Tuesday, 13 December 2011

Bulldogs and Eagles

There’s nothing quite like a good row in Brussels to get the British patriotic juices flowing.

David Cameron returned to Britain’s shores – after vetoing a treaty involving all 27 EU states – like a retuning hero, cheered on by his fervent backbenchers and jingoistic media.

Yet Cameron was not in Brussels representing Britain nor his nation’s concerns. No, he was there to defend the interests of Britain’s financial sector, the City of London. Cameron was primarily concerned with securing the welfare of the very institutions that have contributed more than any other to causing the current crisis.

And he may not even have managed to do this successfully. The fact remains that while the fools in the gallery cheered, Britain has now released it diplomatic nuclear arsenal and is more isolated in Europe than ever before. No compromises were made and no concessions won and it is quite possible that Britain’s separation from the rest of the EU will have negative consequences for its economy. If this was a victory for Britain, then one wonders what a defeat looks like.

There is however much to be opposed to in the new EU treaty. The summit agreed that all national governments would be committed to reducing their structural budget deficits to 0.5% of GDP and that the previous rules requiring budget deficits to be below 3% of GDP will be strengthened. In effect a whole series of new regulations are being introduced – including the EU Commission being given the prior oversight of national budgets – in order to enforce an undemocratic programme of austerity and budget cuts throughout the EU. The real imbalances and deficiencies within the European economies are not being addressed and instead Europe’s citizens are being forced into an ideological straightjacket of cuts (Cameron has of course decided that he prefers his own national variation – how very British). Put simply, if allowed to go ahead, this treaty marks the end of the European Welfare State.

While the British sailed away into splendid isolation, countries such as Poland were doing everything in their power to be included in the new treaty. What Poland feared more than anything else was being left on side-lines of any new agreement, with politicians such as Sarkozy pushing for an agreement that included just the 17 eurozone countries. For over a year now – and particularly during the past six months whilst holding the EU Presidency - Poland has been pushing for a general EU Treaty that included all its member states.

The recent agreement pacifies some of Poland’s fears, but not all of them. Non-eurozone countries have been allowed into the treaty, will probably need to meet the budget requirements that it contains and will be required to pay into the new fund included in the treaty. However, although non-eurozone states will be able to participate in the meetings of the new body, they will not have the right to vote.

It is quite understandable that Poland would not want to be isolated within the EU and that it is seeking to be at the centre of decision making. It is far easier on the peripheries of Europe to see what catastrophe awaits us if the eurozone and EU were to break up. However, the requirements that will be placed upon it, by signing up to this treaty, will potentially have grave negative consequences for the Polish economy.

Since joining the EU – and particularly since the outbreak of the economic crisis – Poland has found itself in a relatively fortunate economic situation. While countries in Southern Europe have seen EU funds dry up, they have also been stuck in a currency union in which they have been unable to devalue their currencies. In contrast, Poland has seen EU funds move eastwards and been able to use these to increase public investment in the economy. At the same time its currency has devalued in relation to the euro, making its exports more competitive. Whilst not rushing into the eurozone, it has also been able to sensibly allow its budget deficit to rise in order to retain public spending and fully utilise the available EU funds.

All this is about to end. As a signature to the treaty Poland will be required to rapidly bring down its deficit. This will help to shrink the economy and will make it harder for the government to continue with its programme of public investment (something it has already indicated it is planning to halt). Also, Poland is likely to now speed up its application to join the eurozone (which is now opposed by around 70% of Polish society), which could see its currency increase in value and therefore decrease its economic competitiveness.

The task of implementing the present EU treaty will meet many obstacles, not least political opposition. However, with the European left unable to offer a coherent alternative for a federal social Europe, we may expect the conservative and nationalist right to take the initiative. In Poland the conservative right has already declared the government’s signing of the treaty to be an act of national betrayal and that the Polish government should follow Britain’s example. On the thirtieth anniversary of the implementation of Martial Law in Poland, the Law and Justice Party is organising a demonstration today that combines a commemoration of this event with accusing the present government of giving away the country’s national sovereignty.

European convergence presently seems to involve yet more austerity and thus a deeper recession. Yet if the European project breaks up, then we will be faced with more economic chaos along with further political division and reaction. These are the options presently on the table and neither look particularly appetising.

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