say the US figure for the UK is also huge. The transatlantic trade relationship is by far the largest in the world, covering over half global GDP, 30 percent of global trade, with investment each way in that transatlantic relationship of over 1 trillion euro. Not far removed from the endless preoccupation with sovereignty is the perennial Eurosceptic paranoia about the chimera of endless integration – ever increasing union. Here, too, a very clear response is needed. A chimera is a chimera. Not only is the aspiration to “ever increasing union� no longer in the treaty: in the rest of Europe the game has quite fundamentally changed, not least because of UK pressure. I happen to know particularly well the Netherlands. In the last 20 years the whole nature of the Dutch attitude to, and debate about Europe has changed, changed utterly. In place of an automatic presumption, up to about 25 years, that more integration was always, axiomatically, to be welcomed, there is now in much of the Dutch body politic a visceral resistance to almost any new proposal from Brussels. And that trend can be seen in varying degrees right round Europe. My own view is that the time is long overdue for a new, in one sense old but a clearer, sober approach to the whole question of possible new EU action, in any context, putting to one side all the melodrama and rhetoric. The real point is very simple, and has of course been there for a long time. It is embedded in that concept of subsidiarity which defies popular explanation and still badly needs to be unpacked and explained, again and again, in language which ordinary people understand. My modest suggestion would be this: Action should only ever be taken at the European level if it can first be demonstrated (i) that the objective of the proposed action is desirable (ii) that the Member States cannot by themselves achieve it (iii) that there would be a better chance of achieving it if action were taken at EU level. In ordinary language for ordinary people: Brussels should

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ONLY act if that will bring real added value. Once the issue is explained in this way, most people have no difficulty in grasping the concept. There should of course never be any automatic presumption that more integration, in any field, is axiomatically a good thing. But where people can be persuaded that more integration can rationally be expected to bring with it real gains for them, then we should not hesitate to act. In ordinary language, and not on the basis of elitist assumptions about what is good for the masses. That brings me back to the search for the Holy Grail: the narrative capable of convincing the average observer that in 2012 committed EU membership is still the right course for the UK to be on. As is often observed, the founders were moved primarily by their WWII experiences, and their “never again” determination. A thesis which has actually not lost all relevance – far from it – but one which no longer inspires, fires and convinces in the way that it once did. What is the best thing we can put in its place? I happened to spend in 2007/08 a lot of time chairing the Liberal Democrat Working Group on Europe. That was an interesting exercise. My conclusion then, which I have since seen no reason to change, is that the thesis which carries most weight with public opinion today is, crudely labelled, the globalisation argument. Hugo Young wrote, you may remember, of the struggle to reconcile the past we cannot forget with the future we cannot avoid. The future is indeed unavoidable, and in today’s fast globalising world it is not difficult to conclude, for rational people, that our interests can most effectively be pursued through alliances. Our Lib Dem Report of 2008 – the party label is not important, form your own view on the conclusions - was entitled Shaping Our World Through a Strong Europe. We argued that increased trade, a healthy environment, progress in the fight against crime and terrorism, and access to energy and raw materials are all best secured – and European values best defended and promoted – by

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co-operation at the EU level. Where a weight can be created in international affairs which on their own the individual Member States can only dream of. The notion that the UK on its own – in its contacts with eg Brazil, Russia, India and China - is nowadays going to be taken remotely as seriously as the EU is quite simply fanciful. The EU is certainly a long way from achieving full foreign policy effectiveness, but its potential in the foreign policy arena, as we have seen for decades already in relation to trade policy, certainly outstrips the capability of any individual European nation state. So what is the strategic posture which bids fair to give this country the maximum advantage? My own conclusion, hardly original, is that the UK should always aim both to be as close as possible to the US and to exercise as much leadership as possible in the EU. I spent myself in the nineties, four years in the EU-US high level group and I personally, on very close experience there, always thought it was possible to do both these things at once. Our interests, and my own strong convictions, lie in an Atlanticist EU. But as Michael Heseltine among others has routinely pointed out, we will certainly not defend our key interests effectively by floating off into the Atlantic. Harold Macmillan, writing in his diary in June 1960, wondered if we would be “caught between a hostile (or at least less and less friendly) America and a boastful but powerful ‘Empire of Charlemagne’ – now under French, but later bound to come under German control”. At much the same time, Jo Grimond warned in the House of Commons that if the UK was not very careful it would end up with no special relationship either with Europe or with America. What we ought to do is to see the battle for power and influence in Europe as the modern version of the 19thC’s Great Game in Asia. And we should realise that in it we have very substantial advantages. We have the English language – increasingly dominant in Brussels. We have a European Union which to French chagrin has since 2004 been more transatlantic in its mindset than ever before. We still have nationally probably the best EU policy co-ordination system in Europe. And though we have important differences with today’s dominant Germany, we to a very large extent stand with the Germans in our attitude both to transatlantic relations and to free trade.

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As a country, we have a long history since 1945 of getting Europe wrong, of being complacently dismissive of any new European ‘initiative’. You may remember Percy Cradock writing in 1997 of what to an alarming extent had been a story of “mistaken assessments and missed opportunities… a depressing chronicle of delayed awakening to reality, of belated arrival in institutions fashioned by others, of repinings, second and third thoughts, divided counsels and qualified enthusiasms, and a general confusion of policy… designed to achieve maximum pain and minimum influence”. All the more reason to seek to remedy that approach from now on. The right way forward for the UK in relation to Europe is surely not self-satisfied insular impotence, but full engagement, not the illusory dreamland of out of date glory, but an absolute determination to do all we can to be a major part of the leadership of Europe. Not in the least out of sentiment, though sentiment might reinforce – but because that is what our interests dictate. We have compelling reasons in this country to ensure that our influence in the counsels of our own continent is as great as it possibly can be. Which curiously enough is more likely to happen if we are involved in it and committed to it. It is in fact rather clear that our national interest is best served when Europe as a whole does well, which curiously enough is more likely to happen if the UK, to the largest extent possible in the domestic political conditions of the day, is involved in it and committed to it. Our interests have not ceased to be global. For hard economic reasons what happens in the rest of the world matters greatly to the UK and we are on any analysis better placed to influence what happens because we belong to the EU. In finishing, let me just remind you: one-fourteenth of the world’s population, but almost a quarter of global GDP, twenty percent of world trade, two members of the P5 in the Security Council, funding 38 percent of the regular budget, more than two-fifths of the UN peacekeeping operations, and about half of all UN programmes.

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If we left the EU that would not only endanger our economy but would also undermine our political relationship with the United States and reduce our influence in many international fora. If we want to maximize our prosperity, trade and employment rate, if we want our own continent and the world to be safer and greener, if we want to be as influential as possible in world affairs, we have absolutely no option but to be an active and leading member of the European Union.

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TIM COWEN Partner, Sidley Austin LLP To some extent my comments are based on my own personal experience. I will try and broaden that out a bit. I am going to touch on three different things:  the business perception of Europe;  the legal framework and what seems to have happened over the last 20 years or so;  to try and answer the question – I find I am cursed with that problem, maybe that’s why I became a lawyer – “we see only what we want to see”. With all the quite clear economic benefits, why is it that there is a continuing concern, or a continuing view really in this country that Europe is a bad thing? We talk about Brussels and what happens there, as if decisions are imposed, rather than made through a decision-making process, and where the UK is an active participant. It seems that there is language banded about which conveys us as some sort of victim who can’t pursue our own destiny, and that we have lost sovereignty in some way: a strange and bizarre idea. If you go back over time and you ask yourself the question “what do we mean by sovereignty?” - it’s never been an entirely absolute concept. The days of kings and queens who could rule without any care for either Parliament or the law are so long ago it seems such a strange idea in the first place to say that we have a loss of sovereignty when we pool it. What on earth does that mean? It is probably a concept of a thousand years ago or more. But anyway there still does seem to be this perception that Brussels is a bad thing. I think we should return to that under the banner of “we see only what we want to see” because perhaps we aren’t really looking as a nation in the right direction. From a business point of view, as a person who has been a lawyer for far too long, I was looking at the EU in the late 1980s. I was a person who spent far too much time looking at treaties and treaty law and the opportunities that this would provide to businesses with the advent of what was originally the

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common market but which became the single market under the advent of the Single European Act. At the same time we had privatisation in this country, and that was born of an idea in this country which was attributed to Thatcherism, but which then became quite a lot more fashionable and swept the continent. That idea was that if you privatise organisations like BT and parts of government, the market, being a competitive market, would allow the products, the services and the things that consumers want, to be more efficiently allocated to meet their needs. We all remember the days- well some of us perhaps remember, many probably don’t remember the days of the black telephone in the hallway, where it was the provision of a single supplier of something you only had one choice over. Either yes or no. You couldn’t have a choice of products. Look at the vast variety of products and services that have been created as a consequence of liberalisation and the opening up of the market. If you consider telecommunications as a leading edge of market liberalisation, we wouldn’t have had things like the internet, nor things like fax machines which many people have seen and now forgotten. Nor would the world of telex and voice telephony have developed. That philosophy of market liberalisation really did sweep the world and has made an enormous difference. It is the same basic philosophy that led to the lowering of trade barriers, and allowed greater globalisation, greater internationalisation of trade, and that has delivered, I think, unquestionably benefits for consumers in terms of lower prices, diversity and, innovation in supply chains. With the revelation of the things that the market mechanism provides, we can see ever more clearly different needs being met by different suppliers in many different ways. So, I think the original philosophy of the single market has been born out. From a business point of view, it has led to enormous gain, considerable change - but enormous gains Where are we twenty years on? From a legal point of view, a number of things have happened. The starting point of market liberalisation really didn’t comprehend the full extent to which that needed to be accompanied by

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regulation. Privatisation of monopolies gave rise to direct benefits, mostly to shareholders. Consumers didn’t immediately benefit because market mechanisms did not apply. If you have a privatised monopoly, it doesn’t necessarily give rise to greater diversity without the competitive pressure of the market place. And in a monopoly situation there is no competitive pressure by definition. So we invented regulation and the basic approach of much of regulation is that it mirrors the effects of the competitive environment. So we impose on a monopoly the outcomes that we would expect to see in a competitive environment. That took quite a while. If you look at telecoms, we privatised big chunks in the UK - BT for example, and we created competitors in Mercury Communications, now Cable & Wireless, which is just in the process of being acquired by Vodafone - another organisation that didn’t exist at that time. The UK was ahead, at the forefront of mobile communications which 20 years ago were very different from today. That market liberalisation process has taken place but together with it we have seen an increase in regulation. This is where I think the legal, and, if you like, the social come together. We have also seen a realisation that regulation that mirrors the effect of the competitive market only produces the outcomes of competitive markets, and that isn’t good enough. Yes, it addresses the problems of market failure and it addresses the problems of monopolisation, and those types of things but there is more needed in many ways than that. For example, light-handed regulation, which is the Anglo-Saxon model, has in part at least given rise, I would suggest, to a series of catastrophes, the most significant being the financial services crash. Where light-handed regulation is seen, I think these days, there is consensus certainly across the continent if not in the United States, that light-handed regulation is partly to blame for the crash in financial markets. What we have in very recent times is a much greater consensus around regulation not just to mirror the benefits of the market place but also to take into account a broader range of social impacts. This is true of financial services regulation, telecoms and many other areas. I think increasingly going forward we are going to see more of this. It comes from a variety of different perspectives. Here in the UK we look at things from the point of view of what

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we know, and our own philosophy, and political persuasion. If you started 20 years ago, well maybe not quite 20 years ago, and you started from behind the Iron Curtain - the former central and Eastern European states, you would see things in a very different way. At the time visiting what became the Czech Republic and many countries in the former Eastern bloc, I noted one thing that we perhaps didn’t see in the UK, which was that the ideas of Thatcherism, the ideas of privatisation and liberalisation, were being grasped and they were being embraced. While we were rejecting them, they were being embraced across the Continent as a way forward or as a way out of the sort of heavy hand of state control. From that perspective, you get a different and more liberal approach. Germany becomes a very interesting player on this stage because, and again the deep philosophy behind market liberalisation in Germany required a degree of control, a conceptual framework and a predicable legal framework within which investment could take place. If you bring those different perspectives together and all of what has now become 27 member states in the EU, there are a variety of different perspectives that have given rise to, I think, a unique situation and quite a considerable change. Certainly legally, the Lisbon Treaty, which is quite different from its predecessors, is something which in this country we tend to have misunderstood in terms of its importance. It was born out of the wreckage of the proposed EU constitutional treaty which never was, but contains many of the phrases, many of the principles and the language that didn’t quite make it into daylight in the constitutional treaty. So in effect we now have a type of constitutional treaty here in Europe. Maybe it is just my perception but I think that the UK has been looking in a different direction. We are living at a time where coming from all these different quarters, from all these different sources and different perspectives we have seen something quite considerable in terms of change. We have seen the success of the Single Market, we have seen the success of liberalisation and regulation working together. And we have seen recognition that to some extent the light-handed approach to markets and to regulation has failed and a different approach is now emerging recognising both business and legal aspects. In terms of the perception, you can see my basic thesis “we see only what

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we want to see” is the question. My observation is that perhaps we have not really been looking in the right direction. More than half of UK trade is with Europe, yet there seems to be a constant and prevailing obsession with the BRIC countries, I find that bizarre. We don’t seem to appreciate the depth of thinking twenty-one miles across the Channel, but spend a lot of time looking at what is happening in elections in the United States. Yes, the US is a very, very important trade partner, but so also are our 27 co-conspirators, if I can call them that, within the European Union. It doesn’t seem that there is a depth, certainly to me, of appreciation of the importance of Europe, and I do wonder why that is. I wonder whether or not it’s bound up with the fact that we have seen massive liberalisation, massive benefits in terms of lower prices, and maybe it’s a rejection of the idea that consumers are fatter and happier as a result of this wave of change. Maybe what they are doing is rejecting Europe alongside the idea of liberalisation and globalisation. I mean, really if you look even in the last year at Occupy and the Occupy Movement in London, and many other cities around the world, it seems to be born of, again, a rejection of this basic idea that you keep consumers with an ever increasing diversity of needs and lower prices. But is that rejection valid? It was only last summer that we had the riots in London- again an issue that I think asks a question about something more being required. To the question of “we see only what we want to see”, I think we have seen massive benefits for business, massive benefits that have directly contributed to many of us here in this room but there seems to be something missing, and the political dialogue and the presentation of these issues in the media always seems, to me at least to encourage us to look in the wrong direction.

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WILL HUTTON Principal of Hertford College, Oxford; Former editor-in-chief for The Observer; and economic commentator I think that there is a battle on for what it means to be a centre-right in Britain. You can either be a conventional Tory, a believer in the small state and the Euroscepticism that flows from that, or could we be witnessing the painful birth of a new kind of Conservatism, a much more sophisticated view about what it means to manage capitalism, a much more sophisticated view about what it means to construct a social contract that looks after the well-being of the people. The outcome of this debate is very important for the future of Euroscepticism in Britain. If it falls one way, not withstanding the eloquent things that have been said, I think that we will see the currents running very strongly for a period more. Despite whatever rational arguments one tries to put up, or emotional arguments - I am going to try and put up an emotional argument tonight, it may be that with these events, we are living through what could be the British equivalent – indeed, as big as Nixon and Watergate. The fallout politically, and the consequences for what we are debating is huge. What I want to say, picking up on both what the previous speakers were saying, is the reason why I am a passionate European and remain so for three important reasons. Europe stands for the attempt of a 21st century project to manage interdependence between peoples. Here we have a nascent structure attempting to do just that, including the Euro. Secondly, the European Union is, again in a nascent way, trying to express what I call good capitalism- and that speaks very much to what Tim Cowen was saying, as opposed to the bad capitalism that got us into this crisis. And by the way, a bad capitalism to which the Tories remain wedded, but which actually a kind of modern Conservative is trying to escape from – means I think that there is quite distinctive argument is going on in the Tory Party.

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Thirdly, Europe stands for, and here the Nordics are the most far advanced, the attempt to construct a 21st century social contract. These are the three issues that actually will govern well-being and prosperity in the decades ahead. It is why the UK has to be part of the European conversation. We cannot permit ourselves to float along. Just to pick up on what the other speakers said, I agree completely. I do not believe that the next succession in China in 2022 will be orderly; I think there will be before then a Chinese spring with massive convulsions in China with implications for Asia. In the long-term, I remain bullish about the United States, but only if it can recover its enlightenment tradition from the wilder lunacies of the Republican Party. For us Europeans, we must cleave on to our project as it develops. In terms of interdependence, we should look the German issue squarely in the eye. To my mind, the issue for a good century is how we live alongside these Germans who are bloody good at the economy! It is a highly production orientated society; it is a highly innovative capitalism; and they have constructed a successful way of dealing with employee concerns through the way they organise their capitalism which gives employees a high degree of legitimacy within Germany. I like to challenge people at the moment in this debate about the future of the Euro, with a way of understanding the kind of German challenge to Portugal, Ireland and Greece and to a degree, Italy and Spain. It is this: per capita incomes since 1750 have increased around 40 times in Western Europe. What has driven that enormous increase in per capita incomes over the last 260 years? Has it been Keynesian economics, getting the currency regime right and the right monetary policy? Or has it been the ability of men and women to harness science and technology to transform the fruits of nature? The German answer is unambiguously the latter, and although I am a Keynesian economist I agree with them. Obviously countries like Greece and Ireland at the moment do have the option, the highly expensive one to my mind, of leaving the single currency and devaluing, and following the Trevor Kavanagh, John Redwood, Boris Johnson kind of Tory, Barclay brothers, Telegraph, Times leader, and every Tom, Dick and Harry - and they can go for the hyper- inflation that will follow, and they need take no structural change in their economy. Those aerial

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photos of Athens show that despite the fact that there is a swimming pool tax in Greece, which should mean that 3,500 households within the Athens area should pay the tax- it’s only 300 who apparently do. Nations can continue with systemic tax avoidance and evasion and, continue with our dysfunctional capitalist structures - or you can try to get serious. It may be that the framework within which it is being developed is in macro-economic terms with the fiscal compact just too tight, too rigid. That is an open question, but the basic challenge is the right one. This speaks to the second point: the good capitalism point. It was a traditional Tory free market fundamentalist view about what constitutes capitalism that got us into this mess. It is why bank assets are five times British GDP. It is why we are living through the deepest recession since the 1870s. It is why the recovery in demand because of the overhang of private debt is the lowest since the 1830s. It is why the productive part of the economy, the part that trades internationally, is so shrunken that by 2020 the current account deficit will be greater than our GDP. The country is in an absolute fix. What is required it seems to me is a developmental approach to our economy, rather than playing around with fiscal and monetary dials. It requires a commitment to thinking about how you create a more productivist capitalism than the one we have in the UK. We, in our way, have to respond to the German challenge and construct institutions congruent with our traditions that actually deliver a better capitalism than the one that we have. I think that part of the issue is getting to scale very fast – we need of course attitudes towards innovation and investment - look at the American innovation ecosystem. Yes there are the great universities that create these wonderful ideas, yes there are lots of venture capitalists, yes there is a risk-taking framework but the big point is that you must get to scale very fast. Getting to scale very fast for any member of the EU requires the Single Market. The Single Market is a fundamental part of a conception of what good capitalism means. Good capitalism is also about not permitting incumbents to resist the challenges of insurgents, and that does require Europe to take on monopolies in the way it took on Microsoft and needs actually to be I think, much more of a trustbuster than it has hitherto.

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Which falls into a third point really about the nature of Europe and it picks up the point about European values. I strongly take the view that actually in the same way that one of the great dividing lines between Europeans and liberal Americans and neo-cons is actually this view about how you deal with risk. For an entrepreneur or a company, the future is unknowable. You cannot expect people to take the risks of a new innovation or a new product all by themselves. There needs to be some way of distributing the risk, of socialising and collectivising it, which is why a financial system needs to step up to the plate as being an accepter of risk; and which is why, a smart state, an enabling state, an entrepreneurial state, has to be part of the picture in the way that you see in Germany and in the Nordic countries, and to a degree in Holland and France. That’s actually how you manage risk at the level of the entrepreneur and the company, but you have also got to manage it at the level of the individual. The 21st century is going to be a phenomenal century of change; transformational technologies piling up on the other, skills becoming redundant, cities and regions losing their economic raison d’etre, and people living longer. In these circumstances you cannot ask individuals to share all the risk themselves. There has to be some kind of social contract that shares and distributes that risk. We have to have some form of collective health provision; we have to have old age pensions; we have to have care at the end of our lives; we have to have ways of transitioning from one job to another; we have to have comprehensive lifelong learning but that has to be congruent with rapid change. And here I think the way the Danes and the Nordics in particular, but also to a degree what is happening in Germany - pioneering flexicurity, are actually showing the way to how you marry a social system with the necessity for change and capitalist dynamism. The great point about Europe from the Renaissance and from the Reformation onward has been that we, and the reason why, and I think it remains the crucible of global civilisation, have in Europe so many different cultures and countries and traditions in such a small geographical space cross- learning from each other in this extraordinary kind of continental network. And that is what we are going to carry on doing in the 21st century. What we are going to cross-learn from each other is how we organise a social contract, and we

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are going to do it interdependently by not having some sort of a race to the bottom, and by actually requiring minimum standards across our Continent. We are going to establish a good capitalism, which actually is more productivist, where rewards are proportional to contribution, which actually is open, doesn’t permit over-monopolisation and permits insurgents to come in and challenge incumbents who hold a franchise, has a bias towards innovation and above all, understands the nature of risk in capitalist societies. In the same way you can’t expect individuals to accept all this risk - you can’t expect that of entrepreneurs and companies or individual banks; you have to have the state as an active economic agent. This is what we are developing in the European Union in 2012. In a way, it is what both speakers have spoken to, but I am trying to bring it all together with a bit more passion and force. I think it is the future. Building nation states wasn’t easy, pock-marked by civil wars, regional wars, depressions, astonishing stress to create this thing we call the nation state. Creating structures which manage interdependence is going to be by trial and error. There’s going to be huge setbacks; there’s going to be disasters- but actually the direction of travel is absolutely clear, is unambiguous and cannot be avoided and it is what Europeans are trying to do. Of course we have to acknowledge that there are loyalties to cities, or to people who speak the same language as oneself, or people who share the same plot of land as you, as well as trying to manage the interdependencies. And those who make the case for Europe have to be smarter in the way we concede that, or you will leave your flanks open to extremists of right and left who play upon these issues, and that would be a mistake I think that actually we have made, we pro-Europeans, a mistake over the last 20 years, but it is a mistake that we can put right and it doesn’t mean that the larger case is wrong. So, for me, and I’m pulling together strands from the other two speakers, interdependence towards a good capitalism, and a 21st century social contract are reasons to adhere to the European project, to be part of the conversation and actually to be a playmaker in driving it forward.

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BACKGROUND PAPER The Economic Benefits to the UK of EU Membership Written by the Senior European Experts Introduction This paper provides details of the major economic benefits that Britain gains by being a member of the European Union. A separate paper will consider the wider political and strategic benefits that derive from membership. Broad Economic Benefits By being a Member State of the European Union the United Kingdom is part of the world’s largest single market – an economic zone larger than that of the USA and Japan combined with a total GDP of around £11 trillion. This single market of 500 million people provides a relatively level playing for British business to trade in. This enables not just free trade in terms of the absence of customs duties or tariffs but a common set of rules so that business does not have to comply with 27 different sets of regulations. A European Commission study of the single market in 2007 found that the EU GDP was raised by 2.2 per cent (€233 billion) and 2.75 million jobs were created between the introduction of the single market in 1992 and 2006. For the UK, that increase in GDP would have been around £25 billion. The Government’s Department of Business, Innovation & Skills estimates that EU Member States trade twice as much with each other as a result of the single market – which they estimate has meant that increased trade within the EU since the 1980s could have been worth around six per cent higher income per capita in the UK. Exports to other EU countries account for 51 per cent of the UK’s exports of goods and services, worth £200 billion; trade with the US, by contrast, constitutes 13 per cent of UK exports. The Business Department in the UK estimates that 3.5 million jobs in Britain are linked, directly or indirectly, to the UK’s trade with other Member States.

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The single market has brought an end to many of the non-tariff barriers to trade that used to exist in Europe. For example, until a ruling of the European Court of Justice in 1987 the rules on the purity of beer in Germany made it difficult for beer producers in other Member States to export their product to one of Europe’s biggest beer markets. The German beer purity laws were overturned by the Court’s decision because they were a restriction on trade incompatible with EU law. Similarly, the French ban on the import of British beef was overturned by the Court of Justice because it was contrary to EU rules. Australia and the US are two countries that continue to ban the import of British beef despite the original reason for the ban in 1996 (BSE) long having ceased to be a problem but there is no effective means to challenge those bans. Critically, being a member of the EU, the UK is part of the procedure for making the rules and regulations of the single market. Britain’s seat on the Council of Ministers is essential to enable the UK to put its case on proposed regulations and to argue for reform of existing rules. Our MEPs in the European Parliament are also important because most of the decisions of the EU require the Parliament’s involvement. Were the UK to leave the EU but join the European Economic Area (assuming we were admitted to the EEA), we would be bound by most single market rules but have no part in the decision-making process. A key driver of global economic prosperity since the war has been the gradual reduction in tariff barriers as a result of successive rounds of world trade negotiations. The UK, traditionally an open, free trade economy, has benefited from the fact that the EU negotiates on behalf of the world’s largest single market – giving us far greater clout in such talks than we would have as an individual nation. The EU Free Trade Agreement with South Korea, for example is expected to save European exporters £1.35 billion a year in tariff reductions and to bring about £500 million annually in benefits to the UK economy1. Another significant benefit to the UK from EU membership is the foreign direct investment (FDI) we receive – that is, investment in our economy from non-UK sources. Companies often locate in the UK precisely because we are inside the single market – for example, Nissan’s factory in Sunderland exports to the rest of the EU. FDI has risen considerably across the world since the 1970s.

1

Cited in a speech by Lord Howell, 09.03.12 FCO website

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The UK continues to receive a large share of world FDI, despite the global financial crisis. For example, the UK was the fifth largest recipient after the US, China, France and Hong Kong ($46 billion in the case of the UK) in 2009. In terms of the total stock of FDI, the UK is rated third in the world behind the US and France and ahead of Hong Kong and Germany with $1.125 trillion of FDI stock in the UK in 20092. Business Benefits In addition to the benefits from the single market, there are a number of ways that the EU benefits business more directly. While it is sometimes controversial the right of free movement for EU citizens (see below) is valuable for employers as it enables them to recruit from a far wider pool. British employers have made extensive use of this access to a larger potential workforce in order to tackle some of the UK’s skill shortages. The Community trade mark and the registration of industrial designs are two ways EU law has made life less bureaucratic for business and protected intellectual property. EU businesses can register a trade mark or an industrial design once and have it recognised in all 27 Member States. EU competition law has been of great importance in opening up previously closed markets to new entrants, enabling British companies to expand on the continent. It has also enabled market monopolies to be tackled in a way not seen before in Europe – such as the Commission’s action against Microsoft. Lower telecoms costs (see below) are of great benefit to business as well as to individuals. Energy costs are a big issue for some business sectors and EU competition rules have helped to keep them down; the establishment of the EU’s single market in energy in 2014 should act as a further brake on energy prices. A key benefit from the single market is that businesses only have to deal with one set of rules rather than 27 different sets of rules when exporting to or operating in more than one EU Member State. Although

2

UNCTAD World Investment Report 2010 27


harmonisation has caused difficulties in some sectors, the overall benefits have been considerable. Personal Benefits The most obvious benefit to individuals is the freedom to travel, live, work, study and retire anywhere in the EU (this also applies to other EEA states). No EU citizen needs a visa to visit another EU country for up to three months. You can stay longer than that provide you register with the host country, have sufficient means to sustain yourself (or a job or course of study) and health insurance (the latter may be available by paying into a state insurance scheme). Roughly 1.6 million British citizens live in the EU outside the UK3. After living in another EU country for five years you have the same rights as its own citizens. EU citizens have a vote in local and European Parliament elections wherever they live in the EU. Working abroad has been facilitated through the mutual recognition of qualifications, enabling professionals to work in another EU Member State without having to sit further examinations. Travelling and working abroad in the EU has been facilitated by the introduction of the European driving licence, with common rules on the requirements of driving tests and minimum standards of fitness to drive. This has improved road safety and made it easier to drive across international borders. Telecommunications were one of the first areas of EU economic activity to be liberalised. National monopolies were abolished between 1988 and 1998 for fixed line services, leading to a fall in the price of phone calls, as well as more choice of equipment and providers. Since 2000, the cost of a 10-minute call has fallen by an average of 74 per cent in the EU. Consumers are now benefiting from the fairer regulation of mobile telecoms, which, since their introduction were often notorious for high prices, especially when travelling abroad. The 2007 EU legislation meant a maximum charge of 10p per minute to receive a call when abroad within

3

Estimate from, Brits Abroad: mapping the scale and nature of British emigration, Catherine Drew & Danny Sriskandarajah, IPPR, 2006.

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the EU, no more than 30p a minute when calling home and the price of texts have fallen from around 25p to around 9p. The EU also agreed with 14 mobile phone manufacturers that there should be a standard design for chargers from 2011 in order to make life easier for consumers and reduce the 50,000 tonnes of chargers thrown away every year. The deregulation of air travel across the EU has been one of the most noticeable benefits of the single market to consumers. The number of airline routes in the EU has dramatically expanded, low cost carriers have come into the market, enabling people to travel at lower prices and there is competition on key air routes. Deregulation has been balanced with measures to protect EU citizens against unfair practices – such as the 2005 air passenger rights which provide some protection for passengers whose flight is cancelled or who are denied boarding and the 2008 law requiring quoted fares to be all inclusive without extra charges being added when you come to pay. Package holiday travellers benefit from minimum standards that require companies to provide truthful information, notify passengers in good time of travelling arrangements and which protect them from sudden cancellations or prices increases. British shoppers are now free to shop in any Member State without being charged customs or excise duties on goods for their personal use when they return home. Consumers have the same rights when shopping as they do when at home and the European small claims procedure makes it feasible for people to make a claim for up to ₏2,000 if necessary. Rules are now in place to protect consumers against car price cartels, which artificially inflated the prices of both cars and car parts in Europe. For example, cars can be imported from other EU countries to take advantage of lower prices on the continent. EU toy standards mean that parents can buy toys marked with CE symbol and be confident that the toy meets the basic standards of toy safety agreed across the EU. EU food labelling rules similarly provide consumer protection as they require all ingredients to be listed and potential allergens identified.

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Health and Social Benefits The EU Health Insurance Card is a free card which enables EU citizens to receive emergency healthcare on the same terms as the citizens of the EU country they are visiting (often free). In addition to being able to live where they choose in the EU, pensioners can receive their UK state pension wherever they live in the EU. The EU provides social protection for workers in three areas: working time; temporary work; and parental leave. Most workers have a maximum number of working hours, guaranteed breaks and protection against being forced to work long hours. Temporary workers are guaranteed the same basic conditions of work as full-time colleagues (except in respect of occupational social security) if they have been doing the same job for 12 weeks or more. Workers have a right to take up to three months parental leave for childcare purposes after the birth or adoption of a child until the child is a maximum of eight years of age (this is different from maternity rights). Crime and justice Crime knows no borders today as globalisation, ease of travel and the internet allow criminal activity to move around the world. The European Arrest Warrant (EAW) has been very important in bringing criminals to justice across Member State borders, preventing the long delays and sometimes politicised extradition processes seen in the recent past. The UK issued 220 EAWs in 2009, of which 80 were successfully executed. The average time taken to extradite a suspect within the EU who objects to extradition has fallen from around a year before the EAW to 48 days now. The UK’s independent review of extradition law in 2010/11, which looked at the working of the EAW, found that criticisms of the system were not well-founded. EU police and borders co-operation hampers the movement of criminals whilst protecting the movement of law-abiding citizens. This work is focused on cross-border crime, such as drug and people smuggling and terrorism.

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Environmental benefits Like crime, pollution crosses boundaries and the sea is shared by all coastal nations. It isn’t possible to tackle climate change at national level alone. The EU has been involved in environmental work almost from the outset, not least because of the economic benefits of environmental improvement. EU measures have raised the quality of beaches by tackling bathing water pollution, to deal with river pollution on the continent and to protect natural habitats. Tourism has benefited from the clean up of beaches at home and abroad (of the 596 UK beaches tested in 2010, 96.8% met the EU’s mandatory water quality standards). The EU has taken a leading role in measures to combat climate change. Its members have agreed to binding targets of a 20 per cent reduction in greenhousegas emissions, a 20 per cent increase in the use of renewable energy over the same period and a 20 per cent improvement in energy efficiency – all by 2020. Education Education is the responsibility of EU Member States but the EU supports cross-border projects with the aim of raising the standard of education and training in the EU in order to improve Europe’s competitiveness. One of the EU’s most popular programmes is the university mobility scheme ERASMUS, which enables students and staff to study or work at another higher education institution in the EU. Over 7,000 British students went universities elsewhere in the EU in 2008/09 and 16,000 students from other EU countries came to the UK in the same year. A similar programme, named after Leonardo da Vinci, enables people and organisations to pursue vocational training projects across borders. Research and development is a growing area of EU activity with substantial sums now spent on collaborative and cross-border research projects. The UK has been particularly successful in winning research grants from the EU - €2.3 billion between 2002 and 2006.

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BACKGROUND PAPER The Wider Benefits of UK Membership of the EU Written by the Senior European Experts Introduction The Senior European Experts paper ‘The Economic Benefits to the UK of EU Membership’ focused on how the United Kingdom gains from being part of the world’s largest single market – an economic zone larger than that of the USA and Japan combined with a total GDP of around £11 trillion. It is impossible to separate completely the economic and political benefits of UK membership but this paper considers the wider political and strategic benefits of EU membership, benefits which cannot be as easily quantified but although they may be less tangible are of equal, or perhaps even greater, importance. Background It is a myth that British politicians played down the political aspects of British membership when we joined, and suggested that we were simply joining a “common market”. On the day it was announced that the UK was going to apply for membership in 1961, Harold Macmillan (the then Prime Minister) told Parliament that membership of the Communities, “is a political as well as an economic issue”. In his pamphlet Britain, the Commonwealth and Europe, Macmillan was even clearer: “We in Britain are Europeans…We have to consider the state of the world as it is today and will be tomorrow and not in outdated terms of a vanished past. There remain only two national units which can claim to be world powers in their own right, namely the United States and Soviet Russia…

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It is true of course that political unity is the central aim of those European countries and we would naturally accept that ultimate goal”4. The point was reinforced during the 1971/72 negotiations by the then Foreign Secretary, Sir Alec Douglas-Home in a speech to the House of Commons: “On two counts I am in full agreement with the most vocal opponent of our entry into Europe. The first is that our application is a step of the utmost political significance, and the second is that there is a danger of its political importance being overlooked in the public debate on the economic issues”. He continued: “It seems to me that the only way to preserve our independence for the future is to join a larger grouping. It may seem paradoxical but I believe it to be true”5. The emphasis on the political aspects of membership stemmed partly from a concern about declining British influence but also from the recognition by the British government that many of the problems faced by nation states cross international borders – pollution, crime, people smuggling and terrorism are all examples – so countries cannot simply stand behind their own borders to protect their national interests. International co-operation is essential to the defence of national interest. The EEC was becoming then – as the EU is now - the pre-eminent body in Europe for the advancement of such co-operation as well as being the organisation to which all the UK’s largest European trading (and defence) partners belong. Global Influence The UK’s ability to act globally on its own has waned since 1945 but our interests have not ceased to be global. Of course the UK’s relationship with the rest of the world has radically changed since then; the Empire has gone, and with it many of the trappings of imperial power, such as very large armed forces. But the UK’s economic dependence on the rest of the world has increased. For example, we are the world’s second largest manager of investment funds after the United States (and the biggest in Europe)6. We have the second largest share of world exports in services, again, second Britain and the Commonwealth, Harold Macmillan MP, September 1962. Speech reprinted as Our European Destiny, Conservative Group for Europe, 1971 6 Fund Management, at, http://www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdf 4 5

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only to the United States. More than a quarter of our GDP derives from the export of goods – a greater share than that of the US but about the same as that of France7. One-third of our energy needs are currently met through imports and that share will rise as our production of oil and gas continues to decline. So what happens in the rest of the world matters greatly to the UK and our capacity to influence external events, particularly those issues handled at supranational level, is a key indicator of our national power8. While the UK is economically dependent on the wider world, its power to influence it is constrained. It needs to be able to influence international discussions about trade, the global economy, energy, security and the environment. Being a permanent member of the UN Security Council gives the UK a voice at the top table (and a veto on resolutions before the Council) but that is not enough by itself. As a Member State in the EU the UK exercises far greater influence internationally that it could on its own. When the EU takes a common position – as it does in world trade talks for example where the EU negotiates on behalf of its members – its size and importance gives it greater impact than any of its 27 members would have on their own. Being a member of the EU enables the UK to leverage its influence in many different ways. The institutions of the EU enable its Member States to work together – when they choose to do so - in a whole range of international fora. At the United Nations, in global climate talks and in the G20 group of larger economies the EU can exercise greater influence collectively. The EU continues to play a leading role in global action to tackle climate change – a key policy concern of the UK but where our national influence is limited outside the EU. The EU and its Member States are the world’s biggest aid donors;EU membership enables the UK to leverage its aid policy to greater effect through sharing in a joint programme. The scale of the EU’s development aid means that it has influence in many parts of the developing world.

This figure, and the preceding one, from UK trade performance: Patterns in UK and global trade growth, Department for Business, Innovation & Skills, November 2010. 8 Figures from UK Energy Supply: Security or Independence, House of Commons Energy & Climate Change Committee, HC 1065, October 2011, p.13. 7

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With the rise of new economic and political powers, the EU provides a forum for the UK to develop a common approach for key issues of mutual concern with the emerging economies of Brazil, Russia, India and China. While membership of the EU increases its members’ political influence in relation to these areas, it does not inhibit their ability to promote their exports to them – as countries such as Germany and France have done more successfully than we have so far done. In all these discussions the UK is part of the decision-making process as a full member of the EU. The countries that have stayed out of the EU but have a trading relationship with it, such as Norway and Switzerland, are bound by many EU decisions but are not party to them. A recent official inquiry in Norway into its membership of the European Economic Area (EEA) noted: “The most problematic aspect of Norway’s form of association with the EU is the fact that Norway is in practice bound to adopt EU policies and rules on a broad range of issues without being a member and without voting rights. This raises democratic problems. Norway is not represented in decision-making processes that have direct consequences for Norway, and neither do we have any significant influence on them”9. Switzerland is not in the EEA, but it has agreed to adopt many EU rules on the single market without having a say in decision-making. Common Foreign and Security Policy This has long been an important part of EU activity. The EU is an essential partner in many aspects of international affairs, and has its own arrangements for common foreign & security policy (CFSP) which are not a substitute for Member States’ own foreign ministries but a vital adjunct to them. When Member States are considering a problem in relations with a third country, they will automatically consider whether this is something that they can best address with their EU partners. Foreign ministry officials are in constant touch with their opposite numbers. Member States will routinely bring problems they have to the EU’s monthly foreign affairs council for discussion and possible action. The decision in 1997 to create a High Representative for CFSP, and the creation in 2011 of the

9

Outside and Inside: Norway’s Agreements with the European Union, 17 January 2012. 35


European External Action Service, have demonstrated the importance that the EU Member States place on developing effective policy in this field. All these activities proceed by way of collaboration and consensus. Under the Lisbon Treaty, implementing action can be agreed by majority vote but only if the policy itself has been unanimously agreed. This can sometimes mean that a single Member State can thwart the wishes of all the others (for example, Cyprus in relations with Turkey, or Greece in relations with Macedonia) but it is fundamental to the way this important part of EU activity is conducted. There are many examples of ways in which political co-operation has been a success. For example, it was the EU that first promoted the concept of a twostate solution to the Israel/Palestine dispute; to-day it is part of the Quartet that is seeking to bring peace to the Middle East. In diplomatic discussions to resolve the problem of Iran’s nuclear ambitions, the EU is once again centrally involved through the ‘five plus one’ partnership. The EU provides the UK with a crucial forum for seeking a common approach to key issues of mutual concern with countries of growing importance like China, India, Brazil and Russia. On many UN issues, the EU has been able to display a united front. From the outset, when the European Coal & Steel Community was established in 1951, European cooperation was recognised as a means of making war between France and Germany impossible. It is sometimes claimed that NATO has prevented war in Europe since 1945 but NATO’s main focus was on deterring Soviet aggression. The economic, political and cultural ties created by the European Community were of crucial importance in avoiding conflict because the EC not only developed economic integration but it provided a forum for the peaceful resolution of disputes between its members and enabled new political relationships to be developed. The new relationship that developed between France and Germany has been mirrored elsewhere in Europe as the process of EU enlargement has brought former dictatorships and Communist states back into the European family of nations, consolidating democracy and the rule of law as common European values. Although this process is not yet complete, for example in the Balkans, the extension of peace and stability by means of enlargement is one of the

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EU’s finest achievements and the resulting transformation has been, and continues to be, very much in Britain’s political and economic interests. The positive role the EU can play in dispute resolution was seen during the negotiations that led to the Northern Ireland Good Friday agreement when the availability of EU development funds and the fact that the UK and Ireland were already working together in the EU helped to secure consensus. Today the EU is developing a new role in security policy, complementary to that of NATO and one which reflects the unique ability of the EU to combine the “hard” power of the military forces of its members (often through the medium of NATO structures) with the “soft” power of its experience in nationbuilding activities such as the nurturing of civic institutions and economic development. In a period of austerity this is valuable to Member States to enable them to act more cost-effectively. The EU’s role in Europe’s neighbourhood reflects the fact that its Member States have security interests in Eastern Europe and the Mediterranean that are not necessarily shared by the North American members of NATO. The EU’s neighbourhood is an area of tension – an ‘arc of instability’ from Archangel to Agadir - but it is also an area of opportunity. Relations with the USA Membership of the EU strengthens the UK’s bilateral relationships with third countries. For example, the UK has been the United States’ most important ally since 1941 but our importance to the US today derives in a large part from our EU membership, especially in a period when the focus of American interest is moving to areas such as Asia and the Pacific. The UK tends to think it has a “special relationship” with the US but with 55 million Americans of German descent, it is hardly surprising that many Germans think of their country having a similarly close relationship with the USA. If the UK left the EU this would not only endanger the UK economy (Britain is the largest destination for US investment in the EU for example) but it would undermine our political relationship with the United States. The UK’s membership of the EU makes it valuable to the US as an ally today.

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Crime and Justice The EU’s role in justice and home affairs has grown over the last 20 years. This reflects the increasing truth that crime is international; cross-border crime is now a serious threat to law and order in all EU Member States. Illegal drugs, cyber crime, human trafficking, terrorism and organised crime of all kinds cannot effectively be tackled by one country alone. The EU provides the most important forum for this work in Europe and co-operation in justice matters means that criminals can no longer hide from justice by moving to another EU state. The Europol, Frontex and Eurojust EU agencies are valued by UK agencies working in this field. The Serious Organised Crime Agency has said that it is making more use of co-operation through the EU in the light of UK budget cuts. Conclusion When the UK joined the EU in 1973 it pooled some of its sovereignty with the other Member States for mutual benefit. This sharing of sovereignty has continued as the EU has changed to reflect the needs and concerns of different times. The EU was from the beginning an organisation with political objectives – as has been openly acknowledged throughout the fifty years since the British Government made the historic decision to apply for membership. Arguments to the contrary are polemical and not historical. The agreement to share sovereignty is seen most obviously in the single market where the UK agrees by qualified majority vote the rules for the operation of that market. But political co-operation, which proceeds by consensus, has contributed to an unprecedented period of peace and prosperity in Europe, where wars between Member States are unthinkable and economic, cultural and political ties have transformed the quality of life of millions of Europeans. The EU that has developed since the UK joined in 1973 shows more flexibility. Britain and Ireland do not belong to the Schengen Area; and Britain and

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Denmark have permanent opt-outs from the euro. No Member State can be required to participate in defence policy if it does not wish to do so. The events of the last fifty years have confirmed the trend towards international co-operation. This is because even more of the challenges faced by nation states today go beyond the borders of any one of them. Energy, climate change, the environment, terrorism, security and our relationship with the developing world are all issues which are too big for the United Kingdom to address effectively on its own and require common effort with our European partners. If you would like to be on the advance mail list for future occasions please register your interest on: lectures@regents.ac.uk

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The UK in Europe