Europe and the UK: Reflections on reform

Full versions of both essays were published in issue 19.2 of Juncture, IPPR's journal for rethinking the centre-left.

In an essay looking at how Europe's move to deeper fiscal union could be reconciled with closing the EU's widening democratic deficit, Vivien Schmidt considered proposals to directly elect the European council president or to elect the European commission president via European parliamentary elections, favouring the second. But in taking steps to democratise its institutional arrangements, Schmidt argued, the EU must come to conceive of itself as a 'region-state'.

If the EU's institutions are to become more democratic, there are three main ways in which it could work: as a full-scale 'federal super-state', as a 'hard core' with a 'fuzzy periphery', or as a loose '? la carte' agglomeration of states opting in and out at will. But the EU being the EU, there is nothing approaching agreement among the member states as to which would be preferable.

A federal super-state is the British nightmare, but a German sine qua non. The French have at times been drawn to the 'hard core versus the periphery' model, but this is another non-starter for the British, as it is for the central and eastern Europeans, who see this as - by definition - confining them to the periphery. Finally, a loose '? la carte' EU would assuage some eurosceptics while dismaying europhiles, who fear that the centrifugal forces already unleashed via opt-outs and special arrangements would ultimately destroy any possibility of deeper European integration.

However, there is an alternative way to think about the EU that gets beyond these differences in organisation. It also sidesteps the 'widening versus deepening' debate that has long pitted those who prefer to think about the EU as an ever-expanding economic community against those who think of it as a soon-to-be-delimited political community. This alternative involves viewing the EU as a 'region-state'. That is to say, the EU should be seen as both a regional union of nation states (in which its nation state members have over the years become 'member states') and, at the same time, as a political entity in its own right - one which has gained significant, if limited, state-like qualities.

It is a Europe of many policy communities or 'clubs' - as David Miliband has termed them - with overlapping memberships, in which different policy communities have different rules and different degrees of integration for their members. We see this today in the differing memberships of, for example, the eurozone (which includes only 17 of the full EU's 27 members, with opt-outs for the UK and Denmark plus required opt-ins for the CEECs); the 'Schengen' border area (from which the UK and Ireland have opted out but which includes non-EU members Iceland, Norway and Switzerland); and the European Defence and Security Policy (from which Denmark has an opt-out, and of which every member decides whether to opt in or out for particular missions). The chances for even greater differentiation are increased by the principle of 'enhanced cooperation' set out in the Lisbon Treaty.

The European single market can then be viewed as the 'community of communities' or 'club of clubs' to which all member states belong. But if there is to be greater convergence to make the market more workable then ways will have to be found to overcome different nation states' deeply held commitments to very different kinds of welfare system, especially in relation to labour market rules and social services. So even with the single market it may be that new 'cooperation zones', with variable memberships, could be the answer, whether to enhance labour mobility or to 'Europeanise' public service provision.

With all this variable geography, some might argue that the region-state idea is 'Europe ? la carte' by another name. But this criticism fails to recognise that a significant core of members are part of all the overlapping communities, while the pattern, nature and extent of opt-ins and opt-outs by certain members are not such as to render meaningless the notion of 'signing up' for 'membership' of the EU as a whole. Members remain members; the club is recognisably and indivisibly an entity in itself, and to a certain extent (to borrow a sporting phrase) 'no player is bigger than the team'. Differentiated Europe, in other words, is not centrifugal Europe. Indeed, on the contrary, thought of as a region-state, the EU will continue to exert a powerful attraction, with countries as diverse as Iceland and Turkey seeking membership.

If membership is to continue to grow, however, further reform of unanimity rules will be needed. Ironically, given the UK's attachment to the veto, David Cameron's refusal to sign up to the 'fiscal compact' in December 2011 may have hastened the process. His action led to an agreement outside the treaties by 25 of the 27 EU members, and it may very well have inadvertently put an end once and for all to the notion that one or two member states can force the EU to delay, dilute or abandon initiatives that the overwhelming majority of members feel are compelling. What emerged in December, and is most likely to be repeated - even if it is not formalised by treaty change - is that 'supermajorities' made up of fourth-fifths or more of members plus opt-outs will suffice to advance further EU integration. The veto will no longer be the insurmountable roadblock it has been in the past.

Notably, this way of conducting business does not amount to extending qualified majority voting across all EU decision-making because - as sovereignty is at issue - decisions of this sort cannot be imposed on any dissenting member states. Rather, any member state would be given the option to withdraw from the discussions and opt out of the supermajority-supported initiative.

One issue that arises from this model of a regional state with differentiated community membership is the question of leadership. In the council, the dominant Franco-German couple is likely to be replaced by shifting leadership groups, 'm?nages ? trois', or even clusters of four or more member states, depending upon the policy area. On defence, for example, the UK and France along with, say, Poland might work together; on the environment, a group of Scandinavian countries might take the lead; while in developing the eurozone, the m?nages ? trois initiating new policy ideas could be France and Germany joined by Italy. In such a system, electing a council president would be a non-starter, unless this position were to be a figurehead only, symbolic of the EU's region-state - a kind of modern-day Holy Roman emperor tasked with painting grand but vague visions of Europe's future direction. By contrast, a president of the commission who emerged as head of the majority in EP elections, with elected commissioners from each of the member states, would be able to preside over the EU's many different communities in their multiple varieties, providing some modest left or right political orientation to policy, while fulfilling the purposes agreed by the member states in the 'community' councils and ensuring they were compatible with the politics of the majority coalition in the EP.

Envisioning the EU as a region-state made up of a wide range of overlapping policy communities helps to give elites and citizens alike a better sense of the EU's true nature, while at the same time allaying fears that the EU is either a federal state juggernaut or on the verge of collapse. But while this may help to protect against citizens' concerns about the loss of national identity and a lack of legitimacy, it does of itself not make the positive case for the EU. To do this, EU elites need to galvanise European citizens as they engage in political debates about EU policy for the future. To give meaning to such debates, as well as to guard against politicisation working to the advantage of the political extremes, however, elites need to create new narratives about the EU's past, present and future that articulate a new vision of Europe with a new political economic paradigm capable of resolving the eurozone crisis. The big question for European progressives is this: will they be up to the challenge?

In his essay Andrew Gamble argued that the future of the eurozone poses many serious dangers for a divided Conservative party, particularly if closer fiscal union was to succeed and the eurozone to recover.

At this stage it is still impossible to know how and on what terms the eurozone crisis is likely to be resolved. The determination of the hard currency economies grouped around Germany to impose tough conditions on the weaker members of the eurozone bloc comes up against the growing tide of popular resistance to these conditions. The euro is caught between the willingness of the markets and governments to continue lending and the willingness of citizens to endure deepening austerity. The political contingencies involved mean that no one can be sure how the eurozone crisis will play out. However, there are three plausible scenarios.

The first scenario, eurozone disintegration, is the one which many eurosceptics predict, and which many anticipate with relish, since it would mark a major setback for the European project from which it might not recover. But since its consequences are likely to be dire for the British economy it is not something any responsible British government is likely to wish for or actively promote. The current slowdown in the European economy is already blamed for Britain's double-dip recession by the chancellor. If there were to be major defaults by Greece, followed by Spain, Portugal and Italy, there would be serious consequences for UK banks and UK exporters. The belief held by many eurosceptics that Britain can swiftly replace its European markets with markets in east Asia and Latin America is fanciful. The British economy would be plunged into a deep depression. This, rather than any love of the euro itself, explains why British ministers urge Germany to do the responsible thing and agree to a full fiscal union, creating the kind of unified political authority in continental Europe which it has been British policy to oppose for the last 300 years.

The second scenario, continuing impasse, implies that the eurozone will continue making small adjustments which will be sufficient to avoid the single currency's implosion, but never enough to resolve the crisis definitively and prevent its recurrence. The European economy remains stagnant, with grinding austerity, high unemployment and little prospect of growth. Somehow, governments manage to contain the unhappiness of their citizens and also to keep the markets at bay, but there is no reason to expect a final resolution. The impact on British politics of this scenario would be to reinforce the negative images of the euro and the EU which have flourished in the last 20 years. It would add to the growing pressure for an in-or-out referendum, and it would be difficult for party leaders to find convincing arguments as to why Britain should remain tied to an EU which is becoming so dysfunctional and seemingly unable to solve its own problems.

The third scenario is fiscal union. Against the odds and widespread expectations, the eurozone halts at the brink and decides after all that the costs of collapse outweigh the costs of reform. The members agree to a major pooling of their sovereignty, which creates a serious federal power to govern the economy of the eurozone and stand behind the euro. The main obstacle to this is how to ensure its legitimacy. It would need to be accompanied by an imaginative plan, a European version of Marshall Aid, to lift the European economy into growth, ease the burden of austerity, and give the citizens of Europe some hope. The political difficulties of doing this are immense, which is why many remain sceptical as to whether it can be achieved by the European political class, without a major new popular endorsement of the European project. But if this or something like it were to come about, it would place Britain in a very awkward position.

In the first two scenarios, Britain continues to be disengaged from Europe, and even more disposed to exit the EU altogether, treating the EU as dysfunctional and failing. In this third scenario, with the EU now succeeding, Britain would be more isolated than ever. Only the Czech Republic is an ally at present. All the other non-eurozone countries have made it clear that they would work with this new emerging federal power. In this situation, Britain would either have to do as Count Lambsdorff, the former German FDP politician, suggested and withdraw from the EU and negotiate associate status (like Norway), or it would have to find a way to re-engage with Europe.

A re-engagement will not be easy. A successful fiscal union would create an embryonic European state, from which Britain would be largely excluded. Many Conservatives would want to avoid this isolation, but any hint of the re-emergence of a new pro-European grouping would divide the party and might well lead to a formal split. So passionate is the euro-scepticism of a large part of the Conservative party and the Conservative media that any form of serious re-engagement with the EU would be very hard to accomplish.

One conclusion, then, from this assessment is that Cameron's government is currently urging Europe towards the very approach which might lead to the greatest problems for his party in the long term. Because the government sees serious negative consequences for the British economy of eurozone disintegration or stalemate, it is rational to want fiscal federalism to succeed. Yet, if the eurozone does survive and recover this would pose deep dilemmas for the Conservatives, with a large section of the party being unable to stomach the pro-European policy that would be required for a future re-engagement with Europe.

Juncture readers interested in British public opinion on the EU over the last 40 years can also read John Curtice's latest column for Juncture.