Sunday, June 20, 2004
UK plc is doing well: Who needs Europe?
Posted by David Smith at 09:01 AM
Category: David Smith's other articles

In his Whitehall office, a cabinet minister was bemoaning the fact that the government does not get enough credit for cutting unemployment — which last week dropped to 860,000, its lowest for nearly 30 years.

There have been plenty of articles, it was pointed out to him, that contrast Britain’s low unemployment with the high jobless totals in Europe.

His response was illuminating. “That’s not good enough,” he said. “Doing better than Europe is easy. The real compliment would be to say that we’re doing better than everywhere else.”

Such a response would have been unthinkable even five years ago. A decade ago it would have been regarded as the height of absurdity. But it is true and it represents — more than anything else — the reason for the profound shift in Britain’s attitudes to Europe.

After last weekend’s strong performance by the UK Independence party (UKIP), in which it took 16% of the vote and 12 seats in the European parliament elections, the pro-European Union lobby has been desperately looking for excuses.

UKIP’s elected members of the European parliament, all white middle-aged men aged between 50 and 65, appeal, it is said, to Britain’s “golf club tendency”: men in blazers still harking back to the war. Perhaps this month’s D-Day commemorations set them off. Add a perma-tanned former television presenter who has made some explosive comments about Arabs and the lure of UKIP to Little Englanders is irresistible, but will fade as quickly as it emerged.

Or, to take Tony Blair’s favourite tack, the people of Britain have fallen prey to the lure of the Eurosceptics because of “unrelenting” Fleet Street misreporting of Brussels. Voters, according to the prime minister, have been fooled into genuinely thinking that the EU will give us straight bananas, compulsory driving on the right and the replacement of the Queen as head of state.

It is, of course, complete nonsense. Polls show that a hard core of at least 25% of people would vote to withdraw from the EU and that “softer” Euroscepticism — stay in but limit Europe’s powers and influence over Britain — is also rising. The real surprise was not that UKIP did so well but that it did not do better.

The message of these polls is quite straightforward. The pro-EU lobby would want to paint opposition to Europe as the preserve of the uneducated who, if they could only find out properly about Europe, would be much keener on it. But the reality is very different.

Euroscepticism has become the intelligent option. There is nothing irrational about it. For the first time in half a century, Britain is doing demonstrably better than the rest of Europe. It used to be that we feared missing out on prosperity by not integrating more closely with Europe.

Now the rational worry — which applies to both the constitution and the euro — is that we will risk prosperity by entangling ourselves more tightly with Europe.

Britain’s unemployment rate, on a comparable basis, is 4.8%, against 9.4% in France and 9.8% in Germany. Unemployment stands at under half the EU average.

Per capita gross domestic product in Britain, according to a new report from Capital Economics, is higher at $30,200 (£16,440), than Germany’s $29,200 or France’s $28,500.

The economic momentum is with us. Britain has been growing continuously for 12 years, during which time other EU countries have suffered at least one recession and in some cases two. The sick man of Europe has made a remarkable recovery.

“The divergence in economic performance between the main continental economies and us began about 10 years ago and will continue for the foreseeable future unless we get dragged down by the constitution and the charter of fundamental human rights,” said Ian Milne, a businessman and author for the think tank Civitas.

The contrast with Britain’s shaky economic past during the painful dismantling of empire, sterling crises and strikes could not be more stark. International businessmen, says Milne, now regard Germany as a “flyover zone” and France, despite a few niche opportunities, as an overregulated “nightmare”.

In a policy that would have been regarded as dirigiste in Britain even in the days of prices and incomes policies, Nicolas Sarkozy, France’s finance minister, has ordered the country’s retailers and their suppliers to cut prices by 3%.

The CBI, once regarded as unquestioningly pro-EU, is increasingly critical. “The model that took the EU through the 1950s, 1960s and 1970s is now failing the people of Europe,” said Digby Jones, its director-general.

“It is not British arrogance or Little Englander to say this. Britain has taken some very hard decisions over the past 25 years, both the Tories and Labour, and these policies have delivered the most successful economy in Europe.

“I don’t blame anybody who says, ‘We’re not going to give up on this’. So much of what I see coming out of Brussels wants to take us back to 1970.”

The recognition that Britain has turned the economic tables on Europe is starting to go deep. Even for voters sceptical about the claims of governments, there is a recognition that the attraction of Britain for migrants, while it may have a bit to do with benefits and lax controls, has a lot to do with the strength of the job market in contrast with most other EU countries.

“The argument is not a negative one about Europe; it is a positive one about the UK,” said Gerard Lyons, head of research at Standard Chartered, the international bank.

“We have proved that we can set economic policy to suit our own domestic needs. In a global environment where competitiveness is vital, it is clear that the European economic model is not working.”

INTELLIGENT scepticism about Europe, based on economics, does not imply that everything is perfect about Britain. We know we have some of the worst football hooligans in Europe.

When Matthias Matussek of Der Spiegel, the German newspaper, wrote two months ago of Britain being a “troubled nation”, with understaffed hospitals, drunken brawls reaching epidemic proportions and an island with “more delinquents, more queueing patients and more gymslip mums” than ever, we can recognise elements of truth amid the hyperbole.

But we can also see the sour grapes from a writer who happens to be the brother of the German ambassador. The Thatcher revolution apparently “removed the nation’s core” and made workers “dispensable”. But employment in Britain is at record levels, unlike in Germany.

Many EU countries have better public services and transport systems but some of that, too, is starting to change. Health systems are beginning to creak in some countries and in others are being pared back. Germany, for example, is introducing charges for GP appointments.

Not only that, but the time is fast approaching when Blair will have met his commitment to match health spending to the EU average. The intelligent sceptics among voters also know that public services do not pay for themselves. The more that Europe struggles economically, the more difficult it will be for governments to sustain services and maintain the infrastructure.

The European commission’s own surveys bear out the shift in attitude. Brussels has been publishing twice-yearly surveys of public opinion in member states since the 1970s. One of the standard questions asked is whether people think of the EU as a “good thing”.

In 1975, the year Britain voted “yes” in Harold Wilson’s referendum on staying in the old European Economic Community, 50% of people thought Europe was a good thing. That proportion slipped back sharply after Margaret Thatcher’s election in 1979.

After that, and despite her frequent clashes with fellow European leaders and with Jacques Delors, the commission’s feisty president, it rose during the rest of the 1980s.

The high watermark of pro-European opinion in Britain came at the end of Thatcher’s time in office and the start of John Major’s era, when it reached nearly 60%.

In 1989 interest rates in Britain had soared (they were on their way from 7.5% to 15%) and house prices were starting to crumble. Salvation appeared to lie in joining the European exchange-rate mechanism (ERM), and getting a taste of Germany’s low interest rates and inflation. But Thatcher was blocking the way.

She was also taking an increasingly Eurosceptical tone. Tory advertisements for the 1989 European elections featured a plate of steaming sprouts and boasted that the government would not let the country live on a “diet of Brussels”.

Thatcher’s great obsession was with Germany. The last of a generation of politicians who had lived through the second world war as an adult, she was beset with enormous doubt after the collapse of the Berlin Wall in October 1989. One part of her wanted to celebrate the West’s victory over communism. The other was obsessed with the rise of a German “Fourth Reich”, a united Germany, economically powerful and politically dominant.

She assembled a group of experts, including Hugh Trevor-Roper, Norman Stone, George Urban and Timothy Garton Ash, to brief her on Germany at a day-long seminar at Chequers. None predicted that German unification would mark the start of a period of pronounced relative economic decline for Germany. Most said Germany had changed markedly in 40 years of democracy and would no longer throw its political weight around in an aggressive way.

That was not what Thatcher wanted to hear. The note of the meeting, drawn up by Charles Powell, her foreign policy adviser, spoke of a Germany with national characteristics that included “aggressiveness, assertiveness and bullying”.

Underlying it was a profound economic fear. During the long post-war German economic miracle, Britain had got used to playing second fiddle. Unification, it was feared, would turbocharge the already powerful German economy. Even after a decade of Thatcherism, the government was afraid of the European economic challenge.

Thatcher was out of step with public opinion. Soon after the Chequers summit Nicholas Ridley said in an interview with The Spectator that European integration was “a German racket to take over the whole of Europe”. The magazine’s cover featured Helmut Kohl, the German chancellor, with a Hitler-style moustache. In the outcry that followed, Ridley was forced to resign.

At the time of Thatcher’s obsession, 52% of people thought Europe was a good thing. In the Euro elections of 1989, the Tories lost to Labour in a national vote for the first time since 1974. The protest vote that year went not to a withdrawalist party but to the Greens, who got 15%.

THE pro-European swing continued as the Tory boom of the late 1980s turned to spectacular bust and Major, who had declared his aim of putting Britain at the “very heart of Europe”, succeeded Thatcher. Major, as chancellor, had succeeded in taking Britain into the ERM in 1990.

This decision, with the overwhelming support of business, public and media opinion, was the ultimate recognition of European economic superiority. “We were saying, in effect, that we could not run these things ourselves so let’s hand it over to Germany,” said one senior Treasury official of the time.

For two extraordinary years, the most important decisions affecting Britain’s economy were taken in Germany. Every fortnight, anxious eyes would turn to Frankfurt and the interest rate verdicts of the Bundesbank. If the Bundesbank raised rates it was bad news for Britain. If it cut, mortgage rates could come down here.

Thatcher, dangerously obsessed with Germany’s economic might, had by conceding ERM membership in one of her last acts as leader made reality of it. Britain’s economic subservience to the German economic giant was, it seemed, set in stone.

Even at the time there were signs that things were changing. “Whether it was Mrs Thatcher or something else, Britain stopped falling behind Germany after the second oil crisis of the late 1970s,” said Martin Weale, director of the National Institute of Economic and Social Research.

Not many people believed it. Under Major and the ERM, Britain suffered her longest recession since the war. Falling house prices, repossessions, negative equity and soaring unemployment were in sharp contrast to Europe’s stability and prosperity. In 1991, the depths of Major’s recession, 57% of people in Britain thought Europe was a good thing.

By the time Major left office in 1997, after his battles with his own party and after Germany’s unification boom had turned to bust, only 36% of people thought Europe a good thing. Now, according to the latest Euro-barometer, published last month, only 29% of people are positive about Europe, the same proportion who are actively against it.

The catch 22 for the government is that history suggests that we would become more positive about Europe only if we suddenly started doing more badly here. The better the British economy, the worse Europe looks.

How do we square this with the fact that Britons seem keener than ever to live there? A survey earlier this year showed that a third of those planning to buy property in Europe were doing so because they had “had enough of life in Britain”. Television programmes such as A Place in the Sun and Get a New Life are popular enough to suggest that a new life in Europe appeals to many. With 1.4m properties abroad, Britons are the largest second home owners in Europe.

Relatively few of those who quit Britain for Europe are doing so for economic reasons. Some have set up businesses, not always successfully. Some have moved for career reasons. Most, though, do so on retirement or because they have earned enough to quit work early.

Jacques Attali, former adviser to François Mitterrand when he was president of France, once warned that in the 21st century Europe could turn into a “Venetian continent”, in which it would be “visited by millions of Asians and Americans and inhabited by tourist guides, museum caretakers and hotel keepers”.

His warning, intended to be a wake-up call, appears to be the motivation for a lot of the Britons who move there. Many European countries have more space, cheaper properties and a more relaxed lifestyle than in Britain. You would not, however, want to do business there.

People used to want to retire to Cornwall, drawn by pleasant surroundings but with not much of an economy beyond tourism. Now they appear to view parts of Europe in the same way.

Is all the talk of Britain’s superior economic performance merely a flash in the pan? Will it all come crashing down under the weight of £1,000 billion of debt and an overvalued housing market, so that the European tortoise trundles serenely beyond us once more? The answer, almost irrespective of what may happen in the next two or three years, is that long-running economic trends are firmly against most of the big economies of the EU.

A study published by Makinson Cowell, the City consultant, points up the grim consequences for Europe of falling fertility rates and greater longevity. By 2010 the EU’s working-age population will have begun a permanent decline.

“Over the next 40 years the working-age populations of Germany, Italy and Spain will all fall by a third,” said Christopher Smallwood, chief economic adviser to Barclays Bank and one of the report’s authors. “And it will just not be possible to make up the difference through immigration.”

France is worse off than Britain but in a better state than the other big EU economies and has for several years confortably outperformed Germany. If Thatcher were to repeat her exercise today, she would invite French, not German, scholars to Chequers.

Rising population is a key ingredient of economic growth. The EU’s own projections suggest that economic growth in Europe will be only half that of America between now and 2050. Projected forward, the EU’s share of global gross domestic product will slump from 18% now to just 10% by the middle of the century, while America’s share rises from 23% to 26%. Europe is becoming an economic backwater.

France’s Institute for International Affairs, in a report for Pascal Lamy, the EU’s trade commissioner, concluded that Europe was heading for “the exit ramp of history”. Faced with competition from fast-growing China and India, Europe will be left behind.

THE world is tilting to the east. As a trading nation, Britain has prospered from going far afield before. That, barring a sudden and unlikely shift in economic trends, is where the future lies.

Where does intelligent scepticism take us? Most would stop short of the UKIP line. Studies suggest that the impact of withdrawal could be modest and might even produce net gains for Britain. The pro-European argument that more than 3m jobs would be lost if we left the EU is based on the ridiculous notion that all trade with European countries would cease and there would be no diversion of trade to markets elsewhere.

However, the economic argument in favour of some loosening of ties and certainly no further integration is a powerful one. Faced with the challenge of competing with China, India and America, the EU begins to look like a millstone — and an irrelevance. Anglo-Saxon economies — Britain, America and Australia — are outperforming Europe.

“So much of what has been happening in Brussels this weekend is about whether France can get one up on Britain or vice versa,” said Jones. “But the big fight is against India, China and America, and that is being ignored.”

Blair, like Major, insisted that he would put Britain at the heart of Europe. Since then he has lost the battle with Gordon Brown, his chancellor, over the euro, split with France and Germany over Iraq and infuriated his EU partners by insisting on “red lines” on the constitution.

Perhaps, rather than dismissing the Eurosceptics out of hand, as he did last week, he should recognise that that is where his natural — and intelligent — constituency lies.

From The Sunday Times, June 20 2004