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Labour’s European dilemma

Labour should make common cause with its sister parties and oppose EU austerity.

2011 was dominated by the eurozone debt crisis and the bad news is the same will be true in 2012, well, at least for the first six months of it. The debt crisis is, for wildly different reasons, a major headache for the three major UK parties.

The Conservatives are still hugging themselves with delight at David Cameron's 'obstinate child' act at the EU summit. They were particularly pleased when ministers and Treasury officials traded insults with the French counterparts about the state of the other's economy - for a Tory there is no higher calling than picking a diplomatic fight with the French. The Tories also enjoyed a decent poll bounce following the summit.

But their pleasure will be short-lived. Those who are happiest with Cameron's non-veto are the ones who see it as the first step towards a referendum on Britain's EU membership. Meanwhile, by seeing the summit solely as an opportunity to shore up back-bench support and protect Tory donors in the City, Cameron has shut himself out of the negotiations to resolve the eurozone crisis on which the stability of the UK economy depends. In the meantime, it is almost certain that, one way or another, he will increase Britain's IMF contributions to help foot the bill.

The Lib Dems once again demonstrated their unique capacity in government to pick the least popular position. Their support for the Angela Merkel inspired 'fiscal compact' treaty and fury with Cameron for isolating Britain within the EU follows the precedent of supporting massive spending cuts and the tripling of tuition fees. It is a remarkable change for a party famous in opposition for jumping on ever populist band-waggon that moved.

But Labour, too, has a big strategic decision. Amid the triumphal mood of the House of Commons debate following the summit, Ed Miliband actually had Cameron on the run until cornered by the question: 'what would you have done'. Unfortunately, Miliband had no answer.

The truth is that David Cameron was right to oppose the fiscal treaty. Indeed, most media coverage of the December summit overlooked the fact that the proposed 'fiscal compact' treaty is actually very bad news indeed. While the left should not be opposed to the concept of putting a national debt ceiling into law the automatic sanctions, involving fines of up to 0.2 per cent of GDP, are excessive and pro-cyclical. Fining a country in economic difficulty billions of euros is akin to cutting off a one-legged man's working limb. But it is the limit of 0.5 per cent on structural deficits that is truly daft. Most EU countries can't hope to meet this target within the coming years, only the likes of Germany, Finland and Netherlands, who have a large current account surplus, will be able to consistently meet it. To put the 0.5 per cent figure in context, Britain's structural deficit is currently around 6.5 per cent. Even with George Osborne's spending cuts the OBR's optimistic forecast is that this will only fall to 4 per cent by 2015.

More importantly, this treaty will make it virtually impossible for EU countries to pursue Keynesian-style expansion in the future. If it ever comes into force, Europe will be locked into a decade of austerity and economic stagnation. At a time when most economists are projecting a tough decade of recession and low growth, the treaty is plain daft. Had Ed Miliband been at the summit there is no question that he should have opposed it.

With the Coalition bickering between the Conservatives and the rest of the EU, and the Lib Dems with their Tory colleagues, Labour has a difficult path to tread. Should it join the Tories in some facile, but populist, Brussels-bashing?

For those who think Labour is unwaveringly pro-EU, it's worth remembering that euroscepticism has existed in Labour far longer than the Conservatives. Labour's infamous 1983 election manifesto included a pledge to withdraw from the EEC. Only in the late 1980s under Kinnock's leadership did party policy became pro-European as, crucially, did the trade unions, realising that the EU could be an effectively means to enshrine social and employment protection in European law.

But although there are prominent eurosceptics on the Labour backbenches and in the shadow cabinet, Miliband should realise that there is no electoral advantage to Labour by adopting a Tory-style euroscepticism. This sentiment has been built into the Tory party's DNA ever since the Maastricht Treaty and Labour couldn't credibly outflank them. Besides, while the British public may be sceptical about the EU, they have never elected a party whose platform was to estrange Britain from the rest of Europe.

Instead, Labour should make common cause with its sister-parties, particularly those in France and Germany who face critically important general elections this year. Both Francois Hollande and Peer Steinbruck have opposed the new treaty, rightly arguing that it enshrines austerity economics in a recession and, consequently, won't work.

Indeed, although Labour's relationship with its continental partners has often been marred by mutual suspicion, the reality is that they are all, by and large, singing from the same policy hymn sheet. Rigorous financial regulation, which Britons want but the Tories refuse to countenance, is being adopted at EU level. Laws on short-selling, hedge funds, and bank bonuses have all been adopted at European level with Labour's support but in the teeth of Tory opposition.

Now, more than before, socialist parties need each other. In the past two years left-wing parties with a strong history in government have been soundly beaten in the UK, Spain, Sweden, Portugal and the Netherlands to name but four, with Helle Thorning-Schmidt's victory in Denmark the only ray of light. Defeat for Hollande and Steinbruck this year would point ominously towards a Labour defeat at the next election.

Labour needs to sketch out a credible alternative on Europe if they are to effectively attack Cameron's isolationism. Both the Tories and Lib Dems will lose what influence they once had in Brussels. Rather than join them in carping from the sidelines and wielding vetos and threats that do not mean or stop anything, Labour should fill the policy vacuum as the only party with any meaningful answers on Europe.

Ben Fox is chairman of GMB Brussels and political adviser to the Socialist vice-president of economic and monetary affairs.

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