Cameron's outstanding sense of timing

Cameron has displaced the centre of gravity in the upcoming negotiations on the future of the EU - and with expert timing

All under control?
Fabio Rafael Fiallo
On 29 January 2013 10:18

By announcing his intention to renegotiate Britain’s relations with the European Union and to submit the outcome of the negotiation to a referendum, Prime Minister David Cameron has brought turmoil among his European partners.

Cameron’s critics have invoked petty, ulterior motives to explain his move: with the polls showing a marked erosion of his popularity, the UK Prime Minister may seek to enhance his chances at the forthcoming elections, scheduled for 2015, by convening a referendum that 60 percent of British voters are calling for.

It would nonetheless be simplistic and misleading to regard electioneering considerations as the driving motivation behind the Prime Minister’s stance. A more profound objective is at stake. To brandish the possibility of Britain exiting the EU is in fact a means of displacing – towards the British conception of Europe – the centre of gravity in the upcoming negotiations on the future of EU institutions.

At a time when a number of countries, led by France, are seeking still more regulatory powers for the EU, the UK Prime Minister sets the cat among the pigeons by putting the emphasis on a free-trade approach aimed at strengthening the single market, promoting bilateral agreements with major trading partners and enhancing competitiveness in EU countries.

To make his point, David Cameron couldn’t have chosen a more propitious moment. The relations between France and Germany are currently at a trough, as the subjects of divergence between President Hollande and Chancellor Merkel do not cease to grow. Thus, by bringing out his renegotiation aims at this juncture, the UK Prime Minister knows that he will not be subjected to a joint attack from the Franco-German couple. In fact, he may even set the couple at loggerheads.

Chancellor Merkel may see more merit in Britain’s free-trade approach than in President Hollande’s quest for greater “solidarity” among European partners. The solidarity preached by France means larger transfers of funds to European projects, a course of action that the public opinion in Germany is loath to accept.

Britain, in turn, currently represents a more dynamic market than France for German manufactured goods: according to the German research institute IMK, German exports to the UK grew by 11.5 percent during the first nine months of 2012, as compared to a mere 4 percent for the corresponding sales to France.

Small wonder then that, at the Davos Economic Forum, Chancellor Merkel didn’t hesitate to swiftly express her sympathy for David Cameron’s emphasis on the need to buttress competitiveness and free trade within the EU.

Great Britain will have other friends in the arm-wrestling ahead. In addition to the German Chancellor, the governments of Ireland and the Netherlands have already made positive comments on Mr. Cameron’s proposals. Furthermore, countries of Eastern Europe, which tend to repel excessive regulation after having endured the nightmare of the Soviet “model”, can only support the free-trade approach embodied in the British initiative.

True, the uncertainties created by the specter of a British exit from the EU are likely to exert a downward pressure on the value of the pound. It so happens, however, that financial analysts believe we are currently on the eve of a period of currency wars (competitive devaluations). Under this scenario, a downward pressure on the pound could prove to be an asset for a British economy that is at present going through a slump. Even on foreign-exchange grounds, therefore, Cameron’s announcement came at a proper time.

Last but not least, the UK proposals have been put forward at a moment when France – a staunch opponent of the British free-trade Weltanschauung – may find itself in a weak bargaining position, and hence unable to make its pro-regulation views prevail.

Indeed, it is increasingly likely that France will fail to meet its commitment to reach in 2013 the EU rule that limits the fiscal deficit to 3 percent of the GDP. It will thus not be too long before France decides to discuss (indeed negotiate) with Germany an EU-wide relaxation of that rule. Germany may then seize the occasion to request France, in reciprocity, to give consent to those British proposals that Ms. Merkel will wish to endorse.

Now that Perfidious Albion has invited herself to the party, negotiations on the future of the European Union will take a different turn from the one envisaged by the countries that had triggered them.

Fabio Rafael Fiallo is an economist and a former UN official. The author of four books, he writes on issues related to international politics and the world economy

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