At Wednesday’s Open Europe conference, Chancellor George Osborne gave a major speech on what the UK would want from a renegotiation of its position within the EU. This was the key line: “If we cannot protect the collective interests of non-eurozone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU.”
What does that mean? He spelled out the kind of thing he meant by “protect the collective interests of non-eurozone member states”. In addition to obvious familiar concerns about “policy discipline” and “accountability”, he identified two key dangers:
But what would “protecting the collective interests of non-eurozone Member States” from these dangers consist in? Again, he spelt that out, quite clearly, using the example of the European Banking Authority: “It was a long hard fight, but we negotiated in the ECOFIN and European Council a whole new voting system – the so called “double majority” system – which will apply in the European Banking Authority. Double majority voting means that legal proposals now require a majority of both eurozone and non-eurozone countries to pass.”
So this is Osborne’s fork: either the EU’s voting procedures must be reformed so that non-Eurozone members cannot be outvoted by the collective votes of the Eurozone, or non-Eurozone members will have to choose between joining the euro and leaving the EU.
Readers familiar with my previous articles on renegotiation will find this familiar. Although what Osborne identifies is not by any means the whole of what a renegotiation would need to deliver, I do believe his speech shows he understands perfectly what is the pinch issue. As the Eurozone becomes an EU Federation, it will inevitably start to vote collectively within the EU. And under current rules it will have a qualified majority, so the EU will become a club in which the rules are set by the EU Federation, with non-EU Federation members (non-Eurozone members, in Osborne’s parlance) simply having to abide by rules set by others. That will not do at all for the UK, so unless some mechanism can be found whereby non-Eurozone members of the EU cannot be outvoted by the Eurozone collectively, those non-Eurozone members will have to choose between joining the euro and leaving the EU.
Osborne cites the example of the European Banking Authority and says that such a mechanism can be delivered more generally. But can it, really? Currently there are 18 members of the Eurozone and 10 non-Eurozone EU members. But most of those non-Eurozone EU members want eventually to join the euro and will be permitted to do so. There are probably only four current EU members that would not eventually both seek to and be permitted to join the euro: the UK, Sweden, Romania and Bulgaria. (Let’s set aside the possibility of Greece and Cyprus eventually exiting the euro for now.) If the EU Federation / Eurozone were 24 members and the non-Eurozone EU were four members, how sustainable would it really be for the EU to exist, with its complex panoply of institutions, courts, bureaucrats and banks, separately from the EU Federation? Is it not, in truth, obvious that there could be no role for a non-Eurozone EU in that case?
I thus think Osborne’s fork is correct, and the implication of it is that, eventually, there will be no place in the EU for the UK or any non-euro member.