Annual Report 2012 CENTRE FOR EUROPEAN REFORM 9073 CER annual report cover NOT TO PRINT12 GB.indd All Pages 04/02/2013 17:41 About the CER The Centre for European Reform is a think-tank devoted to making the European Union work better and strengthening its role in the world. The CER is pro-European but not uncritical. FROM LEFT TO RIGHT, We regard European integration as largely benefi cial but recognise that in many respects TOP TO BOTTOM: the Union does not work well. We also think that the EU should take on more responsibilities Edward Burke globally, on issues ranging from climate change to security. The CER aims to promote an open, Hugo Brady outward-looking and eff ective European Union. Katinka Barysch Susannah Murray Through our meetings, seminars and conferences, we bring together people from the worlds Simon Tilford of politics and business, as well as other opinion-formers. Most of our events are by invitation Philip Whyte only and off the record, to ensure a high level of debate. Clara Marina O’Donnell John Springford The conclusions of our research and seminars are refl ected in our publications, as well as in Kate Mullineux the private papers and briefi ngs that senior offi cials, ministers and commissioners ask us to Catherine Hoye provide. Charles Grant and Stephen Tindale The CER is an independent, private, not-for-profi t organisation. We are not affi liated to any government, political party or European institution. Our work is funded mainly by donations from the private sector. The CER’s work programme is centred on eight themes: The euro, economics and fi nance China and Russia Energy and climate EU institutions and policies EU foreign policy and defence Justice and home aff airs Enlargement and neighbourhood Britain and the EU 9073 annual_report12_1feb13 TEXT GB2.indd 1 07/02/2013 11:06 Britain’s slide towards the EU exit by Charles Grant The CER has never been a think-tank focused on Britain. Ever since we were conceived in 1995, most of our work has covered the EU as a whole rather than Britain’s relationship with it. About half the researchers who have worked at the CER are not British. Many of our seminars and conferences have taken place in other parts of Europe, or further afi eld in the US, Russia and China. But in 2012, as the possibility of Britain leaving the EU became a serious subject for discussion, we increased our focus on the UK. “It is quite possible that the debate over show that more Britons want to leave the EU whether Britain should remain a member of than stay in it. the EU will shift from the extreme fringes of British politics to centre stage.” That is what I One big reason for this shift is the eurozone wrote in the CER’s annual report for 2003. At crisis. The EU’s management of it – even pro- the time, some of our advisory board dismissed Europeans must admit – has been, at least those words as exaggeratedly pessimistic. some of the time, dreadful. For three years, Unfortunately, that was not the case. Over the eurozone leaders have gathered at emergency past ten years the British public’s view of the EU summits and bickered over the steps required has shifted markedly. Most opinion polls now to resolve the euro’s problems. Very slowly, they 9073 annual_report12_1feb13 TEXT GB2.indd 2 07/02/2013 11:06 ANNUAL REPORT 2012 January 2013 3 [email protected] | WWW.CER.ORG.UK have made progress, coming up with bail-out club that Britain joined in 1973 – and the more funds, new mechanisms to allow the European suspicious the British become of it. Central Bank (ECB) to lend to banks and buy government bonds, and plans for common Several other factors have helped to shift banking supervision. By the end of 2012 they British opinion in an EU-hostile direction. The had done just enough to convince fi nancial constant talk among EU leaders of treaty-change, markets that the euro would probably hold institutions and voting rules – at the cost of together. But much of Europe remains stuck in focusing on issues that voters consider relevant recession and unlikely to return to growth any – is off -putting. Many British people also think time soon. there are too many immigrants in their country, and they blame the EU for letting them in. Nor European leaders have so far spurned the should one forget the role that Britain’s tabloid measures that would put the eurozone on a press has played in moulding views. The report sustainable footing for the long term, such as by Lord Justice Leveson on press standards EU-wide deposit insurance, write-off s of offi cial highlights how newspapers have repeatedly debt, the mutualisation of sovereign borrowing invented horror-stories about what the EU is or other mechanisms that would eff ectively supposed to have done. transfer money from richer to poorer members. Such policies would evidently be politically unpalatable for Germany and other more The European Union’s mismanagement of the prosperous countries. But without them, the “ eurozone’s peripheral economies will continue euro has provided great propaganda for Britain’s to labour under a weight of debt that, combined eurosceptics.” with the stringent austerity that the EU has imposed, stifl es economic growth. As a class, Britain’s political leaders have The EU’s mismanagement of the euro has followed, rather than sought to infl uence public provided great propaganda for Britain’s opinion. In all the main parties – including the eurosceptics. They always said that the euro Liberal Democrats, the most pro-European would be a disaster and some of what they of the three – leaders have consistently, and predicted has turned out to be true. They intend with very few exceptions, avoided arguing the to use the eurozone crisis as a tool for levering merits of the EU. Pro-EU politicians have seen Britain out of the EU. the short-term advantages of saying little about an unpopular subject. So they have lost the The euro’s problems are changing the EU in ways argument by default. that make it seem less congenial for the UK. A Union of three concentric circles is emerging. The Conservative Party, which has led a coalition The core consists of the euro countries, which with the Liberal Democrats since May 2010, plays are steadily giving up control of budgetary and a particularly important role in Britain’s European other economic policies to EU institutions. The debate. It divides three ways, between those second circle consists of the ‘pre-ins’ that plan to who want to quit the EU, in any circumstances; join the euro. Subscribing to the ‘fi scal compact’ those who would like to remain in the EU, but treaty and the embryonic banking union, they only if Britain can renegotiate its membership will accept many of the same economic and so that it opts out of several EU policy areas, budgetary disciplines as the core. Finally, the including labour market rules; and those who third circle consists of Britain and a few other would wish to stay in the EU, even if signifi cant countries that do not want to join the euro or opt-outs cannot be obtained. Most party accept its disciplines – but are still full members members and Conservative MPs are in the fi rst of the EU. two groups; most party leaders are in groups two and three. This emerging structure creates diffi culties for Britain. In theory, outer-circle countries will Fears of the United Kingdom Independence have just as much say on normal EU business as Party (UKIP) are making Tory leaders ever more those in the inner circles. In practice, however, eurosceptic. By the end of 2012 this party was the euro and pre-in countries may caucus on EU scoring better than the Liberal Democrats in business and then impose their views on, say, opinion polls. In November 2012 it won more single market rules. And the more that eurozone votes than the Conservatives in two by-elections, leaders centralise economic policy-making for and it could deprive them of victory in the next their countries, and the more they talk about general election by pulling votes away from ‘political union’, the more the EU seems to be them in marginal seats. This fear has encouraged moving beyond the relatively limited economic Conservative leaders to accept several demands 9073 annual_report12_1feb13 TEXT GB2.indd 3 07/02/2013 11:06 from their most eurosceptic backbenchers: in shape the rules of the single market and perhaps 2011 the government passed the EU Act, which access to parts of the market. It would therefore stipulates that Britain cannot accept a new lose foreign direct investment (for example, in treaty that transfers any power to the EU without the car industry and the City of London). And a referendum; and in the autumn of 2012 it it would lose the ability to steer and benefi t indicated that it would exercise a provision of the from the EU’s trade-opening deals with other Lisbon treaty that allows Britain to opt out of key economies – such as the South Korean deal much police and judicial co-operation. recently implemented, or those with Canada, India, Japan, Singapore and the US that are in the Neither measure pacifi ed the eurosceptic right, pipeline. Britain would also fi nd that on its own it which is by defi nition not satisfi ed unless Britain had less ability to infl uence global diplomacy on leaves the EU.