All eyes are on the spending review, but yesterday another potentially huge challenge landed in the Coalition’s in-tray: the prospect of a new EU treaty.
In the small town of Deauville in Lower Normandy, French President Nicolas Sarkozy and German Chancellor Angela Merkel struck another of those ‘Franco-German compromises’ that tend to set the EU agenda, and have too often left the UK on the back foot. Yesterday’s compromise will see Sarkozy backing German calls for a new EU Treaty to introduce new a mechanism that would enable countries within the euro area, such as Greece, to default.
And Merkel means business. Under the current eurozone bail-out packages, German taxpayers are potentially liable for €120 billion in loans to foreign governments over which Germany has very little power. This is a huge amount, which tops the Coalition’s entire spending review.
Leaving the technical details aside, an ‘orderly default procedure’ for the eurozone would not only transfer some of the risk from German taxpayers to the investors and banks that lent money to struggling governments. It would also give Germany much greater control over how the eurozone is run.
As painful as EU Treaty negotiations are – particularly for the EU elite who have to deal with those terrible referenda – you can see why Merkel would rather face grumpy EU leaders than explain to her taxpayers why she continuously has to write blank cheques to bail out foreign governments she has very little sway over.
So where does this leave the UK?
History suggests that Britain will react to the prospect of a new EU treaty in one of two ways.
Option 1: the UK says it will categorically veto any Treaty change which impacts on Britain. It takes itself out of the game (via an opt-out for example) and loses its leverage to shape the future of the EU.
Option 2: the UK says it will not accept a Treaty which transfers powers from Britain to Brussels, but then loses in negotiations and signs up to a treaty which does just that. It tells the British electorate that it was all only a tidying up exercise anyway and no referendum is needed.
Neither of these approaches has worked particularly well in the past. So, why not do things differently this time?
Rather than instinctively reaching for the veto, David Cameron should back Merkel’s demands, in return for the repatriation of powers to the UK, along the lines of the original Tory election manifesto. This package could then, possibly, be put to a public vote, and be turned into a genuine referendum on EU reform. The net effect of a new EU treaty would then be fewer powers for Brussels and more for Westminster.
And backing Merkel’s push for an orderly default procedure wouldn’t only be for show – a chaotic default by a eurozone member, following a bailout, would be the worst of all worlds, including for Britain. An orderly default procedure would place more of the risk where it belongs.
It certainly isn’t uncomplicated, but the coalition would be committing a huge error if it didn’t take the opportunity to show some much-needed assertiveness in Europe.
Mats Persson is research director of Open Europe.