The path not taken

Britain’s natural role in the EU is to lead an ‘outer ring’ of countries. But, argues David Goodhart, our polarised debate has prevented us thinking clearly about how to achieve that goal.

What is the greatest failure of British foreign policy of the past generation? The Iraq war? Afghanistan? No, it is the fact that most of the political class in Central and Eastern Europe, and in particular Poland and the Czech Republic, actually wants to join the Euro. Let me explain.

There are 10 EU countries that remain outside the single currency (with 18 inside). Despite the painful economic consequences of the Euro, especially on the weaker Eurozone economies, and the further unpopular sacrifice of national sovereignty that now seems inevitable as the single currency edges towards the single economic policy that it needs, still the Poles and Czechs want to sign up.

There are some perfectly understandable reasons for this. For a start they have to join the Euro as part of the treaties they signed when they joined the European Union in 2004, as indeed do all the 10 current ‘outs’ with the exception of Britain and Denmark which have both negotiated opt-outs from the single currency.

In the case of Poland there is also its historic reconciliation with Germany that has gathered pace in the past few years and seems to require Eurozone membership. The bigger point, as described by Pawel Swieboda who runs the main EU think tank in Warsaw, is simply that for geographical and existential reasons—reinforced by current developments in Russia—Poland needs to be at the heart of Europe. ‘We are on a different trajectory to the UK, our narrative is about overcoming our history and getting on the right side of the river. The global competitiveness story has less resonance here.’

But what has also driven Poland in a more federalist direction, that in many ways does not come naturally to it, is the lack of a realistic alternative in which it could be fully engaged with the European project without having to sacrifice so much of its recently regained national sovereignty.

And therein lies the great British foreign policy failure. By history and geography Britain is the natural leader and shaper of an ‘outer ring’ of the EU. This outer ring can be imagined in many ways but at the very least it would encompass most of the characteristics of the European Community as it was before the Eurozone and the string of EU treaties that all pushed in a more integrationist direction: Amsterdam 1997, Nice 2000 and Lisbon 2009.

This would mean the single market in goods and services (including majority voting on many issues), and some supranational sovereignty pooling in trade, environment, research, justice and home affairs and even some aspects of foreign and security policy. Essentially, national democracies that agree, pragmatically, to cede some national sovereignty where there are demonstrable gains from doing so—a form of Europe that could accommodate much of Britain’s moderate pro-EU and moderate Eurosceptic opinion and win a thumping majority of public opinion.

Britain’s dilemma in Europe, which it shares with a few other countries, is simply stated. Most reasonable people recognise there are significant benefits to EU membership in trade, global influence and the ability to coordinate policy on the many issues that now cross borders from terrorism to climate change. But there are also significant costs of membership, above all in the loss of national sovereignty. So we are left with a choice between two options we do not like. The outer ring strategy is an attempt to resolve this dilemma through an alliance with like-minded countries.

It is important to understand that this option does not currently exist. There is no outer ring, either formally or even informally, the 10 outs (with the exception of Britain and Denmark) are merely ‘pre-ins’: the EU, increasingly, simply is the Eurozone. Indeed the European Commission told Greece that if it left the Eurozone it would have to leave the EU too.

But thanks in part to the failure of the Euro some form of outer ring remains a very real option, as I will discuss in more detail below, and should become the overt central plank of Britain’s Europe strategy. And, yet, extraordinarily, there is only one senior figure in British politics who has been consistently arguing for this option in recent years and that is the former Labour foreign secretary and co-founder of the SDP, David Owen. Indeed he has been arguing something along these lines against Roy Jenkins, and others, since the end of the 1970s, when a single currency was just a glimmer in the eye of European federalists.

The situation today among the 10 outs is this: Lithuania will join the single currency in the next year or two, the Czech Republic and Poland in around 10 years, then another three countries (Romania, Bulgaria and Croatia) are at least 20 years away from meeting the requirements for joining and, finally, there are four countries that may choose to never join the Euro—Britain, Sweden, Denmark and Hungary. (Sweden has almost certainly met the entry qualifications already and is probably technically in breach of EU law by not joining.)

So, there are likely to be seven countries outside the central institution of the EU, the Eurozone, for at least 20 years and a few more will most likely be permanent outs. Even though the outs, both temporary and permanent, are by no means of one mind on EU policy and politics, this situation surely requires some formalisation.

The EU has, of course, always consisted of a patchwork of shifting alliances—countries that are more federalist versus those that value national sovereignty more, countries that are somewhat statist versus those are more economically liberal, countries that want an independent foreign and security policy for the EU versus those that are more Atlanticist and pro-US.

In the past 25 years or so the EU has also sprouted various bits of ‘variable geometry’ in which some clusters of countries have joined together to pursue specific forms of integration on their own—such as the Schengen agreement on passport-less travel and some aspects of defence and justice policy. And there have been several proposals, most notably the Schäuble/Lammers paper of 1994, arguing that avant-garde groups ought to be able to plunge ahead with deeper levels of economic integration.

This time, though, it is more fundamental. A deep divide has now emerged in the EU, one that has arguably been there in bud from the start but is now in full flower—the majority of European countries are heading towards a quasi state with a single currency, fiscal and tax policy, social/employment policy, banking structure, with significant transfers from rich to poor countries, elements of a common foreign policy and more power to the European Parliament supplemented by direct elections for a European President and perhaps other posts too. There will be a lot of foot-dragging along the way but that seems to be the logic of the single currency. Meanwhile, a minority of countries want to remain self-governing nation states yet also wish to stay in the single market and pool sovereignty in EU institutions where appropriate.

There is only one sensible answer to this divide and it is the idea of an outer ring to complement the Eurozone: a porous periphery from which some countries will want to travel through towards the Eurozone core at some point and others from that core (Greece? Italy?) may want to retreat to if the exigencies of the Eurozone become an unacceptable burden. This is the solution to the European riddle, not just for Britain for the rest of the union too. It would also be, as David Owen argues, an opportunity to bring in to the outer ring the EFTA countries currently outside the EU like Norway, Iceland and Switzerland, and even in the medium-term Turkey, which has too many other allegiances to join a European quasi-state. (EFTA, the European Free Trade Association, was established at British prompting in 1960 initially with seven members as an alternative to the European Community, but most have now joined the EU.)

For Britain it is the obvious ‘Gesamtkonzept’, the big idea that can give some shape and grandeur to our European policy which otherwise too often seems like so much sniping and self-interest. It is true that the ‘thick’ outer ring solution does suit our interests, but it suits the rest of the EU too. We have many shared interests with the Scandinavians, most of the northern Europeans and the eastern Europeans. Even countries inside the Eurozone like the Netherlands want to retain our influence at some level inside the broader EU, as, most important of all, do the Germans.

So why has Britain not been doggedly pursuing this strategy, and seeking partners for it, at least from the time in the mid-1990s when it was clear there was going to be a big rather than a small Eurozone, when economic rationality was sacrificed for integrationist ideals? Why has Owen, along with Mats Persson at the think tank Open Europe and a few others, been such a lonely voice?

One answer is that the need for a more formal outer ring was only starkly posed very recently with the Eurozone crisis of 2010 and the sudden shift towards a single economic policy for the Euro countries. As soon as the magnitude of the crisis was clear, Britain relinquished any attempt to block moves towards greater integration—Britain has a significant interest in a thriving continental economy and that clearly required a more integrated Eurozone. Hence the bizarre sight of George Osborne and David Cameron calling, in early 2012, for the Eurozone countries to merge their economies and banking systems as soon as possible, much to German irritation.

Actually, Britain saying to its European partners you go ahead with deeper integration without us, but just ensure that our interests are looked after, has happened repeatedly since the late 1970s (when Owen made this case in a paper to the Labour Cabinet in July 1977), most notably at the time of the Maastricht Treaty in 1992 when the UK did not use its veto to stop the creation of the Euro itself.

But the other side of this coin of deeper integration for the core should have been some clearer thinking about the place of non-core countries like Britain, instead they have just been regarded as laggards. According to Owen, the failure to formulate and pursue an outer ring policy in Britain is mainly down to the failure to reach a national consensus on Europe.

Reaching a consensus on a moving target is not simple, and it has not always been clear in which direction the EU was headed after German unification precipitated the move to the single currency. But that is hardly an explanation for the swings in Britain’s EU policy. Since joining in 1973 the country has had two phases of what one might call neo-federalism, meaning cautious support for more integration and a desire to turn the Franco-German ‘motor’ into a British-Franco-German one: they were Ted Heath’s 1970-74 premiership and Tony Blair’s 10 years in office 1997-2007.

Outside those two moments there have been long periods of resistance and disengagement, in particular 1990-1997. Though even in the more ‘sceptical’ periods, mainly under Tory rule, Britain’s influence has sometimes been significant. In the formation of the single market in the mid-1980s for example, and then again in the debate about enlargement to central and eastern Europe from the mid-1990s.

Further complicating the picture, much of the establishment, including the Foreign and Commonwealth Office and a part of the academic and policy elite has been neo-federalist, while public opinion, and most of the Conservative party, has been consistently hostile to further integration at least since the mid-1980s. The recent Nigel Farage v Nick Clegg debates—the rejectionist versus the neo-federalist—neatly symbolised the British national argument and thereby revealed its weakness.

For what this polarisation has prevented is detailed thinking about the arrangements for EU countries that are not taking the Eurozone route to some form of European state. How do we defend our legitimate interests in the single market—which belongs to us as much as any of the other big states? What strategy should we be pursuing towards other Euro ‘outs’ to persuade them of the benefits of permanent outer ring membership? What about our special interests in financial services? What happens if in the end it is just Britain and Denmark left outside the Eurozone: will we be told it is the Eurozone or nothing?

There should have been a lively national debate about this stretching back several years, with shelves full of books and papers on the subject. In fact the shelves are almost bare. One exception is David Owen’s 2012 book ‘Europe Restructured’. It is light on tactical detail but strong on history and overview and makes the case for a Eurozone ‘core’ (what he calls the EU) and an outer ring built around full voting membership of the single market (what he calls the European Community).

How much of the current structure of the EU—including the other supranational measures adopted since the early 1990s apart from the Euro itself—would be adopted by Owen’s European Community outer ring? That would be a matter for debate and negotiation. Even some of the outs that want to remain outs are broadly happy with the way the EU is and merely reject the huge loss of economic sovereignty represented by the Eurozone. Others, such as the EFTA countries, might want to only become full voting members of the single market. Britain currently hovers somewhere in between.

In the meantime it is surely possible to agree on at least some loose political structure for the countries outside the Eurozone. Owen has proposed that the outs—led by Britain, Poland and Sweden—should formalise their positions in a non-Euro group (NEG) as ‘a central, constructive element of the EU that challenges the assumption that non-Euro membership is a form of second class citizenship.’

He argues that the so-called ‘double majority’ understanding, under which the majority Eurozone group cannot simply overrule non-members on single market legislation, but rather need a majority of outs too, is inadequate, especially in the event of there being just three or four outs left. Owen also proposes that as the president of the European Council, Herman van Rompuy, chairs two summits a year of Eurozone members he should do the same thing twice a year for the NEG.

This is mainly symbolism but there will be many issues of substance to negotiate in the coming years, especially if the outer ring does eventually include EFTA countries like Norway and Switzerland as well as Turkey. Indeed it is possible to imagine three layers within Europe: first the Eurozone countries, second the ‘thick’ outer ring which includes the permanent outs like Sweden who want to remain not just in the single market but in most other aspects of today’s EU too, and third the ‘thin’ outer ring, Norway Switzerland and Turkey, who become voting members of the single market but signed up to only some other aspects of the EU.
(A thin outer ring is also a neat solution to the Turkey question. It could provide Turkey with a customised European engagement and a boost to its European identity that falls short of full scale Eurozone integration and free movement of labour.)

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I spoke to David Owen about all this in his Park Lane office recently and he remains the familiar grizzly bear elder statesman, flinty and argumentative, even with someone who has come to praise him. But listening to him talk such good sense about the future of the EU and Britain’s place in it, it did make me wonder whatever happened to this ability to think strategically among so much of the rest of the political class. Did it just fade away with the empire?

‘The EU is a unique organisation’, he points out, ‘there is nothing like it in the world. It is a mixture of the intergovernmental and the supranational. The mix will probable evolve in both directions, adapting and changing as the 21st century proceeds. If the federalist model prevails it will lose its uniqueness and flexibility.’

He talks about two-tier Europe but says he does not like expressions such as ‘outer ring’ or ‘avant-garde’ as they seem to imply a lower status for the outer group, and adds that over the next five years the outs will almost certainly achieve considerably higher growth than the ins:

‘If the Eurozone had not gone through the present crisis it might have been possible to imagine that everyone would eventually join. That pretence is now over and we need to think through the institutional consequences. Indeed it is quite possible that there could still be a failure of the Euro and a major exit.’

Owen is less helpful on the tactics of coalition-building and how to win support for a more formalised outer ring. The problem over the past 20 years is that British party politics has worked against successful coalition-building. The Tories in the early 1990s were consumed with ratifying the Maastricht treaty and were not in a position to elaborate a broader strategy. Even if they had pursued such a strategy, they would have had few allies, as they were no good at the European game of horse-trading and coalition-building: they were not then, and they are not now, ‘players’.

Labour, by contrast, was a European player when it came to power in 1997 and between then and the Iraq war in 2003 had some success in assembling coalitions and winning arguments. The trouble was it had no interest in thinking about an outer ring, because it naively believed the country could take its place at the heart of the EU and join the Euro. According to Owen, Blair really expected to enter the Euro on the back of a Baghdad ‘bounce’.

Today the British government has friendly enough relationships with Sweden and Denmark but has, hitherto, made no consistent attempt to cultivate them or a broader group that might include the Poles, Czechs, Hungarians and Dutch (not to mention the non-EU countries of Norway, Switzerland and Turkey).

Indeed in EU circles Britain is said to have comprehensively ‘lost’ Poland. Owen rejects this argument saying that Poland had no option but to lean towards Germany and thus the Eurozone. Nonetheless the frittering away of Polish goodwill and the current rather frosty relationship between London and Warsaw does seem a wasted opportunity.

Building on the close ties between the two countries established during the second world war, Britain was a firm advocate of EU enlargement and early Polish entry (which some other countries tried to block). And then after entry in 2004, Britain was the only large EU state to allow Poles and other new entrants immediate access to the British labour market (a decision which has not been popular among ordinary British citizens and arguably cost Labour the last election). There are about 700,000 Polish citizens living in Britain and we are Poland’s second largest trading partner after Germany.

The Poles expected to have a close, even intimate, relationship with Britain. But several things have conspired to weaken it, perhaps above all the fact that Poland has been condemned by its geography and history to seek a path to the heart of the Eurozone—as described by Pawel Swieboda earlier—at a time when Britain has been pulling in the other direction. Parts of the Polish political class even talk privately about replacing France as Germany’s closest partner.

The intertwining of the German and Polish economies—comparable it is sometimes said to the US/Canada economic relationship—has not been prevented by the fact that they currently operate with two different currencies but it would certainly be further boosted by sharing one. And many Poles, along with those in the smaller EU states, do see the Euro, notwithstanding its obvious failings, as a shield against currency turbulence and uncertainty.

But matters have been made worse by Britain’s stiff-necked approach to coalition-building, especially under Tory governments (or Tory-led ones). On freedom of movement, on energy policy and on the EU budget, Britain has been noisily arguing against what Poland perceives to be its vital national interests, with apparently no understanding that something of value was being damaged. Picking fights with actual or potential allies is not how you build a coalition. Even the right-wing Law and Justice party in Poland (which might win the next election) is now teased for being too friendly with the Tories.

It is bizarre, given the potential vulnerability of Britain’s position in the EU, that a figure such as Polish foreign minister Radek Sikorski now makes patronising speeches attacking David Cameron for questioning whether Polish citizens should receive British child benefit in Warsaw. Sikorski as a young buck in the late 1980s used to love tweaking the noses of bien pensant Brits at north London dinner parties (I know because I attended some of them and had my nose tweaked). The Oxford graduate was a convinced Thatcherite and believer in Polish national sovereignty and yet today he can see no alternative to becoming a junior partner to Berlin. He is a walking British foreign policy disaster.

And Britain has not done much better forging outer ring alliances elsewhere. ‘The trouble is that no one wants to be a member of a club that Britain is leading, no one really wants to be seen with Cameron,’ says Robert Cooper, a former EU adviser to Tony Blair and one of the architects of the EU foreign policy machine.

Sweden, for example, shares many of Britain’s anxieties about preserving the interests of the outs, and there is only one small Swedish party in favour of Eurozone membership. Yet, while Sweden is not ‘lost’ in the manner of Poland, it is not really won either. The Swedes are intensely critical of Brussels waste and bureaucracy but they are uncomfortable with Britain’s reservations about freedom of movement within the EU and think of themselves as leading internationalists, so an outer ring does not slot naturally into the Swedish consensus.

The rather lukewarm reception given to David Cameron’s big 2013 Europe speech by Fredrik Reinfeldt, the Swedish prime minister who is said to be a close ally of Cameron’s, illustrates the problem. ‘The liberal, open Europe, content of the speech—at least minus the referendum commitment—had plenty of support outside the Eurozone, and even inside it, but the mood music was very domestic and there has been little follow up’, says John Peet, Europe editor of the Economist. There was a rare acknowledgement of the importance of symbolism in EU debates in the last minute attempt to find a venue for the Cameron speech outside Britain in Berlin or Amsterdam, but (symbolically!) it was delivered in the end in London.

Britain’s inability to forge alliances, its relentlessly ‘national interest’ language and reluctance to clothe its priorities in the cant of European progress, its inability to prevent the misrepresentation of its positions—most recently on the idea of an EU immigration ‘cap’ and more persistently on financial services where Britain often supports tight regulation but is caricatured as laissez-faire— these are all familiar Europhile complaints about the conduct of Britain’s EU politics. But now Eurosceptics (at least those who do not want to leave the EU completely) must start to worry about them too.

Both to establish a more formal outer ring and to conduct a serious renegotiation of some aspects of British membership, in the event of a referendum in 2017, Britain needs allies. It needs to banish the sniggering Brussels assumption that the EU has 27.5 members not 28.

‘The failure of the Euro has bought Britain some time,’ says Willy Paterson of Aston University. And the crunching together of economies within the Eurozone, and with it the subordination of national sovereignty, will remain a long and painful process. Indeed there are some people, like Charles Grant, head of the London-based Centre for European Reform, who think that the single European state will never happen and that the balance between the intergovernmental and the federal has not changed much and is not going to.

That is an unusually benign prognosis. But even if the Eurozone does muddle through the outs need to be as organised as the ins evidently are. And Grant’s think-tank recently came up with a list of reforms that most of the outs could gather around: safeguards for the single market to prevent the Eurozone countries imposing their priorities on the wider EU; a bigger role for national parliaments in policing subsidiarity; longer qualification periods for EU immigrants to qualify for national benefits of various kinds and greater liberalisation of service markets.

That is rather a British-flavoured list but it is a starting point and could expand to absorb the main priorities of our leading out allies. The Poles, for example, would no doubt be impressed if we deployed the remnants of the British Army of the Rhine to one of the Baltic states with a view to policing a negotiated settlement to the East Ukraine crisis.

Yet to achieve any of this, Britain, and especially Conservative Britain, has to learn a whole new political instinct for coalition-building, otherwise it will not succeed in shaping an appropriate place for itself in a rapidly evolving EU. On the way it may have to make concessions, such as the Conservative party returning to the European Peoples’ Party grouping in the European Parliament (having broken away in 2009), and accept some uncomfortable EU policy constraints for the bigger prize.

It has never been Britain’s destiny to be at the heart of the EU but equally, to be outside completely, to be merely an important trading partner, would also be a historical anomaly. Moreover, given the rising tide of Euroscepticism throughout the EU—which will be plain to see at the European elections on May 22nd—‘core’ Europe cannot allow Britain to thrive outside the EU.

If Britain was to successfully leave the EU it would probably mean the break-up of the Eurozone and perhaps the whole EU as we have known it. The emperor would have no clothes, what seemed to be historical inevitability would reveal itself as a choice and the subsequent boost to anti-EU forces in Europe could be game changing. This is not a future that many people in mainstream European, or British, politics want. But it does mean Britain has considerable leverage over the European project in the next few years and that leverage should be invested in some variant of David Owen’s outer ring.

If we fail in this task, all is not lost. For, fortunately, there is one rather important country in Europe that is still capable of thinking strategically and realises that a future EU must be flexible enough to accommodate Britain and the other permanent outs. Like so much in modern Europe, Britain’s outer ring may end up being made in Germany.