As both the Euro-area and the United Kingdom face an uncertain economic future, the Conservative led coalition government is displaying symptoms of political schizophrenia over its European strategy. Some leading Conservatives delight in the crisis gripping the Euro-area. But others worry that the Euro’s instability might fatally undermine the faint prospects of British economic recovery.
Tory Euro-sceptics hailed the Cameron government’s decision not to take part in the new decision-making institution created by the Stability, Coordination and Governance Treaty (or “Fiscal Pact”) as a kind of national declaration of independence. But they also fear that, outside the Euro-area, British influence in the EU will decline precipitately. While fiercely opposed to being members of the Euro-area, they nonetheless insist on being involved when decisions of importance are taken.
Most of the leading pro-European political voices in Britain were silenced as the Euro crisis intensified. Uncertain how to respond, even pro-European Labour and Liberal Democrat politicians were reduced to accepting that British entry into the Euro was “off the agenda” for the foreseeable future.
As the crisis deepened, these simplistic attitudes began to change. Government ministers nervously accepted that the British economy – if not in the ‘eye of the Euro storm’ – is close to the epicentre and could suffer a potentially disastrous economic backwash from any Euro collapse. At Euro-area/EU emergency summits last autumn, David Cameron appealed to his EU colleagues to accelerate Euro-area economic integration and to adopt pro-growth policies.
The UK government even accepted that full scale European economic integration might eventually lead to a European political union. But, like Winston Churchill in his famous 1948 Strasbourg speech calling for a “United States of Europe”, this was all proscribed for the Euro-area countries and NOT for Britain itself.
However advocacy of closer European integration shocked rank and file Euro-sceptics in the Conservative Party. There was talk of a right-wing parliamentary revolt against Cameron’s leadership and of defections to the United Kingdom Independence Party (UKIP). Alarmed by this, the Prime Minister sought to buy peace inside his party by insisting on a British veto of the planned EU Fiscal Compact Treaty forcing a clumsy inter-governmental agreement outside the formal EU framework.
Cameron’s macho display was hailed as “strong leadership” by the Euro-sceptics. But it came at a price as London increasingly realised that its marginalisation, combined with closer integration in the Euro-area, could well threaten “vital national interests” – in reality City interests – in areas such as regulation of the financial markets.
The improvement in the Prime Minister’s standing in his party proved purely temporary. Unrest is again growing within both coalition parties at the government’s management of the economy and other issues. “Why,” it is being asked “should excessive spending cuts and tax increases being wrong for the Euro-area but right for Britain?”
The creeping doubts about Britain’s future role in the EU cannot be simply reduced to the travails of the Euro. There is also a looming crisis within the “British Union.” The future of the United Kingdom itself is now in question as the nationalist government in Edinburgh prepares a referendum on Scottish independence.
Even if Scotland eventually opts to stay within the Union, it will certainly obtain even greater devolution of political power (as will Wales and Northern Ireland also) in what will amount to a Federal Britain. If Scotland opts for independence it will be an EU member in its own right and the rump British state will lose votes in the Council of Ministers and members of the European Parliament.
Fortunately for Mr Cameron, his Liberal Democrat allies are politically paralysed prisoners of the coalition and unable to articulate a different European strategy. The opposition Labour Party also seems tongue tied. In Ed Miliband, Labour has a leader with a strongly pro-European political pedigree but the party is fearful of challenging the Euro-sceptic consensus.
This all may change if a new balance of political power in the EU emerges. The austerity obsession of the dominant conservative majority in the Council is vulnerable to challenge. If François Hollande becomes French President, if there is a swing to the centre-left in the German election next year and if Berlin and Paris can unite around on a new European strategy for jobs, sustainable growth and social justice, Labour may rediscover its European voice.
Should the current right-wing European Union establishment prove unwilling or unable to change direction and the Euro collapses, Britain will feel the resulting economic tsunami like every other EU country. If the Euro is saved and the path to sustainable growth is re-discovered, the UK (or its constituent nations) will at least be able to choose once again between deepening isolation on the fringes of a revived European Union or to finally opt for full scale involvement.