By: Dr. Mike Campbell
The Summit meeting of EU leaders which is underway in Brussels today has been billed as “make or break” for the Euro in many quarters of the press. It is clearly a critical meeting and if common ground can be found and a credible plan agreed, it could go a long way to moving us out of the dark forest of financial uncertainty that we find ourselves in. Hansel and Gretel, the German Chancellor, Angela Merkel, and the French President, Nikolas Sarkozy, believe that the answer lies in closer fiscal union within the Eurozone, but can they persuade the other members of the club to follow their lead; let alone EU states that are not part of the Euro such as Britain?
Britain is often regarded as the “naughty schoolboy” of the European Union, often dragging its feet on closer unity; seeing things from a narrow nationalistic perspective; and having elevated “Brussels bashing” to a new favourite national pastime (just like all the other 26 members when it comes to their own interests). The problems that the block faced in getting any treaty passed the European electorate show that EU citizens are split down the middle on just about any EU referendum issue. In the UK, closer harmonisation with Europe is perceived to be a vote loser and Euro-bashing a sure formula to electoral success. However, populist arguments notwithstanding, the British Prime Minister, David Cameron, knows that the UK and its Eurozone partners are very much in the same boat; if the Euro sinks, Britain’s fortunes go down with it. London is the heart of financial activity in Europe and trading with other EU members is responsible for a major share of UK GDP, so there is no room for a smug, “told you so” attitude from the UK, no matter how popular it would be back home.
The position of the UK seems to be that they will not stand in the way of closer fiscal union – within the Eurozone group, but will not agree to any measures that they perceive not to be in the UK national interest (at least not in public). An example of this was the British refusal to consider implementation of a 0.1% EU financial transaction tax which would raise an estimated €57 billion annually. The official UK position is that this could only be agreed to if it was to be adopted globally (highly unlikely) since they believe that it might drive financial firms out of the City and abroad to escape this massive tax hike – the UK would collect about 80% of the new tax such is its importance as a financial centre. However, UK deputy PM, Nick Clegg was in the band wagon of domestic political moves to cap the salaries being paid to leading financiers – surely this would be much more likely to drive financial house abroad than a paltry 0.1% tax levy. Equally, there is no reason why such a tax could not be used to off-set (at least partially) the UK’s contributions to the EU which stand at just under €13 billion – a win-win situation, surely?
Merkel and Sarkozy's ECB Summit Bucket List
One measure the Franco-German partners wish to see adopted is harmonisation of corporate tax. Whilst the Irish opposed increasing their corporation tax as a condition of the Irish bailout, they may not be in a position to avoid it in the current climate since the crisis is bigger than any one Eurozone nation. Currently, Ireland imposes a rate of 12.5% which is almost a third of the rate in France and Germany and something like half the UK rate.
Merkel and Sarkozy also want to see harmonisation on national budgets with a requirement that all 17 Eurozone nations should balance their budgets, altering national legislation, if required. The Commission would be given the power to impose penalties on nations running “excessive” (what ever that means) budget deficits. Private investors would be immune from absorbing losses in the event of another Greek-style bailout. They are also arguing for harmonisation of EU employment rules which would be no bad thing and in keeping with the Treaty of Rome which enshrined the rights of EU citizens to work in any member state.
It will be a tough job to get all 17 Eurozone members to agree to these proposals; let alone obtain the backing of all 27 member states. It would be beyond the bounds of credulity to expect that any treaty modification that required a national referendum in any country (let alone the increasingly Euro-sceptic UK) would pass. It may be that the Commission can find enough wiggle room in existing agreements that any new requirements can be accommodated without going to the citizens that the EU purports to represent. Realistically, such a scenario would seem to be the only way to move forward in a relatively short period of time – always assuming EU leaders can agree on it. However, it seems to me that the politicians have realised that decisive action is needed now – the only question is whether they can deliver it.
If the leaders fail to make a substantive agreement, it will not spell the end of the Euro or the break-up of the EU: like many financial institutions at the start of this sorry story, it is simply too big to fail. What it will mean is that the misery and uncertainty will carry on and many more ordinary people will lose their jobs, their homes and their wafer-thin trust in political leaders.