By Trevor Greetham, director of asset allocation at Fidelity
Popular legend has it that President John F. Kennedy’s 1963 declaration of solidarity with the encircled people of West Berlin, “Ich bin ein Berliner”, translated literally as “I am a jammy doughnut”. David Cameron’s speech calling for an in/ out referendum on the UK’s membership of the EU also risks losing something in translation.
While the motivation for a sceptical stance towards European integration may owe more to the Conservatives’ reelection strategy as it does to deep seated conviction, there is some substance to the claim that “euro-outs” need a more clearly defined status. The financial crisis is forcing “euro-ins” into an ever-closer union that other EU countries may legitimately choose not to join. Europe’s economies and markets stand to gain if increased clarity is the end result. Foreign listeners may be forgiven if they were puzzled by David Cameron’s peculiar form of diplomacy. The Prime Minister is in favour of Britain’s membership of the EU so why does he want a referendum on exit? The text of the speech provides few clues. It was thin on exactly which powers a new settlement would seek to claw back from Brussels. Seen through the lens of domestic party politics things start to make sense. A high degree of ambiguity most likely met with approval from Conservative party election strategists. Cameron has promised to hold the referendum in his second term if he is re-elected. The announcement is designed to head off the risk that the anti-European UK Independence Party splits the Conservative vote at the 2015 General Election, letting Labour back into power. Presumably the view is that there’s plenty of time to sort out the finer details of a European settlement later, should the Conservatives win.
As with the question of London airport expansion, there is a tendency to neutralise a hot issue by postponing it until after the next election. An EU referendum is a high risk strategy for Britain and Europe with the potential for unintended consequences. Free trade and the single market are in everyone’s interests and it is impossible to know how the public mood will develop over the next few years. There’s general alarm on the Continent with some pouring scorn on Britain’s a la carte attitude to its treaty obligations. Others claim a UK exit would spell the demise of the EU itself, with every country choosing its own opt-outs. Warnings from American officials and Asian business leaders suggest scarce inward investment could dry up faced with years of uncertainty. To complicate matters further, the concept of the United Kingdom itself is under threat, with a vote on Scottish independence scheduled and Sinn Fein calling for a vote on a united Ireland. All that said, there is a chance that Cameron’s gamble pays off. Europe’s politicians should not shy away from trying to win the intellectual argument with their electorates over the future shape of Europe. The EU must allow euro-outs to have a meaningful existence and not to be seen as backward for resisting the pooling of sovereignty increasingly necessary for the euro-ins. Britain isn’t alone in seeing the trade and security advantages of EU membership while retaining control over its own economic policy and banking system. Euro-ins also need to be honest with their people about the reality of life under full fiscal and monetary union. Europe’s economic and political problems since the financial crisis stem from a lack of democratic support for fiscal transfers to soften the impact of austerity in underperforming regions and a lack of democratic oversight of necessary reforms in the countries receiving financial aid. Such transfers and checks are normal and largely invisible in the United States of America and in the United Kingdom and they are an important offset to the strains that build up within a single currency area. The German electorate never got to vote on adoption of the euro. German Finance Minister Wolfgang Schäuble supports the creation of an elected euro area President. Such an individual could give legitimacy to transfers and engender a sense of the greater good.
Things are not always what they seem. JFK’s speech was a pivotal moment for Europe, with all who heard it immediately aware of its meaning and importance. Cameron’s speech may also turn out to be pivotal if it acts as a catalyst for a new statement of the EU’s aims in a form that all of its people can accept. A two tier Europe is inevitable. It needn’t be two-speed. Europe’s economies and markets could all gain support from the increased clarity political reform will bring.
Comments