Speech by Ruth Lea, 17th November 2007

Decision time: reform, renegotiation or withdrawal: how should Britain resolve the EU question?

1 General introduction

Delighted to be here to address the issue of Decision time: reform, renegotiation or withdrawal: how should Britain resolve the EU question? But before I answer this question I would like to spend the time telling you about Global Vision's approach to a new relationship for the UK with the EU to put our campaign group into context - if you would bear with me. And then why we believe we should renegotiate a new relationship with the EU based on trade and mutual cooperation, whilst opting out of political and economic union.

Of course, much of the current debate on the EU surrounds the demand for a referendum on the Reform Treaty. But we must not ignore what I regard as the necessary debate on the right relationship of the UK with the EU in the rapidly changing and difficult global economy of the 21^st century.

2 Global Vision: the economics

Could I firstly just indulge some economic history? In the 1970s Britain was the "sick man of Europe", whilst Europe was growing healthily. Tariffs were high so to be in a customs union with zero internal tariffs was an attractive proposition. The decision to join the EEC in 1973 was probably right. And I personally supported it at the time.

But the economic realities in the 21^st century couldn't be more different. The British economy has been transformed and the world is changing radically with the EU accounting for a progressively smaller share. According to a 2005 Treasury paper the EU's share of world GDP was 26% in 1980 - it is expected to be down to 17% by 20105. Meanwhile the Chinese and Indian economies between them produced just 6% of world GDP in 1980 - this is expected to increase to 27% by 2015. Over the period the US's share is a fairly steady 20% (approximately).      

And the EEC has changed. It is now the European Union with the Reform Treaty filling in the gaps, providing EU institutions with all the powers they need to build a sovereign United States of Europe - or as Michael Ancram puts it "a country called Europe".  I will concentrate on some of the more troubling economic and business aspects of EU membership today - but that is not to say the sovereignty issues are unimportant. 

• The cost of these EU regulations, introduced through the Single Market legislation, is now damaging competitiveness throughout the EU including the UK. According to the European Commissioner Günter Verheugen EU legislation costs European business €600bn a year whilst the benefits of the Single Market, according to Commission sources, amount to just €240bn. These costs are set to rise as the EU continues to legislate for increasing social market protection. At the same time existing UK opt-outs - for example on full application of the working time directive - are being progressively eroded.
• I am especially concerned about the Financial Services Action Plan (FSAP). The FSAP is monumental and comprehensive, comprising 42 detailed measures. According to an estimate by Open Europe, the Plan could cost the British economy at least £14bn to implement by 2010. But, shockingly, there has been no comprehensive cost-benefit analysis to enlighten us about its potential benefits. It therefore, comes as no surprise that many financial businesses, especially small ones with no cross-border trade, regard the FSAP measures as dead-weight costs. Indeed, and more generally, the regulatory costs will bear disproportionately on small, niche businesses that rely on fleet-footed innovation to thrive rather than on the large businesses that have the necessary bureaucracy to handle the compliance procedures. But, whether large or small, regulation is costly and undermines international competitiveness.
• Of more specific concern are the discussions for an EU-wide financial regulator. Politics would probably dictate it would not be in London - despite London's pre-eminence as an international centre. The FSA may not always cover itself in glory but at least it is dedicated to the UK and relatively "light touch". An EU-wide regulator would not be.
• Protectionism: CAP, as well as creating costly national distortions, damages the trade opportunities of the developing world and acts as a barrier to new trade negotiations. The EU is protectionist in other areas such as clothing and shoes - damaging developing countries and disadvantaging the EU's poorer citizens.
• The UK's ability to develop closer trading relationships with those markets which are or could be particularly important to the UK - including The US, Canada, Australia and India - is blocked by its membership of the EU's Customs Union.
• The UK's net contribution to the EU budget is rising, draining money from the Treasury that could be spent on schools and hospitals and generally enabling British people to live more prosperous lives. The UK's net contributions to the EU Budget are expected to average almost £6½ bn for the years 2011-2013 - double the average of the decade from 1997 to 2006, which averaged £3¼ bn. Gross contributions are set to rise from £9bn (2007) to about £14bn over the next few years (up to the end of the current 6-yrear period 2013).

All these factors matter to Britain as a major trading country (the 3^rd largest in current account terms) and Britain's competitiveness. They matter to Britain's future. High cost, inflexibly & heavily regulated & protectionist economies will not be the economies that will flourish in the 21^st century. Yet this is what membership of the EU's political & economic union will increasingly mean.

3 Global Vision: reform, renegotiation or withdrawal?

Reform the EU? Some people believe that the EU can be reformed into the sort of EU we would like to see. Attractive though this is, I don't believe it's on offer. We've been trying to reform the EU every since we joined it and failed. 

Instead Britain must surely renegotiate a new, more modern, looser relationship based on trade & mutually agreeable & beneficial cooperation, whilst opting out of political & economic union. The EU is an old-fashioned, narrowly regional mid 20^th century political construct. But the 21^st century is, and will be, about global cooperation and links. Britain, with its global outlook & connections is ideally suited to thrive in the 21^st century - provided it has the freedom and flexibility to make the appropriate decisions. We believe that this is the right thing to do for the country - it's desirable.

And according to our polling, our third way is also popular.

Global Vision: our polling shows that this model for Britain is not an extreme view - it is the mainstream, popular view. We have done 4 polls asking people their preferred relationship with the EU:

• Continue as a full member of the EU, participating in further integration
• Negotiate a looser relationship based on trade & cooperation, whilst opting out political & economic integration.
• Complete withdrawal.
• The "looser relationship" has been the preferred option on all occasions. People don't want to be ruled by Brussels, but neither do they want to walk away from Europe - a Swiss style relationship.

The latest shows ¼ wanted to stay in, ¼ wanted to withdraw and ½ wanted renegotiation to a trade relationship. It's what the people want. 

Also ConservativeHome poll results of Conservative grassroots supporters. When asked:

• If the Treaty is ratified would you support a referendum that mandated the incoming Conservative government to renegotiate back to the idea of a free trade area: 63% agreed.

So our approach is desirable for Britain and popular. The critical questions are not, therefore, about the popularity of this desired outcome. They are about its legal and negotiating feasibility.

4 Renegotiation: legal & negotiating feasibility

Britain's current membership of the European Union is defined by a series of international treaties between the member states, agreed by unanimity. The new relationship would require the UK's adherence to those Treaties to be replaced by a new agreement between the UK and the other member states.  A key feature of this new relationship would be that the UK would retain the basic freedom to trade with the existing EU member states (and vice versa) but would no longer be subject to the EU's law-making apparatus or Court system.

Of course it would still be necessary for businesses which sell goods or services into the EU internal market to comply with EU rules and standards (many of which are internationally agreed), in the same way as businesses have to comply with US standards if they want to export there.  But it would no longer be necessary for us to comply with EU requirements when goods or services are supplied within the UK, or on export sales to third countries. And we would no longer be obligated to adopt social legislation.

There are no legal barriers to Britain's changing the terms of the relationship with the EU at all. It is perfectly feasible, legally speaking.

What about its negotiating feasibility?  Would our EU partners allow us the "benefit" of free trade with the EU without paying the "price" of full involvement in the political union? There is the fear that other EU member states would set up protectionist trade barriers with lost trade and lost jobs resulting.

But this is most unlikely to happen. Firstly, any discriminatory tariffs are against the rules of the WTO.  Secondly & more importantly, the other members of the EU (in aggregate) have a large trade surplus with us. So it will be very much in their interests to be part of an arrangement that maintains free trade with the UK. Germany's car manufacturers would be distressed not to be able to sell their cars here - as would France's wine growers.

5 Political: twin frictions

Our solution not just right for the UK, but I would argue it's right for the EU. There is no doubt there are persistent frictions and divisions within the EU. I believe these frictions, basically 2, are irreconcilable given the current structure and membership of the EU.

Firstly, there is the friction between those member states, including the all-important Franco-German axis, that wish to push ahead with further political integration and those, including the UK, which do not. No country, least of all Britain with its very different outlook and history, should stand in the way of the federalist ambitions of key, founding member states. I've heard many complaints about Britain's perceived lack of "Communautaire" spirit and our reluctance to go along with the European integrationist project. There is genuine frustration. The negotiations at the Summit about Britain's "red lines" (even though they were mainly red herrings & distractions vamped up for a domestic audience) and Britain's refusal to adopt the euro just reminds our Continental partners that we will never be happy members of "the ever closer union among the people's of Europe" (as expressed in the Rome Treaty).

In 27 June Giscard d'Estaing, grand architect of the Constitutional Treaty, said on French radio that "integration is vital for our Continent. And if the UK doesn't continue with us in this process of integration, conclusions must be drawn." "Which conclusions?" asked the interviewer - to which Giscard replied "we must find a ‘special status' for Great Britain. If the British want to be apart, well, then we must be able to offer them that, and they must be able to accept."

Valery Giscard d'Estaing, the Chairman of the Convention on the Future of Europe which drafted the Constitution, inserted a "voluntary withdrawal" clause into the Constitution (which is also in the Reform Treaty) with the UK specifically in mind. He and many other top EU politicians would not be outraged if Britain declared its wish for a looser relationship. On the contrary they would be relieved. The friction between Britain and the rest of the EU, that has bedevilled relationships since the UK joined, would be solved.

May I also quote Luxembourg PM Jean-Claude Juncker who recently suggested that EU member states should have the possibility to become just part members of the bloc. He said that:

"It must be possible not only to be a full member...Without noticing it, the British are on their way to becoming part members." The UK is not taking part in the single currency or in the EU's borderless state (Schengen area).

In addition, there is the matter of the Eurozone. Historically, currencies have only survived and thrived when they are backed by political and economic union. It may be that the euro will prove to be an exception. But a euro backed by political union surely has a better prognosis than one that is not. And we cannot deny the tensions that are building up in the eurozone now.

Secondly, there is the increasingly sensitive issue of further enlargement. "Enlargement fatigue" has set in following the extraordinary enlargements from EU15 (in 2004) to EU27 (now). It was probably inevitable. In addition, membership for Turkey (especially) and certain Western Balkan states (excluding, arguably, Croatia) raises seemingly insuperable political obstacles. It is quite clear that the French will not accept Turkey as a member state. Chirac altered the French Constitution so that any EU enlargement beyond Croatia would be subjected to a referendum.

Hopefully the UK's new, looser, relationship with the EU would set a precedent for other existing or potential future EU members.  For example, it now seems highly unlikely that Turkey will be permitted to be a full member of the EU yet there are many reasons for wishing to anchor Turkey within a wider "European family". The concept of "privileged partnership" has been suggested to, but rejected by, Turkey. If the UK had a similar "privileged partnership" then surely the whole tone of the debate would change. And we should not be surprised if some other new members (eg Czech Republic, Poland) also choose the same route. In that way the UK's move to negotiate a new relationship could be the catalyst to a much wider reform of the whole EU.

6 The way forward for the 21^st century: reconfigured Europe 

We need to think forward and we need to think boldly. I know that there is a lively debate on the Continent about a "reconfiguration" of Europe so that disparate ambitions can be accommodated, a stronger, more flexible "Europe" can be built and the EU's frictions (the "hole") can be resolved. Britain, as one of Europe's largest and most important countries, and as the most vocal critic of and reluctant participant in the European integrationist project, is absolutely central to this. Its significance cannot be exaggerated.

The obvious way forward is for us to respond positively to Giscard's suggestion - take up his challenge - and start planning negotiations for a "special status" for Britain. The "special status" should be based on trade and cooperation, whilst opting out of political and economic union. If we went down this route, it would address the unhappiness in this country about the integrationist direction of the EU whilst constructively responding to Giscard's challenge.

This "reconfigured", flexible Europe will surely be a more resilient model for the changing 21^st century than the current 20^th century one with all its frictions and inflexibilities.

After all what is required is political will to negotiate by both the British Government and our EU partners. Any British politician should feel emboldened by consistent polling which shows that the British people want a new relationship. The people are there already. The politicians should follow. And if Britain were to pursue a new relationship with the EU, I believe that European politicians would welcome the opportunity for positive and fruitful discussions.