Reversing the ‘culture of hopelessness’

James Gubb, 12 December 2006

David Cameron finally ended his impasse on that political nuisance called the European Union this week by challenging Jose Manuel Barosso and the EU’s leaders to end the prevalent ‘culture of hopelessness’ and confront its failings. In particular he attacked the EU on the CAP and development, fraud, its record on tackling carbon emissions and over-regulation. Tough-talking indeed. But, the question has to be asked: is it really possible?

Let’s take each in turn. CAP. In October, Le Monde reported that in a speech to the UMP convention on agriculture, French presidential hopeful Nicolas Sarkozy said: “The last reform of the CAP set rules until 2013. There is no reason to change it until then”. He also stated the CAP must be “better explained and better defended”, saying that its cost, at 40% of the EU’s budget, is “neither unjustified, nor excessive.” Try telling that to a farmer living in Africa. And don’t think life would be much different under Sarkozy’s main rival Ms. Royale, who has made a point of criticising the European Commission for “having given in to Anglo-Saxon capitalism” in pushing for bringing the CAP into line with the stipulations put by poor nations in the Doha Round.
Not looking promising, heh? But if Cameron was to adopt a tougher stance there might, at least, be some opportunity for reform. CAP is to be reviewed in 2008, and there are examples in other fields that hard-nosed, but sensible, negotiating can bring results. For example, Gordon Brown succeeded in crushing a Commission proposal for a ‘withholding tax’ after starting in a minority of one in 1999, to securing majority support for his approach in 2003. The Treasury was also reportedly dismayed by the lap-dog approach of Blair in settling on the EU budget in 2005 without sorting out the CAP; the suggestion being that a tougher stance may have reaped more benefit. Such endeavours could also be easier with the more sympathetic new Member States.
Fraud. The main reference point is clearly the rather alarming statistic that the Court of Auditors has now refused to sign off EU accounts for the last twelve years. The EU clearly has a huge problem in keeping a check on its spending, too much of which is simply not accounted for. For example, this time around the Court found that half of all cattle declared by farmers in Slovenia (in order to qualify for grants) did not exist, while in Spain, Greece and Italy, payments worth over €2bn for olive oil producers were either inflated or wrong. In the words of Richard Laming: “not a pretty picture”. Trimming down the EU budget would be the ideal solution – for example by getting rid of the CAP and curbing the intense flow of regulation – as this would inevitably simplify spending flows. However while the EU exists it will have to have some kind of budget. Not a bad proposal for change is that recently proposed by Ed Balls, which hinges on the budget being divided into sections, with auditor’s approval required for each. He suggests the sections should also correspond to those spent by each Member State. It should then be easier to identify irregularities, the culprits and hopefully hold them to account.
Carbon emissions. The EU, hailed as the progressive and innovator in tackling climate change through ETS (Emissions Trading Scheme), is in danger of becoming a damp squib. As Cameron states: “Europe’s Kyoto target is to reduce carbon emissions by 8 per cent by 2012. But with just six years to go, carbon emissions are down by less than 1 per cent”. Oh dear. The problem very much lies with the design of the ETS, which leaves it up to each Member State to define the scarcity of permits in their respective countries, which of course in turn signals the EU carbon price and its stability. The fact of the matter is that only a handful of Member States’ plans are, in the words of the Carbon Trust, “fit for purpose”: Spain, Italy, and the UK. Austria, Finland, the Netherlands, Belgium and France fall far short, and Germany – by far the largest emitter, having more than 20% of the EU total – will, on its proposed allocation of permits, acutally achieve a net increase of emissions! This trend is mirrored on the EU-level. EU members have acutally printed more permits to pollute than there is pollution: member states handed out free permits for 1,829 million tonnes of CO2 in 2005, while emissions were only 1,785 million tonnes (Open Europe). In its present form, the ETS will continue to be ineffective unless the attitude of certain Member States to reducing carbon emissions changes dramatically. Can this be done? One can only hope that the Stern Report – blatently intended as a foreign policy weapon on climate change – can help.
Over-regulation. Ah yes, this one. This key instrument under the Lisbon Strategy, supposed to restore growth by allowing businesses to save billions of Euros, the “less red-tape = more growth” thing. Unfortunately, despite the efforts of Enteprise Commissioner Gunter Verheugen, progress has been – shall we say – less than successful. For example, less than half of the planned 100 initiatives to simplify legislation are expected to be adopted by the end of 2006 and only 52 of the 500 planned actions to streamline laws have been enacted. The lack of progress is best exemplified in the recent statistic announced by Verheugen that EU regulation is now costing business a staggering estimate of E600bn p.a. – the equivalent of losing the entire GDP of the Netherlands every year. This is serious stuff. For one, it left Verheugen so exasperated that he launched a tirade against Commission staff for obstructing his campaign and holding to the view that “the more regulation you have, the more of Europe you think you have”. A chilling truth no doubt. But more seriously, for any fragment of regulation that is repealed, there is always more in the pipeline – witness, for example, the REACH, MiFD or Services Directives. Astoundingly, the EU has now produced more laws than the UK Parliament has in 700 years. The simple truth of the matter is that if Cameron is serious about this, he must have the guts to reject EU regulation in Parliament and be ready to face the music from Brussels. By doing so a principle of Member States having the power to revoke and repeal legislation might be established.
To reverse Cameron’s ‘culture of hopelessness’ will ultimately mean forcing the EU to focus on areas where it could be effective and persuading it, and other instrumental Member States, to leave the rest well alone. Impossible? Possibly not, but it ain’t going to be easy.