The eurozone crisis is three years old.  It has been a tumultuous period not only for the 17 countries in the monetary union, but also for the rest of the EU. Greece has suffered five years of recession, and no end to its miseries is in view. Ireland, Cyprus and Portugal have all had to be bailed out, and Spain and Italy have teetered on the edge of needing rescue. All countries in the eurozone, as well as those outside it, have had to tighten their belts to some extent or another as austerity measures were imposed. The European economy has failed to grow and is now in recession. This has had knock-on effects on the global economy.

As 2013 dawns, it may be salutary for Malta, which might find itself led soon by a more eurosceptic government, to take stock of how life in the European Union could unfold in the immediate years ahead, and what the implications for this tiny island-state might be.

It is difficult to know where to begin as the EU is wracked by uncertainty and any number of developments could lead to a fresh crisis. Although the Greeks and Spanish appear currently to be stable, there is no telling what could spark off uncertainty in the markets and bring with it a fresh crisis. At the time of writing, there seems no solution to the so-called “Fiscal Cliff” in the United States, an event which in itself would spook the markets and could have repercussions on the more vulnerable European economies. A war in the Middle East or a unilateral Israeli attack on Iran could add to the uncertain mix whose outcome would be utterly unpredictable, both economically and geo-politically.

It is easier therefore to deal with the more likely – but still gloomy – scenarios. As the move towards full fiscal union in the European Union gathers pace, pushed and encouraged by the all-powerful Germans, this will trigger treaty changes throughout the Union. A number of European countries are committed under their constitutions to holding national referendums before enacting legislation for such changes to take effect.

Importantly, given its size and weight globally and within the Union as one of the Big Three (with France and Germany), any EU treaty changes affecting Britain would trigger the recently passed referendum trip-wire under the United Kingdom's EU Act. Dissatisfaction with the EU is nowhere more prominent than in the United Kingdom where, if a referendum were held today over 54% would vote to leave the Union which is seen, rightly or wrongly, as greedy, profligate and out of touch with its citizens.

British voters have only once been permitted a vote on Europe, and that was almost forty years ago. Those in the UK who still see the overriding value to Britain of belonging to the world's biggest free-trade zone have been muted, even as euroscepticism has consumed the majority Conservative Party in government. It is little wonder that Britain appears to be inching out of the EU. As The Economist put it “The quitters have the best tunes, and the stickers can hardly be heard”.

A referendum on Britain's membership on a straight in/out motion seems highly likely, probably after the 2015 general election, but possibly even earlier given the uncertainty of coalition politics and the indiscipline of eurosceptics within the Conservative Party. A referendum campaign is likely to see the leaders of all three main parties lining up together in favour of remaining in the European Union. British voters, who are prone to the conservatism which such referendums encourage, would probably back them as they did in 1975. British business would support them.

 

Whether or not a  British referendum occurs over the next two or three years, however, a substantial loosening of Britain's ties with Europe seems highly likely. Other more eurosceptic countries in the EU may follow suit down the road leading to a multi-speed Europe. There is much uncertainty and dissatisfaction, and British attitudes to the EU are but the most prominent manifestation of this. Other countries – Denmark, the Czech Republic, Sweden, Finland and others who do not possess the quasi-religious faith in European integration that dominates the Franco-German core - have similar concerns as the news bulletins continue to be filled with signs of eurozone havoc.

Even if Britain did not leave the Union, but chose firmly to opt out of any further integration – whether fiscal, in the justice and immigration fields or social and employment regulations – the advent of a multi-speed Europe would be a radical shift not only in British foreign policy, but also with sweeping repercussions throughout the rest of Europe.

There are precursors for this. The EU already has looser relations with Norway and Switzerland. When Denmark rejected the Maastricht Teaty, it won concessions on monetary union (it stayed out of the eurozone), citizenship and defence. When Ireland rejected the Lisbon Treaty, it won guarantees on taxation, neutrality and abortion. There are, therefore, already precedents for opt-outs and different treatment of countries, but none on the scale now envisaged.

Some of the tough measures being mooted by Germany to achieve the goal of a stronger fiscal union include the introduction of a common corporate tax regime, constitutional limits on debt and borrowing caps in all member states, more integration of fiscal and economic policy, with the strong possibility of having a super EU “Ministry of Finance” and a different style of financial leadership at the EU level.  Some of these proposals run counter to Malta's national economic interests, as well as its sovereignty. Malta, rightly, believes that the imposition of new taxes is a matter for itself to decide as part of national fiscal policy, not Brussels.

The creation of an EU Ministry of Finance would certainly undermine the Maltese government's control over the country's economic and fiscal policy, as would embedding a limit on government borrowing in our constitution. The pooling of sovereignty in this way will be a decision that requires the most careful consideration. Given the relatively small size of the Maltese economy, it would seem reasonable to hope that the government might be able to negotiate opt-outs in certain areas (more multi-speed?).

Europe is at a political and economic cross-roads. Its democratic deficit has grown in line with the size of its economic reverses, dragged down by a deeply flawed eurozone concept and the economic depredations of its southern members. Every election held in EU countries since the start of the financial crisis has led to the ejection of the incumbent government as dissatisfaction with political leaders grows and fringe parties come to the fore. The distance between European voters, and EU leaders and Brussels grows ever longer.

The tectonic plates in Europe are shifting. The road ahead for Malta in Europe will be a tricky one and the threat of an unexpected economic earth-quake ever present. Malta will, as always, have to tread a careful path as it seeks to play a part in an rapidly evolving Europe at a time when it is difficult to decide whether the continent is coming together or drifting apart.