The bible tells the story of a rich family in which one of the siblings asks for his share of the estate and after receiving it decides to leave the comfort of the ancestral home. The son sets off on a long journey to a distant land and begins to squander his fortune on wild living until he fritters away his share of the family fortune and dips into an economic recession.
Can we ever dare compare Britain to the prodigal son who parts company with the eurozone comforts to please the wishes of conservative eurosceptics? There is an uncanny similarity in the story to when Prime Minister David Cameron vetoed changes to the EU treaty designed to help save the ailing euro. At their Brussels summit, European leaders were able to agree on a fiscal union but the new pact, which Chancellor Merkel had strongly advocated, was defiantly rejected by Britain.
The stark truth is that the 17 eurozone members and six other non-euro countries − Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania − are now going to forge ahead minus the British who opted to stand alone. Initially, Hungary had expressed reservations, but it shifted and joined the majority of European countries.
Others, Poland, Sweden, Denmark, Bulgaria, Romania, Lithuania, Latvia and the Czech Republic must still consult their parliaments, before it is certain just how many members the new fiscal union will include. The drama was real and the dice was cast. Some argue that Mr Cameron has not played his hand well and showed poor brinkmanship. The odds are high that the euro will fragment unless there is a common approach to fiscal discipline and some form of convergence to reduce deficits. In the words of the IMF, Europe experiences the gravity of the situation.
In fact, Christine Lagarde, the head of the International Monetary Fund has warned: “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating.” It came not a moment too soon that leaders conceded to contribute an extra €200 billion to the IMF to “help deal with the crisis”. But the German central bank and the Czech government only agree to contribute to the International Monetary Fund (IMF), if all EU member states participate. By comparison, Britain was thought to have agreed to provide another £30 billion in loans, but government sources have ruled out providing more than the extra £10 billion already agreed by Parliament. It comes as no surprise that commentators have concluded that the rift created by the “prodigal son “may lead inexorably to a two- speed Europe”.
Cameron has now been accused by his coalition partners (the Lib-Dems) of driving his country into isolation. Notwithstanding the eurosceptics who lauded Cameron’s move, it is well known that most people in Britain can’t be pleased that their country will now play second fiddle in Brussels. It is inexcusable for such an important team member of the EU family not to negotiate within the realms of pragmatism but instead falls prey to the sound bites of anti-EU ideologists within his party, ignoring the wishes of his coalition partners. Many tried to pacify critics that Britain will always remain a sound pillar of the EU club, yet the truth remains that Cameron will not be able to prevent his country from increasingly becoming a second-class member.
Granted that 40 per cent of UK exports go to the EU group, but one cannot ignore the importance of being able to influence Brussels when matters of cross-border trade (among others) are discussed. But to be fair to Cameron, let us take a closer look at the pact he vetoed so strongly. The key changes involve making sanctions quasi-automatic for countries that breach existing debt and deficit limits, and giving eurozone authorities the power to reject national budgets and order them to be redrafted to meet EU targets. Under the proposed fiscal agreement, EU countries commit to establish as law in their own Constitutions that they should have a balanced budget over the course of the economic cycle. Members also agreed that the European Court of Justice would have the power to check that they meet their objectives. Eurozone countries would face even more automatic sanctions than now for breaking the EU deficit limit of three per cent of GDP, as only a qualified majority of eurozone ministers could stop sanctions being imposed. The accord includes a rule that says member states must tell one another in advance of their debt-issuance plans. Since no such rules currently exist, Brussels has no authority to enforce them but there’s nothing in the Lisbon Treaty that suggests this would be forbidden. To do it, the European Commission would have to go through the normal EU process of making a proposal to member states and the European Parliament. This issue would be decided by qualified-majority voting so the UK would not be able to block it, even if it wanted to.
Other areas that may be in conflict with the Lisbon Treaty include giving Brussels the power to force countries to write debt brakes into national law, and giving the EU the authority to force member states to reduce debt burdens over 60 per cent of GDP by a certain percentage annually. In fact, questions have already been raised over whether the fabric of the new fiscal union can be reconciled with the Lisbon Treaty. Thus as stated earlier, four members are claiming that their assent is subject to parliamentary approval while others wish to place the matter to be decided by a referendum. A few are expressing their misgivings and warning over loss of sovereignty.
To start with we have Czech Republic that wants to push for a referendum on the country’s future eurozone accession. Prime Minister Petr Necas said the government must wait for full details of the new agreement before it can sign up to it. He added that the country’s central bank should not be the actor that takes the decision on whether to lend to the planned €200 billion loan to the International Monetary Fund. Moving on to Finland, Prime Minister Jyrki Katainen said that his government could not agree to a transfer of national budget sovereignty to the European Commission. “Finland wants to be a full-fledged euro country and bear the responsibility for creating stability in a way that respects the equality of member states,” he said.
As can be expected, in Ireland both political parties, Fianna Fail and Sinn Fein, said that the new rules must be put to a referendum. Ireland cannot be too choosy trying to disrupt a new treaty given the funding it received from EU / IMF in its bailout plan. Naturally, Ireland does not wish to recreate the uncertainty previously felt when the Irish rejected the Lisbon Treaty at a plebiscite three years ago. To play it safe and remove voter’s prejudice it is asked to vote not on the substance of the agreement, but on continued membership in the single currency. Simply put, the real question is; do the Irish still want to remain part of the euro club? Another undecided member is Sweden, which is uncertain which way the result will be once the vote is taken. Just remember that in 2003, almost 56 per cent of Swedes voted against adopting the euro in a referendum. Since then the euro crisis has hardened the resolve of the electorate against the euro’s shaky destiny. It teamed up with Britain as well as the Czech Republic in strongly opposing a new EU financial transaction tax which forms part of the fiscal compact.
To conclude one hopes that the allegorical prodigal son returns to the fold and rejoins the EU family. So far, the first reaction from the coalition partners in Britain points out that the country may be “isolated and marginalized” by the European Union. This view was expressed by Deputy Prime Minister Nick Clegg. The Liberal Democrat party leader’s comments saw him officially breaking ranks with Conservative Prime Minister David Cameron. Let us pray the proverbial prodigal son sees the light and repents. After all, like in the bible story, he is most welcome to join the feast waiting for him when he decides to revisit the family in Brussels.
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Mr Mangion is a partner in PKF, an audit and business advisory firm