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Andrea Leadsom MP: Setting the scene - making Europe competitive

Andrea Leadsom is the Member of Parliament for South Northamptonshire. Follow Andrea on Twitter.

Screen shot 2013-07-01 at 22.25.01The EU - you either love it, or you hate it.  That's where the debate is in Britain: are you a 'better off out' sceptic or are you a Europhile apologist? Well, I think both extremes are wrong, and I also think it's this mind-set that is at the root of many of the UK’s problems with the EU.

When something affects so many day-to-day aspects of our lives as the EU, it’s daft to work on the assumption that its influence must be either all bad or all good. Life isn’t that simple. That’s why I think it’s time we approached the question of Britain’s relationship with the EU in an entirely different way, one which takes full account of the complexity of that relationship.

Its also why I set up the Fresh Start Project in 2011 with my colleagues Chris Heaton Harris and George Eustice.  We have worked with a wide range of MPs, Peers, MEPs and interest groups to research properly the nature of the relationship between Britain and the EU as it stands today. Once we’d done that, we knew we’d be in a far better place to propose how best to change it so that it properly serves Britain’s interests. By the way, I would urge Conservative Home readers to ignore politicians who claim that trying to make sure that the UK gets the best of its relationship with the EU is obsessive or impossible, as Labour like to do.

On the contrary, we should follow David Cameron's lead by doing everything possible to ensure that “being in Europe” fully serves the British people’s interests. Above all, that requires us to be clear-thinking about what change we want, and hard-headed in negotiating for it.

The UK can, without doubt, derive considerable benefit from EU membership. However, this is only true if the EU focuses on actions that are genuinely to the benefit of the people of its member states. Above all, that means restoring economic competitiveness at a time when the rapidly developing emerging economies are literally leaving Europe standing.

On the other hand , over the past 40 years, we have seen how much British interests have been harmed by Brussels setting about creating a European super-state, and undertaking self-indulgent projects which do nothing to tackle the issues which matter to us.  Today's increasing sense of disempowerment and frustration is the result.

In this series of three articles, I will outline the changes which I believe the UK – and other like-minded Member States – must convince the EU as a whole to adopt. In this first article I will focus on meeting the challenges of global competitiveness, in the second (next week), on reducing the burden of membership, and in the final article I will address the very real problem of the democratic deficit.

First it cannot be overestimated how serious is the crisis of competitiveness faced by the EU. The rise of economic power in the East and Latin America, combined with the sclerotic growth rates in Europe, genuinely threaten our way of life. As Angela Merkel put it in December 2012;

“If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.”

Europe has to change its ways, and quickly, or our children and grandchildren will have to get used to a much less comfortable way of life. First of all, the fundamental contradictions inherent in European Monetary Union need to be resolved. Economic shocks, which are an inevitable part of free market economies, will have different impacts on each Member State. Monetary Union, now a feature of the Eurozone, deprives national policy-makers of the traditional tools of economic policy – the exchange rate and the interest rate – with which to respond to these shocks.

As for other tools, labour mobility is of limited relevance. Labour cannot, and does not, move across the EU in the way it does in the UK or the US. This leaves fiscal policy (itself also tightly constrained by monetary union) - in particular fiscal transfers from one member state to another – and “regulatory arbitrage”. The decisions shaping all of these areas are highly political. So ultimately it follows that all of the key decisions that are now shaping the EU’s economic future ie the success of the Eurozone, are political.

Do policy makers, and voters in the richer, northern economies (principally Germany) have the will to subsidise the poorer southern states? Germany is naturally insistent on establishing control and discipline before signing a blank cheque, and will wait until after their elections in September to go further down this route. But, to ensure the survival of the Eurozone, I think German voters will need to accept this long term subsidy as a price they have to pay.

Whatever decisions are taken in the Eurozone to ensure its survival, urgent work is needed too on other fronts to correct Europe’s lack of global competitiveness. The EU must finally become a genuinely liberal, free market, one which leads the world in trade. Recent progress – free trade agreements with South Korea and Singapore and on-going negotiations with India and, critically, the US – is welcome. But what about China and Mercosur?

Amazingly for such a vital area of the EU’s work (Member States have no role to play in trade negotiations), only 2 per cent of the EU budget is specifically dedicated to trade. The key surely is that all available resources are given over to creating new business opportunities whenever possible.

Most analysts consider the Single Market in goods to be well established and effective. Sadly, the same cannot be said of the Single Market in services, and this offers a huge opportunity for growth. Services account for 71 per cent of EU GDP, yet only 3.2 per cent of this is intra-EU trade. The existing Services Directive takes some tentative steps in the right direction. But much more needs to be done. The UK should lead a coalition of like-minded member states to pursue the liberalisation of services through enhanced cooperation.

At a wider level, the integrity of the entire Single Market must be legally protected. Non-Eurozone countries need concrete assurances that they cannot be discriminated against by a Eurozone caucus. The double majority voting arrangements introduced for the European Banking Authority provide a blueprint for wider institutional change, and Britain must pin down this key protection as soon as possible. Proposals to deepen the Single Market in digital and energy, issues which matter greatly to the UK, are welcome, but much more can be done.

The UK (and the EU more widely), have the huge advantage of a high-tech knowledge economy. We need to be exploiting this to the full. So it should be incumbent on the EU to facilitate this. One obvious way of doing this would be to support research and development. But, as the Inquiry on Life Sciences which I’m conducting with my colleague George Freeman MP has revealed, Brussels is stifling progress in this area. The Fresh Start Project will be pressing the Government to secure a much better deal for the UK.

I will be looking in detail at the whole question of “over-regulation” in the second article in this series. But the messages of this first article are: 1. Britain must lead wholesale reform of the EU - it's in our vital national interest to do so and 2. We CAN do it - we are not alone among EU member states looking for a more effective EU Club.

The Fresh Start Project was established in 2011 to help to develop a new relationship for the UK within the EU. It published the ‘Options for Change’ in July 2012 which looked in detail at the EU’s impact on the UK across 11 policy areas. Since January 2013, the Fresh Start Project has been building support for these proposals in other Member States through a series of visits.


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