The UK’s financial vulnerabilities as an EU member state

UK MEMBERSHIP OF THE EU.
TRADING ARRANGEMENTS ARE NOT SO IMPORTANT AS THE UK’S FINANCIAL WEAKNESS INCURRED BY EU MEMBERSHIP


We are often asked for the full presentation of all the financial aspects of the UK’s relationship with the EU and the EU referendum.

While trading arrangements are important,they have not been as decisive as balance sheet destabilisations throughout history.

This latest analysis by Futurus considers the diminution in UK assets because of its budgetary contributions and the UK’s increased liabilities and contingent liabilities due to EU membership.

Its conclusion points out that “While EEA states have no risk exposure to EU liabilities, the UK has enormous exposure. Moreover, it is, in part, one-sided with no corresponding EU risk exposure to the Bank of England. It is likely that further collapse in the finances of eurozone governments and banks will not attract open-ended EU entity support as in the period 2009-13 and resort will be made to bail-ins and haircuts on bondholders. However, prudent finance would be for the UK to leave the political and monetary structure of the EU and move to EEA status urgently.

To read the full report, click here

George’s game

It is not only the PM who has been jet-setting around Europe to try and convince us he is engaged in serious talks about EU reform. His side-kick George Osborne has been getting in on the act too, embarking on a tour of European Capitals that began in Paris a couple of days ago.

Osborne recently gave an interview with the Daily Telegraph in which he stated that “For Britain, I always felt that the central attraction of European Union membership was the economic one.” He also went on to say that “I prefer to talk about it as a single market of free trade. It’s free trade with the rules that enable the free trade to be a real success. That’s the way I think we should think about it.”

So Osborne isn’t interested in the EU’s political agenda? Could it be that he isn’t even aware that the objective of the EU is to create a federal superstate? That the great Monnet plan to deceive the peoples of Europe by disguising a political project as an economic project has been so successful that it has pulled the wool over the eyes of the British Chancellor of the Exchequer?

We are left with one of two conclusions. Either he is so stupid, ill-informed or naïve as to be totally unfit to hold such high office or else he is playing a game – engaged, like his boss, in a charade. One is inclined to the latter option, but it is possible that Ozzie really is a complete dimwit, especially given his economic record. We must never over-estimate the intelligence of our politicians. After all, his mate Dave (you know, our Prime Minister), was educated at one of the coutry’s top schools but was still unable to provide an English translation of Magna Carta for an American news channel.

Whatever, in the unlikely event that either George or any of his close friends visits this website, perhaps they should encourage him to read the Flexcit document which explains how we can maintain full access to the single market without having to be a member of it. If this proves too much for such a bear of very little brain, then perhaps he should try Robert Oulds’ Everything You wanted to know about the EU but were too afraid to ask, which goes over some of the same ground but isn’t so long or detailed. I think that shouldn’t be too hard for you, Georgie Boy. Oh hang on a minute – it has over 200 pages and there aren’t any pictures in it, so maybe it might be a bit too taxing after all…..

Photo by altogetherfool

Voting for the status quo is not an option

We are very aware that opinion polls are consistently showing that supporters of outright withdrawal are in a minority. Of course opinion polls can be wrong, with both the UK general election in May and Greece’s bailout referendum earlier this month producing results somewhat at odds with the pollsters’ predictions. Having moved to my present home in East Sussex less than four months ago, I am still at the stage of meeting local people for the first time and being asked what I do for a job. When I mention my work for CIB, in the great majority of cases, the reaction has been along the lines of, “I think we should leave the EU too; good on you!” or similar. This in and of itself by no means proves that the pollsters are wrong, however. Rural East Sussex cannot be taken as representative of the UK as a while and even if supporters of withdrawal really are more numerous than they appear in surveys, there is no room for complacency.

Having said this, however, there is good reason to believe that quite a lot of support for “in” is actually quite soft. The more detailed analyses of UK public opinion which go beyond the simple in/out question find very little support for closer integration. A poll by Ipsos Mori back in October of last year showed that while support for remaining in the EU stood at 61% excluding “don’t knows”, only 14% supported closer economic and political union. Even though support for staying in the EU has increased still further since then, there are still only a small minority of people who want to see further powers surrendered to Brussels.

So, to put it another way, potential support for voting to leave could be as high as 86% if it were made clear that there is no status quo on offer. It is either closer political integration or withdrawal. The dream of ever closer union is still alive and kicking on the Continent, as François Hollande, the French President, made clear over the weekend. “What threatens us is the lack of Europe, not the excess of it,” he said in a speech at an event to celebrate the 90th birthday of Jacques Delors. He went on to talk of accelerating the process of integration within the Eurozone – a common budget for the single currency areas and a separate parliament too – or at least, separate sessions of the European Parliament exclusively for the MEPs whose nations use the Euro. Of course, this is only one man’s opinion – and one man who is very likely to be booted out of office in the next French presidential election, but it was sufficient to elicit a response from Magdalena Andersson, Sweden’s finance minister, who felt concerned that Sweden (and by implication, the other EU member states who still use their national currencies) could be relegated to second class members of the EU.

But is there any alternative? The concept of a “two-speed Europe” has been touted for some years and for all the competing visions of how to move forward and the lack of enthusiasm for closer integration among the populations of some Eurozone states, including France for that matter, there are enough politicians within the governments of the Eurozone countries itching to press on with the primary agenda of the EU – the creation of a federal superstate. They are not prepared to wait for Sweden to decide whether or not it ever wants to adopt the Euro and they do not wish the UK to slow down the process either.

What looks likely is that some form of “associate membership” may be offered to the UK. What it would involve is not totally clear, but it will inevitably be a far inferior relationship to the EU than the EEA/EFTA option. It could well be designed in such a way as to inculcate a sense of inferiority among the non-Euro members in the hope that it will encourage them to join the “vanguard”. It could be far closer to “government by fax” than the former Norwegian premier Jens Stoltenberg’s infamous parody of his country’s relationship with the EU.

To put it another way, “associate membership” would be rather like travelling down a slow, bumpy country lane in a clapped out old banger while the “vanguard” cruise along the autobahns in their sports cars. The duration and quality of the journey on the two roads are very different, but neither route allows you to spend long in lay-bys. You have to keep moving towards the destination whether you travel slowly or quickly (although there will be a few side-roads allowing quick access onto the autobahn from the narrow road) and more importantly, whether you switch to the fast road or continue bumping along the farm track in your banger, THE DESTINATION OF BOTH ROADS IS THE SAME. In other words, an opt-out from ever-closer union is utterly meaningless.

This is the key point – joining the EU means joining a project that has only ever had one goal. Economics comes second to the political objective of creating the United States of Europe and this is where the withdrawalist campaign can, with a good campaign, whittle away at the “soft” supporters of continuing UK membership. I have yet to see the results of any poll asking these people why they want to vote to stay in, but it would be a pretty reasonable assumption that, for many of them, the answer would most likely be, “to keep my job”, “because we need to trade with the rest of the EU”, “I’m nervous about a step into the unknown”, “I’ve been offered an Erasmus scholarship” or “I want to continue living by the Mediterranean and I’m worried I would be forced to return to cold, grey England if we left the EU.” In other words, their big concerns revolve around issues which are peripheral to the aim of the EU. Convince them that there is an “out” option that will address their concerns while at the same time allowing the country to escape from a political project which few believe in and support for staying in the EU will peel away. Or course, we must also convince voters that the idea of keeping the level of EU interference at its current level is a non-starter. It’s either more EU or goodbye EU. Those supposedly hard-won derogations are only humps in the road. They slow your progress but they don’t force you to stop, let alone turn back.

The EEA/EFTA option fits the bill precisely. It also has the advantage of being practical rather than aspirational. Not only have “aspirational” books and leaflets made unrealistic claims (for instance, “Leave the EU and we can control immigration”, or “Leave the EU and we can slash regulation”) but your aspirations – in other words, your picture of what you would like an Independent UK to look like 10 years after we leave, whether or not it is achievable – may be very different from mine. Withdrawalists are united on regaining our sovereignty and in opposing the unaccountability of the EU structure. This in itself is sufficient to provide plenty of “sunlit uplands” and avoids focussing on issues which only divide supporters of withdrawal.

There is, however, one potential pitfall. Plans for closer Eurozone integration and the alternative of “associate membership” may be developed in such a way as to replace the EEA altogether. Richard North flagged this possibility up on his blog last month. Within the EEA agreement, there is provision under Article 127 for members to withdraw on 12 months’ notice. In other words, if all 28 EU countries simultaneously gave notice to quit, there would no longer be an EEA. Whether there is some sort of cunning plan being hatched in Brussels to force Norway, Iceland and Liechtenstein into the EU by pulling the EEA rug from under their feet we cannot say as the discussions are being held behind closed doors. However, in the same article, Dr North shows that there is a way of maintaining a “shadow EEA” arrangement if this is indeed the EU’s plan which will avoid being forced into associate membership. With Iceland’s government distinctly unenthusiastic about EU membership and Norway boasting a strong and well-organised anti-EU movement, any attempt to shoehorn these countries into the EU through sheer naked coercion will be fiercely resisted and the shadow EEA idea will no doubt be widely canvassed.

All this is still speculation at the moment, but a quick move to a two-speed Europe with the UK of necessity in the slow lane must surely cause many of those who favour a status quo to realise that it isn’t going to be an option. A vote to stay in means more integration, however much David Cameron’s sham renegotiations will leave us lagging behind the federalist front-runners in the Eurozone.

What is our aim and what is our plan?

Our aim is for the UK to leave the political, judicial and monetary structure of the European Union (EU) as well as the Customs Union and other Common Policies, but the UK would stay in the Single Market by retaining its European Economic Area membership and would propose to rejoin EFTA.

What would happen?

It must be emphasised that EU membership and Single Market membership are two different matters.
In this plan, entitled FLEXCIT – the work of eureferendum.com and The Bruges Group – the UK would stay in the Single Market by retaining its European Economic Area [EEA] membership and joining EFTA. In due course, it would then make further policy changes as any normal country. Ultimately, the long term aim would be to change the UK’s relationship to the EU to ‘joint membership of a European free trade area’. This goal is within reach and will be attained more easily if the political and monetary aspects and other Common Policies of the EU are jettisoned.

In the short term the UK would be in the position of Norway or Iceland. This is not a perfect strategy, nor is it the end of a process – which will go on for many years – but it is an existent, proven platform which will secure an amicable and stable exit.

How would the UK stay involved with the EU?

a) The Four Freedoms – which are part of the EEA agreement. It should be noted that EU governments (including the UK) in reaction to the ‘sweetheart’ tax deals agreed by Juncker in Luxemburg, have actually reduced freedom of capital movement. In the case of Cyprus (and soon to be Greece?) full capital controls have been imposed by the EU Troika. It should also be noted that the provisions of the EEA agreement are more restrictive on freedom of labour movement than the EU membership and also allow further restrictions in exceptional circumstances, unlike the EU.

b) Horizontal policies associated with the Single Market, such as consumer protection, company law, environment, statistics.

c) Co-operation in development, training, culture, tourism, etc.

d) The Single Market.

In addition, the UK would continue to be involved with the EU in intergovernmental matters, may agree to participate in some EU programmes and, in some cases, sign up (inter-governmentally) to EU institutions where they offer better value than going it alone.

What would trigger this?

A referendum to leave the EU having a positive vote, the UK would then serve an Article 50 notice in accordance with the EU treaties, giving two years’ notice to leave the EU and start to agree the terms of departure.

What parts of the EU would the UK leave?

The UK would repatriate the ‘acquis’ (the system of EU law). Just as Ireland
and India did when they became independent, bringing the whole acquis into
British law allows a seamless transition. Once repatriated, the British parliament
would then repeal EU involvement in the following areas:
– The Common Agriculture Policy
– The Common Fisheries Policy
– The Customs Union
– The Common Trade Policy (and regain the UK’s seat at the WTO plus the ability to make its own trade agreement with other countries)
– The Common Foreign and Security Policy
– The Common Policy on Justice and Home Affairs
– The Charter of Fundamental Rights
– EU Economic and Monetary Union (the UK is signed up for Stages 1 and 2 but not Stage 3 (the euro) of EMU.)
– No involvement in direct or indirect taxation
– The EU Commission
– The EU Court of Justice
– A substantial reduction in contributions to the EU budget
– The ‘joint and several liabilities’ of all EU members for all EU debts
– Extrication from specific risk exposure to the liabilities of the EU, the ECB and the EIB as soon as possible.

In short, Britain would then be in approximately the same relationship to the EU as the EFTA/EEA countries: Norway, Iceland and Leichtenstein. Of course, it may be decided that certain functions should be ‘bought in’ from the EU and also that the UK may decide to participate in some EU programmes,
such as in Eastern Europe, on a voluntary intergovernmental basis. Clearly, there must be negotiation with the EU in certain areas and, equally, there will be transitional policies required in some areas such as extrication from debt guarantees.

The advantages of this strategy?

a) It attains the aim of leaving the political, judicial and monetary structure of the EU.
b) All those who wish to leave the EU, whatever their ultimate goal, will be able to support Flexcit and the UK staying in the Single Market as a platform to move to future long-term trading arrangements which will take a long time. These arrangements can be debated after exit.
c) Of all options, it is likely to engender the least hostility from the EU institutions since this option can be traced back to proposals fromPresidents de Gaulle and Giscard D’Estang. Indeed, de Gaulle’s press
conference in 1963 outlined a sensible free trade relationship for the UK to the then EEC.
Further, in December 2012 former head of the EU Commission and the main driver of the EU in his day, and a man highly respected in Brussels, Jacques Delors, told Handelsblatt newspaper:
“If the British cannot support the trend to more integration in Europe, we can nevertheless remain friends, but on a different basis. I could imagine a form such as a European economic area or a free trade agreement.”
This correctly stated the alternatives for the UK, “Supporting the trend to more integration in Europe” or ‘friends’ on the basis of membership of the EEA.
d) Having looked at many speeches by business which purport to support the UK remaining in the EU, the only reasons given are the asserted benefits of the Single Market. There are many business speeches in favour of the Single Market but none in favour of the parts of the EU identified above where the UK will leave. No business has ever asked for EU control of justice and home affairs, an EU foreign policy,
massive financial transfers from the UK to Brussels or increased exposure to the losses of the eurozone.
Staying in the Single Market removes all business objections. At one time it is true that many businessmen and business organisations pressed the British government to join the euro. It is now
realised that this would have been a disaster on a grand scale.
e) By staying in the Single Market and reassuring business, the electorate is also reassured that there will be no economic change. The electorate will be comfortable that jobs, investment and trade will be
unaffected and business will continue exactly the same as before.
f) Once a referendum is won this plan sets out a clear and simple plan for action on Referendum Day +1. There can be no doubt about what ‘leaving the EU’ actually means. It is a clear instruction from the
electorate and a clear plan for action. It is not an expression of wish which the Executive can implement in the way it chooses.
g) In the 1975 referendum, a number of outside leaders in the Commonwealth were quoted by the pro-EU leaflet circulated to the electorate as stating they wanted the UK to remain in the EU. This
pattern of outside advice was repeated in the recent Scottish referendum. As the move from EU membership to EFTA/EEA membership is less dramatic, there is little reason for outside leaders to comment or to parse the exact differences between EEA and EU membership.
h) To win a referendum with a cacophony of options is unrealistic and, even if won, would simply hand the initiative to the ‘more integration’ forces in Westminster who would negotiate as they saw fit. In 1975, the pro-EU literature devoted a great deal of space to describing and disparaging the great variety of alternatives to the EU offered by the anti-EU side.

The FLEXCIT plan, taking up approximately the position of Norway, is available, off the shelf, and is a proven and existing solution while long term trading arrangements are debated and implemented over several years.

Some Restriction on free movement of people is possible within the EEA agreement

Remaining in the single market as an interim option after leaving the EU does allow a country to place restrictions on immigration. The so-called “Norway Option” is being widely debated at the moment, but it has received a good deal of criticism from those whose prime reason for supporting withdrawal from the EU is their desire to see immigration reduced. Nevertheless, although this arrangement may not satisfy everyone seeking an “out” vote, not only it is the best way of ensuring we win a sufficient number of votes to leave the EU, but it does at least allow some restrictions on immigration, as Robert Oulds from the Bruges Group explains:-

It is possible to impose restrictions on immigration whilst remaining in the European Economic Area. Liechtenstein, an EEA member with less potential influence than Britain, continues to use clauses in the EEA agreement to restrict the movement of persons. Article 112(1) of the EEA Agreement reads: ‘If serious economic, societal or environmental difficulties of a sectorial or regional nature liable to persist are arising, a Contracting Party may unilaterally take appropriate measures under the conditions and procedures laid down in Article 113.’ The restrictions used by Liechtenstein are further reinforced by Protocol 15 (Article 5 – 7) of the EEA agreement. This allows Liechtenstein to keep specific restrictions on the free movement of people. These have been kept in place by what is known as the EEA Council.[1]

There will also be greater latitude to restrict non-British EU citizen’s access to benefits and to deny residency to those who are deemed to not have sufficient resources to support themselves. The current debate in Britain on immigration largely ignores the role of the European Court of Human Rights and the European Convention. Article 3 of the Convention (inhuman or degrading treatment or punishment) and Article 8 (private and family life, his home and his correspondence) would also be relevant to the issue of immigration. These two article are often taken together; especially in cases of repatriation.

EEA/EFTA states are outside of Article 6 of the EU’s Treaty on European Union which states; 2. The Union shall accede to the European Convention for the Protection of Human Rights and Fundamental Freedoms. Such accession shall not affect the Union’s competences as defined in the Treaties 3. Fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, shall constitute general principles of the Union’s law.

 There is already a great deal of flexibility in the EEA agreement. This goes beyond the ability to restrict immigration and opt-out of areas of EEA rules. Iceland even unilaterally imposed capital controls after its financial crash in 2008. This is permitted within the EEA safeguards Article 112.[2] There is also no enforcement mechanism to prevent this from happening even if such flexibility was not contained within the EEA. Whist this paper does not advocate such a policy it shows that radical steps that run contrary, even to the four freedoms of the EEA, can be implemented.

The EEA relevant rule relating to freedom of movement, Directive 2004/38, has qualifications, conditions and limitation. (10) Persons exercising their right of residence should not, however, become an unreasonable burden on the social assistance system of the host Member State during an initial period of residence. Therefore, the right of residence for Union citizens and their family members for periods in excess of three months should be subject to conditions. (12) For periods of residence of longer than three months, Member States should have the possibility to require Union citizens to register with the competent authorities in the place of residence, attested by a registration certificate issued to that effect. (22)

The Treaty allows restrictions to be placed on the right of free movement and residence on grounds of public policy, public security or public health. Article 7, 1 b) (b) have sufficient resources for themselves and their family members not to become a burden on the social assistance system of the host Member State during their period of residence and have comprehensive sickness insurance cover in the host Member State.[3] No right is absolute, and neither is freedom of movement within the EEA. What is more, EEA rules only apply to EFTA nations after they have assessed the relevant legislation and applied it according to their own interpretation of what freedom of movement means.

Footnotes:-
[1] EEA Council Decision No. 1/95, Official Journal of the European Communities, 20th April 1995, pages L 86/58 and 86/80
[2] Official Journal of the European Communities, 3rd January 1994, pages L/28, 176-8 and 562
[3] DIRECTIVE 2004/38/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 29 April 2004

Robert Oulds: Independent from the EU

Last October, Robert Oulds of the Bruges Group delivered a presentation entitled “Independent from the EU and into the wider world” at a CIB-hosted meeting at Chelwood House, Somerset. Robert explained how we could exit seamlessly from the EU by invoking Article 50 of the Lisbon Treaty and negotiating to re-join EFTA. No other exit option is viable for, if we left the European Economic Area (which we would not under this secenario), the barriers to trade with the EU would take years to address, thus putting many UK businesses at risk.

Although much has happened since Robert gave this presentation, the arguments he set out last year still form the basis of the EU exit strategy most likely to command sufficient popular support to secure the all-important “out” vote in the forthcoming referendum and the only one which can answer all the concerns of the business community. The video can be accessed here.