Business for New Europe Blog

Press Release – EU referendum vote is a distraction

By Phillip Souta

Press Release – Cut the EU budget to boost the EU’s credibility

By Phillip Souta

BNE calls for radical shift in EU spending to promote growth; 10% EU budget cut.

As EU Ministers meet today to discuss the shape of the EU’s budget from 2014 – 2020, the argument is between those who want to increase spending or freeze it.  No one has made a credible case for reductions yet, and a rebalancing of the budget towards growth.  BNE is making that case with a fully costed alternative budget which calls for a 10% cut in spending.

Phillip Souta, Director of BNE, said “debates about the EU budget are stuck in a rut.  The current budget is a relic of the past, and it needs radical reform.  We believe we can save over €100bn for the EU and €10bn for Britain alone whilst spending more on long-term economic growth, and security and development in Europe’s neighbourhood.”

He went on to say that “the debate needs to change.  It is inevitable that people will focus on the bottom line, but the content is more important.  It is not anti-European to say we should do more with less.  No one is making this argument, but with this alternative budget, that has now changed.”

Notes to Editors

- BNE’s publication “Rethinking the EU Budget: An alternative financial perspective for the Multiannual Financial Framework 2014 – 2020” is available at:

http://www.bnegroup.org/images/uploads/publications/files/BNE_-_Rethinking_the_EU_Budget.pdf

- Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe.  We comment on European issues that have an impact on the UK.  For a list of our members, please follow this link http://www.bnegroup.org/about/people/

- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org  or contact +44 (0)79 4457 2351.  Phillip Souta can be contacted directly on +44 (0)78 8788 6437 for comment.

Conservative Party Conference LIVE Event Blog: Will Brussels Run British Foreign Policy?

By Phillip Souta

In partnership with Open Europe and the Centre for European Reform, Business for New Europe brought together a distinguished panel of speakers to discuss the role of Brussels in British foreign policy. The event was chaired by David Rennie, The Economist, and the speakers included Lord Hurd of Westwell, Secretary of State for Foreign and Commonwealth Affairs (1989-1995), Alexandr Vondra, Czech Minister of Defence, Gunilla Carlsson, Swedish Minister for Development Cooperation and the Rt Hon David Lidington MP, Minister of State for Europe, Foreign and Commonwealth Office.

Lord Hurd started the discussion noting that whilst member states continue to represent themselves as individuals in foreign policy negotiations there are, at the same time, strong cases of collective EU action, which is often under-reported. For example, Palestine is an example of where the EU has taken a specific stand and it is important to remember, Hurd emphasized, that these actions are exercised by Lady Ashton on the UK’s behalf.

There is a clear relationship between Brussels and Britain in the foreign policy domain; however, it is not a case of one against the other argued Hurd. He said that counties act on their own and countries act collectively at the EU level; in short, this dynamic in European foreign policy relations should not necessarily be viewed as a negative conflict.

Looking forward, Hurd hopes that unanimity is the key to dealing with any problems of EU-level foreign policy. Hurd suggests that it is useful to look back at the referendum and the advantages noted by Thatcher – most of all, it would undoubtedly help Britain speak with one voice along with Europe on global issues.

However, he recognized this is not particularly possible because – as Libya demonstrated this year – the EU faces the problem of a lack of unanimity. Indeed, the US may increasingly think that they can leave problems in the hands of the Europeans but the reality is that this poses a challenge which the EU and the UK are not particularly prepared for. The majority of Europe’s military operations are in the hands of Britain and France, Hurd argued that this is because both countries have a greater likelihood of intervention in comparison to their other EU counterparts. Plus, Europe has been too successful in demilitarizing Germany.

Russia is a key area that Hurd advocated joint EU activity, he said this was highly desirable. The UK should be cautious here because the reliance on Russian oil and gas is a concern. Hurd believes a non-EU level approach to Russia could be detrimental to the EU/Russia relationship and could further exaggerate the already-present worries about dependence. Despite clear national divergences on the issue – namely Germany – it is crucial he argued that EU member states operate together, with individual sectors working more closely and minor difference put aside; there are big possibilities here if the UK is willing to play its part collectively.  Furthermore, Germany should not be encouraged to continue on an inward-looking path.

On a whole, Hurd concluded that there are many different disputes on foreign policy issues and he knows that progress is slow mainly because of the need for unanimity. However, he closed by saying that the potential of Europe acting together should not be underestimated  – the potential of Europe acting together is great and has not yet been fully realised.

Gunilla Carlsson considered what is currently at stake in European-level foreign policy and argued that there is a need for Britain to be a positive force. She noted that whilst the UK and Sweden are both outside the eurozone, they remain dependent on stability, particularly because of significant trade links with eurozone countries. Indeed, Carlsson recognized that this demonstrates the self-interest of member states like the UK and Sweden but nevertheless its importance cannot be undermined. The EU really needs to stand united in order to be able to take on huge challenges; the peaceful stability of Europe is a strong example of this.

There is a need for greater cooperation because otherwise there is a clear risk of a weakened Europe developing, particularly as new global powers continue to emerge. Carlsson emphasized this by noting that China is a good example of an emerging international relation player but, on the other hand, the US – being in a bad shape currently  – is another example a shifting military structure because their austerity measures have placed significant pressure on their arms sector.

There is no doubt, stated Carlsson, that there is an expectation that Europe will stand up for human rights and democracy, particularly in the Arab Spring. The worst thing that could happen in foreign policy is for a clear division amongst EU member states to emerge because for both the EU27 and individual member states, a successful EU foreign policy is something that will only work united.

Carlsson closed by emphasizing what she viewed as a key foreign policy issue for Europe – Turkish accession. It is not too late, she argued, for Turkey to join the EU and it must not be forgotten that enlargement is one of the greatest assets of the EU.  Carlsson stated that there was a definite importance of Turkey in the UK – and indeed the EU – which must be more effectively recognized.

Britain has really served the EU in a good way she said and Sweden needs Britain to be a positive force in Europe, particularly taking a core role in the decision-making process on Turkey. Sweden takes a key interest in working more closely together with Turkey and has confidence in what the EU should continue to be about.

David Lidington outlined three key points about the relationship between Brussels and Britain on foreign policy. Firstly, Lidington sees European policy not as a substitute for UK foreign policy but as a tool to compliment and give further leverage; this is the general thinking behind the UK’s foreign policy he argued. In an EU context, Lidington said he recognized that statement is far easier for a British government to say than a smaller – perhaps newer – EU member state. He added that unlike other policy domains in the EU, foreign policy is strictly a matter where the unanimity rule still applies and this is why there are not common positions on issues such as Turkey and Russia.

Secondly, when the EU seeks to work together and have greater leverage as the EU27, rather than individually, it needs to have clear and limited priorities. The EEAS should not try and do everything but focus on specific programmes that it can do best and at full capacity, argued Lidington. Obama does have visible impatience with a US/EU summit and he put forward what he views as three collective priorities for EU member states in the foreign policy.

1. Working collectively to open up the Chinese market and reduce bureaucratic restrictions; more broadly, Lidington believes that securing global partners for domestic businesses is a shared goal for EU member states like France and Germany, and working together to do this would produce the greatest results.

2. Continue with the success of the European Neighbourhood Policy to build a new approach to European policy with greater leverage capabilities than before.

3. The EU should focus on what it is particularly good at – conflict resolution and conflict prevention. Lidington stated that Lady Ashton has done a really good job on Iran sanctions and emphasized that this was a particular achievement because neither Washington nor Tehran thought Europe was capable of delivering here.

Finally, Lidington concluded by looking at how you achieve the above institutionally. He argued that the UK and fellow EU member states must seek to influence the EEAS and ensure that their focus remains on collective responsibilities. Also, he stated that there is a collective obligation for EU foreign affairs ministers to work together more effectively and more frequently than they have in the past; Lidington said that he has already begun to observe the growth and habit of routine in consultations between foreign affairs ministers and this has made it possible to identify a common position more swiftly.

Alexandr Vondra agreed with Lidington’s view that strong alliances can be achieved and Carlsson’s view on the value of Turkish accession. On Turkey, Vondra elaborated that the reality of Turkish accession is that France and Germany will never allow Turkey in because firstly, it is larger than they are and the EU has never actually agreed to accession for a country of this composition. Also, countries seriously view Turkish accession as a competition issue and always will. The problem now is that Turkey is no longer oblivious to this.

Moving forward in terms of EU foreign policy, Vondra argued that the first priority is strategic and the second is operational.

Strategically, there are several important relationships, like those with US, Russia, Turkey and China. With US, for example, the EU is not in any better shape than it was ten years ago and with Russia, there was a promise that a bigger EU meant they would be able to defend interests better. In terms of the latter, the EU is now in a situation where it is facing a greater dependence on Russia than before and Germany is just likely to further exacerbate these concerns.

Operationally, the question is of ownership of the common interest and the difficulty is that the EU has created a dilemma amongst member states. Considering his own country, Vondra noted that if you are running a small diplomatic service you have a dilemma because you have a minimal number of skilled people and whilst you do not what to lose them to Brussels you cannot match the salary levels.

Vondra noted that the question of ownership applied throughout the foreign policy structures of the EU and specifically noted the EEAS here. As a result of a lack of ownership, it is not Brussels who runs the show but a small group of diplomats and these few are likely from the North; twenty years ago there was an east/west divide and today, the EU has a significant north/south divide. However, Vondra argued that there have still been success stories coming out of Europe, such as Iran.

Conservative Party Conference LIVE Event Blog: Will the Euro Crisis Split the EU?

By Phillip Souta

In partnership with the Centre for European Reform, and sponsored by Citi and Linklaters, BNE brought together a panel of distinguished speakers to discuss the euro crisis. Phillip Souta, BNE Director, chaired the panel which included Willem Buiter, Chief Economist, Citigroup, Katinka Barysch, Deputy Director, Centre for European Reform, George Eustice, MP for Camborne and Redruth, and Mats Persson, Director, Open Europe.

Willem Buiter began by stating that the crisis in Europe was two-fold: in the outer periphery, it is a sovereign solvency crisis and in the inner periphery, it is a liquidity crisis.  Reflecting on this, Buiter stated that a breakup of the eurozone would be the worst possible solution and furthermore, the crisis would swiftly become global. To prevent this catastrophic scenario occurring, he said that Europe needs to do three key things. Firstly, recapitalize European banks so they can withstand multiple debt restructuring. Secondly, restructure sooner rather than later to prevent contagion. Thirdly, establish the economic equivalent of large bazookas to prevent future crises – essentially strengthening/creating firewalls such as the EFSF.

Buiter emphasized that it is essential that no country is let out of the euro area. In the case of Greece, he said that whether or not you agree with them being let into the eurozone, this is irrelevant to serious attempts to solve the problem; any exit from any eurozone country would destroy banking systems right through both peripheries.

George Eustice MP stated that the euro has always been a triumph of political belligerence rather than economic logic.  If the euro was truly going to work then fiscal integration was needed; the Conservatives knew that if you had political union then you needed greater consensus and also, flexibility in the labour market because if governments cannot devalue they at least have the option to cut wages. However, adopting the euro meant that neither option was provided for eurozone member states. Eustice remarked that the Conservatives have been right about the eurozone all these years, though – in the current context – he said that they needed to get back to talking about the crisis in a constructive way.

Currency unions have broken up in the past, but Eustice argued that in the case of the euro, it is unprecedented because it has a central bank, which essentially means that the euro crisis is a currency in unchartered territory. He argued that Greece should devalue by exiting the euro and re-entering the global market. At the current stage, he said, Greece is being allowed to continue blindly on a path of un-competitiveness.  Eustice said the euro crisis should be used as an opportunity for the EU to be radically reformed and that the UK should use this to have a real fresh debate about what the EU really is and what the EU should be doing. Strip powers away, make the EU more flexible and develop a new set of relationships was the way forward argued Eustice in his concluding remarks.

Katinka Barysch started by arguing that whilst the economic problems in Greece are very severe, an uncompetitive industrial sector is not the root of Greece’s problem. The problem is that it has a very bloated public sector. Greece leaving the eurozone would not address the deep structural problems and discussions must look at what actually needs to be addressed. Barysch noted that the latest polls show that two-thirds of Greeks want to stay in the euro because they are fully aware that there is not a quick fix.

Barysch focused her remarks on three key issues. Firstly, she looked at whether the euro crisis is leading to deeper fiscal and political union? Barysch argued that it was moving to greater fiscal and political union but not in the forms previously seen in the European integration process; the EU has been changed profoundly by the euro crisis. Barysch agreed with Eustice that the EU needs to reevaluate itself and in doing so, she argued, there will be new treaties and institutions. However, new forms of integration will not be based on the previous ideology that all EU member states are equal. Furthermore, it will be critical that new economic rules and sanctions are established via treaties/institutions that are independent, even if there is resentment from member states – namely Germany – about being told what to do.

Secondly, Barysch considered whether or not the UK should be interested in the euro crisis. She argued that we have not really had to contribute to the bailout and that further EU integration will happen, unlike originally planned, at the eurozone member level. The likelihood is that a new treaty will actually just be a partial treaty but Barysch noted that he danger for the UK was being sidelined because it is fairly inevitable that developments at the eurozone level will affect wider economic policies in Europe that remain very important to the UK.

Finally, Barysch looked at Germany, its ability to be a leader in saving the euro and German public opinion on Europe. She noted that media coverage, in Germany and across the EU, demonstrated the far reach of opinion calling for Germany to prop up the single currency. However, Barysch emphasized that Merkel faced severe political constraints in her negotiation power on the eurozone, predominantly from the German Constitutional Court, which is the most highly respected institution in Germany and puts constraints on policy.

Looking ahead, Barysch said that Merkel would keep her coalition together for the simple fact that nobody wants an early election but for the next parliament, Barysch stated that the SPD and Green party are likely to form the next parliament. She emphasized that when it comes to Europe there is not a straightforward trend in German public opinion on Europe and drew attention to that fact that both the SPD and Green party are both very pro-European and continue to lead in the polls.  On the whole, Barysch concluded, Germany is prepared to take whatever measures it needs to as long as it politically and economically feasible.

Mats Persson agreed with Barysch on her point about Germany, he agreed that it was a far less straightforward case than Britain – Britain, he said, was not as fluid as Germany on the issue of Europe. In terms of whether the euro crisis will split the EU, Persson said that the EU is already splitting because it has not acted as the uniting force that was expected but at the same time, it is highly unlikely that the eurozone would break up. Persson noted that there are several different scenarios but a split was not one of them and in fact, would be the worst possible situation; even if the eurozone did split up, the EU and the single market could withstand the breakup in the long-term.

On a whole, Persson agreed with Buiter that there are three key requirements to deal with euro crisis: recapitalise, restructure and then provide a proper firewall. However, Persson argued that in all of these solutions there was a conflict – the constraints of national democracy and what the markets want. The EFSF is an example of this because the question of who will continue to top it up is unknown. Persson attempted to identify the root of the problem, which he said, is that the ‘top up’ will always come back to the taxpayer.

Persson then considered the option of allowing the ECB to stand in and buy euro bonds worth billions. He argued that this is definitely a credible option and noted that it is advocated quite widely but that the risk lies in what it would do to the reliability of the ECB. Persson thinks that the ECB could lose significant fiscal independence, which in turn would disrupt relations with Germany.

In terms of moving to a fiscal union – a current obvious option – Persson argued that this will take years and for eurobonds alone, the German constitutional court put constraints in place. In short, Persson felt that fiscal union is not a short-term option because it will take years to negotiate and whilst the three prong strategy advocated by Buiter is necessary it is very difficult to achieve in the current political environment.

Persson concluded that he was surprised by George Osborne’s remarks on Europe in his speech at the Conservative Party Conference on Monday (3 October).  Osborne argued that the euro was flawed from the beginning yet on the other hand, advocated beefing up the EFSP in the sum of €2 trillion worth of loan guarantees. Persson said that Osborne should be careful putting these kind of arguments forward because at present, the UK’s position is inconsistent and that needs to change even if the UK can only do very little in practical terms to solve the euro crisis.

Conservative Party Conference LIVE Event Blog: Affording Pensions and Healthcare: Can Europe Defuse the Demographic Time-Bomb?

By Phillip Souta

In partnership with Respublica, and sponsored by Aviva, BNE held its final cross-party fringe event on the challenges faced by Europe’s ageing demographic, titled “Affording Pensions and Healthcare: Can Europe Defuse the Demographic Time-Bomb” at the Conservative Party Conference. BNE Director, Phillip Souta chaired the high level panel where we were joined by Damian Green MP, Minister of State for Immigration, Vicky Ford MEP, Conservative Spokesman on Economic and Monetary Affairs, European Parliament and Andrew Dilnot CBE, Chair of Commission on Funding of Care and Support.

Andrew Dilnot began the discussion and stated that he was heartily fed up with recurring term  ”the burden of ageing” because the only alternative to this was a “burden of death”. He argued that, in fact, the increase in longevity is one of the greatest triumphs of the past century and this term miscontrued the importance of that. For example, he noted, the number of people aged eighty has more than doubled. Dilnot argued that the result of this, however, is that the change in the demographic structure does mean that the structure of society has to change. He stated that it is inevitable that the UK will have to adapt by spending more on pensions, healthcare and social care; he compared this to the reality that the UK spends twice as much on transport and recreation than it did in the 1960s.

Going forward, Dilnot noted that governments and the public need to become more flexible because both pensions and healthcare require greater flexibility than the past; it is simply not good enough for the public to want better healthcare and pensions but, at the same, to not be willing to make a trade-off and the government needs to be flexible because the money for these increasing needs has to come from somewhere. Dilnot stated that reforming healthcare and pensions in the UK would require an understanding of what the state sector can do better than the private sector and vice versa. For example, he advocated that an effective relationship of the state sector and the private sector on pension policy would require the state to take the tail-end of risk. He concluded by saying that politicians need to be honest and open about the consequences of the essential reforms required to tackle the challenges of the demographic time-bomb.

Vicky Ford began by noting how each generation comes with an increased chance of living until one hundred years old and argued that there are two potential solutions to addressing Europe’s ageing demographic. Either doctors are told to stop curing people or societies recognize that – in our generation and the next – people are going to have to work longer and start saving earlier than previous generations.

Ford argued that the challenges of the ageing demographic could not be solved at the EU level. She held this view primarily because of the diversity in pension policy across EU member states. For example, in France, protests against pension reform were due to what could be seen as relatively minimal rise, from 60 to 62. Another difference, Ford argued, was in the accessibility of pension information and the diverging advancement in domestic pension policy. For example, she argued, the Dutch they have highest amount of pensions and this is despite the fact that the state pension is less than half of your entitlement. Ford noted that this was considerably due to the ease of accessing pension information n the Netherlands where an individual can type in their pension number online on a whole host of sites to see more about pension schemes and what the increase would be if you added an extra £5 a week. In the UK, said Ford, the pension scheme is too complicated and you can’t easily see what you have saved and how can save more.

Ford also argued that the new European regulations coming out need to be seriously addressed because they serve to further complicate the UK pensions sector and Ford is very worried about what could be coming out of the Commission. She specifically noted that proposals for a financial transaction tax (FTT) were counterproductive because they would hit the end investor not the City which would have serious implications on pension saving.

Damian Green stated that the pensions debate is fascinating because, in essence, it is very simple but as soon as you get half an inch below the surface it is actually very complicated. In pensions, he said, the UK currently has schemes that are massively unaffordable. His main point was that immigration cannot solve the pension problem and continuing to argue this does more damage to the challenges posed by the ageing demographic.

Green argued that setting a high level for net migration in the UK would not reduce – or even halt – the old to young dependency ration. He stated that if net migration was kept at 150,000 then the dependency ratio would still go up from 61% to 74% over the next 40 years or so. Green noted that the US could cope with a 30% increase in net migration but the UK – like most European countries – cannot because it would cause quite significant problems to the already present challenges in healthcare and pensions. Furthermore, Green argued, a significant increase in net migration would only have a minimal – if any – impact on the old to young dependency ratio. Low or high immigration does not matter as much as the rate of change in populations. He noted that the coalition government is taking tough decisions in tough times, which means putting up the pensions age, even higher than originally planned.

Green emphasized that immigration is simply a numbers game and it does not provide a solution to the pensions crisis. The solution is quite simple he said, we all have to work harder and save harder. The difficult task, he said, are the implementation details of reform because it is the details that are both technically and politically hard. A stable and prosperous old age will be more complex to achieve and current generations are likely to feel hard done by, but Green argued that after the transition period society would find the reforms easier because young people have decades to accept that they need to work longer. In his concluding remarks, Green stated that Europe’s demographic time-bomb is a problem that cannot be delayed and the sooner it is tackled then the sooner it would be solved and the pain reduced.