POPULISM REACHES ITS LIMITS

Alexis Tsipras

Because of its Classical past as the founder of democracy, Greece was treated more tolerantly, than other countries would have been, when, during the nineteenth century, it defaulted several times on its commercial creditors.

That history created bad habits of mind. Now its creditors are the taxpayers of other countries, who are less tolerant, and less conscious of their intellectual debt to Plato and Socrates.

The present Greek debacle is the result of a clash of political cultures.

On the one hand is the culture of the European Union, where every decision has to be mediated through complex institutions representing 28 different countries, each with its own political culture, and then often has to win the assent of the European Parliament and of an independent European Central Bank. 

Theatrical gestures and moments of brilliant eloquence count for little in this world. Building a good track record, with good civil service staff work to back it up, is what counts in the EU political culture.

EU bailout decisions also have to be approved by the IMF, a global body, most of whose members and clients are far poorer than the Greeks. This creates an additional layer of interests which Greece must try to satisfy, as well as its EU partners.

In this setting, credibility and patience are vital to success. The new Greek government did not have patience, and soon it lost credibility as well.

In stark contrast with what was needed, it seems to me that the Greek Government is made up of people who come from a revolutionary tradition, where it believed that progress will come from a harsh rupture with the past, and whose proponents envisage a nationalist or socialist utopia, once that rupture is complete.

The Greek government are also people who have little or no previous experience of government, and who have thrived politically by agitating against the existing order, without the necessity of explaining how things would work after they had obtained power, and they had to survive and govern in the complex interconnected reality, that is the global economy of today.

That the Greek electorate would elect such people to office is explained by the desperation in to which they had been led by the irresponsible policies pursued by successive Greek governments since the 1980’s, who tried to win the votes of Greeks by promising them a standard of living that was not matched by their productive capacity, and by the mistaken decision to take Greece into the euro before the results of these bad policies had been properly rectified.

The problem is that the activities of the new government made things much worse than they were when they took office.

By creating doubt about whether they would honour the debts incurred by their predecessors, the new government created a crisis of confidence, and this loss of confidence led to a suspension of normal commercial activity. By looking for debt relief, before reforms were implemented they put the cart before the horse.

The underlying problem of Greece is a lack of productivity and export potential, but the Greek government, and to a great extent the EU authorities too, continue to ignore this. Greece’s productivity problem will take years to solve, not least because Greece is an elderly society. The structural reforms urged by the EU will help, because they will clear the clogged arteries of the Greek economy and allow talent to be reallocated to where it can do something productive. But the ageing of Greek society will remain an intractable problem.

As a result of the drama generated by their new Government, Greeks, instead of focussing on ways to invest to make more money, became in recent months obsessed instead with protecting what they already had. Whereas the economy was on a path towards modest growth, when the old government left office, it quickly plunged back into recession as money was withdrawn from the Greek banks, thereby further weakening Greece’s ability to meet its ongoing expenses, and to pay its debts as they fell due.

The timing of the Referendum, AFTER Greece has already run out of money, and on a proposal that has already been withdrawn, could not be worse. It compounds the panic and uncertainty. It is probably in breach of the Greek constitution. Apparently the Greek constitution does not allow referenda on fiscal issues, and the bailout offer contains many elements that are fiscal.

If ever there was a case study that shows how important it is to have political leaders who understand and face up to their responsibilities, and who deal with the world as it is rather than as they might wish it to be, it is to be found in Greece today. The lessons for Ireland are too obvious to require to be spelt out.

I wonder how Paul Krugman and others, who were so free with their advice to the Greeks in the early months of the crisis, are advising the Greeks to vote in the referendum on the 5 July.

CLUB DE MADRID IN FLORENCE...

A SPEECH BY ROMANO PRODI

I am attending a meeting of the Club de Madrid, an organisation of former heads of government working to promote democracy, in Florence this week. The question being addresses is whether, after the 1990’s when democracy was spreading widely in the wake of the fall of Communism, democracy and human rights are now in a phase of relative decline again.

The opening keynote speech was made by Romano Prodi, former Italian Prime Minister and European Commission President, who gave an excellent speech.

He reminded us that having a market economy, as China does, does not guarantee democratic government. The dispersal of power, which is essential for a market economy, can help democracy, but it does not assure it. The Chinese” model” could become a challenge to democracy.

He worried that, if democratic governments fail to deliver acceptable economic results, democracy itself will come to be questioned. 

This is a particular risk in the European Union, where

   +  the ageing of societies,
   +  the absence of structural reforms, and
   +  the rigidities caused by the incompleteness of the euro zone,

are contributing to slow growth and high unemployment, especially among young people.

In some countries, democracy suffers from perpetual electioneering, and from too many veto points which prevent necessary changes being implemented.  Short term thinking predominates as a result.

Romano now teaches in universities in China, and he remarked that, whereas ten years ago Chinese were constantly asking questions about the European Union, they no longer do so. Their questions focus now on the lesson to be learned from Thucdydies, the ancient Greek historian, who wrote about the risks of war when a rising power meets an established one (Sparta and Athens). Clearly the Chinese see such risks as between themselves and the US.

A REPORT ON THE STATE OF DEMOCRACY IN EUROPE

We have before us a series of reports on the state of democracy and human rights in different parts of the world. The reports were prepared with the help of the Bertelsman Foundation. The scope of the study includes 

+  the fairness and openness of elections,
+  the rule of law and separation of powers,
+  internal democracy in parties,
+  strategic thinking within the governmental system,
+  efficient use of human and material resources
+  anti discrimination laws

Generally speaking, the Nordic countries came out best. There were some problems in southern Europe. Among post Communist countries, the Baltic states and Poland had the best record. The situation was somewhat more difficult in the Balkan area.

 WORRYING TRENDS IN HUNGARY.....CONCENTRATION OF POWERS

The countries to come in for the most severe criticism were Hungary, and to a lesser degree Turkey. The findings in regard to Hungary are the most alarming, given that it is a full member of the EU. 

In respect of Hungary, the report says

“The government  has tried to monopolise political power by taking control of a number of independent agencies and supervisory bodies and had undermined the judiciary’s independence”

It adds that Hungary’s new media laws

“strengthened government control over the media by vesting a Media Council, exclusively composed of persons affiliated with the Government party, with control of media content  and the granting of broadcasting licences”

These matters deserve the attention from the European Union institutions.

THE GROWTH OF SUPPORT FOR POPULIST PARTIES....

UNDERSTANDING THE NEED FOR RESPECT, AND FOR RECIPROCITY, ARE THE KEYS TO THE FUTURE OF THE EUROPEAN UNION.

What have the following in common?

+ The Scottish 45% YES to break up the UK....+ The Growth of National Front in France....+ English anti EU sentiment and support for UKIP.... + The strength of Tea Party  and the polarisation of politics in the  USA and + The growing support for anti immigrant parties in Sweden, Denmark, and the Netherlands.

They have this in common. All these parties want to withdraw from some international commitment or other, and shut the doors of their nation to outside influences. 

What support for these parties shows is that an introverted and recessive Nationalism is on the rise again. This is a reaction against globalisation by those who have benefitted less from it than others did. 

It should be noted that all have benefitted from globalisation through cheaper food, clothes, and cheaper communications. But some have benefitted much more than others, and the “others” are expressing their disgruntlement through votes for these populist parties.

These parties want a repatriation of powers to the national level, and even complete withdrawal from international bodies like the WTO, the European Union, and the European Convention on Human Rights.

People supporting these parties say they do not understand how Brussels works, or how Westminster or Washington works. But do they really understand any better how their local council works ? 

This is why I am unconvinced that concession of their literal demands would actually remove the discontents that lie behind support for these parties. 

For example, I am not convinced that an elaborate system of federalism within UK, or UK withdrawal from the EU, would actually assuage the anger being expressed through UKIP votes. The experience of post Franco regional devolution in Spain is not completely reassuring.

In Scotland, the younger and the poorer sections of population   were the most alienated, and voted most strongly for Scottish independence . This is despite the fact that public spending per head, on which poorer people depend more, is already higher in Scotland than it is in England.

It is £10,152 per head in Scotland, as against £ 8,529 in England. On those figures, complete fiscal would worsen the position of poorer Scots.

A SENSE OF BEING RESPECTED IS WHAT IS MISSING

I believe these vote reflect a sense of not being listened to, of not being respected, than they do a demand for particular constitutional or institutional changes. 

Do Scots feel respected, and listened to, in UK? 

Do working class voters of the National Front, UKIP, and the  Tea Party voters feel respected by metropolitan elites?

I fear the answer in “No” in all cases

FEAR OF THE FUTURE

Fear of what may happen in the future drives people in the direction of populist solutions, and parties.

States have made health promises and pension promises that will become unaffordable, as the proportion of the population that is elderly grows. Meanwhile, many private  pension schemes are underfunded.

Another pervasive fear is that of redundancy in mid life. In such a circumstance, it is difficult to know what new skills to go for, and it is equally difficult to move to another city to find work, after a certain age.

ANTI IMMIGRANT SENTIMENT

These fears feed anti immigrant sentiment.

Immigration disturbs bucolic image some people have of their ideal national environment....forgetting that, if they actually lived in their ideal environment, they would probably find claustrophobic and boring.

There IS  also competition for low skilled jobs, and immigration DOES drive some wage rates down

But automation and labour saving devices are devaluing all forms of low skilled work anyway, and probably are more important drivers of income inequality,

INEQUALITY OF INCOMES

The growth in inequality in incomes is also a factor in the growth in support for populist parties.

Inequality is driven by many factors.

It is driven by technology . Technology replaces low skilled workers, while increasing the rewards of the higher skilled people, or insiders, who control the technology.

One should not ignore the importance of celebrity in causing inequality. Celebrity brings disproportionate increases in relative income. Celebrity footballers, and celebrity CEO’s, represent the same phenomenon. A firm’s stock price is driven partly by the reputation of its CEO and that means a well known CEO can command a higher salary package.

Inequality is also driven by access to financial leverage, and assets that can be used for leverage. Thus high financial sector incomes evoke particular concern.

These are all issues that need to be dealt with by national governments, through the tax system.

But they should not be used to justify turning away from the EU or from the benefits that globalisation has brought.

THE MEANING OF NATIONAL IDENTITY 

We are not going back to a world of Empires in which Europeans, or people of European ancestry, could make the rules of the game to suit themselves.

We can perhaps limit the pace of immigration, but we cannot stop it.

So we need updated civic education of ourselves, and of immigrants to our shores, on questions like

“What does it mean to be British?”

“Can one be British, Scottish and European all at the same time?”

“What does it mean to the Irish and European, but of African ancestry?”

” What are the values that underlie these statements?” 

RECIPROCITY

We also need to work out the practical implications of reciprocity as a principle of international relations.

Let me illustrate this by reference to debates now taking place in the UK.

If EU citizens immigrating to UK to work are to have restricted access to state benefits, how might that affect the entitlement to health service of the 2m UK citizens living in other EU countries? 

If the UK want access to an EU Single market to sell its goods and services does that means accepting  common EU standards for those goods and services....even fiddling rules on thing that seem  not to matter...unless we all recognise everyone else’s standards regardless which could be bad for consumers?

In particular, the UK wants a single EU market for services.....but services are provided by people, and these people may need to travel to another country to provide those services....which gets you back into the immigration debate 

If Britain wants a veto on certain EU laws, rather than have them decided by majority, 27 other countries will also have to get that veto too.

If , as some Conservatives propose, the UK withdraws from the European Convention on Human Rights, what effect will that have on the hard won agreement on policing in Northern Ireland, which depends on access for police complainants to the EHCR? Is the plan just to take England out of the EHCR, or to take Northern Ireland out as well?

DEMOCRACY IS THE KEY TO RESPECT

If the EU is to survive, EU citizens need a sense that they can cast a vote to change the men or women at the top in the EU, in the same way as they can change the people at the top in Dail Eireann, in Westminster, in Birmingham city council, or in their local tennis club.

It is not that citizens want to get into the details....but they do want a vote on the EU’s direction of travel

Globalisation has been taking key decisions above the level of individual states for a long time. That is nothing new. But the time has come to make it more democratic.

The International Telegraph Union dates back to 1865

The International Court in the Hague dates back to 1945

Traditionally the  rules, governing bodies like these,  were negotiated in private in the form of inter state Treaties, between diplomats, and later interpreted by judges. 

Elected people were often only involved at end of process in saying a simple YES or No to result, by ratifying the Treaty or not. 

The EU is different.

In the EU, politicians in the Commission initiate laws, and politicians in the European Parliament and the Council decide if these laws will come into effect.

In this sense, the EU is MORE democratic than virtually all other international organisations in the world....but it’s not democratic ENOUGH

I believe the direct election of the President of the European Commission by the 500 million people of the EU, not simply by the 28 heads of EU Governments, is needed. 

Only in that way will we  create a well informed democratic EU public opinion. That would be the best answer of all to the populists.

WHY EUROPE NEEDS TO GET ITS ACT TOGETHER

Gorbachev’s advisor Alexander Arbatov, said , in 1989 at the time of the collapse of the Soviet Union, to a western diplomat

“we have done you the worst of services, we have deprived you of an enemy”

Since then, the lack of perceived external threat has led to weak economic management in Europe, to an unnecessary war in Iraq,  to increasing debt,  to weakened military strength, and to the making of insincere promises that could not be fulfilled when to going got tough.

Now, that period is over. 

We now see, thanks in part to ill considered promises of eventual NATO membership to Ukraine and Georgia, that those countries have suffered pre emptive annexations of parts of their territory by force by Russia. The UN Charter and the Helsinki accords on territorial integrity of states have been binned.

In Eastern Ukraine we are now witnessing I recently heard a US general describe as “a new kind of warfare”.

Meanwhile, the growing strength of China’s navy distracts US from Europe, and European and US interests are diverging because the US is  becoming energy self sufficient, whereas Europe is not.

And productivity in Europe is lagging.

According to the OECD, EU labour productivity is  growing at 0.6% pa, while productivity in the rest of the OECD is growing at  1.2% a year.

CONCLUSION

Rather than contemplating separatism, Europeans should be thinking about our precarious position in the 21st century world, and uniting to do what we can do about it.

WHAT WOULD HAPPEN IF THE EU BROKE UP?

I have attended a number of conferences in the past few weeks where the future of the European Union has been discussed. Where previously the EU’s continuance was complacently taken for granted, now there is much more uncertainty, but also much more interest.

The European Union has been a remarkably successful institution building project. It is the first ever voluntary coming together of sovereign states, pooling some of their sovereignty, so that they could do more together, than they could separately.

Almost every other political unification or state building in history has involved the use of force, including the creation of the UK and the maintenance of the USA. The EU came together peacefully and voluntarily.

Some might argue that the EU was necessary only in order to cement a post war reconciliation of Germany and France and that, now that that is achieved, it has done its job and needs no further development.

This is wrong for two reasons.

WHY THE EU IS STILL AN ASSET

1 . AN ASSURANCE OF MUTUAL SECURITY,

 Firstly, the fact that there is a queue of states still lining up to join the EU shows that the EU still provides a necessary political and economic umbrella under which reconciliation and mutual security between states can be  assured in the twenty first century.

This was why the Baltic states, Poland and other central European states joined, and it is the reason several Balkan states, and even Georgia and Ukraine might like to do so. It is also the reason why Greece, much to the surprise of many, has favoured Turkish membership. While the United States of America is remarkably successful in many ways, there is no queue of other American states lining up to join. Even Puerto Rico has not done so after more than 100 years of Washington rule

2. A WAY TO MANAGE GLOBALISATION DEMOCRATICALLY

Secondly, the EU is the most advanced effort in the world providing a measure of democratic supervision into globalisation. Unlike other efforts to supervise globalisation, like the United Nations and the World Trade Organisation, the EU has a directly elected Parliament which co legislates for the EU alongside the 27 Governments, who often decide issues by majority. Other international organisations operate on a purely intergovernmental basis, which means that there has to be unanimity to get a decision, and democratic involvement only arises when a deal already negotiated in private, has to be ratified in national parliament  without possibility of further negotiation or amendment.

As a result, other organisations, like and the WTO and the UN, can do much less, and have to  do much more of what they do behind closed doors, than is the case with the EU.

My view is that the EU provides a unique model for democratic rule making, at supra national level, something which will become more, not less, necessary as we proceed into the 21^st century.

  Indeed the failure of the world to deal with climate change is a good example of the weaknesses of present intergovernmental models of global governance. If the different regions of the world had Unions, like the EU, which could negotiate seriously, and with genuine political legitimacy, as the EU can, the failures of Copenhagen and other climate change summits would not have happened.

If the EU were to break up, either because of the collapse of the euro or because a major country like the UK feels it has to exercise its right to leave the EU, and either event were to set off a breakdown of the trust that keeps the EU itself together, we would have lost a unique instrument for security building in Europe, and for problem solving in the wider world.

I would now like to analyse those two potentially existential threats to the EU, the euro crisis, and the UKs possible desire to leave.

Of these, a  break up  the euro is undoubtedly  by far the  more serious existential threat to the EU, because the scale of the economic losses is potentially much greater, and the  means of controlling  those losses, are much less.

THE EURO CRISIS IS NOT SOLVED

The euro crisis has become slightly less acute in recent weeks. The announcement of a new bond buying policy by the European Central Bank has calmed the markets. But there is no doubt that the markets will test the ECB’s will power at some stage.

Meanwhile the link between the solvency of European banks and the solvency of European states has not been removed.

 A default by any EU state would wreck the banks of that state, because each state’s banks tend to be big  purchasers of the bonds of that state.

Similarly a potential collapse of a bank in a state would force that state to inject capital into banks, if it did not want a run on banks generally to take place, and contagion to other countries. The  confidence loss caused by a major bank getting into difficulty could lead to a dramatic collapse in state revenues, leaving it with a much increased budget deficit, at the very time it was also having to find the money to recapitalize the bank.

FOUR THINGS THAT MUST BE DONE TO SOLVE IT

If these problems are to be resolved, four things will have to happen, more or less at the same time.

1. Greek Government debt will have to be forgiven.

2. The ESM will have to be seen to be big enough to stand behind Spain and other countries that might get into difficulty, on a contingency basis,

3. The new mechanisms to supervise, and if necessary rationalize, Europe’s banks will have to be put in place.

4. The already agreed reforms to reduce deficits, and to promote growth by opening up the job and service markets to competition will have to be demonstrated to be being fully implemented, in letter and spirit, to show creditors that, if one forgives debt or creates enlarged the ESM, one is not throwing good money after bad.

At the moment, the Greek debt issue is not being tackled, and seems to have been postponed until after the German election in September. The delay may not be the worst thing in the world, if it allows time for Greek reforms to begin to establish credibility. It also allows time to educate public opinion in creditor countries like Germany, and in countries sitting complacently on the sidelines, of the true consequences for themselves of a euro break up. Greece also need immediate help to finance itself to the end of 2013, and that bridging finance cannot await elections in Germany or anywhere else.

The EU has already enacted a raft of legislation, including the Fiscal Compact Treaty, to ensure that countries reduce their deficits, and liberalise their labour and service markets. . One of the reasons growth potential has been low in Greece, Italy, and Spain is lack of competition or flexibility in key sectors

But Germany is not yet satisfied. It wants to have an EU Commissioner with the power to veto state budgets, and enforceable contracts on reforms between states and the EU.  But not enough attention is being paid to the fact that Germany, France and other core countries could also be doing a lot more themselves, to open up their own digital, financial, energy, retail and professional service markets. While Germany has set a good example in labour market and pension reform,  there are other reforms it could initiate, that would help other EU countries to sell more goods and services into the German market, and thereby trade their way out of their problems.

There is understandable political resistance in Germany to any further debt forgiveness for Greece. But debt forgiveness within the euro is one thing. Greek exit from the euro is an entirely different matter. It would be far more dangerous, and that needs to be explained to German public opinion.

WHAT WOULD HAPPEN IF THE EURO ZONE BROKE UP?

Even a disorderly default by a country within the euro, no matter how severe its consequences for its own people and for its creditors, would have far less severe consequences for the euro, and for the EU itself, than an exit of a country from the euro would have.

I have heard a view from some Northern Europeans that an orderly exit of Greece from the euro could be contemplated, if it was accompanied by building up a huge fund, much bigger than the existing ESM, to stand behind all the other euro area states, so as to prevent a Greek exit leading to a loss of confidence in the financial position of the rest of the euro zone.

I believe this view, that Greek exit from the euro can be managed, is profoundly mistaken.

The whole edifice of the EU rests on law. The EU has no police force to enforce its will. It relies on member states freely respecting the interpretation of EU law by the European Court of Justice, and implementing the Court’s decision, however unpleasant that may be. The exit of a country from the euro is, quite simply, a breach of their Treaty obligations, and treaty obligations have the force of law.

The euro was established on the basis that it was irreversible. A Greek exit, particularly if it was condoned or encouraged by other members, would say loudly that the euro is not irreversible.

That would lead to constant speculation in the markets as to who would be next. And as speculation increased, so too would the size of the funds or guarantees needed to check it, increase. That in turn would then lead heightened risk that some of creditor countries, who would have to provide these funds and guarantees, might decide that they themselves should exit the euro, and re-establish their own currencies. That would be the end of the euro.

Breakups of currency unions have happened before, in Austro Hungary after the First World War, and in Eastern Europe in the 1990s when the rouble zone broke up. As described in a recent article by Anders Aslund of the Peterson Institute of International Economics, the consequences of this were disastrous.

A  SCENARIO THAT MIGHT LEAD TO THE END OF THE EU ITSELF

New currencies would have to be established. The relative value of these currencies would be unknown and unknowable. Some would lose value very quickly and others would shoot up in value.

Exports would become dramatically uncompetitive in some cases, and in others they would become  so cheap that there would be  accusations of dumping, currency manipulation, and calls for  immediate reintroduction of  import duties to level the playing field. Such duties, if imposed, would  end the Single Market.  And that would be tantamount to the break up of the European Union itself. Open markets, the assumption on which Ireland built it entire economy over the last 50 years, would be gone.

In some countries the banking system would break down, and people would have no access to credit for even the most basic transactions.

In others, people would cease to trust the value of their own money, and money, after all, is based on a promise and if people can no longer trust the states standing behind the promise that underlies their money, the basis for money itself is gone.

This is not fiction. It is what happened when the rouble zone broke up in the 1990s and explains why incomes fell by 50% in the former rouble zone countries. And the exporter nations within the rouble zone, like the Russian Federation, suffered just as much hardship as the importer nations, like Latvia and Estonia.

The political stresses that this scenario for the 500 million people of the EU, and their Governments, would be such that trust between European nations would easily break down completely.

We see signs of that happening already, but it is being held in check by the hope that problems can still be resolved on a collective basis. A break up of the euro would show that that was impossible to resolve matters on a collective basis, and it would then be a case of every nation for itself, with particularly severe consequences for smaller countries, like Ireland.

............AND MEANWHILE IN THE UNITED KINGDOM

As if Europe did not have enough problems, one important EU country, the United Kingdom of Great Britain and Northern Ireland, is preparing to renegotiate the terms of its own membership of the EU, and hold a referendum on the outcome, which would potentially decide whether the UK would stay in the EU or leave.

The first thing to say is that the UK is entirely free to do this. Unlike other Unions, like the United States or the United Kingdom itself, the European Union is a Union which states are free to leave, so long as they fulfil their normal obligations under international law, which arise when any country withdraws from any international treaty.

The UK has been an uneasy member of the EU from the outset. While Churchill envisaged a United States of Europe, he did not envisage the UK, which still had a global Empire at the time, being part of it. The UK did not attend the 1955 conference in Messina which led to the Treaty of Rome. When it eventually joined the Common Market, a decision endorsed by a referendum, the idea was sold to the electorate as an economic arrangement, whereas even the most cursory reading of the Treaty of Rome would have shown it to be much more than that.

A THREAT TO VETO THE EU BUDGET

The United Kingdom is now threatening to veto the entire EU budget,  something it is legally entitled to do, unless there is an absolute freeze on the size of the budget. The difficulty with this stance is not legal, it is political.

 The EU Single market, which guarantees free movement of people, goods and services, was created as a political deal.

 Weaker economies opened up their markets to stronger ones, and removed protection from local businesses, on the basis of a promise that they would qualify for structural funds to modernise their economies. These funds are what the EU budget provides. (Some of the EU budget also goes on agriculture, but that has fallen from almost 80% of the total originally, to only 30% today.)

The political difficulty with the UK stance is that of fairness.

In the past, when countries like Ireland, Spain, Greece, Portugal, and even the UK itself, joined the EU, we all qualified for very substantial EU structural funds, in the form of aid for agricultural modernisation, general infrastructure, training, communications etc.

Now, when the EU has taken in 12 central European countries who are almost all relatively far poorer by comparison with the rest of the EU,  than we were when we  joined, these 12 are to be told, if the freeze the UK  wants is to go into effect, that they are not to get even a fraction of the help Ireland, Spain, regions of the UK and others qualified for as of right after we joined. This is causing resentment.

I heard an Estonian Minister complain recently that, under the existing EU budget which is already an unfair compromise, his farmers have to compete in the same EU market with west European farmers who are getting three times the subsidies. Unless there are to be drastic cuts, this sort of anomaly can only be put right by an increase in the EU budget.

The problem is that the UK Government has made the size of the budget a red line issue without getting into any informed debate about what the money is actually spent on, or about what sort of EU budget is necessary to ensure that the  EU Single Market, to which the UK itself is very much attached, works fairly and is preserved.

The UK wants access to the single market, but is not prepared to pay any entry fee.

AND A DEMAND TO RENEGOTIATE THE ENTIRE BASIS OF UK MEMBERSHIP OF THE EU

The same problem arises in the renegotiation of the terms of UK membership for which the current  UK Government wants. In preparation for this renegotiation, the UK Government is now doing a comprehensive audit of all EU laws, to identify areas of activity that could be taken back from the EU to be administered exclusively under UK law instead. There may be some good ideas emerging from this, on which all other members could agree, but there may also be a lot of problems.

The difficulty is that the UK wants to take back, yet to be specified, powers, but also to retain full and unfettered access for all its goods and service exports to the EU Single market. 50% of UK exports go to the euro zone, whereas only 15% if euro zone exports go to the UK, so this is important to the UK.

The difficulty is that the EU Single Market, like any market, is a product of common rules, regulations and conventions. A market is a political construct. Without common rules or understandings nobody could rely on what they were buying.

That is why, for example, there have to be common EU quality standards to construct a common EU market. Otherwise one country could impose peculiar quality standards, designed to exclude competitors from its market and to enable its own producers to make monopoly profits at the expense of its consumers. Any rulemaking power that could be abused in this way, cannot be handed back to national level without endangering the Single Market. That is the problem that the proposed UK renegotiation of  its EU membership terms will encounter.

And the competition in any market also has to be fair, and someone has to regulate that. If competitors have different environmental, or product liability standards, or if some firms are operating monopolies or cartels, the competition will not be fair. These matters cannot be handed back to be decided by national authorities without also endangering the Single Market.

 If the UK were to draw up a list of EU rules it would like to make in Westminster rather than Brussels, the other 26 could also do the same, but they might come up with a very different list. The process could become bogged down in serial  reopening of compromises, made years ago, on issues that have little relevance to the urgent existential threat  the EU faces today.

One gets the impression that many in the UK do not really care about that.

 The EU is still regarded by many in the UK as a foreign country, not a Union of which the UK itself has been an integral part for the past 40 years. Membership of the EU is seen as a convenience rather than as a commitment. If the price of satisfying UK voters is to cause more problems for the “foreigners”, in “Europe”, that is not seen by some UK political leaders as such a bad thing.

The difficulty is that the “foreigners” in Europe may not see it like that.

With so many genuinely urgent things to do, such as safeguarding the very existence of the EU itself, the other 26 member states may just not be inclined to devote time to a painstaking case by case analysis of a series of requests for new UK opt outs from some bits of some rulemaking authority, with UK opt ins to others, and to a judicious analysis of whether each one of these decisions might affect the integrity of the Single Market, either now or at some time in the future.

 And the European Court of Justice would certainly have difficulty interpreting the consistency of a special EU menu for one country with the basic freedoms for all on which the EU is based.

 There is also the old question of whether UK Ministers and MEPs should continue to have voting rights on things they are opting out of. As it is, one has to say that it is distinctly odd that the present Chairman of the Committee of the European Parliament that deals with euro currency matters, represents a constituency in the UK, which has no intention of joining the euro.

If,  as is likely at the end of its proposed renegotiation, the UK is dissatisfied with the result, because not enough powers are being handed back to Westminster, it will have little option but to recommend that the UK withdraws from the EU. 

 It is setting itself up now, to find itself in exactly that position, in 2016.

THE UK’S OPTIONS OUTSIDE THE EU

 This will require careful handling because 50% of UK exports go to the EU, and London is Europe’s main financial centre, for the time being anyway.

 How is the UK to protect these interests if it is outside the EU?

One possibility is to join Norway, Iceland and Liechtenstein in the European Economic Area, which would guarantee full access for UK goods and services to the EU market. But the price for that would be having to implement all EU legislation that was relevant to the Single Market, and contribute to the EU budget, but without having any say in EU decisions.

That would be worse from a Euro sceptic point of view than the UK’s present position, even though it would guarantee continued access for the UK to the EU market for both goods and services.

The other possibility is to follow Switzerland and negotiate a series of bilateral trade deals with the EU. The UK would not be entering such negotiations from a position of strength, because it relies more on the EU market, than the EU relies on the UK market.

Switzerland has negotiated full access to the EU market for goods, but not for services. Services are the UK’s key export sector, so a Swiss style deal would not be attractive.

If Britain negotiated a Customs Union with the EU, like that of Turkey, it would find its trade policies with the rest of the world were still being determined in Brussels, but with less input from London than at present. Again it would also only have a guarantee of access for goods exports but not for services.

Finally, the UK might simply leave the EU, without negotiating any special deal. That would leave it paying tariffs on its exports to EU member states, including Ireland, and would necessitate the reintroduction of customs posts on the border in Ireland. It would undermine years of peacemaking by successive   Irish and UK Governments, and would cost thousands of jobs in export firms in both the UK and Ireland.

CONCLUSION

My sense is that the pressures that cause fracture in the EU derive from a lack of understanding among the general public of the extent to which their livelihoods  depend on economic developments in other  countries and of how unrealistic, in modern conditions, is an “ourselves alone” policy.

 Political leaders make little  effort to explain this, because to do so would undermine the  nationalist myths which brought most states into being in the first place, and also because it is often convenient to blame the EU for  the effects of decisions that were necessary but are unpalatable. For these reasons, little effort is made to forge any form of patriotic pride in the EU or its achievements.

No venue has been created in which an EU wide public opinion might be formed.

This must be done, if sufficient mutual understanding and support is to be created to allow the EU to create the degree of burden sharing and mutual supervision that is necessary to guarantee the long term  robustness of the euro, and thus of the EU itself.  In a word, the EU needs more democratic cement to hold itself together.

European Parliament elections are not truly European. They are 27 different elections, in 27 different countries, in which national issues predominate.

The European Parliament itself has refused to contemplate the election of some of its members from EU wide party lists, which would begin the process of creating an EU wide debate because it would necessitate an EU wide political campaign on behalf of the rival EU wide lists of candidates.

The President of the European Commission, and the President of the European Council, are selected in private meetings of heads of government. They do not have to win the votes of EU citizens, and consequently EU citizens do not have the feeling that they can vote the government of the EU out of office, in the same way that they can vote their national government out of office.

Thus the EU does not enjoy democratic legitimacy in quite the same way that national governments do.

As a member of the Convention that drafted what eventually became the Lisbon Treaty, I urged unsuccessfully that the EU should have a Presidential election on these lines.  I suggested that the President of the European Commission should be selected in a multi candidate election in which every EU citizen would vote, rather than be selected, as at present, by 27 heads of Government, meeting in private, to be approved in a single candidate vote in the European Parliament.

This proposal received almost no support at the time, although it has since been adopted as policy by the German CDU. If that had happened when it was proposed, the EU would now be in a much stronger democratic position to devise a more coherent response to the euro crisis, and to find a solution to the UK’s difficulties. The UK press would not be able to argue that EU leaders were “unelected”. The Commission, headed by a President with a full EU wide democratic mandate, would have more authority to propose solutions. The council of 27 heads of government would still play a vital role,  but the EU would be less constrained by the electoral timetables of individual countries, as is the case with the German election of 2013.