Why a British exit is not inevitable

Why a British exit is not inevitable

Why a British exit is not inevitable

Written by Charles Grant, 17 April 2014

As someone who wants Britain to remain in the EU, I have long been sceptical of my side’s ability to win a referendum on that question. The two televised debates between Nick Clegg and Nigel Farage, on March 26th and April 2nd, only reinforced the gloom of pro-Europeans: opinion polls found that a clear majority of those watching thought the UKIP leader had out-performed the deputy prime minister. However, having read the latest polling from Lord Ashcroft, based on an unusually large sample of 20,000 people, and having taken part in a panel discussion with a representative sample of British voters that he had brought together, I now think that a referendum is winnable (the polling was carried out before the Clegg-Farage debates).

I see three reasons for optimism. First, as the audience made clear during the panel discussion, a lot of people want to know more about the EU. They know that some of the media cannot be relied upon to give the facts, that the issues concerning membership are very complicated and that they would like to be better informed.

If and when a British referendum comes, I hope that those involved will agree to copy an idea from the last Irish referendum on the Lisbon treaty, in 2009. An independent Referendum Commission, which took responsibility for providing both sides of the argument, and the key facts about the Lisbon treaty, won the respect of both sides of the campaign.

I am glad to see that a new body, Full Fact, has recently been established in Britain. Its mission is to ensure that British politicians’ statements are accurate – on the EU and every other subject. Full Fact, which has no view on whether Britain should remain in the EU, monitored and commented on the Clegg-Farage debates in real time.

Second, several of those who spoke from the floor during the panel discussion were concerned that very few people in the UK are making the case for the EU. Though the British people are in some respects eurosceptic, many of them have noticed that the country’s European debate has been lop-sided. On the anti-EU side there are a lot of outspoken politicians in UKIP and the Conservative Party, most of the tabloid newspapers and some well-funded lobbies. On the other side are a small number of newspapers, the Liberal Democrat Party, a few ageing Conservatives and business lobbies such as the Confederation of British Industry.

I recall ministers telling me during the time that Labour was in power (1997-2010) that they were pro-European but had been advised not to make the case for the EU because many voters were either hostile or indifferent to that subject. My own conversations with Conservative MPs have led me to believe that more of them than one might imagine are sympathetic to the EU, but for obvious reasons they hide views that are heretical in their party. To some extent, the pro-Europeans have lost the argument by default. In a referendum campaign politicians would, one hopes, say what they really thought. But they should not postpone speaking frankly until the campaign itself, by which time it may be too late to shift opinion. More of them need to find the courage to try and shape the current debate.

Third, Lord Ashcroft’s polling reveals that the key group of voters in any referendum campaign will be those he describes as ‘discontented sceptics’, who make up 27 per cent of the electorate. Most of them want to leave the Union, but their priority is jobs and the state of the economy, and they accept that the EU delivers some benefits. They do not like the EU because of the migration that stems from membership, the loss of sovereignty, the regulations and the cost of Britain’s contribution to the EU budget. They also think that the other EU members tend to club together against British interests. But this group is open to argument, and if significant numbers can be persuaded that the EU is good for jobs – or that the problems may be less acute than they had imagined – the referendum is winnable. That means that those in favour of membership need to be more effective at getting across the best facts and arguments.

If I was advising the Yes campaign on the arguments to use in a referendum, I would make five points. The first three are economic. One, if Britain leaves the EU it will lose foreign direct investment. In recent months companies such as Airbus, Ford, Goldman Sachs, Hitachi, Nissan and Siemens have all said that they are keen for the country to stay in the EU. Some of them add that they would review their investments if Britain were to leave.

Second, membership of the EU provides access to the world’s biggest single market, in terms of value. Quitters have yet to explain a viable alternative for the British economy. Norway and Switzerland have access to parts of the market but have to accept the EU regulations that govern it, without having a vote on them. Although neither of those countries is a member of the EU, they have to pay into its budget: Norway’s per capita net contribution is 83 per cent that of Britain, whereas Switzerland’s is 40 per cent (according to the House of Commons library). They must put up with the principle of free movement (the Swiss recently voted in a referendum to limit the right of EU migrants to work in Switzerland; as a result the Swiss will lose some of their privileged access to EU markets). Switzerland has never had access to EU services markets, which are of particular importance to the British economy.

Third, the EU is forging trade-liberalising deals with many other parts of the world. For example, British exports to South Korea have doubled since the EU-South Korean free trade agreement came into force in 2011. Deals are in the pipeline with Canada, India, Japan, Thailand and – because the UK and Germany pushed to get talks started – the United States. Of course, small countries that are on their own can also negotiate trade deals, but only a big trading bloc like the EU gives Britain the leverage to extract significant concessions from trading giants like the US or China. The Scotch Whisky Association, for instance, argues that its distilleries need the EU to open up protected markets (the European Commission has recently negotiated the opening of Canadian, Colombian and Peruvian markets to exports of Scotch, and hopes to do the same for India).

The final two points are political. The West no longer dominates the world. China, Russia, India, Brazil and many other powers have a lot of influence, which is natural as their economies become larger. The US, these emerging powers and the EU are the key players in shaping global rules, on trade, financial regulation, climate change and security. If a medium-sized European country like Britain wants to be able to influence the emerging global order, it needs to be a leading member of the EU. On its own it does not have a great deal of clout.

It makes sense for the British to work with the other European countries because, despite our differences, we share not only many interests but also – and this is the fifth point – values. Just about everybody in the EU is committed to democracy, the rule of law and a free press. When Russia starts using force to change international borders, as it has done recently, the EU states do not react in an identical way. But they have shown that they can respond by taking a series of steps, together, that help to defend the principles they believe in. The European states are more likely to influence Russia when they concert their efforts. The bottom line is, we are stronger when working with our partners.

Charles Grant is director of the Centre for European Reform.

How to reduce dependence on Russian gas

How to reduce dependence on Russian gas

How to reduce dependence on Russian gas

Written by Stephen Tindale, 10 April 2014

At the European Summit on March 20th and 21st, government leaders were supposed to agree climate and energy targets for 2030. Instead, they discussed Crimea, Ukraine and Russia. Leaders were right to postpone discussion of the targets, but wrong to postpone action on reducing Europe’s dependence on Russian gas.

Russia supplies around a third of the EU’s gas. So the Union is to an extent dependent on Moscow – as it discovered when the Russians turned off the gas flow though Ukraine in 2009. But the Kremlin is, to a greater extent, dependent on revenue from oil, gas and coal exports – above all to the EU. Indeed, over half of the Russian government’s revenue comes from the sale of fossil fuels: 19 per cent each from gas and oil and 14 per cent from coal. The EU summit conclusions did refer to the need to diversify sources of gas, and asked the European Commission to prepare a report on this. That approach lacks the urgency which the situation in Ukraine demands. If EU leaders want to impose sanctions on Russia which may change its behaviour, rather than simply slapping Putin’s wrist, they should reduce purchases of Russian energy as far and fast as possible. To do that, they must develop alternative energy sources. That would cost money, but deliver major energy security, foreign policy and climate benefits.

The Swedish and Danish foreign ministers, Carl Bildt and Martin Lidegaard, have emphasised the importance of energy in responding to Russia’s invasion of Crimea. In March they wrote in European Voice that the EU must improve its energy efficiency, develop infrastructure to import fossil fuels from countries other than Russia, and increase alternative energy sources such as renewables. Swedish and Danish ministers are well placed to make these points: Sweden gets more of its energy from renewables than any other member-state, while Denmark is the only country to have set out plans to become 100 per cent reliant on renewables (by 2050). Poland buys nearly 90 per cent of its imported gas from Russia. So Polish Foreign Minister Radek Sikorski has shown courage in leading the calls for reducing energy dependence on Moscow (though Poland uses coal for most of its energy needs).

Europe’s post-Crimea energy strategy should focus on five strands:
* energy efficiency;
* alternative sources of gas;
* renewable energy;
* coal and gas with carbon capture and storage (CCS);
* nuclear power.

Greater energy efficiency is the goal that could be achieved most quickly. A rapid and ambitious programme of retrofitting double glazing and insulation to existing buildings, Europe-wide, could reduce energy demand for heating. It would also create thousands of new jobs. Less rapid but equally effective would be a major programme to upgrade and expand district heating: networks which transport heat from power stations or other combustion plants to homes and commercial buildings. District heating is widespread in Central and Eastern Europe, but most of it is old and inefficient, losing up to half of the heat during transport. (District heating networks in Scandinavia, by contrast, lose less than 10 per cent of the heat.) On alternative sources of gas, the quickest measure would be to expand the EU’s capacity to import liquefied natural gas (LNG). The Commission should stress, in all its contacts with the US government, the strategic advantages of the US exporting LNG. But increased imports of LNG are not dependent solely on successful trade negotiations with the USA; such gas is available from other non-Russian sources, notably Qatar. Greater use of LNG will require new infrastructure and any state that has a coast can develop LNG facilities. The Commission should give priority to less wealthy member-states that are highly dependent on Russian gas: the Baltic states, Bulgaria and Poland. This would not improve Europe’s overall energy security, but would help those countries highly dependent on Russian gas: the five countries mentioned above plus the Czech Republic, Finland, Hungary and Slovakia.

To improve EU energy security overall, EU institutions should do all they can to ensure that new pipelines are constructed to transport non-Russian gas from the Caspian Sea to Europe. Contracts have been signed for a Trans-Anatolian pipeline from Azerbaijan to the Mediterranean coast of Turkey, and a Trans-Adriatic pipeline from there to Italy. But construction has yet to begin. This pipeline would reduce EU dependence on Moscow, unlike Gazprom’s South Stream, which would simply be an alternative way of transporting Russian gas to the EU (while avoiding Ukraine).

Indigenous shale gas is another source of non-Russian gas. Governments which have banned fracking, either formally (France and Bulgaria) or informally (Germany) should now reverse this position. Renewable gas, which can be created from food and farm waste, manure and sewage, should also be expanded as much and as fast as possible. This is already widely used in Germany and Austria. Using these wastes to produce renewable gas would improve water quality, because the residue can be used as fertiliser rather than being discharged into rivers or seas. Greater use of renewable gas would help achieve climate policy objectives, as well as greater energy security. Renewable electricity must also be expanded. This would reduce the need to use gas for electricity generation, and also for heating (since heat can be provided in domestic and commercial buildings by electricity rather than by gas). The Commission could co-ordinate national subsidy schemes for renewables more closely, as this would cut administration costs for developers and reduce regulatory risk, so cutting the cost of capital. And all European institutions must work together to expand and improve the electricity grid, with a focus on the Baltic, Mediterranean and North Seas, and around the Pyrenees.

What role should coal play in future energy policy? Here the need for energy security conflicts with the need for climate protection. A quarter of the coal which the EU imports comes from Russia. The EU could survive easily without Russian coal, by mining more within its own borders and by importing more from other countries. However, coal is extremely polluting. Burning coal can cause high levels of toxic air pollution, damaging human health and harming the environment. EU rules have been effective in reducing toxic pollution from coal combustion. Coal generation also emits high levels of greenhouse gases – about twice as much pollution per unit of electricity as gas combustion does. Yet technology exists to cut greenhouse gases from coal combustion. CCS has been demonstrated at small scale, but not yet at large scale. The EU is falling behind Australia, Canada, China and USA in its attempt to roll it out.

CCS is not popular with the German public. But it is less unpopular than nuclear power. Before the 2011 Fukushima accident in Japan, Chancellor Angela Merkel said that low-carbon bridge technologies were necessary, to protect the climate while the world moves from fossil fuels to renewables. She was right. The transition to renewables will take at least half a century – probably longer. Gas is less bad for the climate than coal is, but not low-carbon enough to prevent dangerous climate change unless combined with CCS. Merkel’s post-Fukushima energy policy sets out an end point – total reliance on renewables – but pays no attention to what happens during the transition. The result – as statistics from Germany demonstrate – is increased greenhouse gas emissions.

Even the German desire for energy security and reduced dependence on Russian gas seems unlikely to persuade most Germans to reconsider nuclear power. There is more chance that they will reconsider CCS. But the most likely outcome is that Germany will become even more willing to burn coal without CCS. This would seriously compromise EU climate action. To avoid this outcome, EU institutions should set an emissions performance standard to regulate the maximum amount of greenhouse gas that can be emitted per unit of electricity generated. This would ban coal without CCS. However, demonstration and deployment of CCS will require subsidy. Renewables and nuclear power will also require some form of financial support. All these technologies are needed for climate protection. They could also help make Europe’s response to Russia’s annexation of Crimea more credible.

Reduced reliance on Russian energy sources, and increase in resilience in the event of a supply cut off, should be central elements in a long-term re-orientation of EU energy policy. European institutions and member-states should implement the five-strand strategy outlined above: use energy much more efficiently; develop all alternative gas sources; maximise renewable energy; demonstrate and deploy CCS; and build new nuclear power stations. This strategy will not be cheap. But the economic, security and climate action advantages will justify the cost. IMF managing director Christine Lagarde is right to say that climate change is “by far the greatest economic threat of the 21st century”.

Stephen Tindale is an associate fellow at the Centre for European Reform.

The EU debate: How should Labour respond?

The EU debate: How should Labour respond?

The EU debate: How should Labour respond?

Written by Stephen Tindale, 27 March 2014
From Progress online

Why Cameron's timing on EU reform is off

Why Cameron's timing on EU reform is off

Why Cameron's timing on EU reform is off

Written by Rem Korteweg, 26 March 2014

British prime minister David Cameron is in a tight spot on EU reform. He must balance calls by eurosceptics in his Conservative Party to repatriate powers from Brussels, and the political reality in Europe that favours less far-reaching change. Cameron hopes to start renegotiating the terms of British EU membership after the 2015 election and believes Germany and the Netherlands will support him in this endeavour. But their plans and timetables do not match his.

Across the Union the debate about reform is gathering momentum. It has reached EU foreign ministers at General Affairs Council meetings in November 2013 and March of this year. Cameron has said that he wants to reform the EU, and renegotiate the UK’s relationship with it, before an in/out referendum in 2017. But instead of leading the debate, Cameron has been holding his cards close to his chest. It is an unwise strategy that threatens to leave him empty-handed.

His wish list for reform is unclear and Europe’s leaders are left to guess which changes Cameron wants. In an op-ed published in The Telegraph on March 15th 2014, Cameron said he does not want to “lay all Britain’s cards on the table”. This reflects the difficult position he is in. No proposal for EU reform acceptable to his European colleagues will be enough to appease the eurosceptics in his own party. Besides, his government cannot reach a common position because his coalition partners, the Liberal Democrats, disagree strongly with his ‘renegotiation and referendum’ strategy. Instead, he wants to wait until after the 2015 general election before discussing reform in earnest. But his caution is making potential European allies impatient.

Cameron has mentioned few practical steps to improve the Union; in general he thinks powers should flow back and forth between the national and European levels and he wants to remove the words “ever-closer union” from the EU treaties. But beyond this, there have mostly been vague promises of repatriation and reforms (for instance, about restricting benefits to migrants and cutting red tape) in the event of treaty change. The latter is particularly problematic for other member-states. Some European governments, like the Netherlands or France, may favour changes to the EU treaties in theory, but they dread the mechanics it involves; a potentially long-winded intergovernmental conference which would require referendums that increasingly eurosceptic populations might not support. Or, like Germany, they see treaty change as a long-term endeavour, not a short-term issue.

Cameron however, needs allies if he hopes to get the change in Brussels he wants. In his op-ed, Cameron pointed to the leaders of the Netherlands and Germany as his fellow travellers for EU reform. Downing Street has been flirting with The Hague and Berlin for some time. In February, Cameron rolled out the ‘reddest of red carpets’ for German Chancellor Angela Merkel, inviting her to address the Houses of Parliament. That same month, Dutch prime minister Mark Rutte sat down for an ‘informal dinner’ at Chequers to talk about EU reform.

But instead of opening up the treaties and repatriating powers, The Hague and Berlin are thinking differently. Their focus has shifted to reform initiatives that do not require cumbersome treaty change. And their views are gaining traction across Europe.

Central to their thinking is strengthening subsidiarity. This concept – enshrined in the Treaty on European Union – holds that the Union should act only when doing so achieves better outcomes than member-states acting separately at the national level. Subsidiarity is not an instrument for repatriation, since it accepts the division of competences, but where the treaties are ambiguous it does allow greater flexibility in deciding where powers lie, and it is a check on an overly ambitious Commission.

Subsidiarity will not be a panacea for the Union’s problems, but lifting the concept out of its technical and legalistic environment, and onto the highest political platform, would be helpful. For too long subsidiarity – an important but ill-defined concept – has been allowed to shelter in the dark recesses of the EU treaties. Putting subsidiarity into practice means paying more political attention to it.

In an op-ed in Handelsblatt on March 18th 2014, Germany’s foreign minister Frank-Walter Steinmeier and Dutch foreign minister Frans Timmermans called for an EU that is more selective in the issues it tackles, saying it “should be big on big issues and small on small issues.” Stronger enforcement of subsidiarity, they say, would cull unnecessary initiatives from the Commission and reduce the EU’s democratic deficit since national parliaments would become more involved: better use of ‘yellow card’ procedures would allow European parliaments to co-operate and block Commission initiatives they deem unnecessary or inappropriate. The two ministers continue that if Commissioners were to work in clusters, rather than pursuing 28 separate dossiers, the EU would be more focused and effective, and increase its legitimacy with the European public. (The CER made similar suggestions in ‘How to build a modern European Union’, October 2013.)

Among the few things Cameron has spelt out that he wants are a stronger role for national parliaments and better enforcement of subsidiarity. So he is giving intellectual support to the Dutch-German idea. It also resonates with Finland, Sweden and France. (Some of these countries, like France, may prefer treaty change in the long run – for instance to strengthen eurozone governance – but realise this is currently not politically feasible.) An added benefit of the Dutch-German plan is that it can be done within the existing treaties; it would require a political deal.

In her speech at Westminster, Angela Merkel referred to such a deal when she said “more attention needs to be paid to the subsidiarity principle in Europe. [European governments] should set priorities for the future Commission’s work.” Indeed, a political agreement between the European governments, the European Parliament and the Commission could set the agenda for a more focused Commission – outlining the areas where the Commission would, and would not legislate – underline the centrality of subsidiarity and support stronger involvement of national parliaments.

When could such a deal be reached, since the European Council, the European Parliament and the Commission must all be involved? Germany and the Netherlands foresee a window of opportunity between the election of the new European Parliament on May 22nd, and when the new Commission takes office in the second half of 2014. Only then, they believe, will the new European institutions be receptive to a political ‘gentlemen’s agreement’. There is no point in making a deal with the current lame-duck Commission or the outgoing Parliament, and it makes little sense to strike a deal after the next Commission has already started proposing EU policies.

This suggested timing will cause problems for Cameron, who hopes to keep his powder dry until after the UK general election in May 2015. He would have to support a political agreement that reined in the Commission and strengthened subsidiarity – because he agrees with the need to do both – particularly if the initiative came from his allies in Berlin and The Hague. But if a deal is done in late 2014, and then in May 2015 Cameron wins a majority without the Liberal Democrats and embarks on his renegotiation strategy, momentum for reform among his European colleagues will have dissipated. This would cause a major headache for Cameron who has been betting that he does not have to seriously discuss renegotiation or reform until next year.

Instead, Cameron should make his objectives on EU reform clear; embrace the prospect of reform by political agreement – rather than treaty change; and start contributing to the European debate with a British subsidiarity agenda, for which the government’s balance of competences review could provide the basis. If the moment passes him by, other prospects for reform may become increasingly unlikely.

Rem Korteweg is a senior research fellow at the Centre for European Reform.


Issue 95 - 2014

Bulletin issue 95 - April/May 2014

Issue 95 April/May, 2014

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Human rights and policy wrongs

Human rights and policy wrongs

Human rights and policy wrongs

Written by Ian Bond, 31 March 2014

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