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Europe’s crisis is Cameron’s opportunity

For the election campaign, and for the negotiations that might follow it, Syriza’s victory opens some promising vistas

31 January 2015

9:00 AM

31 January 2015

9:00 AM

Napoleon notoriously preferred his generals to be lucky — and on that score at least, he would have approved of David Cameron. The triumph of the Syriza party in Greece presents him with a glorious opportunity to solve the European question that has bedevilled the Tories for so long. Europe’s difficulty is Cameron’s opportunity.

The European elite has been shaken by the scale of Syriza’s victory. Just a few weeks ago, Cameron was arguing in private that Greek voters, who remain overwhelmingly pro-EU, would ultimately not back a party that was intent on a confrontation with the eurozone authorities. European diplomats stressed that even if Syriza won it wouldn’t get close to a majority and would end up having to form a coalition with To Potami, which would moderate its demands, so no need to panic. But Europe now finds itself confronted with a hard-line coalition of Syriza and the Independent Greeks, a three-year-old party of right-wing populists every bit as determined as Syriza to renegotiate the terms of the bailout. Syriza, a party of the radical left, and the Independent Greeks agree on little more than the imperative of securing relief of Greece’s debts.

The decision of Alexis Tsipras, the new Prime Minister of Greece, to go with a party of the nationalist right is a signal to Brussels, Berlin and Frankfurt that he is quite serious about what he said on the campaign trail. He is not going to back down. On his first day in office, he held talks with Russia’s ambassador and has appointed a Marxist academic as his finance minister. The scene is now set for a reckoning in the eurozone: the fundamental contradictions between its economics and its politics are going to have to be confronted.

Politically, it is unclear what answer there can be to the Greek question. Syriza’s whole purpose is to end EU-imposed austerity in Greece. Tsipras has to be able to say that he has stopped what he has called the ‘fiscal waterboarding’. But northern European leaders, led by Angela Merkel, are bitterly opposed to any concessions to Athens. They fear that if Syriza succeeds, voters across the eurozone periphery will turn to anti–austerity parties in the hope of securing better bailout terms.

In Spain, that would mean Podemos — a party formed a year ago, but which now regularly tops the polls — winning the elections there this year. Europe’s leaders also worry that going easy on Greece will boost parties of the radical right in their own backyard. Leaders are acutely aware of how quickly new threats to their position can emerge in Europe’s volatile political scene. Parties can be formed and lead the polls within months.

One argument being advanced for why there can be no immediate concessions to Athens is Finland’s election on 19 April. Its prime minister, Alexander Stubb, is trailing in the polls — an obvious concern to his ally Angela Merkel, Germany’s Chancellor and the unofficial keeper of the European order. If she cuts Greece any slack that would risk angering Finnish voters and making matters even worse for Stubb — who is facing a threat from the nationalist Finns Party — so that it might be impossible for him to recover. There are no votes in Finland (or anywhere in triple A-rated Europe) in letting Greece off the hook.

Diplomatic sources report that Merkel is in no mood to compromise. She is deeply unhappy about the scale of the money-printing programme launched by the European Central Bank. She fears that this will make it easier for recalcitrant southern Europeans to avoid making the structural reforms she believes are vital for the survival of the single currency. She also has a very German worry about the damaging effects of quantitative easing and knows that her electorate share that concern. The anti-euro Alternative for Deutschland party is aiming to capitalise on unease about Europe’s monetary policy in the state elections in Hamburg next month and in Bremen in May.

The more anxious Merkel feels about the direction of the EU, the more reluctant she is to lose Britain as a member. The UK has been one of the most vocal supporters of deficit reduction and market liberalisation and without us the EU’s centre of gravity would shift even further towards the dirigiste south. Merkel needs Britain more than she did last Christmas, so the price that she is prepared to pay to keep us in the EU is now higher.

In contrast, she is less concerned about the EU hanging on to Greece. In conversations with other EU states, the Germans express an almost reckless confidence that — unlike in 2011 or 2012 — the eurozone could survive Greece being forced out of the currency union. The consensus in Brussels is that this is not a risk, since Syriza will eventually have to accept that its hand is not as strong as it thinks. But there is a serious danger of an accidental ‘Grexit’. Syriza has no experience of government or international negotiations. Its members include Maoists and communists who regard the Greek Communist party as too moderate. There is, therefore, as one senior British figure warns, ‘the capacity for misjudgments’ in this game of chicken with Brussels.

The country that really keeps European policy makers up at night isn’t Greece or Spain, but France. Its economy is sinking, with no signs of a sustained or sustainable recovery. Its unemployment stands at a record high of 3.5 million, it has had to abolish the much-hyped 75 per cent tax rate on the rich after it turned out to be an abysmal failure, and its tax revenues are so weak that it’s now looking at a deficit of 4.1 per cent of GDP — far outside the 3 per cent limit supposedly demanded of EU member states. If the European Commission applied its own rules properly, France would be fined for this continuing inability to get its books in order.

The great debate is whether France is, in economic terms, part of northern Europe or stagnating southern Europe. Tellingly, the day after the Greek result, François Hollande invited Tsipras to the Elysée while Nicolas Sarkozy went to Berlin to see his old ally Angela Merkel, reflecting the division between the current president and the past president over what role France should try to play in Europe.

But while both men will probably be their parties’ candidates in the presidential election in 2017, it is the prospect of someone else winning that spooks Europe. Until now, even if the Front National made the final round of the French presidential election, you could be sure that it wouldn’t take the Elysée. But that is not so certain anymore. There was even a recent poll which had Marine Le Pen, who has moved her party away from the explicit racism of its past, winning the run-off this time around.

Fear of Front National largely explains Sarkozy’s shift on Europe. In an essay published last year, he argued that the EU should hand back half its powers to member states. Over the past few months, he has hardened his rhetoric on this point, warning that Europe will ‘explode’ without reform and threatening to end French co-operation with Brussels unless he gets his way on border controls.

Now, given that the final round of the French presidential election is not until May 2017 and Cameron is committed to holding his referendum on EU membership before the end of that year, it is not clear how much the Sarkozy agenda could help him. British government figures also caution that Sarkozy might want the ‘wrong powers’ back; he might want to weaken the ability of the Commission to prevent governments from blocking foreign takeovers.

But Sarkozy’s bold talk is an illustration of how France — and the fear of a Le Pen victory — could end up changing the whole EU debate. Cameron could suddenly find that there is far more on offer at the negotiating table than he currently expects. This would give him an opportunity to craft a deal that would go far enough to satisfy the eurosceptic instincts of his party. At the moment, his plans for the renegotiation, as far as they exist, look like they will fall short of what several of his cabinet ministers and many of his MPs want.

The British renegotiation could turn into a moment for a wider rebalancing of the relationship between the EU and its member states. Sarkozy’s visit to Berlin on Monday showed that the German Chancellor is still close to the former French president. Given that she broke diplomatic protocol to offer him her support ahead of the last French presidential election, it seems fair to assume that she will be guided by him on what is needed to prevent the catastrophe of a Front National presidency befalling Europe.

Cameron, though, has to be prepared to take advantage of the opportunity to press for radical reform, if it presents itself. During a previous acute phase of the eurozone crisis in 2011–12, Cameron and Osborne refused to try to use it to renegotiate Britain’s terms of membership. In private, their aides argued that if your neighbour’s house is on fire, you don’t start trying to negotiate a reduction on your water rates. But the more Europe is in crisis, the more important it becomes for the EU to keep this country in it. George Osborne has long argued that Britain would eventually be able to get an acceptable deal from the rest of the EU because it is, ultimately, in everyone’s interests. He likes to say that northern Europe wants Britain in as a liberal and free trading influence, that the Baltics and the East European states value our hawkish stance on Russia and that the rest of the EU understands the awful message that would be sent to investors around the world if Britain decided that it couldn’t stay in the EU.

Some in the government caution that if the eurozone’s problems worsen, there’ll be less ‘bandwidth’ available for dealing with the British renegotiation. They fret that in these circumstances few people will want to pay attention to the details of London’s demands. But, I suspect, this will be trumped by the fear of losing this country at a time when the whole European project is in danger of failing.

All this would be irrelevant unless Cameron wins the general election. But the situation in Greece might help him here, too. A return of the eurozone crisis would make the perfect backdrop for the Tory message: that the choice on 7 May is between stability or economic chaos. Cameron has already started referencing events in Athens whenever he can. The stormy winds from the Continent may yet return him to power — and to a successful renegotiation of the terms of Britain’s EU membership.

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