Posted 3:21 AM by Dil
September 09, 2003

Hain spells out British line on new EU treaty
By Peter Riddell and Greg Hurst



THE British Government will insist on excluding social security and cross-border tax measures from the treaty on the future of the European Union.
Speaking before the publication this afternoon of the White Paper on the proposals made this summer by the Convention on the Future of Europe, Peter Hain, the Leader of the Commons, said: “We got a very good result for Britain. We achieved all of our strategic objectives”.

Mr Hain was the British representative at the year-long convention. In an interview with The Times yesterday, he revealed that, on his appointment 18 months ago, Tony Blair “quite startled people at an informal Cabinet committee with officials by saying that the outcome of the convention is absolutely fundamental. It will define the relationship between Britain and the rest of Europe, the prospects for the euro, and it would last for generations.”

Mr Hain said: “He said it was more important than Iraq, which rather startled people round the table, in the sense that the European issue would be with us for generations.”

This afternoon’s White Paper will lay out the British negotiating position ahead of detailed talks on a treaty. Mr Blair will travel to Rome on Saturday, October 4, for the formal launch of the inter-governmental conference (IGC) by Silvio Berlusconi, the Italian Prime Minister.

Mr Hain underlined the Government’s opposition to holding a referendum on the outcome of the IGC. He said that fewer than half of the 25 member or future member states are to hold referendums “so we are in good company”.

“One effect of the White Paper will be to show the remaining areas where we will have to negotiate the fine print to make sure we safegaurd our interests.”

Mr Hain highlighted five main areas. On cross-border taxes, he said: “You might say it was sensible to have the Brussels Commission able to stop cross-border tax fraud. Say a member state, perhaps a newer member state, doesn’t have quite the standards of anti-fraud measures in place that a country like ours does. That sounds very plausible but actually it would allow the Commission and the European Parliament a back door into our tax system. We are not alone in this.”

Second, “we have to get rid of the nonsense that France, Germany and Luxembourg, with all due respect, and Belgium can go off and launch a defence initiative in Europe’s name on their own by bypassing Nato”.

Third, “there is some technical detail to negotiate on the precise remit and source of accountability of the new foreign representative. To what extent is he bound by Commission collegiality? There is a bit of a grey area there. People would say that, first of all, he was appointed by the European Council, the heads of government, so he is answerable to them, and if they don’t like what he is doing they can get rid of him. And in a sense that is where the buck stops.”

But he suggested that there was a potential position of “political schizophrenia in accountability”.

Fourth, on social security: “This is basically to do with cross-border benefits. You might say it makes sense to have portability of benefits in order to create or increase labour mobility. But the problem for us is that our benefits system is integrated through the employment tax credit, the child tax credit, the soon-to-come pension tax credit. But once you start, you could then effectively let the Commission in our tax system, which is what we don’t want.”

Fifth, “the other key red line is extending majority voting into the judicial system and criminal law. That is not on, not just for us but for Ireland and Denmark and a number of other countries. We have enthusiastically accepted proposed majority voting on the whole justice and home affairs area because it stops back markers from passing the buck over illegal migration, or combating terrorism, or border control, or fighting international crime. But its extension into the operation of our judicial system is not acceptable.”

Mr Hain claimed that the proof that Britain had done well out of the convention was that every continental European paper said “this is a triumph for Britain, while the arch-federalists denounced it”.

Posted 8:10 AM by Dil
I've been betrayed on the euro

If the Chancellor rules out a single-currency referendum, he will be denying us a glorious economic chance

Will Hutton
Sunday June 8, 2003
The Observer

There will be plenty of pro-European gloss on Gordon Brown's euro statement tomorrow, the most decisive moment in this Parliament for New Labour, progressive politics and the European cause. The campaign for entry into the euro, we will be told, starts now. The Treasury will publish its euro changeover plan. There may even be a paving Bill for a possible euro referendum at some unspecified date. The Cabinet will declare its unity. The words will feel like a yes.
But nothing can disguise the fact that the actual decision will be a no, a dark moment for the pro-European cause in Britain.

The Chancellor will declare that four of the five economic tests have been failed. The national economic interest, though it could be served by entry into the euro, he will say, is not served yet. Pro-Europeans will be invited to campaign for a cause to which the Government has just said no, for which there are no clear benchmarks to judge by how and when the tests will have been passed and which, in any case, is supported by only trivial policy change and certainly no 'road map' to entry. This is a triumphal moment for the euro-sceptics; there is zero chance of a referendum in this Parliament - and very little in the next. I believe Messrs Brown and Blair have profoundly underestimated the degree of disappointment, pessimism and disaffection among pro-Europeans that their position will create.

For what we know about the economics of euro entry, it is clear that with the same evidence a pro-European Chancellor would have given a very different answer. Even Brown will have to concede tomorrow that the already obvious increase in trade between euro-area countries would raise Britain's growth rate on entry and thus wealth significantly.

Add on the benefits of sustained low interest rates and entry at a competitive exchange rate and Robin Marris, emeritus professor of economics at London's Birkbeck College, believes the additional growth would be 0.5 per cent a year, worth some £150 billion over 25 years. The Treasury will suggest a more niggardly upward estimate, probably half that; either way, we are throwing away the chance of a substantive increase in our national wealth.

The biggest concern is entering at the wrong exchange rate and, again, the Treasury background papers must surely recognise that the current exchange rate of €1.40 euro to the pound is the near perfect level. It is the most competitive for seven years and reflects the rate that, in the long run, will balance our exports and imports. This is Marris's view, whose approach is almost identical to Exeter University's Simon Wren-Lewis, who wrote the relevant Treasury background paper. To enter at the current rate would be a coup.

As for the rest of the tests we have allegedly failed, I am baffled. Britain has the least regulated labour market in Europe, what Digby Jones, director general of the CBI, still calls the jewel in our competitive crown. What more 'flexibility' can Brown want for this test? The abolition of trade unions? The elimination of unemployment benefit? The scrapping of what little employment protection that remains? In some respects, we are even more flexible than we were at the last assessment. The failing of this test must have stretched even the Treasury's drafting powers.

Failing the growth, stability and employment test is no less perplexing. We know that Europe wants to import the British economic policy-making framework wholesale - scrapping the Growth and Stability Pact and reforming the European Central Bank so it operates like the Bank of England - and with rising investment, increased trade and our flexible (arguably too flexible) labour market, the prospect for stable, long-run growth and employment looks very good.

It is only if the other tests have been failed that this can become questionable. But how can the investment test be failed? We know Britain's share of inward direct investment has fallen; we know investment tends to rise in a low interest-rate environment. The exercise becomes even more of a riddle.

Which leaves the convergence test as the key failed test. But on interest rates, inflation, national debt, budget deficits and even the synchronisation of our economic cycle with that in Europe we are fully convergent, even more convergent than some of the existing members of the euro-zone.

The only issue where convergence is problematic is the housing market, emerging plainly as the allegedly key obstacle, causing first the convergence test to be failed and, thus, the investment and growth and employment tests to fall in sequence. Three from one single cause.

It is true that Britain has few European-style fixed-rate mortgages so that interest-rate changes affect us more. And the housing market, courtesy of easygoing banks and building societies which turn a blind eye to our taking equity out of our houses and spending it, is also inflationary. But to present this as the trump card against entry just reveals the depth of the Treasury's euro-scepticism.

For a start, at today's low interest-rates banks and building societies could not pass on the full interest-rate cut on euro entry to their borrowers without lowering rates to their savers to destructive levels; the full drop in the mortgage rate would be 1 per cent or less.

A pro-European government would urge people to lock into the lowest interest rates for 50 years in fixed-rate mortgages, back it with tax incentives, and make this sensational development part of the case for entry, a chance to let over-mortgaged Britain off the financial hook. A mild tightening of lending rules would solve the problem of equity withdrawal. And the Government would launch a massive house-building programme. Problem, such as it is, solved.

But this is not what Brown and Blair have decided; rather, the British housing market will be presented as an untamable monster that obstructs entry. Tomorrow, expect no initiatives to address the issue and no benchmarks to judge when the housing market has become OK. Sufficient reform of the housing market to allow a referendum in this Parliament is impossible; it is not even very likely by next Parliament.

Brown's supporters privately deride the pro-European case, ignoring, they say, both the economics and the political reality that the public remain massively sceptical. Wrong. The pro-judgment, instead, is that the economics is right, and that decisive political leadership could make it more right, for example by addressing the housing market along with reforming Europe's economic institutions. Whatever you may think of Bush, he is a political playmaker and agenda-setter. He has changed the dynamics of politics in both the US and the Middle East. Pro-Europeans want New Labour to be a playmaker, too, and use political power constructively to change both the dynamics of the euro argument - and the underlying economic realities.

Opposition to the euro in the right context can be changed. They have shrunk from that, losing the country the chance of its enrichment and Europe the possibility of closer cohesion at a crucial juncture in world affairs.

It is not so much betrayal I feel as sadness and cynicism. A lot of people in government I like and respect will now find themselves arguing diametric opposites: that they are for the euro and they are also against it - with no substantive policy framework or timetable to deliver what they say they want. Britain's euro-sceptics will say the pro-Europeans don't have the courage of their convictions. And they will be right.