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

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide