Münchau: The singular importance of the budget negotiations, and of British prime minister David Cameron’s insistence on an EU budget freeze, lies in what they reveal about the future of the EU itself. A frozen budget means that the EU is stuck with what it does. Forget the Agenda 2020, or any other pretence at growth-enhancing policies.
What the fraught budget negotiations tell us is that the process of European integration – at the level of the EU – is largely completed. In that sense it matters little whether the UK, for example, stays inside or not. In formally leaving the EU, there would be no need for the UK to give up on any existing rights, including the right to take up work and residence in the EU and, of course access to the single market – whatever that is worth. The terms of a withdrawal from the EU are freely negotiable. Even now, it does not feel that different, apart from the temperature, whether you are in Britain inside the EU, or in Norway outside the EU.
Mish: From the point of view of the EU, Münchau is largely correct. The EU can blunder along in its creation of an economic nannyzone with or without the UK, but not with or without Germany.
However, from the point of view of the UK, it would be better for the the UK to leave. The UK does not need inane EU agricultural subsidies, inane financial regulations, inane work rules, or this endless bickering over rules and budgets that the EU nannyzone requires of member states.
Münchau: Today’s EU has two important functions left. Some readers may find my list shockingly short. The first is that it provides the institutions and legal framework for the eurozone to muddle through to a solution of its crisis. I am not saying that the eurozone will necessarily achieve that goal. There is a non-trivial probability that it will not.
The banking union could be a first step towards a single market for finance at eurozone level. Ultimately, I would also expect a single market for labour and for services, all at eurozone level. If there is a fiscal union, its budget will end up not only bigger than the EU’s, but also different in composition – to fulfil the purpose of macroeconomic stabilisation.
Mish: I advise betting on the "non-trivial probability" things do not work out as Münchau sees. Ironically, the more "success" the EU has on achieving one-size fits none "nannyrules" for everything under the sun, the lower the overall growth in the region because the bureaucracy, financial taxes, agricultural rules, etc., are generally headed in the wrong direction.
Münchau:The EU’s second important function is to serve as a waiting room for member states who are not yet in the eurozone, but are willing to enter it at some point in the future.
In the end, it does not matter whether the outs leave the EU formally, linger compliantly on the fringes or whether the eurozone leaves them. A messy divorce of some sort will take place, at some point, possibly still quite a few years away. It could take numerous forms. A formal separation is only one of several possibilities. But it is not sustainable for a group of permanent outsiders to enjoy permanent co-decision rights, even though the EU is endlessly patient when it comes to accepting transitional arrangements. The reality is that there is no sustainable biosphere that is outside the eurozone, but inside the EU.
Mish: There is a big difference between the UK sitting on the fence and the Czech Republic, Denmark, or Sweden sitting on the fence. The difference is the UK's size and ability to make waves.
However, let's assume Münchau is correct, that "there is no sustainable biosphere that is outside the eurozone, but inside the EU".
Given there is very little chance of the UK joining the eurozone, the sooner the UK leaves the EU, the better. Since that is what Münchau implies (assuming he agrees the UK will not join the eurozone), we are largely in agreement.
Münchau: By insisting on an EU budget freeze, Mr Cameron is ultimately doing the eurozone a favour. By undermining the EU, he provides further incentives for the eurozone to grasp its collective interest. I support him.
Mish: Not quite. Cameron sits like a wimp on a fence unable to do what needs to be done, nor will he even put the matter to a vote.
Italy’s prime minister has publicly urged David Cameron to call a decisive referendum on “the fundamental question” of whether Britain should remain in the EU.
In comments that will complicate the British prime minister’s efforts to fend off Eurosceptic demands for an “in-out” vote, Mario Monti argued that an unambiguous plebiscite was the best way to address “the British problem” and prevent an exit.
He added: “Above all, one day Britain must – I spoke with David Cameron about this last week – Britain must ask their electorate, not whether they agree or disagree on the latest change?.?.?.?but pose the fundamental question: do you want to remain in the European Union?”
Opinion polls suggest a majority of Britons want to leave the EU. A ComRes survey for the Independent newspaper, released on Tuesday, showed 54 per cent wanted Britain to exit and maintain close trading links.
While Mr Cameron has indicated he favours a referendum on a new “settlement” between Britain and an increasingly integrated eurozone, he makes it clear he wants the UK to retain its membership. He has refused to yield to pressure from his own Conservative party to hold an in-out vote.
The prospect of reopening Tory splits on Europe haunts Mr Cameron; the two previous Conservative premiers – Margaret Thatcher and John Major – were both brought down by party infighting over Europe.
Michael Fabricant, a Conservative vice-chairman, on Monday called on Mr Cameron to offer a referendum non-aggression pact at the next election with the Eurosceptic UK Independence party. He warned the Conservatives could otherwise lose 20-40 seats.
But Mr Cameron rejected the idea, saying there would be “no pacts” with Ukip, which secured its best-ever parliamentary by-election result last week. Nigel Farage, Ukip leader, said he could not do a deal with the Tories while Mr Cameron was in post.
Meanwhile, Mr Cameron said on Monday that a deal on the EU’s long-term budget was “still doable” in spite of a breakdown of talks in Brussels last Friday. Britain sided with other EU paymasters – including Germany, Sweden, the Netherlands and Finland – in calling for cuts to proposed spending.
Cameron has not yet figured out there will only be positive ramifications to jettisoning the nannycrats instead of attempting to influence them.
Compromise is silly with so many major differences including the overall budget, financial transaction taxes, agricultural subsidies, tariffs in general, and work rules.
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