The Eurozone is still in an unstable condition and over the next five years it's likely there will be further moves to centralise its governance. This presents the next UK government with difficult problems. How do we avoid Britain being discriminated against in a diminishing minority of non-Single Currency Member States?
The Labour Party has always had an agenda of reforms to our relationship with the EU but a Labour-led government will want to avoid a referendum on our membership, if it can. Demands for a referendum, however, are very unlikely to diminish. A Labour government therefore needs to be careful that, by avoiding a referendum, it doesn't encourage a 2020 election fought by right of centre parties on a Brexit platform, which might lead to the UK leaving the EU shortly after.
Whichever way things pan out during the next parliament, it's safe to say that the EU is going to have a major impact on the way the UK is governed over the next five years.
What is likely to happen to the Eurozone?
The prospect of Greece leaving the Single Currency appears to have been put on hold for now. The agreement imposed on the Greeks at the end of February makes them abide by the current bail-out terms in return for more time to work out some deal for the future. It is clear, however, that both the political and economic situations in Greece are very unstable, with a significant chance that Greece will eventually fall out of the euro.
Insistence, led by Germany, that there should be no debt write-offs, even though both interest and capital repayments may be postponed and unavoidable debt repayments rolled over, leaves very little room for improving economic conditions in Greece, where GDP has fallen by 25% or more since 2008 and a quarter of the labour force as a whole is out of work, with youth unemployment running at 50%.
Interminable austerity is not going to be acceptable in Greece or elsewhere in the Eurozone, so, if it is to survive, changes in the way the Eurozone is run will have to be made. The reality is that the only viable way forward is more centralisation of both budget responsibility and debt management, combined with massive transfers of resources from countries such as Germany and the Netherlands with huge trading surpluses to other weaker Eurozone member states. If this happens, however, it will generate a two-tier EU, with the countries in the Eurozone moving towards federal union, leaving those not in the euro in an outer ring.
How will Labour handle this situation?
At present, the UK has some protection against discrimination within the EU as a non-euro member because another eight countries out of the total 28 Member States do not have the euro as their currency and this provides something of a blocking minority position. Of the nine non-euro states, however, only three have opt outs from joining the euro as soon as possible and one of these countries, Denmark, is effectively in the Eurozone already. This leaves a situation where before long only the UK and Sweden may be in the EU but outside the Single Currency.
This is potentially a very weak and vulnerable position for the UK to be in and one of the major tasks for a Labour government is going to be to ensure that the UK is not severely disadvantaged as a result. Despite a recent ECJ ruling that went in the UK's favour - after several which went against us - there are signs in particular that there may be further moves which would hamper the City's role in maintaining its dominant position in financial services.
What reform of the EU would Labour like to see?
The EU is moving is towards much closer integration - whether or not this is what the electorates in Europe really want. Nor is this a development which the Labour leadership is happy to support. Like the vast majority of the UK electorate, most Labour Party members and MPs, while strongly supportive of developments such as the Social Chapter, have generally been more comfortable with a trading relationship rather than welcoming moves towards "ever closer union" with all the political integration this entails.
Against this background, given the chance to do so, there is little doubt that most Labour Party members and MPs would like to see changes including some curbs on immigration at least from the poorer parts of Eastern Europe; a smaller UK net contribution to the EU than the £14bn or so per annum which we are paying at the moment; radical reform of the Common Agricultural and the Common Fisheries Policies; restrictions removed on the operation of the Single Market, and in particular, strengthening of the UK's ability to provide financial services in the EU.
The Labour Party is also rightly nervous about the protectionist stance of many EU Member States, and not comfortable with more and more regulations being formulated in Brussels. It would prefer to see more subsidiarity rather than the rigid application of the "acquis communautaire" doctrine which means that once powers have been ceded by the nation states to the European Union they cannot be returned.
How are these objectives going to be achieved?
The problem faced by a Labour government is how to get any of this agenda implemented. Without a referendum at the end of any renegotiation process, to make changes, the government is going to have to rely on a combination of persuasion and building alliances among the other EU Member States. Finding some common ground for changes would not be impossible but may be very difficult to do on any major scale. The way that the EU operates is highly complicated, depending on agreements and compromises brokered out over a long period, which are therefore difficult to unpick and to change. If self-interest is hard to harness effectively on a reform platform, persuasion with no sanctions at the end of the day looks even less promising. At the same time, far from moving in the direction which the UK would like to see, the EU will be heading towards much tighter integration.
What is likely to happen then?
The danger for the Labour Party in these circumstances is that the EU becomes even less popular in the UK over the next few years and euroscepticism becomes more prevalent. This is likely to increase if the economic performance of the Eurozone continues to be worse than that of the UK economy. Eurozone GDP at the end of 2014 was still marginally below what it was during the first quarter of 2008, whereas the UK economy got back to its pre-crisis output during 2013.
As it stands, it looks as though the Eurozone is unlikely to achieve anything other than very low or perhaps even negative rates of growth in the foreseeable future, with the possibility of much worse performance if the Single Currency does eventually break up. In these circumstances unemployment is likely to remain very high over much of the Eurozone during the next few years, encouraging further migration to the UK.
Against this background, it's hard to see support for UK's EU membership getting stronger. On the contrary, it seems much more likely that the country will become more eurosceptic, with an increasing prospect of a government being formed after the 2020 election on a Brexit platform, leading to a referendum in the early 2020s with the government then in power advocating the UK leaving the EU.
What should Labour then do?
The Labour Party has decided to fight the May election on a platform of refusing to support an "in or out" referendum except in circumstances forced upon it by a treaty change. Confronted, when in power, by EU moves towards further integration and the difficulty in getting any reform programme to achieve anything, should the Labour Party reconsider its position on holding a referendum?
Of course, there are risks in adopting this approach. No doubt there would be opposition to holding a referendum and holding it would take up a substantial amount of time and energy, which a Labour government would rather use on other things. There are, however, powerful general arguments in favour of a referendum. Poll after poll shows that this is what the electorate wants, including many people who would prefer to see the UK staying in the UK rather than coming out. Whatever happens, we need to make up our minds whether we are going to stay in the EU and to do our best to make a go of it or whether to leave and to plough our own independent furrow. Whichever choice is made, we need a democratic decision on what our future is going to be and we need to make this decision so that the uncertainty round our membership is finally put to rest.
Would there be other advantages to Labour having a referendum?
Perhaps the strongest argument for Labour holding a referendum between 2015 and 2020, given that it wants the UK to stay in the EU, is that with the government behind an "in" vote, the chances are that the outcome would be a vote for staying in. Strategically, therefore, Labour's best chance of securing the UK remaining within the EU may well be for it to have a referendum while it controls the government.