Archive for February, 2013

An outbreak of Tory moderation on Europe or just wishful thinking….

For most of the past fifteen years, pro-European Conservatives have been on the endangered species list in British politics. In 2008 only three Conservative MPs out of a caucus of nearly 200 voted in favour of the Lisbon treaty.  Thatcher government was dominated by europhile big-beasts – Douglas Hurd, Leon Brittan, Ken Clarke, Chris Patten and Thatcher’s nemesis, Michael Heseltine, just to name a few. Of these, only Clarke remains in David Cameron’s government, like the last europhile dinosaur waiting to be made extinct.

The decisive movement was the passing of the Maastricht treaty in 1993, which cost Prime Minister John Major his majority in Parliament, and caused a decisive split in the party which took a decade to heal. To the eurosceptic rebels, this was the moment that the EU ceased to be about trade and became a political union hell bent on destroying the nation state. To the rest of the country, it is symbolic of a time when the Conservative party decided to make itself unelectable.

Even now, the degree of anti-EU vitriol in the Conservative party has to be seen and heard to be believed, and one of the best places is the Conservative Home site. Last week Robert Buckland, elected as a Tory MP in 2010, penned a thoughtful and fairly innocuous article to the effect that Britain is starting to assert itself in the EU and that this was a good thing. Fairly uncontroversial stuff, and quite hard to disagree with considering that it is only a fortnight ago that David Cameron teamed up with Angela Merkel to win a 3 per cent cut to the EU budget.

In fact, the comments on Buckland’s article by fellow Conservatives illustrates why the party’s moderate wing has tended to keep quiet and why Tory europhilia was – to paraphrase Oscar Wilde – like a love that dared not speak its name. Anybody who doesn’t think the Brits should close up the Channel Tunnel and thumb their nose at the continent is in the pay of ‘Brussels’ and/or a “quisling”. Quite how supposedly intelligent people equate support for British EU membership with Nazi collaboration is beyond me.

But, dare I say it, the green shoots of a more moderate eurorealism in the Tory party are starting to show. Several weeks ago, Buckland was one of a group of backbench MPs that launched the European Mainstream group within the Conservative parliamentary party. European Mainstream becomes the second pro-European campaign group to be set up in 2013, following the equally clunky-named cross-party Campaign for British Influence through Europe.

Since then, the EU has announced plans to negotiate a series of bilateral trade deals with G20 countries, with the jewel in the crown being a trade deal with the US – more manna from heaven for free marketeers you might think.

Let’s not get ahead of ourselves. The Tory party has not suddenly morphed into a hotbed of federalists. For the time being, there are only 12 MPs declared as members – with the Financial Times reporting that there are another 10-15 who are still too nervous to declare themselves public.

Neither is the party’s eurosceptic rhetoric likely to be toned down. The Tories are scared that losing votes to UKIP could cost them a parliamentary majority in 2015 and lead to a humiliating defeat in next year’s European elections. Taking a hard line on eastern European migration and complaining about the iniquity of ‘regulations from Brussels’ will remain the party’s default setting.

But it is significant enough that they feel brave enough to put their heads above the parapet, and are seemingly prepared to face down critics from their local constituency party. This may turn out to be part of the slow drift of MPs taking sides in advance of an ‘in/out’ referendum. But it just might be a sign that the Conservative party’s silent majority is finally ready to challenge the eurosceptics.

 

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Only in Italy?

A common phrase was on the lips of pundits this morning – only in Italy.

With the centre-left scoring only the narrowest of victories, leaving them with control of the lower house – the Chamber of Deputies – but a good 40 seats short in the Senate, it is hard to imagine a set of results less amenable to the creation of a government.

The results will have sent shivers down the spines of breakfasting EU officials just as it has spooked the hell of the markets. The Italian stock market has already dropped by 5%. Interest rates on 10 year government bonds have jumped 0.4% to 4.8%.

Last month, the outgoing finance minister of Mario Monti’s technocrat government, Vittorio Grilli told MEPs on the European Parliament’s Economic committee that the country would run a balanced budget in 2014. Then, last Friday, the Commission’s economic Winter Forecast indicated that Italy’s finances were returning to good shape, with the budget deficit to fall below 3% in 2013. In the space of less than 24 hours, eighteen months of painstaking work to claw back credibility and market confidence risks being undone.

However, taking a step back from the economic panic caused by the stalemate, there are so many fascinating sub-plots in this election that it is difficult to know where to start.

What is the main story? Silvio Berlusconi’s refusal to give up on politics after three separate terms as Prime Minister and enough scandal to fill over 100 unprintably salacious novels. What about the inexplicable reluctance of the Italian electorate to finally kill off the 76 year old dinosaur? How it is possible for a convicted fraudster currently on trial for having sex with an underage prostitute, to claim 30% of the vote?

Then there is the failure of Pier Luigi Bersani’s Democratic party, who could only secure victory by the skin of their teeth, separated from Berlusconi’s Freedom party by fewer than 150,000 votes in the elections to the Chamber of Deputies and less than 1% in the Senate. Indeed, the centre-left was also dogged by allegations of scandal over its involvement in the Monte Paschi bank collapse.

What about the sudden emergence of Beppe Grillo, who has made a comedy career out of lampooning Italy’s political class, and now holds the balance of power?

Or, last but not least, the routing of Mario Monti? The favourite politician of Brussels (and Berlin), who could only finish a dismal and distant fourth place with 10% of the vote in his first election contest.

What next you might ask?

Well, short of a Bersani/Berlusconi grand coalition, it is difficult to see how a government of any colour could take office, let alone be able to survive for more than a matter of weeks. The centre-left and right blocs are both well short of the 158 members needed to form a majority in the Senate even with the support of the 18 members elected on Monti’s ticket. For his part, Grillo has so far insisted that he will play no part in a government with either of the mainstream parties. Italians are likely to be sent back to the polls sooner rather than later.

That said, however, the election produced such a fragmented result that it is far from likely that fresh elections would deliver a majority government. In any case, the instability caused by months of inaction could well take Italy back to the mercy of the financial markets.

A week ago, the EU and the watching world would have scoffed at the idea of a maverick comedian holding the balance of power in the eurozone’s third largest country. They’re not laughing any more.

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Forget the MFF, it’s trade not budget aid that matters

EU leaders started their first summit of 2013 in fine fashion. First talks set to begin at a civilised 4pm were delayed until 8.30pm – a cruel interruption into carefully laid dinner plans. Then there was no formal proposal tabled by Herman van Rompuy until 6am. Several hours later on Friday morning it was back for the second round of punishment. The deal – when it came – concluded 24 hours of talks. An impressive display of sustained ‘jaw-jaw’ even by the EU’s high standards.

After the succession of crisis summits that have blighted many a Thursday night and early Friday morning over the past couple of years, I suppose we should be grateful that the politicos are merely dealing with how the EU’s farm subsidies and structural funds are going to be divvied up for the next few years rather than yet another bail-out.

But, ultimately, it’s hard to avoid a sense of frustration. €959 billion sounds like a lot of money but that’s not what is being haggled over. Politicians left the Justius Lipsus building in November with a proposal of €973.5bn in commitments from Herman van Rompuy. With Germany and the UK leading a group wanting further cuts, but the “Friends of Cohesion” and “Friends of the CAP” both anxious to protect their slice of the pie, the amount of room for manoeuvre was limited. In the end, it came down to splitting budgetary hairs. For example, Dutch Prime Minister Mark Rutte held up agreement for hours until he got an extra €45 million to go home with.

It is also far from clear whether or not the painfully reached compromise will be chewed and spat out by MEPs. The European Parliament is preparing to play hard-ball because it says that having payments worth around €910bn based on commitments for €960bn is a recipe for debt and deficit. Last night, Martin Schultz told reporters that the Commission would be forced to table an emergency budget in the coming months to cover a €16bn hole in this year’s budget. Without guarantees that the EU will have the cash to pay for its bills, he wouldn’t sign.

All this after a senior EU official told me that basically what’s at stake is 0.002% of EU GDP. Hardly worth staying up all night for.

Conversely, a handful of bland paragraphs in the post-summit communique could be rather more significant. EU leaders gave a green light for talks on a free trade agreement with the US, a deal that could generate 2% of GDP on its own. While the budget talks were uppermost in most people’s minds, it is the prospect of trade accords with Japan and the US – as well as the soon-to-be-finalised trade deal with Canada – that has the Brussels diplomatic corps excited. EU officials think that an EU/US agreement could translate into €275bn per year and 2 million new jobs.

In fact, taken in this light the budget talks are a microcosm of what the EU used to be and what it could and should be. A seemingly never-ending inward-looking debate about subsidies and investments in Europe by Europe. Ironically, the sections of the budget spending outside the EU- development aid and cash for the countries negotiating accession deals to join the EU – were among the items targeted by the biggest cuts. Meanwhile, outside the Brussels-bubble, the world goes on.

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