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17 JUL 2013

Setting The Scene - Making Europe Competitive

The 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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17 JUL 2013

The EU - We Need Reform And Better Regulation

As I argued in the first article of this three-part series for ConservativeHome, the Fresh Start Project (FSP) believes that the UK's national interest requires meaningful reform of the EU.

The EU is facing a crisis of competitiveness. The Eurozone crisis is a major factor in this. But so, too, are over-regulation and the unintended consequences of EU laws. Both, in their different ways, result in the UK paying an unacceptable price.

There is a danger that the mere mention of the phrase "over-regulation" leads to eyes glazing over. But make no mistake: negotiating over tedious directives might not seem like the stuff of diplomatic legend. However, the reforms that the UK needs to secure will play a huge part in determining whether or not we fulfil our economic potential during the next crucial period in which the world seeks to shake off the post-crisis years.

That's why the FSP is proposing a series of fundamental reforms to EU regulations to help a Conservative Government in its core mission of making the UK the most business-friendly place in the world. Our proposals will add to the work of the business-led Task Force recently launched by Government to identify the EU rules which are holding back UK businesses, and which should be abolished or reformed. We welcome this initiative, and will be working closely with the Task Force's Chairman, Michael Fallon MP.

Amongst the most important of the reforms we seek are those concerning Social and Employment Law. The case for pan-European labour law has always been weak. Member States have different labour traditions. They should be free to decide which laws are appropriate for their own labour markets. They should also have the flexibility to change their laws to meet changing employment conditions. But EU regulation and the EU decision-making process currently prevent this.The acute threat posed by the continuation of this situation surely is obvious – a generation of young people who will be lost to the labour market. Youth unemployment in the Eurozone now averages close to 25%. It reached 62% in Greece last year. The UK's position is somewhat different, though no less worrying. The Working Time Directive (WTD) and other EU Social and Employment Law have caused the NHS, for example, acute problems.

The FSP's Manifesto for Change makes the strong case for returning competence over Social and Employment Law to Member States. Crucially, we have allies across Europe on this issue. German business organisations, for example, favour allowing Member States and regions to "compete" for labour, in much the same way as the Lander do now within Germany. And it's interesting that more than half all EU member states already have an opt-out to the WTD – so, why not repatriate decision-making altogether under subsidiarity rules?

The FSP also supports the Prime Minister's call for a more flexible EU. It's vital that Member States are protected from regulations that they do not support. We are especially concerned about Eurozone "caucusing", where Eurozone "ins" use their in-built majority to impose rules on its "outs". In this context, the EU's determination to secure a cap on bankers' bonuses relative to salaries, easily manipulated and therefore not supported by the UK, marks a worrying new development, especially since there are over 40 further Directives and measures looming whose purpose appears to be constricting, rather than supporting, financial services.

This plainly is economic nonsense. The City of London's massive expertise should see the UK leading the European charge to sell to the BRIC and other fast-growing economies the financial services they need to prosper. The FSP believes that the only certain way of protecting our critical industries is to allow Member States to apply an emergency brake on new rules. If other Member States wish to press ahead with measures affecting banking and financial markets they could do so through enhanced co-operation, but without weakening how the Single Market brings benefits to all.

Turning from economic to home affairs, flexibility should also be the guiding principle in the area of policing and criminal justice. There can be no doubt that the threats from international terrorism and organised crime demand effective co-operation at EU and international level. But this does not need to be at the cost of the transfer of sovereignty to a supranational authority.

The UK can be a strong and effective EU partner in the field of policing and criminal justice without ceding national, democratic control. That's why the FSP has proposed that the UK opts out of all of the laws which it is free to under the "bloc opt-out", and, negotiating separately, to opt out of all other laws in the field of Justice and Home Affairs. In our view, negotiating an international treaty between the UK and the EU will ensure equally effective operational cooperation, without the twin threats to British justice of the ECJ jurisdiction and the potential for unwelcome changes to Directives under Qualified Majority Voting.

The issues of migration and access to benefits are highly emotive. For the avoidance of doubt, I support the right to free movement within the EU – it has been of benefit to the UK economy and those UK citizens who choose to live and work in other parts of the EU. And I warmly welcome the huge progress the Government has made in reducing migration from outside the EU and reducing access to benefits for those from within the EU intent on abusing our system.

However, the FSP believes that Ministers need to go further. It's unfair to the British taxpayer to pay child benefit for children who do not live in the UK. It is also inexplicable that migrants are able to get free healthcare here, without having contributed to the system. Member States need total discretion, again under subsidiarity, over the operation of their benefits systems, including tightening rights of residence so that benefits are not paid to those who do not, and have not, contributed to the Member State. Here, too, there is much support from other Member States.

There will be those who say that seeking the sort of reform which the FSP advocates is just banging our heads against a brick wall, since our approach is doomed to fail. I say – categorically – that these doom-mongers are wrong. There has already been meaningful EU reform achieved through the existing structures. For example, the recent agreement of the European Parliament to "regionalise" the Common Fisheries Policy is both a step in the right direction and a clear example of how subsidiarity can be applied effectively.

Likewise, the recent agreement on the overall size of the EU's Budget within the Multiannual Financial Framework was an important first step - at a time when Member States are making significant cuts to domestic spending, it is vital to reduce the overall level of EU spending.

But the FSP believes that we should go much further in reforming the EU Budget – far too much is spent on agriculture and on the unnecessary recycling of regional spending among wealthy member states. Restricting access to Structural funds to only those member states with 90 per cent of less of average GNI per head of the EU would reduce the budget by 15 per cent, and importantly, leave the UK free to pursue our own regional policies away from the often illogical EU priorities.

Drawing these different strands together, it's time for the EU to adopt an entirely different approach – one geared directly to the world we live in, as opposed to the bureaucratic maze that those in Brussels seem to inhabit. There are significant benefits in cooperating in certain policy areas, in deepening and widening the Single Market, and in leading the world to establish global free trade. But the principle of ever-closer union is flawed.

As the Dutch government recently argued in its own Subsidiarity Review, a better principle is "Europe where necessary, national where possible". The UK clearly has allies in its drive for reform. And it is in the UK's vital national interests that we take the opportunities to implement them. The EU must be reformed so that Member States have the flexibility they need to thrive in the global race.

The Fresh Start Project's "Manifesto for Change" published in January 2013 was written by Conservative MPs Gutto Bebb, Nick de Bois, Therese Coffey, George Eustice, Mark Garnier, Chris Heaton-Harris, Gerald Howarth, Andrea Leadsom, Charlotte Leslie, Tim Loughton, David Mowat, Neil Parish, Priti Patel and Dominic Raab.

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UK citizens want co-operation and free commerce with our EU partners, but a majority believes that too much power has been transferred to the EU; in areas ranging from policing to employment law, from Health and Safety to petty regulation, our citizens want more control over their own lives.

The ongoing crisis in the euro-zone threatens to overturn the historic agreement that tax and spending are the sole responsibility of national governments. This makes the time ripe for a new relationship with our EU partners, in which the UK can take more decisions and Brussels fewer; this would be in line with the basic principle that the authority to pass laws should be democratically accountable to those who are affected by them.

I have launched "the Fresh Start Project"—to engage Conservative MPs, Peers, and MEPs to research, propose, and build support for a new relationship between the UK and the European Union. I am also co-chair of the All Party Parliamentary Group for European Reform to look at these issues on a cross party basis. We will work with leading 'think tanks' to:

1. examine the options for a new UK-EU relationship that would better serve the interests of UK citizens

2. set out what this new relationship could look like

3. establish a process for achieving the change

4. build political support to make it happen.

I do hope that through this work, we will be able to rebalance the relationship returning influence back to our Parliament and Judiciary.


You can follow the work of the Fresh Start Project, as well as the All Party Group for European Reform, on the dedicated website:

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