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24 January 2013

Europe’s Survival: Honest Dave Has His Say

The future of the European Union is on shaky ground, and British Prime Minister David Cameron wants to wrestle power back from Brussels. Kudos to Mr. Cameron for raising some difficult questions.

It’s the question that just won’t go away: Can Europe survive?

Potentially, yes -- but only with a far greater level of integration than its current form, or a total rethink. Anything less than an honest reassessment of the EU will ensure increased European integration by stealth and growing regulation by faceless mandarins in Brussels with little or no accountability to European voters, creating a bureaucratic machine that will take over the establishment. As British Prime Minister David Cameron pointed out in his speech this week: “If we don't address these challenges, the danger is that Europe will fail and the British people will drift towards the exit.”

[Related:European Equities: A Bet for Growth in 2013”]

So kudos to Dave for raising the issue. But is this his Churchillian moment or, as the skeptics would claim, a political domestic issue designed to ensure his re-election in 2017?

Key points to consider:

  • Cameron plans to renegotiate parts of the UK’s relationship with Europe, arguing for fewer powers for Brussels.
  • He will then put that changed membership package to the British people.
  • The referendum will be a straight in-or-out question.
  • He will campaign to stay inside the EU -- provided the other 26 members have agreed to changes.

Europe Will Lose Out Unless We Raise Our Game

The reality is that Europe has to figure out how to compete better globally. Anyone who doubts that should take a trip to India. We have a crisis over European competitiveness, and that means that some painful lessons need to be learned. Cameron is right to use this fact to start a debate over the future shape of a united Europe, and we now have the opportunity to improve the EU -- to deepen the single market, increase trade with the growing global economy, and lighten the regulatory load.

European Leaders Need to Step Out of Their Ivory Towers and Face Facts.

What works in Brussels is not necessarily working elsewhere -- ignoring the complaints will mean that parties such as the Golden Dawn and UKIP in the UK will be listened to and grow. Justifyinga Commission with a multi-billion-pound budget but not enough focus on controlling spending and shutting down programs that haven’t worked is not a viable long-term solution to the Eurozone crisis.

A Threat to British Business?

Renegotiation will ensure that investors will start placing an “uncertainty premium” on the UK, according to Pimco’s Mohamed El-Erian. US clients that have not been immersed in the European debate will want clarity and likely will avoid the UK. That may be the knee-jerk response, but if we don’t stop the steaming train and question the route, we may find ourselves at a different location than where we thought we were heading.

European regulation is heading out of control. The tide of financial regulation alone is confusing, contradictory and challenging for businesses. A reformed EU must be more competitive, with flexible labor markets and fewer, less intrusive institutions – otherwise, it will be doomed to failure. And it would appear that there are those in Europe who would agree. German Chancellor Angela Merkel is apparently prepared to consider Mr. Cameron’s proposals, and the Swedish, Dutch and Czech ministers also came out in praise of his speech this week.

A Dangerous Gamble

But Cameron should save the champagne for later. His speech represents a high-risk strategy. The British population takes for granted their right to work, live or retire in any other EU country, but we cannot expect to continue to call the shots in Europe, and even less so on the world stage, if we have wrestled power back from Brussels. The risk remains that by making this commitment, Cameron is placing the economic future of Britain and Europe in the hands of the electorate -- and that is a high-risk strategy indeed.

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2 Comments to "Europe’s Survival: Honest Dave Has His Say ":
  • Comment_tabb_-_miranda_mizen_b

    24 January 2013

    The premise that the EU needs to be more competitive, flexible, national, accountable and fair, all ring true and are echoed in Europe, as you say. The EU needs better cohesion while respecting sovereignty, to be able to act decisively on meaningful issues and a better way for countries of varying sizes, cultures, politics and economic fortunes to co-exist especially if enlarged. Squabbling is getting in the way of progress and over-harmonization leads to the lowest common denominator translated into 27 languages.

    The Europeans have been arguing and jostling for the last thousand years and will do probably for the next thousand, and that’s ok, but it’s worked when there was more leeway to allow better cooperation. So Cameron’s on point with much of what ails, but the UK has also had a seat at the table to get to this point. The UK could do a better job of providing strong leadership for Europe within Europe but that wasn’t how the speech was angled, but it could have been and that would have been interesting.

  • Comment_rebecca-healey-tabb-group

    25 January 2013

    Agreed Miranda - it is clear where we have failed over the years.  What is interesting is how Cameron is challenging the theory that the only way forward for Europe now is through greater integration & regulation and the response of other EU leaders.  Merkel seems to be on board with less legislation; according to the FT, a "well-place official" is quoted as saying, “If it is about less regulation, more trade, less bureaucracy, we are with him. We don’t want more silly social regulations imposed on the member states.”  This would be a huge breakthrough from the levels of regulation Europe has seen of late, however Cameron has read Ms Merkel wrong before -  and what is more alarming is the potential impact on inward investment into the Eurozone particularly from Asia and the US.  These investors do not understand the details and will just regard the British decision as calling into question the overall EU project.  It is a huge gamble.

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