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Home Opinion Achieving a more competitive EU
The Risk of Brexit

Achieving a more competitive EU

Roger Liddle - 06 November 2015

The Juncker commission's reforming zeal should aid Cameron in presenting the EU as a source of 'jobs, growth and innovation', but the reaction of the UK's EU partners to any assault on 'social Europe' must be considered

On the face of it, David Cameron should not have too much difficulty in demonstrating progress in making the EU “a source of jobs, growth, innovation and success, rather than stagnation” as he put it in his June Commons statement.  The Juncker commission has grasped the nettle of economic reform with more determination than any commission since that of Jacques Delors. The European council has endorsed a five-year agenda of policy goals that meets virtually all the British demands for the extension of the single market and new free trade agreements. And the European parliament has signed off its agreement in principle.

The commission has already produced ambitious plans to take forward the projects of a digital single market and capital markets union. It promises enforcement action to ensure member state compliance with the 2005 services directive. Its actions on competition policy have been unexpectedly robust under the new Danish commissioner Margrethe Vestager. On the trade agenda it is sticking to the objective of an ambitious transatlantic trade and investment partnership (TTIP), despite an unprecedented campaign orchestrated by NGOs (which has drawn considerable support within the European parliament) against the dispute mechanisms designed to secure investor protection.  In addition, to complement this burst of economic reform activism, the commission has dramatically cut back on its proposals for new legislation and regulation.

Under Frans Timmermans, the commission has produced a ‘better regulation’ package in line with longstanding British ambitions. Juncker’s appointment of Timmermans, the former Dutch Labour foreign minister, as his deputy is a highly significant and positive change from Cameron’s perspective. It puts a key British ally, who is totally committed to keeping the UK as a member of the EU, in a crucial position on a subject of huge UK sensitivity.

It remains to be seen of course how much of this agenda is implemented. Promises of reform have been made before, as in the first year of the Barroso commission in 2004, yet progress was limited. However, in the term of the 2014-19 commission and parliament, there may be a more favourable political opportunity. Juncker is on record as having talked about him presiding over the “last chance commission” for Europe.  While the eurozone has stabilised since 2012, lack of sustained growth has created a renewed impetus for structural reforms to raise productive potential. In key member states, attitudes towards economic reform are much more positive than they once were, particularly on the part of the governments that came to power in France and Italy in 2014 under Manuel Valls and Matteo Renzi respectively. Cameron could demonstrate progress towards his goals by signing agreements with other member states supporting key aspects of his reform agenda, as he succeeded in doing with Spain in September 2015. At the European council, he could attempt to secure deadlines for agreement on crucial pieces of legislation.  

A mood for reform, but reform of what?

Yet the great unknown is how Cameron intends to take advantage of this new reforming mood for the purposes of his renegotiation. There remain critical difficulties for him in doing this, arising from a clash of (mis)perceptions within his own party. The British Eurosceptic perception of Brussels is as an overmighty agent of bureaucracy and regulation. In their mindset, the European commission and parliament are seen as having a single-minded mission to regulate business, to stifle enterprise with red tape, and lumber onto companies burdensome obligations to strengthen consumer protection, corporate governance requirements, employment rules, environmental sustainability, and health and safety provisions – all adding to business costs and reducing competitiveness.

No one would dispute the genuineness with which these views are held. They represent a yearning for a model of raw, free enterprise capitalism, redolent of Britain at the height of its economic success and power in the mid-19th century – before the rise, first, of organised labour, then of social liberal and social democratic parties committed to the creation of a welfare state, culminating in the Keynesian/Beveridge postwar settlement. This also the marked the start of the era in which Britain’s long relative decline became apparent. For British Eurosceptics, the Thatcherite 1980s were a miracle of economic renaissance: with trade union power vanquished, the nationalised industries privatised, the City liberalised and top tax rates slashed, the enterprise spirit was reborn. The simultaneous advance of globalisation gave Britain the opportunity to rebuild the commercial strength it had once enjoyed at the height of empire. Yet in the Eurosceptic mindset two factors continued to hold Britain back: the attachment of the British electorate to public services and a welfare state that even politicians of the mettle and courage of Margaret Thatcher were unwilling to challenge head on; and Britain’s entrapment as members of the European Union.

This vision has little if no resonance on the continent. Business people, heading some of the most successful international companies in the world (of which there are far more than in the UK), happily sign up to the European concept of a ‘social market’ economy. They may complain about high taxes and object to particular laws and regulations, but they do not challenge the basic assumptions of social partnership, nor the idea that open markets should be subject to proportionate cross-border regulation. Indeed, they see regulation that demands high standards as assisting competitiveness and acting as a barrier to low-cost competition. The most important feature about the single market from their perspective is that it has abolished the alternative – which would be 28 sets of different national regulations, and that the EU as bloc is able to use its economic power to ensure fairer trading terms than would otherwise be available for their businesses in global markets.

The critique of the ‘social market, single market’ consensus on the continent comes generally from the left, not the business community. From that quarter, the common continental argument is that the EU has been too uncritical a handmaiden of globalisation and liberalisation. German political economists of the eminence of Fritz Scharpf and Wolfgang Streeck argue that the founding ‘four freedoms’ of the Rome treaty, as backed up over the decades by European Court of Justice jurisprudence and the commission’s exercise of its competition powers, now represent a significant neoliberal threat to the European nation state’s ability to maintain a social and economic order that reflects the underlying principles of a social market economy.  These intellectual critiques of the European model are of course echoed in the raw anti-Europeanism of the populist right and left.

Cameron must convince

Cameron and George Osborne therefore face considerable barriers of ideological understanding in persuading their supporters that the EU has now grasped the nettle of improving European competitiveness. Conservative Eurosceptics (though this is not true of Cameron and Osborne personally) have never properly understood the difference between a free trade area and the much deeper economic integration that the single market makes possible. Previous British governments of all parties have traditionally supported the rights of the commission to open up markets and the European court to enforce fair trading rules, because of the UK national interest in a strong competitive single market. However, persuading Eurosceptics that this is the way forward to a more competitive Europe will not be easy.

Rather, Eurosceptics traditionally argue for an agenda of repatriation and deregulation, combined with greater discretion for member states. This is frankly contrary to a rational view of the UK national interest. Cameron and Osborne must realise that the only way through this clash of perceptions is not to set out on an impossible mission to rip up or repatriate the EU acquis, but rather to ensure that the commission has a strong reforming agenda which the British government should back with all possible vigour. They should also welcome the commission’s efforts to ensure EU laws and regulations are proportional to their purpose and fairly applied in all member countries. This is the Timmermans agenda, on which Cameron should hope to build. Yet how Cameron and Osborne seek to convince the Conservative party of this is as yet unclear. When Conservative Eurosceptics talk of a ‘reformed’ EU, they imagine British membership of an entity which is confined to the limited purposes of ‘trade and cooperation’. There is no way Cameron and Osborne can in practice deliver on this aspiration. The question is how far they will press for mere symbols.

In seeking to satisfy their own Eurosceptics, one obvious blind alley that Cameron and Osborne might venture down would be to press for a renewal of John Major’s Maastricht opt-out from the ‘social chapter’. So far they have made no explicit commitment to this. There has been a lot of unspecific language about the need for a more competitive Europe and some reference to the problems that the working time directive has caused. But so far at least the government has avoided a clear commitment to make rolling back the impact of EU social legislation one of its specific renegotiation objectives. Indeed, the Financial Times has been authoritatively briefed that the renegotiation is not seeking a renewal of John Major’s social ‘opt-out’. One suspects that the government is trying to work out what, if anything, they can ‘get away with’ in this policy domain.

This caution is for good reason. The whole of the ‘social Europe’ area is a legal and political minefield for the British Conservatives. They would be wise to steer clear. First, there is no longer an overwhelming demand from business in the UK that EU social legislation represents an unsupportable burden. This was evident in the major study of the European issue that the CBI presented in advance of their annual conference in November 2014.  There are continuing complaints about the costs to business associated with the working time directive, but as the British Conservatives learned to their cost in the 1990s, the legal base in the treaties for this measure was ‘health and safety’ not the social chapter. Opting out of the social chapter was not sufficient to exempt Britain from its provisions.

The British could of course now press for a separate opt-out from the working time directive, but for reasons explained below, it is very difficult to see how this could be achieved. If such an opt-out amounted to a treaty change, the French for certain would use their veto on the grounds that it would permit ‘social dumping’. In other words a national strategy of low-wage competition based on labour market deregulation and cutting social costs to employers. If it amounted to a change in legislation, a majority in the European parliament would have to agree, which is highly problematic.    

Second, there is no longer a separate ‘social chapter’ in the EU treaties from which Britain could seek a general opt-out. Rather, the Lisbon treaty entrenches social objectives within the overall aims of the EU. The treaty contains a new horizontal ‘social clause’, the principles of which are intended to govern all the EU’s specific actions. So to demand a social opt-out is in effect to demand a rewriting of the Lisbon treaty: something which Cameron and Osborne know is an impossibility. And they could face legal challenge on any UK-specific concession that arguably conflicts with the Lisbon treaty’s social goals and the horizontal social clause.

Third, any attempt to weaken Britain’s commitment to the existing social acquis would be a symbol to some of our partners of ‘social dumping’. It is a classic example of an issue over which the continental left would love to fight a great battle with the British Conservatives. Maybe Merkel, as a German Conservative, might admit to David Cameron privately that she has sympathy with his concerns about employment over-regulation, but in all likelihood she would immediately retreat from offering public support when the German Social Democrats in her grand coalition began to stir in opposition. Equally, François Hollande would be only too keen to display his socialist credentials by opposing such a proposal. This is much more than political posturing. The Delors idea that the single market has to be ‘flanked’ by effective regulation in the social, environmental and consumer fields is deeply entrenched in European thinking.

Fourth, it would divide the pro-European constituency in Britain.  Opt-outs from EU social legislation could tip the trade unions and large sections of the Labour party into opposition to Europe in the coming referendum. Such a stance on their part would be foolish in the extreme. Whatever Cameron may put forward as the result of his renegotiation, it cannot be a view of Britain’s future in Europe for all time. There would be nothing in what Cameron proposes to prevent a future Labour government reversing whatever terms on ‘social Europe’ he has managed to negotiate; even in the likely event he managed to secure treaty change, that is always reversible. Better than for the left and trade unions to fight to stay in and for a more social Europe.

Fifth, were EU social legislation no longer to apply to the UK, the government would have to be clear what, if anything, would take its place. Would there be domestic legislation and how far would it secure the same standards of social protection as the EU currently provides, for example on four weeks’ paid holiday, maternity and paternity rights, consultation on redundancy, equal treatment of agency and part-time workers and a host of other issues. Are these the type of social protections that the British government would like to see denied to British people at work? How would this be consistent with a government that sees itself as representative of working people and is legislating to introduce a ‘living wage’? This does not seem to appear an obvious agenda for supporters of a centrist compassionate conservatism.

Conclusion

These seem powerful practical arguments for Cameron to steer clear of the social question. What Cameron might obtain is a commitment from the commission to ‘modernise’ the existing body of EU social legislation for the labour market of the 21st century. The commission has already made a commitment in principle to such a review. This would be a worthwhile endeavour, and doubtless Cameron and Osborne could dress up the objectives of such a review in language that would appeal to their Eurosceptics. But the idea that the outcome of such a review could be specified in detail in advance in time for a British referendum is wholly unachievable. Those who fear that the result would be a weakening of social protection should remember that every line of every legislative proposal would have to be approved by the European parliament.


This is a contribution to Policy Network's work on The Future of the EU.

Tags: Brexit , Roger Liddle

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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