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David Rennie

A book-keeper's approach to Europe

The British will not give Europe their hearts, for a host of reasons. So be it. But when assessing the worth of EU membership, let them at least keep their heads.

Britain never fell in love with the European Union. For the British, belonging to the European club has always been an affair of the head, not the heart. Membership resembles an accounting exercise in which the benefits - above all access to the EU's single market - must be weighed constantly against the costs, whether from lost sovereignty, contributions to the EU budget or the burden of EU regulation.

There is no point bewailing this chilly, Anglo-Saxon approach. Each member of the EU has its own distinctive relationship with the European project, bound up irrevocably with history, culture and geography. The French and Germans chose Europe as their vehicle for reconciliation and - especially in the case of France - as a lever for continuing to exercise global influence. Many smaller members simply assume that they cannot go it alone in a globalised world. Some, as young democracies, saw joining Europe as a guarantee that they belonged to a Western world of modernity and openness and would not slide back into tyranny. In some countries, citizens sought better governance from Brussels technocrats than they believed they would receive from local politicians.

Like it or not, Britain's accession, nearly 40 years ago, was founded from the first moment on a cost-benefit analysis, amid a resigned sense that the economies of the European continent simply looked more dynamic than exhausted, strike-bound, 1970s Britain. Yet that does not mean that Britain's approach is above criticism. For, if a country is going to approach Europe like a book-keeper, it needs to be sure not to miscalculate its profits and losses. The British have long been inclined to pessimism when it comes to the negative aspects of EU membership, and too quick to assume that Britain is losing at every turn.

Now, in a new and alarming development, the British political classes are becoming too pessimistic about the positive sides of membership, too. On right and left, politicians are repudiating Britain's biggest European victories. Above all, successive British governments of the 1980s and 1990s achieved two big, mutually reinforcing wins: first, the creation of the single market, and later, enlargement of the EU to take in countries of the former communist bloc. Both developments nudged the Union in the direction of Anglo-Saxon openness, free trade and intergovernmentalism. Both pushed the project away from rival visions of the EU as a deeply integrated, statist United States of Europe. Yet both those wins are now in danger of being misremembered by the same British political parties that once fought for them.

"Shackled to a continental corpse"?

Start with the single market. It may seem hard to remember it now, when Margaret Thatcher is associated with the handbag-swinging prime minister demanding her money back from the EU budget or telling those dreaming of a political and economic union: "No, no, no", but Mrs Thatcher's support was crucial to the foundation of the single market. Working hand in hand with federalists in Brussels, the British Conservative leader of the 1980s understood the huge benefits of sweeping away national barriers to trade within the European club. She understood clearly that this would involve some losses of sovereignty, telling the House of Commons in London that if all single market decisions were taken by unanimity, the project would never get off the ground. In passionate tones, she told members of parliament about the foolish European rules that forced British lorries to drive home empty after taking a load to the continent, or blocked British insurance companies from buying up insurance firms elsewhere in Europe.

Mrs Thatcher later changed her mind. In retirement, she came to believe that she had been betrayed over the creation of the single market and that market access would have been secured far more safely by simply using global trade agreements, avoiding any pooling of sovereignty. This political inheritance has left its mark on today's Conservative politicians, who have a paradoxical relationship with the single market. On the one hand, the post-Thatcherite Conservative identity revolves around free trade, free markets, a suspicion of intervention by national governments and a belief in free and undistorted competition. As a result, a majority of Conservative members of parliament think of single market membership as the best (or the only good) thing about EU membership. But on the other hand, many of those same politicians dislike supra-national regulation by unelected bureaucrats in Brussels. Their great error is not to see that you cannot have one without the other. Only a supra-national referee can slap down national governments tempted by the lures of protectionism, or of pouring market-distorting state aid into firms identified as 'national champions'.

All that would be tricky enough, but now a new political argument can be heard among British Conservatives, inspired by months of ghastly news headlines about massively indebted European governments, falling growth rates and fast-greying populations. The old binary calculation - is Britain paying too dearly for the prize of access to European markets? - is being complicated by a new question: is being part of the European economic bloc much of a prize at all?

Once, the most powerful British Eurosceptic arguments were all to do with sovereignty, and the threat of the jackboot of Brussels stamping on ancient British freedoms. Now, with many British voters convinced that the European single currency is on the point of collapse, the most potent line of attack is the assertion that Britain is "shackled to a continental corpse". Britain should be seeking new growth opportunities in the emerging world, and trying to expand its trade with such giants as China, India or Brazil, this argument goes. But Britain is instead bound to a sclerotic, slow-growing, ageing, over-regulated Europe that is fast losing its relevance.

Such arguments appeal greatly to many British voters. They pander to a sense of British exceptionalism, and they stir memories of Britain as a great maritime trading nation, free to roam the world's oceans in search of new markets and exchanges.

Tell a typical British Eurosceptic that half of Britain's trade is with the rest of the EU (and some 40% with the eurozone countries that use the single currency) and he will retort: "exactly, they are in danger of dragging us under if we cannot cut ourselves free from endless EU environmental, social and employment rules that are choking our businesses." Remind the same Eurosceptic that his country still trades more with Ireland than with Brazil, China, Russia and India put together, and he will cry: "that's my point precisely: we are tied to the wrong markets".

But such arguments rest on a double miscalculation. First, if Britain - the largest and loudest spokesman for free market liberalism within the club - walked away from the councils of Brussels, those regulations would almost certainly become more burdensome, and would still ensnare the British. Britain is not some nimble sailing ship that can sever its mooring lines and set off round the world's oceans. The British Isles will always lie a short distance off the coast of France, and will thus for the foreseeable future be massively affected by the market rules and regulations operating on the continent.

Second, it is too easy to blame EU membership for Britain's relative lack of success when it comes to emerging market exports. Germany, a world champion in selling to the Chinese, is a part of the EU, bound by the same employment, social and environmental rules that supposedly kill British businesses. That is not to say that the EU is not capable of excessive regulation: it is, and some of the plans for financial supervision emerging from EU discussions at the moment would be genuinely damaging to the City of London. But Britain's real challenge is competitiveness, and making and selling the sorts of goods and (above all) services that are likely to sell in the 21st century. In that quest to stay competitive, it would be a grave blunder to decide that Europe's single market was more a liability than an asset.

Opening the labour markets - smart, right and problematic

Then comes the second big British win that is being misremembered: the EU's enlargement to east and central Europe. This was a project which enjoyed cross-party support. The Conservative prime minister John Major and his Labour successor Tony Blair were both in the vanguard of EU leaders pushing hard for the enlargement of the EU to take in countries of the ex-Communist bloc, often against strong opposition from such countries as France. Both Mr Major and Mr Blair understood what they were doing. Not only did western Europe have a moral duty to heal the divisions of the Cold War. Enlarging the club to take the newly-democratic, mostly pro-American and free-market-minded countries of east and central Europe also secured Britain new allies around the Brussels summit table.

Widening the club made deepening it much harder, thwarting those who dreamed of turning the EU into a federal union (not least because after decades of Soviet occupation, several of the newcomers shared British wariness about calls to pool sovereignty). The new members were hungry, low-cost centres of production, with a self-interest in promoting competition within the single market. Much of the time (though not always) the newcomers could be counted on to resist calls from the French or southern European rivals to harmonise labour rules, tax rates or pay upwards. In effect, enlargement brought globalisation within the borders of the single market, blocking any plans by protectionist governments to turn the EU into a Fortress Europe, vainly erecting barriers against globalisation.

Alone of all major EU economies, Britain under Tony Blair opened its labour markets to Poland, the Baltic republics, the Czech Republic, Hungary and the other nations that joined the EU in 2004. It was the right thing to do. Yet fast-forward to the present day and that second British victory is being repudiated by politicians of the left and right. A big development in British public opinion is the identification of 'Europe' with 'immigration', and a loss of control over Britain's borders. On British doorsteps, politicians of all parties report complaints about the hundreds of thousands of eastern Europeans who arrived in Britain after 2004, shocking officials who had initially predicted that just tens of thousands would come. Voters angrily complain about newcomers taking jobs, and overwhelming such public services as housing, schools and hospitals - though such generalised grumbling often co-exists with admissions that individual Poles, Latvians, Estonians, Czechs and so on are hard-working and well-educated, and probably more attractive as employees than many native Britons. In the face of such public anger, politicians from both the

Conservative and Labour Parties have rushed to question the 2004 opening of labour markets. When Romania and Bulgaria joined the EU in 2007, Britain's then Labour government slapped on labour market restrictions.

More recently, the opposition Labour Party has linked the question of eastern workers to the pain of a 'squeezed middle' or of middle- and low-income salaried workers, seen as victims of globalisation. Some senior Labour figures, such as Ed Balls, the party's chief finance spokesman, have called for Britain to tighten rules governing the free movement of workers, a founding EU principle. The Labour leader, Ed Miliband, whose own grandparents were Polish refugees, told the BBC in April 2011 that the previous Labour government "got it wrong" on immigration and "clearly underestimated the number of people coming in from Poland". Labour, he suggested, had no choice but to address voters' fears that incomers were putting pressure on wages and housing—though "some of that is real and some of it isn't," he admitted.

The Conservatives, with their strong commitment to free trade and open borders, have tied themselves up in knots. Ministers have praised the hard-working nature of many Polish and eastern migrants, and acknowledged their appeal to British employers. Yet they have called Mr Blair's 2004 opening of labour markets a "huge mistake", and called on employers to hire British applicants for jobs wherever possible.

Yet if politicians pretend that Britain wilfully chose to ignore a much better alternative to labour market opening in 2004, they are indulging in a historical fantasy.

In 2004, all existing EU members granted ex-Communist newcomers rights of free entry and temporary residence (but not free rights to work). Once poorer neighbours do not enjoy free access to your country, the most likely consequence of closing legal routes to work is an expansion of the black market for casual, untaxed labour. This duly happened all over Western Europe, notably in Germany, home to an estimated 400,000 Poles despite seven years of tough work restrictions. Furthermore, even those tough restrictions were full of loopholes. Under EU rules, the self-employed are excluded from transitional labour market controls or professional quotas. Easterners calling themselves 'self-employed' in Germany duly doubled after 2004. By offering all easterners the chance to work legally from day one, Britain attracted lots of the sort of eastern migrants who would only consider working legally: graduates and those with the best educations. Britain became known for openness, and duly attracted a much bigger share of young, skilled migrants and graduates than Germany did. In short, when it comes to the 2004 enlargement and labour market opening, Britain did the right thing - backing free movement across a united Europe - but also the pragmatic and smart thing: attracting the best-educated who wished to work legally, while pushing lower-skilled migrants (large numbers of whom would have come anyway) into legal, taxable work.

That is not to pretend that competition from newcomers is easy for native Britons. Today's Conservative ministers have a point when they argue that successive Labour governments between 1997 and 2010 used EU immigration as a 'sticking plaster' covering up deep structural flaws within the British economy, whether the immobility of many Britons who will not travel to find work, or decades of failure in British state schooling. But it is hardly fair to blame better-qualified easterners for showing up such flaws: nor plausible to imagine that excluding competition from better-qualified outsiders would have magically invigorated the British labour force. Ever since Margaret Thatcher stirred the British from corporatist torpor in the 1970s, reversing the country's seemingly unstoppable decline, successive British governments have embraced competition and sought to make it work for their country. Enlarging the EU to take in east and central Europe was an act of great historical justice. But it also helped to make high-cost, sluggish Old Europe more competitive, overnight. That was a British win.

Over and above issues of migration, enlargement brought real problems to the EU, not least because some countries joined before their democratic or judicial systems were truly ready. But keeping east and central Europe at arms length would not have accelerated reforms in the former Communist bloc. Enlargement happened in the nick of time.

There are parallels with the creation of the single market. For its British backers, the internal market was explicitly intended to unleash beneficial competition within the EU's borders. Years of fudge and compromise have followed, it is true. The single market remains incomplete, with Europe sadly failing to achieve its potential in such fields as services or digital commerce. With public austerity causing voter rage across the union, calls for protectionism remain a threat. But if the single market had never been created, it is hard to believe that intra-EU trade would be greater, or that Europeans would be safer from the forces of global competition.

By all means, let the British continue to weigh European membership in a balance, placing costs on one side and benefits on another. But let British politicians do this honestly and soberly, properly weighing the benefits of historic British victories in Europe and resisting the emotional temptation prematurely to declare the project irrelevant or even dead and buried. The British will not give Europe their hearts, for a host of reasons. So be it. But when assessing the worth of EU membership, let them at least keep their heads.

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Diplomaatia nr 134 • Oktoober 2014
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