Guess what! Constructive engagement in Europe works

A new banking deal shows what can be achieved when Tory backbench wreckers aren't stealing the show.

The European Union has taken another small but significant step towards closer integration. Finance ministers have agreed to create a eurozone banking union – putting the largest banks in those countries that use the single currency directly under the supervision of the European Central Bank.

In principle, that will enable faster and more direct intervention in the event of a crisis. The deal is also supposed to limit European governments’ exposure to picking up the tab for any future bank failures.

Britain had a peculiar role in this chapter of crisis talks as a non-eurozone country that happens also to host the continent’s biggest financial centre. The UK government’s dilemma was that it needs to support the efforts of the rest of the EU in sorting out the mess in their banking system but without handing over regulatory powers that would put the City of London at a competitive disadvantage.

Some French and German politicians see the design of Europe’s post-crisis financial architecture as an opportunity to snatch London’s crown for Paris or Frankfurt. That impulse is reinforced by the view in much of continental Europe that the City is the ideological Mecca of a kind of rampant, greedy, profiteering approach to finance that caused the crisis in the first place.

To an extent, it plainly is. But the financial services industry also happens to be a vital strategic economic asset for Britain. It may not be very fashionable to admit it right now, but any UK government will see protecting the City’s status as a core part of its negotiating agenda in Europe.

On this occasion, George Osborne appears to have achieved his main goal, which was to ensure that British opinion is adequately represented in the new banking union’s decision-making process. Crudely speaking, the single currency members have accepted that decisions made by the European Banking Authority will need to be approved by a plurality of non-eurozone countries as well as a majority of eurozone ones. In other words, in theory, it won’t be possible for the single currency members to stitch up a plan that hobbles the City and then force it through against the will of non-euro members (i.e. Britain). That “double majority” protection was Osborne’s main demand going into the negotiations. He is now satisfied.

This deal sets an important precedent. Financial regulation is not the only area where Britain, as a non-eurozone country, needs to assert its interest and voting weight in European decision-making as the single currency members plough ahead with ever-closer integration. The planned Fiscal Union treaty agreed last December (from which David Cameron withdrew UK participation by waiving a symbolic veto) was the beginning of a process that redefines the EU as a political and economic project around the eurozone.

The obvious danger to Britain from that process is that the rules of the single market – the part of EU treaties that even ardent sceptics like – will be skewed by a caucus of single currency members in their select single currency meetings to the exclusion and detriment of the UK. Cameron has insisted that would be intolerable, but has yet to demonstrate how he might stop it from happening. This new banking union model with its “double majority” principle points to the kind of deal that might be struck in the future.

It is worth noting, however, that Britain was able to get this deal because other member states could be persuaded that their interests would ultimately be served by accommodating London’s request. Britain’s legitimate concerns about exclusion and the fact that the City is of strategic importance to the whole continent are points mostly well heeded in Brussels. London has never lost a major vote on a financial services point in the European Council and has never needed to wield a veto on the subject. It also helps that this issue was not ramped up by Tory MPs or the media into a point of zero-sum confrontation between heroic Albion and the wicked bureaucrats of Brussels. It just goes to show what can be achieved through constructive engagement and diplomacy.

None of these issues is going away. The main business of the current summit is to look at much broader proposals for deeper long-term eurozone integration. The overall trajectory is still towards a two-tier EU, with Britain in the outer layer. As today’s events have shown, that doesn’t have to mean second class membership. The real threat of exclusion and economic disadvantage doesn’t come from other countries harbouring conspiratorial grudges against Britain. It comes from Tory MPs and Ukip making it impossible for the Prime Minister to conduct realistic negotiations.

The Euro logo is seen in front of the European Central Bank in Frankfurt. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Why the Liberal Democrats by-election surge is not all it seems

The Lib Dems chalked up impressive results in Stoke and Copeland. But just how much of a fight back is it?

By the now conventional post-Brexit logic, Stoke and Copeland ought to have been uniquely inhospitable for the Lib Dems. 

The party lost its deposit in both seats in 2015, and has no representation on either council. So too were the referendum odds stacked against it: in Stoke, the so-called Brexit capital of Britain, 70 per cent of voters backed Leave last June, as did 62 per cent in Copeland. And, as Stephen has written before, the Lib Dems’ mini-revival has so far been most pronounced in affluent, Conservative-leaning areas which swung for remain. 

So what explains the modest – but impressive – surges in their vote share in yesterday’s contests? In Stoke, where they finished fifth in 2015, the party won 9.8 per cent of the vote, up 5.7 percentage points. They also more than doubled their vote share in Copeland, where they beat Ukip for third with 7.3 per cent share of the vote.

The Brexit explanation is a tempting and not entirely invalid one. Each seat’s not insignificant pro-EU minority was more or less ignored by most of the national media, for whom the existence of remainers in what we’re now obliged to call “left-behind Britain” is often a nuance too far. With the Prime Minister Theresa May pushing for a hard Brexit and Labour leader Jeremy Corbyn waving it through, Lib Dem leader Tim Farron has made the pro-EU narrative his own. As was the case for Charles Kennedy in the Iraq War years, this confers upon the Lib Dems a status and platform they were denied as the junior partners in coalition. 

While their stance on Europe is slowly but surely helping the Lib Dems rebuild their pre-2015 demographic core - students, graduates and middle-class professionals employed in the public sector – last night’s results, particularly in Stoke, also give them reason for mild disappointment. 

In Stoke, campaign staffers privately predicted they might manage to beat Ukip for second or third place. The party ran a full campaign for the first time in several years, and canvassing returns suggested significant numbers of Labour voters, mainly public sector workers disenchanted with Corbyn’s stance on Europe, were set to vote Lib Dem. Nor were they intimidated by the Brexit factor: recent council by-elections in Sunderland and Rotheram, which both voted decisively to leave, saw the Lib Dems win seats for the first time on massive swings. 

So it could well be argued that their candidate, local cardiologist Zulfiqar Ali, ought to have done better. Staffordshire University’s campus, which Tim Farron visited as part of a voter registration drive, falls within the seat’s boundaries. Ali, unlike his Labour competitor Gareth Snell and Ukip leader Paul Nuttall, didn’t have his campaign derailed or disrupted by negative media attention. Unlike the Tory candidate Jack Brereton, he had the benefit of being older than 25. And, like 15 per cent of the electorate, he is of Kashmiri origin.  

In public and in private, Lib Dems say the fact that Stoke was a two-horse race between Labour and Ukip ultimately worked to their disadvantage. The prospect of Nuttall as their MP may well have been enough to convince a good number of the Labour waverers mentioned earlier to back Snell. 

With his party hovering at around 10 per cent in national polls, last night’s results give Farron cause for optimism – especially after their near-wipeout in 2015. But it’s easy to forget the bigger picture in all of this. The party have chalked up a string of impressive parliamentary by-election results – second in Witney, a spectacular win in Richmond Park, third in Sleaford and Copeland, and a strong fourth in Stoke. 

However, most of these results represent a reversion to, or indeed an underperformance compared to, the party’s pre-2015 norm. With the notable exception of Richmond’s Sarah Olney, who only joined the Lib Dems after the last general election, these candidates haven’t - or the Lib Dem vote - come from nowhere. Zulfiqar Ali previously sat on the council in Stoke and had fought the seat before, and Witney’s Liz Leffman and Sleaford’s Ross Pepper are both popular local councillors. And for all the excited commentary about Richmond, it was, of course, held by the Lib Dems for 13 years before Zac Goldsmith won it for the Tories in 2010. 

The EU referendum may have given the Lib Dems a new lease of life, but, as their #LibDemFightback trope suggests, they’re best understood as a revanchist, and not insurgent, force. Much has been said about Brexit realigning our politics, but, for now at least, the party’s new normal is looking quite a lot like the old one.