We Know the Economics of Cameron's Europe Speech Is a Disaster, But the Politics Is All Wrong Too

It simply doesn't make sense to leave the largest trading bloc in the world - with a GDP of €12.6 trillion in 2011 - and give up the ability to influence the rules of the market where almost half of all UK exports end up.

This week's news from the Office of National Statistics, which showed that borrowing is over £7 billion higher than at the same point last year, was further evidence that the government has plunged our economy into a serious jobs and growth crisis. But just at the time when we need the prime minister to be focusing on economics, David Cameron gave a speech on Europe yesterday that was driven entirely by politics. As Ed Miliband has said, it is the party interest - not the national interest - that is setting the agenda, potentially leading to years of damaging economic uncertainty.

Cameron claims to want to stay in the EU, but for many in the Conservative Party, getting the prime minister to commit now to an in/out referendum is not about consent, but about exit. Indeed we learnt last week that as many as nine members of Cameron's cabinet wish to campaign for Britain's withdrawal from Europe with potentially catastrophic implications for the national economy.

And what a contrast between the position adopted by the politicians in Cameron's cabinet and the stark warning we've received in recent days from senior business leaders across the country. People such as Sir Martin Sorrell, the chief executive of WPP Group, Sir Roger Carr, the chairman of Centrica, and Ian Powell, the UK chairman of PwC, have all been clear in warning of the dire consequences for the UK in leaving the EU.

Sir Richard Branson said recently:

"An exit would be very bad for British business and the economy as a whole. The UK must not become a peripheral country on the edge of Europe. This will be damaging to long-term prospects of British business and also in the country's ability to attract new international companies to set up and employ people in the country."

It simply doesn't make sense to leave the largest trading bloc in the world - with a GDP of €12.6 trillion in 2011 - and give up the ability to influence the rules of the market where almost half of all UK exports end up.

Much of what Europe facilitates is good for Britain - like tackling cross-border crime and making sure that murderers and paedophiles who have committed crimes in the UK don't escape justice. But we should be demanding more and the case for change in some areas is overwhelming.

This is why Labour is calling for reforms that will help make the EU more focused on promoting jobs and growth, including reducing and reforming the EU Budget and having a European commissioner with sole responsibility for promoting growth in the EU. Ed Miliband has highlighted the need for more flexibility on regional policy and issues such as EU procurement rules so that Britain can pursue a proper industrial strategy without hindrance.

And Douglas Alexander spoke last week about giving member states more flexibility on how they implement transitional arrangements for new member states joining the EU. He also highlighted the need for a review of the impact of EU legislation on family entitlements for EU immigrants within the UK.

Labour's approach is that to get the best deal for Britain we need to be round the table with our allies in Europe, not shouting from the sidelines with one foot already out of the door. History has shown that it is through building alliances and coalitions that reforms can be won, not by standing from afar and making undeliverable demands for unilateral repatriation. Cameron's approach presumes that the changes he wants will be agreed in Europe. But this naive approach to diplomacy just won't work and there will be a real price to pay, as the policy chairman at the City of London Corporation, Mark Bolaet, warned yesterday:

"Uncertainty over this relationship with Europe risks making the UK less attractive as an international centre across many industries - not just financial and professional services - by clouding the business environment and making it more difficult to make long-term investment decisions."

Of course, Labour has not ruled out a referendum in the future. Indeed, we have repeated our support for the fact that major treaty changes have to be subject to a referendum. But promising one now is irresponsible and bad for Britain. As Lord Heseltine, the prime minister's own adviser on economic growth, has said:

"To commit to a referendum about a negotiation that hasn't begun, on a timescale you cannot predict, on an outcome that's unknown, where Britain's appeal as an inward investment market would be the centre of the debate, seems to me like an unnecessary gamble."

We always knew that Cameron would get a decent reception from today's largely anti-European newspapers (though their influence, like their readership, is fading). The prime minister may even get a temporary boost in the polls (but, as happened with the veto that never was, any bounce may well be short-lived). But this speech is not a political game-changer for Cameron. The truth is his political problems on Europe are only just beginning.

The veteran former Labour MP and whip Tommy McAvoy, now Lord McAvoy, once remarked that Europe for the Tories was "the political equivalent of a full moon - all kinds of strange creatures come out". The prime minister knows full well his approach is all about politics - he is hoping to neutralise Ukip and satisfy the anti-Europeans in his own party with one speech.

But outright hostility towards Europe inside the Conservative party is rampant - it's a beast that doesn't get full. And Lord Ashcroft warned Cameron yesterday that "Europe is not much of a priority even for those who say they might vote Ukip; the EU is just one of the (many) things they are cross about. For that reason, we should not necessarily expect a big fall in the Ukip vote as a result of The Speech." Nigel Farage has already said he is happy as from now on the "debate will be taking place on terms that Ukip wants".

Add to all of this, a string of leading European allies yesterday queued up to criticise Cameron, leaving the prime minister looking increasingly weak and isolated in Europe. All of this makes the much-needed task of reforming Europe to serve the British national interest even harder.

We know that the economics of Cameron's position is a disaster. But the politics is all wrong too.


What's Hot