The UK should Shape the Future of Europe, not Withdraw from it

The following speech was delivered by Tony Blair at the Business for New Europe event, ‘Europe, Britain and Business – Beyond the Crisis’ at Chatham House on Wednesday 28th November 2012. (Check against delivery)

The toughest challenge in politics right now is resolving the tension between the best long-term policy and the best short-term politics. Nowhere is this tension clearer than in the debate over Europe.

Europe has disturbed and divided British politics for years. One of my first votes was in the 1975 referendum on Britain’s membership. That followed years of indecision and frustration. Since then the turmoil it has caused in our politics has rarely abated. I fought my first election in 1983 when Labour promised withdrawal. I fought my last election in 2005 when the Tories had become the Eurosceptic party.

But now is different. Now the case for Britain leaving the EU or at least radically changing its relationship with it – which may amount to the same thing – is made openly by mainstream politicians from the governing party, sympathised with by some of our nation’s leaders and far more widely supported amongst the public at large.

The reasons for this resurgent hostility/scepticism are not hard to fathom. Europe is in crisis. The Euro’s design flaw – an economic union motivated by politics but expressed in economics – has become manifest. Structural changes to those economies that saw a big fall in interest rates when they joined a Germany dominated currency bloc, now have to be made, at speed, in crisis and without the luxury of devaluation. The pain this policy is causing is shown in demonstrations all over the continent and in the bitter impact on many struggling families, the young and the old.  The foundation of the pro Europe case was partly the promise of ever upward prosperity.  At present that promise is severely in question.

So the flagship policy of Europe is listing dangerously. As I have said before, to save it, I believe, requires a kind of ‘Grand Bargain’ approach rather than incremental steps, in which Germany agrees, effectively, to some form of mutualisation of debt; the debtor countries carry out profound structural reform; and the ECB stands fully behind the bargain. There are some signs this may happen. But even if it does, Europe will suffer for some time to come.

What the Eurozone crisis has done is to expose the need for Europe to reform. But it hasn’t created it. It has accelerated this need, but the need was there anyway. Changes to the labour market, pensions, welfare and the way the State operates are necessary in all Western countries for reasons of demography, technology and external competition.  The European social model has to change radically for Europe to prosper.

Many of these arguments over the years have lain most comfortably in the mouths of Eurosceptics. They were never the only ones to make them by the way. My speeches on Europe as Prime Minister were littered with references to the pro-Europe, pro-reform case.

But the truth is: much of the criticism levelled at Europe has been justified and is shown to be justified now.

So the public attitudes to Europe are explicable and understandable. Plus you can add in the EU Budget row – though frankly such rows are absolutely routine and in these economic circumstances, inevitable, where all countries including Britain will vigorously defend their interests. But it adds to the sense of European malaise.

The short term politics are clear: being anti-Europe is today popular. However leadership is not about conceding to the short-terms politics. It is about managing the short-term politics in the pursuit of the right long-term policy.

‘Europe is in crisis, therefore leave’ may win a majority in an opinion poll. But in the leap to the ‘therefore’ lies a chasm of error. I want to explain why I believe such a policy would be politically debilitating, economically damaging and hugely destructive of Britain’s true long-term interests.  Our country faces a real and present danger by edging towards exit. The correct policy is to engage, to make it clear Britain intends to be a strong participant in the debates about Europe’s future, to build alliances and to shape an outcome to those debates consistent with the right way forward not just for Britain but for Europe as a whole.

First, take a big step back from crisis and ask: what is the long-term rationale for Europe today? If there isn’t one, of course, then why would we want to be part of it? However, the truth is the rationale for Europe today is stronger not weaker than it was back 66 years ago when the project began. But it is different. Then the rationale was peace. Today it is power. Then it was about a continent ravaged by war in which Germany had been the aggressor and Britain the victor. Today it is about a world in which global geo-politics is undergoing its biggest change for centuries. Power is shifting West to East. China has emerged, with its economy opening up, one which will grow eventually to be the world’s largest. Its population is three times that of the whole of the EU. India has over a billion people. Brazil is two times the size of the largest European country, Indonesia three times and there are a host of countries including Russia, Turkey, Mexico, Vietnam, the Philippines and Egypt larger today than any single EU nation.

What is more, as technology and capital become globally mobile, in time there will be a re-alignment of GDP and population i.e. the larger your population, the bigger your economy. The USA remains extraordinarily strong, its military easily the largest and best equipped but the time when it has been the world’s only superpower, is passing.

That is the big picture. The case for the EU today, therefore is one that can be made for all European nations including Britain. It is that, in this new world, to leverage power, you need the heft of the EU. This is true in economics, in trade, in defence, foreign policy and global challenges such as climate change. It gives us a weight collectively that on our own we lack. It is not complex. It really is that simple. I rather like the idealism of Europe’s early founders. But actually this has nothing to do with idealism. It is brutal real politik. In a world in which China and India will both have populations 20 times that of the UK, we need the EU to help pursue our national interest. With it, we count for more. Without it, we count for less.

So the real issue for us should be: what type of EU? And here there is no doubt that Europe needs fundamental, far reaching reform. Many of those reforms are precisely what the UK has been arguing for, like reform of the social model. It should be pointed out that these reforms are partially being made. Spain’s labour costs have declined substantially since the crisis began. Italy has grasped crucially important reforms in areas like pensions. Greece has cut spending by a bigger amount proportionally than any country in Europe since the War.

Other reforms especially in the arena of political reform, will be hotly contested. The UK takes a more nation-state view of the EU; others have a Federalist concept.

Some reforms are now certain to follow from the Euro crisis like enhanced fiscal cooperation between the Eurozone members and banking union.

Thus over the next 2 or 3 years there is bound to be a vast churning debate about Europe’s future. This will be so, by the way, irrespective of what happens to the Euro. If it survives, for sure big change will happen. But even if it were to break up, and I hope it will not, the consequences for Europe and its institutions will be dramatic.

This debate is not one way. It never is. It doesn’t take a political genius to work out that strong though the French/German motor is in Europe, it is not always sparking in synch let us say. There are differences North/South; between large and small; between those who favour a more conservative fiscal approach and those who favour a more lax one; on a range of topics from defence through to labour market reform. As Britain has just discovered in the Budget debate, it can make allies and powerful ones.

When it comes to the future shape of Europe – economically, socially and politically – there is not a pre-destined consensus. There is a tumult of debate, discussion and dissension.

This is the last moment, the last moment conceivable, that we should start talking about leaving, about quitting the field just as the game starts, marginalising ourselves at the very point at which we should be at the centre of things.

Instead we should be building alliances and more than that, originating ideas, not just responding to them. The truth about Europe’s public opinion is that when Britain argues its case in Europe and about Europe, it is far more popular than that advanced by many others. But when Britain makes a case against Europe it deprives us of the credibility to win the argument that matters.

So the essential concept of a balance between integration and the nation-state is widely shared. An approach by Europe’s leaders that focuses on clear outcomes in specific areas is what most people in Europe would, along with changes to the Eurozone, support. This agenda would be about: completion of the single market to create jobs; common defence policy in an era where global ambitions aren’t satisfied by national budgets; energy and the environment, where the gains, financial and otherwise, of cooperation could be enormous; in the fight against illegal immigration and organised crime; in art and culture and higher education, where Europe is struggling to match the USA. An approach that says: first let us ask what we want Europe to do and then let us design mechanisms to do it, would draw support across Europe.  Right now when most EU members and the European institutions are properly concerned with the Euro crisis, the field is wide open for the UK to seize the initiative rather than wait passively to consider an agenda set by others.

It is in Europe’s interests that the proposals for the SSM, the integrated financial and fiscal framework, and the integrated economic framework, are correct. But it is also in Britain’s interests. Especially when predicting next year is difficult let alone the next 50 years, is it not in our interests to influence this debate too?

If the strategic rationale for Europe remains strong, then it cannot be in Britain’s interests either for us to be marginal to the debate about its future or indifferent to its outcome.

But if we want to participate we have to do so not just as Brits but as Europeans, not semi-detached because we are contemplating the option of leaving, but in the thick of it because we intend fully to remain at the heart of it.

That, of course depends on Britain recognising not just the strategic rationale for Europe, but the strategic interest of Britain to be in it.

Here it is no longer good enough for us pro-Europeans to claim that the case for departure is made only by atavistic Little Englanders, or to pretend that outside the EU, Britain would collapse or disintegrate.

Britain could have a future outside of Europe. The question is whether it should. We should ask, not: could it be done; but is it wise? Is it a sensible judgement in our long-term interests? And neither should we exaggerate the economic impact of leaving. I can imagine how we could create an economy that could operate effectively in the global market. But just as I should not exaggerate the consequences of Britain leaving, so those in favour of this course should not understate them.

First, let us demolish one delusion: that Britain could be like Norway or Switzerland. Norway has a population of around 4.5 million and a GDP of $485.8 billion. It also has a sovereign wealth fund presently at over $600 billion rising to $1 trillion by 2020. It has this through vast reserves of oil and gas. If Britain with a GDP of $2.43  trillion had a wealth fund sitting in our accounts of roughly $3 trillion, all the arguments would change. But we don’t.

Switzerland is a unique case, politically and economically. I don’t know anyone serious who believes we could become like the Swiss.

That is not to say we could not develop our own unique brand. But in circumstances where 50% of our trade is presently with Europe and our social systems, though different in detail, are still broadly similar in principle to those in Europe, then the people who say we should have our own unique position outside Europe should at least spell out the economic and social policy that would need to be brought into being, to create such a future.

There are three major disadvantages to Britain from being outside the EU. I am not saying these arguments can’t be contested but I think they are reasonably clear.

First, we would lose our global leadership role. Don’t be under any illusions on this. Britain being part of Europe matters to how we are seen, by the world in general and our allies in particular. Any US President I know would regard Britain leaving as folly. The idea we would then seek new relationships with the likes of China and India is an especial illusion. Of course the bilateral relationship with both is strong and of course there are great trading opportunities. But both will never subordinate their Europe relationship to a British one outside of Europe. Our trade with India depends hugely on Europe negotiating the FTA and Germany currently exports more than double what we do to India and to China; and France and even Italy export more to India.

Politics at the top international level is about power. Separate us out from the decision-making structure of Europe and we will immediately relegate ourselves in the league of nations. I believe our other alliances would not blossom but decline.

Secondly, despite our close links to Europe economically, we would be out of the decision-making process determining the rules of the single market. Our companies know this. Global companies who use the UK as a base for Europe know this. When, in Government, we came to look closely at the risks to London as a financial centre from being outside the Euro, we concluded you can’t make a compelling case that it could damage us. We were never in any doubt that being out of Europe altogether was a completely different matter. Yes, we can negotiate special arrangements but each of those has to be individually negotiated.  And for the record, Norway is a major net contributor to the EU Budget as the price of its negotiation despite not being a member.  I am very dubious that other European countries would allow Britain to operate like some offshore centre at the edge of Europe, free from Europe’s responsibilities but participating fully in its opportunities. Any one of those countries within Europe could say no and no would therefore be the likely answer. We want to think long and hard before we put ourselves in that position.

Thirdly, we would lose the opportunity for co-operation and added strength on issues which we care about and where we want and need such cooperation and strength. Climate change and the environment. Trade negotiations. Foreign policy, where sometimes it will suit us to have European and not just US support. Bilateral disputes, where as we saw recently with Argentina, Europe’s solidarity counts. We cut ourselves out of future developments in Europe. We cut ourselves off from our main regional bloc when look what is happening elsewhere in the world: ASEAN, out in the Far East, now 700 million people strong looking to get its single market underway; in South America through MERCOSUR and UNASUR; the Africa Union; even the Customs Union being promoted by Russia. Everywhere nations are coming together in regional blocs. Is Britain going to drift apart from the one on its doorstep?

The reason this case has to be made now is a reason integral to understanding how political decision-making works. Sometimes decisions are taken at a moment in time, expressly and obviously. But political decisions can also be taken by effluxion, by a process that begins with an attitude, turns into a series of tactical steps driven by the attitude and then results in a decision that is strategic in effect but almost imperceptible in any one moment of time.  That is the risk now.

Let us be very clear too about this ‘renegotiating the terms of membership’ line. This is the refuge of those who want to leave but want to persuade people that really it’s just an adjustment of our relationship. Then in the course of ‘the adjustment’ when the going gets very rough, as it will, they will then say ‘well it’s a pity but now it seems adjustment is not enough’. If we make the burden of our endeavour in Europe over the next few years not how we can help Europe sort itself out, get on its feet again and progress, but rather how we change our own relationship with Europe; don’t be in any doubt as to the temper and frame of mind that our present partners will bring to that negotiation. Many of them are fighting an existential battle to survive right now. There will be varying degrees of politeness. But they will not thank us and will not accommodate us. So don’t go down this path unless we are prepared to follow it all the way.

There is a lesson from history. Back when Europe was debating its first tentative steps toward integration, Churchill made his famous speech calling for a United States of Europe, in 1946 in Zurich. But it is important to note he was passionately in favour of France and Germany coming together to found this new Europe. He believed it was the route to peace after the horrors of war. He wished the enterprise well; but he didn’t intend for Britain to be part of it. So we weren’t.

But we spent the next two decades and more trying to get into it; and when eventually we did, many of the rules and much of the institutional infrastructure was already set in stone. If we could have foreseen in 1946 the future 66 years later what would we have wanted? I have no doubt we would have wanted to have been in there from the beginning.

This turmoil in Europe will produce a new settlement in Europe probably as momentous as any since those days of 66 years ago. We should not make the same mistake twice. This time whatever the challenges, we should put our shoulders to the wheel and be part of the collective effort to make Europe strong and effective once more.

Europe is a destiny we will never embrace easily. But it is an absolutely essential part of our nation remaining a world power, politically and economically.  It would be a monumental error of statesmanship to turn our back on it and fall away from a crucial position of power and influence in the 21st Century.