11/09/2011 20:00 BST | Updated 11/11/2011 05:12 GMT

Juggling the Long and Short Term in Britain's Relationship With the European Union

A month ago I wrote on this blog that the price of any co-operation required of the UK to ensure the EU integrates the Euro zone economies to sustain a single currency should be that we are freed from intervention by Brussels in areas that should be the preserve of member states.

So I will be joining with colleagues today to contribute to a strategy that will realise this goal. But there will be different views of how best to proceed towards this goal. There are some who would have us pull out of the EU altogether and adopt a position akin to Switzerland. There are others who think that we should stop short of total exit but paddle our own canoe within the EU, with infinitely more independence from Brussels.

I incline more towards the latter view but recognise that it is borne of a frustration about bringing about change in a construct that moves inexorably towards the goal of ever closer union. What is really in our country's interests is to be leading the charge to reform radically the culture and entire rasion d'être of the EU. To make it far more the servant of its member states rather than their master. This may not be tenable, especially if the prevailing view is that it is preferable to save the Euro by closer fiscal union, than see it unravel and plunge the banking sector in to further disarray and the world into recession.

The consequences of the Euro breaking up do present a considerable risk, not just of a second recession across the EU, but to the global economy as well. So it is no wonder that the Chancellor has supported closer fiscal union as long as Britain is not included. If Britain could operate within the EU, without entering fiscal union, and without the excessive regulation to which we are subject at the moment, that would be a result that would satisfy many.

This option would indeed be preferable to either leaving altogether or the status quo. But the UK's real long term interests would best be served by, yes taking back the powers we need to improve our competitiveness, but also by helping the EU towards a new beginning. We need a thriving and competitive EU, despite that such a state seems at best a long way off, and at worst pie in the sky.

Here is why.

If you talk to governments and global companies based outside Europe you get an understanding that they don't deal with national governments if they can deal at European level. The reality is they deal at both levels. At the moment. But if a more closely integrated EU led by France and Germany emerges the opportunity for the rest of the world to prioritise their relationships with that entity as opposed to the loosely connected 'Rest of EU' would probably prove irresistible.

This outcome would take time to emerge. Indeed there would, thanks to our breaking free of so many of the EU straitjackets, most likely be a period where Britain powers ahead of her continental rivals. But we would be wrong to overestimate our strengths on the outside of the European core over the long term.

Economically our deficit might be better than the US but it is worse than the European average. We are ahead of the rest of the EU in understanding that we need to reduce regulation, especially in the area of employment law, but we have nothing to be complacent about.

Yesterday Iain Duncan-Smith was forced to defend the £26,000 benefit cap for workless families and the plans to raise the pension age to 67 years. A cap on housing benefit of £400.00 per week has also faced considerable challenge. Public sector unions are lining up to strike in support of the public sector pension status quo. Unaffordable and unsustainable pensions that are grotesquely unfair on workers in the private sector, who are paying for them through their taxes whilst anticipating dramatically smaller pensions for themselves.

Make no mistake, Britain is a mature economy and we have established a culture of rights and entitlements that cannot be blamed entirely on the EU. Making our country truly competitive again is going to be very challenging regardless of our relationship with the EU.

If it were possible it would be best to change the EU from within; as our economies are so interwoven. Fifty per cent of UK exports go to other member states. It is clearly in our interests that economic recovery takes place among those export markets. And recovery there will not be if they stay wedded to the regulatory stranglehold from which our own government is determined to break free.

The crisis of the Euro has distracted attention from the desperate need for so many economies in the Euro to reform labour laws and reduce regulation. The Economist has just produced a survey of unemployment across the continent. The survey points to the disproportionate impact of unemployment on the young. 42% of Spanish young people between the ages of 15 and 24 are unemployed compared to the national rate of 21%.

Redundancy and other employment protection entitlements for those who are in work are horrendously expensive in countries like Spain, France and Belgium. The cost is not just borne by employers and taxpayers. It is borne by the unemployed; who employers cannot afford to take on given the financial stranglehold older workers who have been in situ for years have over their employers.

In short Britain is better placed than other EU countries in these matters. We would be even better placed without some of the shackles placed upon us by Brussels. But we have our own home grown problems; and we are not yet out of the wood and about to embrace the emerging markets on their own terms.

It is easy to draw up a list of areas controlled by Brussels from which Britain needs to be liberated. The cumbersome state aid laws blamed for the loss of jobs at Bombadier, the overzealous equality laws blamed for the impending hike in insurance premiums for female drivers, the encroachment of employment laws that increase costs and make working hours impossible to roster efficiently in our hospitals, the environmental agenda that is disproportionate and threatening our chemicals industry, the interference in our borders policy that makes it potentially difficult to incentivise employers to recruit people claiming out of work benefits for fear of discriminating against foreign workers, the list is a very long one indeed.

Cutting free from these restrictions is essential to the recovery of the British economy. But such a course is also fundamental to the economic future of the Euro zone economies. The best option for the UK is to take the lead in recasting the EU in a competitive light. But time is not on our side and this policy for the long term needs to be supplemented by something more unilateral on behalf of UK PLC to enable our economy to grow significantly once again.