Mats Persson: How the Coalition can hold real leverage in European negotiations and force some EU reform

Mats Persson is Director of Open Europe.

Europe is an absolutely explosive issue – both at home and abroad. For the Con-Lib Dem coalition it involves a number of risks but also huge opportunities. The risk is that the Conservatives turn into their predecessors and try to deny the existence of Brussels. But Europe is also ripe for reform and the Conservatives, aided by the EU-friendly hand of Nick Clegg, can actually get stuff done in Europe.

The Conservatives have clearly watered down their EU reform pledges on issues such as the repatriation of employment law, crime and the Charter of Fundamental Rights. In return they received a pledge that the UK would not join the euro over the course of the next Parliament (which is an entirely hollow victory since there was no chance that any party would have pushed for euro entry in the next Parliament).

But the most important things to watch are the pledges on opposing further transfer of powers to Brussels and the promise to put any Treaty change that does so to a referendum. This pledge could now be put to an immediate test with Germany on Friday tabling a proposal for the creation of more EU economic powers, which would involve EU Treaty changes. David Cameron and Nick Clegg’s gamble that they could keep the ‘European issue’ at arms length therefore looks unlikely to pay off.

Mats Persson is Director of Open Europe.

Mats Persson is Director of Open Europe.

Any meaningful referendum on the existing Lisbon Treaty became a fiction after the Labour Government’s ratification of the Treaty. Contrary to some comments, an amendment to the Treaty to accommodate for new MEPs will in no way unpick the Lisbon Treaty (which has already passed into UK law), nor will it present Cameron with a good bargaining chip in Europe as nothing of real significance to the EU’s functioning will occur if the UK blocks the amendment (and the changes will go ahead after three years in any case).

But the ratification of the Lisbon Treaty didn’t end the debate about the future of Europe – on the contrary. Predictably, the mammoth eurozone crisis has triggered calls for further EU integration. This time, EU leaders, backed by the Commission, are pushing for an ‘economic government’. In yesterday’s FT, the former Italian PM and Commission President Romano Prodi described the recent moves as

"a very important step towards the gradual creation of a European fiscal federalism.”

And crucially, Germany believes that its demands for stricter eurozone rules can only be met by significant new additions to the existing EU treaties. In the words of German Finance Minister Wolfgang Schäuble:

“We won't make it without amendments to the existing treaties. I know many other countries are sceptical. That is why we will be having arguments back and forth.”

Any Treaty change that impacted on the UK in any way would simply have to be put to a referendum, if the coalition is to stick to its word and rebuild some of the trust lost in previous years. After his meeting with Angela Merkel yesterday, Cameron indicated that he would veto

“any agreement or treaty that drew us further into supporting the euro area.”

It is essential that the coalition stands firm on this, as the proposals for an EU economic government are almost certain to spill over to Britain in one way or another.  It’s easy to see the temptation for Cameron here. Referendums – and particularly those involving the EU – are always uncomfortable for ruling politicians. So are big dust-ups over the EU in Parliament. Cameron, however, must not adopt the approach of his predecessors, consistently playing down transfers of power to Brussels as tidying up exercises.

However, in all of this, there is also a once-in-a-decade opportunity for Cameron.

It’s clear that the EU’s flagship project, the eurozone, was built on an unsustainable political and economic model – a model devised before the Continent’s political elite’s dreams of a ‘federal Europe’ were dealt a resounding blow by successive No votes to the EU Constitution, and before it became clear that the Single Currency was always bound to be built on sand. People across the continent are increasingly fed-up with the entire EU project and this gives the Conservatives the backdrop they need to push for long overdue changes in Europe.

Ironically, the Lib Dems’ involvement could actually help the Conservatives to achieve such change, by giving the coalition a friendlier face in Europe. A ‘good-cop, bad-cop’ coalition could prove particularly effective on issues such as trade, financial services, the EU budget and democratic reform – if Cameron plays his cards right.

The crisis enveloping the euro amounts to a much grander litmus test for European countries – integrate further or not? Treaty change clearly entails further integration, something which the coalition has pledged not to accept. But Treaty changes – or any substantial changes that require unanimity in the EU – could actually be good news for the UK. It would finally present a British Government with real leverage in negotiations with EU partners: in return for allowing the eurozone to integrate further, the UK should ask for any of a number of things in return, including the repatriation of powers and a more sensible EU budget.

If other EU countries aren’t receptive to this argument, then the Government should remind them that it is bound to hold a referendum. This would see the referendum pledge used in a very strategic way, i.e. it would be a referendum on EU reform – most importantly on a change to a Europe where powers can be brought back to member states as well as handed over to the EU.

But such a strategy requires courage and confidence. The Tories need to get their head around the fact this is no longer the 1980s – things have changed in Europe and the arguments are on their side. The Con-Lib coalition must take this opportunity to alter the course of the EU. It may not arise again.