Courcy’s Intelligence Brief

For nearly forty years Britain’s political and business elite have pushed the United Kingdom into ever closer union with its continental neighbours.  The problem has been that the direction of travel has always been against Britain’s deeper instincts.  Last week Prime Minister David Cameron refused to accept a rescue package for the euro that would entail further significant surrenders of British sovereignty to EU institutions (even though the UK is not a participant in the eurozone).  There has been some exaggeration over the immediate consequences of this move, but sources close to David Cameron accept that it could over time prove to have been a historic turning point.

The events of last week may seem impossibly opaque to outsiders, but they can be explained reasonably simply.  The European Union consists of 28 members (Croatia joined at the end of last week).  Seventeen of these members have adopted the euro as their currency, and all the others except Britain and Denmark (which have opt outs) are committed by treaty to adopting it in due course.  At last week’s EU summit to resolve the eurozone crisis, strict new fiscal rules and penalties for eurozone member states were proposed by Germany and France, with these new rules to be written into the European Union’s governing treaties and supervised by EU institutions.

Britain objected on the grounds that the EU includes 10 (now 11) members who are not members of the eurozone, therefore if there were to be new rules for eurozone governance they would have to be enacted separately by eurozone countries.  For Britain, there was a danger that by giving new powers to EU institutions to govern the eurozone, Britain could be affected even though it was outside the single currency.  France and Germany refused to give way, so Prime Minister Cameron wielded Britain’s veto.  Now, to create the new rules for the eurozone, new institutional structures will have to be created separate from the EU’s.  Continental politicians and commentators have presented this as “the European Union leaves Britain”.

The British government is a coalition between the Conservative Party – which has long been split between ardent pro-Europeans and equally ardent eurosceptics – and the Liberal Democrats who are Britain’s most pro-European party.  For this reason, if for no other, the government has been keen to play down any suggestion of a decisive rift with Europe or of Britain setting a path towards eventual withdrawal.  But, despite this, there seems to be an acceptance at the highest policymaking levels, in continental Europe and Britain alike, that last week’s events could represent a decisive watershed for Britain.

The British public, although instinctively eurosceptic, has acquiesced in British integration with the EU out of a natural deference to the policymaking elite.  Now, say those close to Cameron, the crisis in the eurozone has decisively undermined the argument that the political and business elite always know best.  Indeed, the eurozone crisis has so undermined British enthusiasm for the European Union that even supporters of the strongly pro-EU Liberal Democrats appear to support Cameron’s veto.  Overall, 57% say that Cameron was right to exercise Britain’s veto, with a surprising 49% of people who voted Liberal Democrat at the last election saying they support Cameron’s move.

Furthermore, the eurozone crisis is far from over, and the longer the euro’s woes persist the more sceptical the British electorate will become about any further moves towards European integration.  The eurozone members, like Shakespeare’s Macbeth, believe they are so far in there is no going back; and, indeed, wading ever further in may well be the only option for the eurozone, but it will do nothing to rekindle British enthusiasm for European integration, not least because it will not solve the euro’s multiple problems. 

At an event hosted last week by the Atlantic Council, a Washington-based think tank, US Chairman of the Joint Chiefs of Staff General Martin Dempsey warned: “The euro zone is at great risk...I know that they've taken some measures here with the 17 members of the eurozone to try to better align - and I guess that's the right phrase - monetary and fiscal policy.  But it's unclear, to me at least, that that will be the glue that actually holds it together."  He then went on to warn about “the potential for civil unrest and the breakup of the union”.  Many European leaders have been annoyed by the remarks, but the fears he expressed are by no means misplaced.

The fundamental issue is that a successful resolution of the euro’s structural problems (central control over member states’ budgets and communal – that is to say German - guarantees for all member states’ debts) would eventually produce equally serious political problems.  On the one hand, ordinary Germans do not feel sufficient solidarity with, for instance, Greeks and Portuguese to willingly provide the long-term subsidies necessary to enable them to thrive within the straight-jacket of the single currency.  On the other hand, the same Greeks and Portuguese will not take kindly to Germany dictating their tax rates and spending priorities.  Nor, indeed, will the French.  In particular, the French will not relish being told that they can no longer afford to spend $42.6bn on defence, compared with Germany’s $41.2bn, when their economy is nearly a quarter smaller than Germany’s ($2.59 trillion against Germany’s $3.35 trillion).  Yet even France will eventually have to bend to the logic of a single currency if it is to work.

Shakespeare’s Macbeth, when contemplating whether to continue his murderous course, took the view: “I am in blood stepp'd in so far, that, should I wade no more, returning were as tedious as go o'er."  That is the position in which eurozone leaders find themselves, and that they will “wade on” can be taken as read, possibly with the consequences foreseen by General Dempsey.

None of this will help the cause of Britain’ dwindling pro-Europeans.  But, on the other hand, the following points should be noted:

                - First, although the Franco-German bond seems as strong as ever, top policymakers in Berlin admit that Germany is at heart suspicious of France and needs Britain fully engaged within the EU as a balance to Paris.  Germany knows that France’s national plan is to use the European Union as a means of enhancing France’s national and international agenda with German money.  In particular, Germany is suspicious of the deep anti-Americanism of French foreign policy (which sees the EU as a rival to America, not as an ally).  The UK is the antidote to this.

                - Second, within Britain there is no serious appetite for withdrawal from the European Union, just for a looser arrangement based around trade and the single market.

Nevertheless, from what we are hearing from within Westminster, there is every possibility that last week Britain did indeed make a psychological break with 40 years of foreign policy, even if the practical consequences will take many years to play out as Britain edges away from political integration while seeking to hang on to the advantages of a single European market.  One of the curiosities of the eurozone crisis has been how exactly most of the countries involved have adhered to national stereotypes.  Now Britain, too, appears to be reverting to type.  JdeC.