15 January 2014

UK Chancellor Osborne's speech on Europe at the Open Europe Conference

Osborne argued that without economic success, the EU would not be regarded as democratically legitimate. Getting the economics right was not sufficient to persuade people of the merits of the EU; other constitutional changes were needed. (Includes links to various comments.)

First we need economic reform that enables the EU to create jobs and economic security, and compete in the global race - something it is not doing well at the moment. And second as the eurozone undertakes the integration required to make the euro work, we need constitutional reforms to make sure that those countries which are not in the euro can remain in the EU, confident that their interests and rights will be protected.

We knew there was a competitiveness problem in Europe before the crisis. But the crisis has dramatically accelerated the shifts in the tectonic economic plates that see power moving eastwards and southwards on our planet. Over the next 15 years Europe’s share of global output is forecast to halve. As Angela Merkel has pointed out, Europe accounts for just over 7 per cent of the world’s population, 25 per cent of its economy, and 50 per cent of global social welfare spending. We can’t go on like this.

That’s why we’re working through a long term economic plan that makes the tough choices necessary for our long term prosperity: Reducing borrowing, cutting taxes, creating jobs by supporting business and investing in infrastructure, capping welfare and controlling immigration. But Europe’s competitiveness also requires action at the European level. Reducing the budget, tackling red tape, some free trade agreements - this is a good beginning, but it’s not nearly enough. We need to create jobs, increase trade, support business growth – we’ve got the European tools to help with the job, let’s get on and use them. The same applies with the Single Market. We need to come up with innovative ideas to overcome the vested interests that are holding back progress in this area.

Personally I’m attracted to Open Europe’s thoughts on using enhanced cooperation to allow a smaller group of Member States to move forward toward trade liberalisation in areas like services among themselves if not all EU member states can agree.

Three years ago I predicted that that the economic crisis in the eurozone would force the “remorseless logic” of monetary union towards greater fiscal and economic integration, including a Banking Union. Since then the eurozone has started to work through that remorseless logic, creating the Banking Union, the European Stability Mechanism to bail out eurozone countries and now the proposed Single Resolution Mechanism to bail out eurozone banks. And the UK has not blocked them because we want the euro to work.

But if we cannot protect the collective interests of non-eurozone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU. So we have fought to safeguard the rights of non-euro members. But it has not been easy.

First there is a danger that the euro members could start to use their collective voting weight in the EU to effectively write the rules for the whole EU by Qualified Majority Vote. Under the Lisbon Treaty, from 2016, the Eurogroup on its own will have sufficient votes to pass any financial services legislation for the whole of the EU. It was a long hard fight, but we negotiated in the ECOFIN and European Council a whole new voting system – the so called “double majority” system – which will apply in the European Banking Authority.

That leads me to the second challenge. We’ve had problems with discriminatory treatment of non-eurozone Member States. A clear example is the European Central Bank’s policy of forcing clearing houses with large euro-based transactions to move to the eurozone. How can we say there is an EU wide single market if we say that certain businesses can only locate in certain member states? That’s why we’re taking the European Central Bank to the European Court of Justice. And that’s why alongside double majority voting, we fought hard for and secured a new binding legal provision in the Single Supervision Mechanism regulations to prevent discrimination against financial services providers based on their location within the EU.

Third, we’ve had problems with accountability and transparency and basic policy discipline in some European institutions. And then there is the European rules on bonuses, with their damaging consequences and perverse incentives for the big salary rises we’re starting to see. Far from being unthinkingly anti-European, we are using the European court to enforce European principles of non-discrimination and adherence to European law.

I have been clear since the start of the process that eurozone integration was necessary to make the euro work better, but that it would throw up these issues and that in return we would expect to see the rights of non-euro members protected. But it is not the case that the UK is always the member state arguing for less activity or blocking things. We’ve led the way on financial services regulation and ringfencing our banks – and we have the most stringent capital and liquidity rules in Europe.

The European Treaties are not fit for purpose. They didn’t anticipate a European Union where some countries would pursue dramatically deeper integration than others.  Because the rules weren’t designed to support a banking bailout fund for just some EU members, for example, those Member States taking part have had to create a hastily put together intergovernmental treaty outside the EU.

The euro has to be put on firmer foundations, for the crisis in the eurozone may have abated, but the contradictions it revealed are not yet resolved. We should use this moment of relative tranquillity in markets to build those foundations for the future. And that’s why the questions thrown up by eurozone integration are inevitably linked to the wider reform negotiations that I touched on at the start. Instead of make-do-and-mend, we should make the Treaties fit for purpose.

Extracts from speech

Video

Graham Bishop's comments

Chris Cummings, Chief Executive of TheCityUK, comments on George Osborne’s speech at the Open Europe Pan-European Conference on the EU debate

Further reporting: Europe minister: Conservatives should not try and 'outbid' Ukip Eurosceptics, 16.1.14 © Telegraph

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