2 Jul 2012

David Cameron outlines his route to Europe referendum

As David Cameron raises the prospect of a referendum on the EU, Channel 4 News looks at how Britain’s relationship with the continent may change.

The prime minister told the House of Commons that Britain’s current involvement in the eurozone is not acceptable and that as a fresh relationship is formed with Europe, the public could be given the opportunity to give “fresh consent”.

He dismissed calls for an immeditate vote on whether Britain should remain a member of the EU, saying that leaving would not be good for the country. But he said it “would also be wrong to rule out any type of referendum for the future”.

Mr Cameron has been caught between Labour cries of a “shambles”, UKIP accusations of an “empty promise” and back benchers flexing their muscles over an EU referendum

Mr Cameron laid out his four points on progressing the UK’s relationship with the eurozone:

* Recognise that the short-term priority is to deal with the economic instability in Europe.

* Take time to shape Britain’s relationship with Europe, making sure that our priorities around the free market are preserved but perhaps distancing the country from EU “meddling” in state affairs.

* As a “fresh deal” is formed between Britain and the eurozone, seek the “fresh consent” of the British public.

* As the eurozone moves towards a banking union, the UK will need to sort out regulation of its own banks in the wake of recent scandals

The comments drew scornful remarks from Labour leader Ed Miliband, who said the government lacked “clarity”. He accused Mr Cameron of “manging divisions within his own party” rather than running the country.

“Five years ago he said his party should not banging on about Europe,” Mr Miliband said. “Now he is the one getting out the drum.”

Pros and cons of EU membership

“Too much cost; too much bureaucracy; too much meddling in issues that belong to nation states or civic society or individuals.”

The key issue will be keeping the economic benefits whilst removing the UK from the burdens of social and business regulation. Vicky Redwood, Capital Economics

So said Mr Cameron in his piece in the Daily Telegraph on the weekend. What he and the party faithful are opposed to is the higher level of government that the EU encompasses.

However, withdrawal from the eurozone is something Mr Cameron does not want – and the reason for this is the value of the single market to the UK economy.

The EU currently accounts for 48 per cent of Britain’s total exports of goods and services and Mr Cameron does not want to lose a say in the EU legislation governing trade.

Additionally, Mr Cameron said he wants to maintain the UK’s ability to “co-operate with our neighbours to maximise our influence in the world and project our values of freedom and democracy”.

How can this be done?

What the decision boils down to is how can the government retain the benefits of free-market trade, whilst unburdening itself of some of the shackles of EU bureaucracy.

Mr Cameron has said there will be no “in/out” referendum. Considering the importance of EU trade set against the latest YouGov poll, which suggests 51 per cent of the population would vote against EU membership compared to 28 per cent voting in favour, that is probably a wise move.

It will not be a simple “in/out” decision – but it could lead to a fundamental restructure of the nature of the UK’s relationship with the EU.

Vicky Redwood, chief UK economist at Capital Economics, highlighted two choices for the UK.

“We could withdraw from the EU and restart the trade arrangements from scratch or renegotiate the membership of the EU,” she said. “The key issue will be keeping the economic benefits whilst removing the UK from the burdens of social and business regulation.”

Britain would not be setting any precedents by forming a purely trade-based relationship with the EU. Norway, Liechtenstein and Iceland all have EEA (European Economic Area) agreements with the EU.

The EEA is more than a traditional free-trade agreement, in that it allows free movement of labour, goods, services and capital between the EEA and the EU.

However, this would not mean an escape from bureaucracy. Those countries operating under the EEA are subject to the trade rules and legislation of the EU – rules that the EEA country cannot influence.

The power to exert influence upon the EU in defence of UK values is important to the government, as evidenced by Mr Cameron’s defence of the City of London last December.

Defining the relationship

Remaining within the EU, therefore, looks more likely. A referendum could address the nature of the UK’s involvement within the EU.

This could mean, according to Ms Redwood, removing the EU’s influence over social and business legislation in the UK.

“Immigration could be one area,” she said, “where the government could take advantage in order to impose stricter regulation controls.”

Other areas the UK may want to disentangle itself from within the EU could include criminal justice, employment law, and health and safety regulation.

The think tank Open Europe’s director Mats Persson said: “Growing public frustration with the costs of EU membership is unsustainable in the long-term and cannot be ignored. However, there is no clear-cut or easy option for the UK outside the EU. If Britain chose to leave tomorrow, it would raise more questions than answers, and contrary to popular belief, still require complex negotiations with and approval from other European governments.”

“But given the growing public hostility to the EU and events in the eurozone, the status quo isn’t an option either. Therefore, it is in the UK’s interests to stay in the EU but renegotiate a new model for membership founded on a continued commitment to EU-wide trade but substantially less EU involvement in other areas.”

“The longer we go on without genuine EU reform or if the eurozone crisis drives a new wave of protectionism, the weaker the case for EU membership will get. The UK cannot afford to miss out on growth opportunities in the rest of the world.”

The problems

According to Open Europe’s recent report on the UK’s EU membership, renegotiating the country’s involvement would be met with three objections:

* The UK taking all the advantages of the single market but not paying any of the costs.

* It would trigger similar “pick and choose” negotiations from other EU member states which would weaken the EU.

* The UK would lose influence within the EU.

However, the report concludes that “given trends in the eurozone and in UK public opinion, a new UK model for EU membership may not only be desirable but inevitable”.