Financial Times, January 29th 2007

The forces pushing us away from European integration
By Norman Blackwell
Published: January 29 2007

With the "pause for reflection" on the European constitution now officially over, the scene is set for a further round of wrangling in the run-up to the European Union government heads' meeting in June.

Those who saw the constitution as an important stepping stone to further European integration seem determined to bring back a new treaty that retains all those key ingredients. Others such as the UK would prefer a minimalist treaty - or none at all - in the hope that they can then avoid their commitment to an embarrassing referendum. However, a debate on such terms invites the question as to whether either outcome now represents the best route forward for the UK or for Europe.

The challenges and opportunities of the 21st century are substantially different from those taken for granted when the designs for a regional "European block" were originally conceived.

Globalisation of business systems and communication means that many industries now operate with an international network of operations, components and talent. As a result, the rapid growth prospects of emerging economies spurred by these developments are outpacing the mature European economies - with China and India alone likely to grow to almost 30 per cent of the world's gross domestic product by 2015. As one of the world's largest trading nations with particular strengths in international services, Britain's future prosperity lies in competing as a global free trader.

In this context, a project aimed at tying us more closely into a slow-growth European economic block seems not just outdated, but increasingly at risk of holding us back.

In spite of the lip service played to European reform through the "Lisbon agenda" and some encouraging signs of movement in Germany, the reality is that the whole edifice of the EU single market has been built around regulations and harmonised social costs aimed at protecting EU workers from global competition.

Instead of helping the UK compete in the world, measures such as the working time directive - where our concessions are gradually being eroded - are step by step frustrating our ability to compete on our own terms. Even the much-promised single market in financial services, instead of opening up opportunities in Europe, risks turning into a bureaucratic exercise that undermines the "light touch" regulation that has made the City such a success.

In this context we need to re-examine the conventional wisdom that, whatever the cost, we cannot afford to be outside the core group in an integrated EU. It would be wonderful to believe that the UK can convince the rest of Europe to reform in time, but it would be rash to rely on that. We have already opted out of the eurozone to no ill effect. In a more flexible Europe, there is no reason we cannot similarly opt out of other aspects of continued political and economic integration that constrain our competitiveness.

So what should our objective be? The ideal 21st-century solution might be a "European Commonwealth" where we continue as part of a European free trade area and continue to co-operate on a wide range of individual common programmes where we have a mutual interest with our neighbours - but with participation based on intergovernmental agreement rather than imposed through EU legislation.

Such a reform would inevitably mean changing the existing EU treaties. It would involve the UK opting out of those political and legal institutions that are the foundations of an integrated Europe. However, there is no reason why we cannot achieve that outcome if we are clear about our objective. Since we have a veto on any new EU treaty, the new talks provide the perfect opportunity to negotiate what we want in return for allowing those eurozone countries that are set on further integration to proceed on their chosen course. We should recognise that they have every interest in maintaining the UK as a strong trading partner and ally. Further, we may find that this more flexible model of Europe is one that several other members find better suits their own needs.

It is time Britain faces up to the reality that the status quo - with its built-in momentum for integration - is not a feasible or comfortable option. The world is changing, yet the EU remains stuck on an outdated track. Britain should not turn its back on Europe, but we urgently need to define a different, looser relationship within Europe that more adequately serves our future global interests.

Lord Blackwell, chairman of the Centre for Policy Studies, was head of the prime minister's policy unit, 1995-97