Friday, November 13, 2015

An assessment of Cameron's proposals to reform the EU

Published on MNI Euro Insight

Yesterday, David Cameron stepped up his efforts to obtain reforms of the European Union, detailing his demands in a letter to EU Council chairman Donald Tusk.

Cameron’s idea is to move the debate from the technical preparatory level to the political arena, so he’ll reach a deal, ideally as soon as possible, which he then can submit to the British people in a referendum on whether the UK should remain in the EU, to be held no later than 2017. Given the elections in 2017 in France and Germany and as the UK is taking up the EU Council Presidency then, Cameron is keen to host the referendum in 2016. Also, the longer he waits, the more the EU issue will interfere with the struggle within the Conservative Party to succeed Cameron, who’s likely to step down before 2020. A grand deal before Summer 2016 would thus be ideal.

In sum, Cameron and the UK government are demanding three main things. Hereunder I sum up the most important elements:

1.      The UK wants more control over EU decision making:

-          The UK wants to “enhance the role of national parliaments” through “an arrangement where groups of national parliaments, acting together, can stop unwanted legislative proposals”. This could be achieved through an interinstitutional agreement upgrading the current “yellow card” – system. This is a mechanism which allows a number of national parliaments to raise the alarm if they don’t like certain Commission proposals. The mechanism is hardly used, given that the Commission can just ignore these cards, which it has done, but this could change if the EU Commission agrees with the EU member states to treat every “yellow card” or “orange card” issued by - one third or a majority of – national parliaments as a “red card”, meaning it would drop proposals in that case. Interestingly, both the EU Commission and the EPP, the biggest group in the European Parliament, have reacted to Cameron’s letter that to “increase the role of national parliaments” is “feasible”. A big majority of Germans support the idea. The Commission could in theory always break its word, but is unlikely to annoy the UK just for the sake of saving one single piece of legislation. In any case, the arrangement could be written into the EU Treaty at a future occasion. 

-          The UK also wants more control over benefits for EU migrants, demanding EU changes which allow the UK to prescribe “that people coming to Britain from the EU must live here and contribute for four years before they qualify for in-work benefits or social housing”. There is a lot of support for this in Northern Europe, but legally it’s not so easy to enshrine, because it could be seen as “discrimination”, which is banned under EU law. The definition of “discrimination” however depends on the question whether non-UK citizens are in the same position of UK citizens, who have been contributing in taxation- and from what point they should be considered as “full taxpayers”: after having contributed for 6 months, 2 years or 4 years? It’s all quite arbitrary really. The EU can be flexible about this, however, which was proven by a recent stance by the EU’s top court’s advocate general, while also the UK has said to be flexible and open to solutions. One idea is apparently to also require UK citizens to wait for four years after they’ve reached adulthood. 

-          Unlike what’s often assumed, Cameron is not demanding restrictions on free movement of people, except then for “new members until their economies have converged much more closely with existing Member States”. In any case, it’ll take a while for Serbia, Montenegro or Macedonia to enter the EU.

2.      The UK wants more protection from the EU’s machinery:

-          First of all, this entails a “formal, legally-binding and irreversible” end to Britain’s obligation to work towards an ‘ever closer union’ as set out in the Treaty. According to Bruno Waterfield, the Brussels correspondent of The Times, “language has already been found” on this matter “to ‘allow for different paths of integration for different countries’, now it is just a question of haggling with the French over the use of words.” For those who think this is all symbolic: At least for the new president of the EU Court of Justice, “ever closer union” isn’t just an empty phrase but a guide to interpret the Treaty.

Secondly, the UK wants to make sure the EU’s single market doesn’t break up as a result of Eurozone integration. In practice, one could imagine how British, Polish, Danish or Swedish banks who wouldn’t comply with the Eurozone’s extra regulations for banks, within the framework of its “banking union”, would at some point lose access to the Eurozone market. We’ve already witnessed some tension on that front with the ECB demanding that clearing houses based in the UK or other non-Eurozone countries would have to move inside the Eurozone to continue to do business in euros. Luckily, this was blocked by the EU’s Court of Justice, but the UK wants stronger safeguards.

Cameron has stated: “We do not want to stand in the way of measures Eurozone countries decide to take to secure the long-term future of their currency. But we want to make sure that these changes will respect the integrity of the Single Market, and the legitimate interests of non-Euro members.”

With Open Europe, we’ve suggested that three non-euro states should be able to block EU decision making. This isn’t a complete novelty for the EU, but is along the lines of the EU’s “Ioannina compromise” and an arrangement decided for the European Banking Authority (EBA), where a majority is needed amongst both Eurozone and non-Eurozone countries for a decision to pass. Our solution can be implemented without Treaty change, by writing it into the existing EU voting procedures in the Council of Ministers and via a separate intergovernmental legal agreement. A legal fudge could be found to bridge the time until the next round of Treaty change, at the occasion of a possible new Eurozone treaty, which The Times’ correspondent thinks may be agreed at the end of 2018.

3.      The UK wants the EU to become more an engine of growth, instead of a drag on it

Last but not least, the UK wants a more ambitious push on economic competitiveness consisting of further deepening the single market, cutting red tape and concluding trade deals with other global economies. In particular, Cameron writes:

“For all we have achieved in stemming the flow of new regulations, the burden from existing regulation is still too high. So the United Kingdom would like to see a target to cut the total burden on business. The EU should also do more to fulfil its commitment to the free flow of capital, goods and services. The United Kingdom believes we should bring together all the different proposals, promises and agreements on the Single Market, on trade, and on cutting regulation into a clear long-term commitment to boost the competitiveness and productivity of the European Union and to drive growth and jobs for all.”

It will be relatively easy to get other EU leaders to endorse the principle of the competitiveness agenda, but the question is what concrete progress will be made on top of the reforms initiated already by the EU’s Better Regulation Commissioner, Frans Timmermans. Perhaps a concrete step would be for member states to agree to open up their services markets to each other, a long overdue measure which is only getting more urgent with the arrival of e-commerce. Given that a number of member states, including Germany and France, remain hostile to this, it could happen through a “coalition of the willing”, as we’ve suggested with Open Europe.

Unfortunately, what isn’t on the agenda, is serious EU budget reform, reform of the European Court of Justice, devolving employment policy back to member states and restoring UK judicial control over justice and home affairs laws. Still, it would be a good start to reform of the EU if the UK’s efforts would now lead to a European Union where national parliaments can actually block proposed Commission initiatives, where a possible destruction of the EU’s internal market by Eurozone coordination is being addressed and where a new drive is being given to open up Europe’s services markets. 

No comments: