3 November 2015

Osborne: “There is a deal to be done and we can work together”

George Osborne addressed German business leaders today in Berlin and his speech outlined two of the four areas that the UK Government has targeted in its EU negotiations: making the EU more economically dynamic and resolving the relationship between the Eurozone and those EU member states outside the single currency. Some have incorrectly inferred that Osborne’s focus on these areas means some of the others have fallen by the wayside. This may be based on the assumption that Osborne is the UK’s chief negotiator. In reality, while Osborne is heavily involved, his focus is on the Eurozone and the economic issues, while Downing Street is responsible for the full range of issues.

Osborne’s main message to his German audience was that there is a ‘grand bargain’ to be struck between the UK and Germany:

You get a Eurozone that works better. We get a guarantee that the Eurozone’s decisions and costs are not imposed on us. You get a stronger euro. We make sure the voice of the pound is heard when it should be. A deal that’s written into the law. A deal that’s good for Britain. And a deal that’s good for Germany too. The result will be a better European Union.

It remains to be seen if this will find traction, but he trod a fine line between highlighting the confluence of needs and lecturing Germany on what it should do in terms of Eurozone integration (a line he has fallen foul of previously).

On the relationship between the Eurozone and the rest: the devil will be in the detail

The first half of Osborne’s speech called for an Anglo-German alliance to deregulate the EU and break down barriers to trade in services across the bloc. To be frank, much of this was the traditional UK wish list on EU economic reform (which could have been delivered by previous governments) and only time will tell if Germany will finally back a deeper single market in services – an area where German guilds and professions have historically resisted liberalisation.

The most interesting theme of the speech was Osborne’s ‘principles’ to “fix the relationship between the member states in the Eurozone and those outside” – which we have argued is the most crucial area to get right if the UK is to ever be comfortable in the EU long-term.

Osborne first set out to reassure his German audience that the UK does not seek out a veto over future Eurozone integration:

We are not looking for a new opt-out for the UK in this area — we have the opt-out from the single currency we need. Nor are we looking for a veto over what you do in the eurozone.

It might surprise some in the UK that this needed saying but the perception still exists among many Germans that the UK wants to prevent future integration.

He then set out the principles which he argued should be applied to the euro/non-euro relationship:

  • Support for the integrity of the Single Market;
  • EU institutions must recognise that the EU has more than one currency and should not discriminate against any business on the basis of the currency of the country in which they reside;
  • Non-eurozone members of the EU must be protected if the Eurozone integrates further;
  • Participation in Eurozone integration such as the banking union must be voluntary;
  • Non-Eurozone taxpayers must not be responsible for bailing out Eurozone countries.

The above list provides a sensible and robust set of principles around which to negotiate – many of which echo Open Europe proposals, such as the need to recognise multiple currencies and ensure that Eurozone-led integration is voluntary rather than compulsory – not simply for the UK but for other non-euro states. This is important because unless it is possible for more countries to be a member of the EU but not the euro, the UK will feel increasingly isolated.

Some have already accused Osborne of setting the bar so low that it’s impossible to miss or of dropping previous pledges to revisit the voting rules to ensure non-euro states are protected. But this is more than a little unfair.

Firstly, Osborne had never previously committed to any particular safeguard mechanism. Today, he did not elaborate on the detail and it is therefore impossible to either rule anything in or out. The only bit of leg Osborne revealed in today’s speech was:

We seek to make these principles permanent and legally binding – and we want to design a simple mechanism to ensure the principles are enforced. These kinds of checks and guarantees exist in other parts of the EU’s governing rules.

Open Europe has proposed that three non-euro states should be able to call for an EU proposal to be suspended, while The Financial Times last week reported that UK officials were considering some form of ‘emergency brake’ to safeguard the economic interests of non-euro countries, including changes to voting rules.

The ‘legally binding mechanism’ Osborne referred to today could still mean anything – nothing has been dropped and no detailed proposal has been promised. Therefore, the jury should still be out on whether Osborne’s demands will amount to substantive reform or not.