Picking a fight with the EU
Let’s face it kiddies, Santa Klaus almost certainly isn’t coming to town. The Tories have to accept that by far the most likely scenario is that the Lisbon Treaty is ratified by everybody by the middle of next month, and in force as soon as possible afterwards. The long Tory holding position of hoping for a British referendum on an unratified treaty is not going to hold water for much longer. Indeed, the Tories are starting to look disingenuous with their vague fall-back position of ‘not letting matters rest’.
So, what are they going to do? The Grand Old Duke of Cameron has marched his Euro-sceptic troops to the top of a pretty large hill, and simply marching them down again would make him look ridiculous. There has to be a plan – a plan that involves something of a showdown with Europe, and surely at the least a repatriation of some devolved powers. These could be symbolic (Charlemagne suggests securing the return of old-fashioned British passports) or more concrete. Charlemagne’s biggie here is financial regulation.
In their dreams, half our EU partners would like to impose martial law on the City of London, under some French general in a képi. In theory, lots of EU financial regulations could be decided by qualified majority vote. Sane countries like Sweden say they cannot imagine imposing regulations on the UK against our will, because the impact on us is too big. Get that in writing: a political pledge from the other leaders that Britain has a veto on financial regulation affecting the City.
The concept is good here: one of the key concerns of the expansion of powers of the European Parliament is that so many of them are head-bangers on Anglo-Saxon economic liberty. Listen to the noises coming from the French and the Germans on hedge funds – they want to impose regulations that will effectively kill off the hedge fund industry in the EU. Since the global centre for hedge fund activity is the City of London, this is massively important. I don’t think, however, that Charlemagne’s suggestion of a political pledge from member state Governments will be enough. If the matter can be decided by QMV, then the odds are that it will be, regardless of British objections.
So, Cameron should certainly lobby hard to oppose the introduction of disastrous over-regulation of the hedge fund industry. But, given that may not prevent its introduction, perhaps he should also make it clear that, were such rules to be introduced, the UK would not apply them. Hold a referendum on this matter (perhaps bundling in other specific EU regulations that the UK wishes to opt out of), and then introduce legislation disapplying them from UK law.
It’s something of a nuclear option – in theory at any rate. It opens up the old subject of Parliamentary sovereignty and the possibility of UK law operating in conflict with EU law (which will at least prompt the recall and pulping of a hundred tedious text books, and their replacement with a hundred different tedious text books) and it risks plunging the EU into one of its periodic bouts of internal crisis. But there’s little doubt that it would be the right move for the UK, and would also be popular. Despite the wishes of many of us, there is currently little prospect of the UK choosing to leave the EU. There is even less prospect of our being expelled. Not only are we one of the three main economies within Europe, but we are also a rare net contributor to the EU. Not only that, but we have a trade deficit with the EU – and in the increasingly mercantilist economics of the EU they won’t want to sacrifice their export market.
That this would be good for the UK goes almost without saying. One of our last comparative advantages is our financial sector. Resisting the imposition of rules that would significantly weaken this advantage is in the national interest. It would also be good for the Conservative party. By offering public consultation on the matter it goes some way towards lancing the referendum boil. By ‘standing up to Brussels’ it keeps the harder sceptics on board. By making this stand on an impeccable matter of national interest and free market economics it makes it less likely that the old suspects (by which I mean Ken Clarke and probably no one else…) will kick up too much of a fuss. Since negotiations on hedge fund regulation will be going on up until the election, it can all also be blamed on the Labour Government. It’s a bit of a result really.
The most likely outcome after grumbling and muttering is either that the regulations against the hedge fund industry are never introduced or, if they are, the UK can opt out from them. A short, defined fight with the EU that will be good both for the UK and for the Conservative Party. Everyone’s a winner. Except Frankfurt.