David Cameron should stand up to the eurozone

Opinion piece (Financial Times)
31 July 2015

Can Britain, a country that plans to keep its own currency, feel comfortable in an EU that is increasingly focused on the euro and its troubles? As David Cameron’s government starts negotiations with its partners on the terms of Britain’s membership before an in-or-out referendum, this question is becoming a priority for the UK. Arguments over EU migrants’ access to benefits will generate more political heat, but the relationship between the eurozone and the wider EU is a vital point for senior figures in the government, including George Osborne, chancellor of the exchequer. It is also a big concern for British business leaders.

Their worry is that the 19 euro countries could create a caucus and impose their wishes on the 28-country single market. Euro members can do so since voting rules introduced last year gave them a “qualified majority” in the Council of Ministers, the EU’s most important decision-making body. The City of London is of particular British concern: countries that know little about banking — or which seek to favour their own financial centres — could vote for rules that harm its competitiveness.

So the UK wants “safeguards” for the single market. Its problem is that not many EU governments are sympathetic. In Berlin, the capital that matters most, few figures other than Wolfgang Schäuble, finance minister, appreciate British concerns. Germans officials argue that eurozone countries do not operate as a caucus — because they seldom agree on economic policy. The UK responds that, as the eurozone integrates, the risk is growing ever greater.

When the EU drew up rules on banking supervision in 2012, it established “double majority voting”: decisions require a majority of both euro and non-euro countries. But the Germans insist this should not apply in other areas, since the system would — as more EU countries joined the euro — evolve into a British veto. Many Germans suspect the safeguard Mr Cameron really wants is a veto for the City on financial rules. In fact, he will not ask for that. But German fears are fuelled by memories of the debacle of December 2011: Mr Cameron said he would not sign the “fiscal compact” that Germany wanted without an agreement to change some voting rules affecting the City; the Germans blocked the changes so he did not sign.

The recent furore over the European Financial Stability Mechanism has reinforced British worries. The eurozone wanted this fund, to which Britain has contributed, to make an urgent bridging loan to Greece — despite an earlier European Council decision that it should not be used for eurozone bailouts. The EU can decide to use the fund by qualified majority vote. Knowing that it could not veto the loan, the UK voted in favour, in return for guarantees against potential losses. To British officials, this is a clear example of a eurozone caucus: in a crisis, its members will put the currency’s needs ahead of legal niceties or the interests of those that do not belong to the euro.

Mr Osborne will press hard for safeguards. What could he ask for that might be acceptable to other governments and EU institutions? Perhaps the promise of a treaty article stating nothing done by the eurozone may damage the single market. The non-euro nations could gain the right to observe meetings of eurozone ministers. They could also be allowed to press an “emergency brake”: if one of them thought a eurozone decision would damage the market, the decision would be postponed for, say, a year, while the European Council of leaders reviewed it.

The UK government has not yet convinced many of its partners that its concerns about the relationship be­tween the euro and the single market are justified. It will need to do a better job if it wants to win credible safeguards. Otherwise British voters may conclude the EU is not driven by the interests of all its members, but by those of the eurozone.