[A-List] British takeover of Europe: Die Neue Mitte

[Keaney Michael]

Europe's new partnership
The relationship between Britain and Germany could shape the EU's
future, argue Heather Grabbe and Wolfgang Münchau
Financial Times, Feb 13, 2002

Just a few years ago, the idea of a British-German alliance would have
been laughable. The federalist views of the Kohl government were miles
away from the British preference for inter-governmental deals. Now the
distance is narrowing and it will diminish significantly if the UK joins
the euro.

Gerhard Schroder, German chancellor, and Tony Blair, British prime
minister, are already swapping radical ideas about how to dynamise the
European Union's institutions. Their views are close enough to put
forward a joint agenda for streamlining the Council of Ministers and for
preparing European Council meetings better through prime ministerial
co-operation. Both support innovations to improve the EU's ability to
act effectively in foreign policy - for example, by abolishing the EU's
rotating presidency now that small countries such as the Netherlands and
Belgium are less attached to it. Both countries want to enhance the role
of Javier Solana, the EU's foreign policy chief.

On some issues, the two heads of government have more in common than
their respective foreign ministries. For example, the foreign ministries
have traditionally opposed the idea that a new council of prime
ministers' representatives could take over the work of co-ordinating the
sectoral councils. Britain's Foreign Office is also more wary than 10
Downing Street of integrating the Charter of Fundamental Rights into the
EU's treaties.

In external and internal security policies, Germany and Britain have
become closer since September 11. The terrorist attacks boosted
Germany's role in defence and Mr Schroder was able to deploy combat
troops outside Europe for the first time in the federal republic's
history. In internal security co-operation, the UK was instrumental in
creating a common arrest warrant for the EU late last year. In both
cases, Britain and Germany reconsidered historically sensitive issues:
defence for Germany; European integration for the UK.

To cope with enlargement, the EU needs new ideas and it can no longer
rely on the Franco-German alliance to provide them. Paris and Berlin are
growing further apart, particularly over French resistance to reforming
the EU's farm policy. Instead, Berlin is discovering synergies with the
UK, which shares Germany's desire to undertake deep reform of the EU's
budget.

It is true that the two countries differ over what kind of agricultural
policy should emerge. But both Labour and the German Social Democrats
could support renationalising large parts of the EU's regional and
agriculture policies and focusing the budget on the poorest parts of the
enlarged EU.

Ultimately, though, the prospects for a British-German partnership - as
opposed to co-operation - depend on the euro. If Britain joined, it
would have more to offer Germany than France does at the moment, given
Paris's state of angst about enlargement. Furthermore, the political
dynamics in the EU would change on British entry. The UK Treasury would
become less reticent in suggesting how to reform the European Central
Bank. It would be more constructive in arguing for economic policy
co-ordination. Britain would find the rest of Europe more receptive to
its arguments about the need for structural reform.

Britain would not be an easy partner for Germany in the eurozone but the
differences separating them would stimulate the economic policy debate.
German views on monetary policy and central banking are firmly stuck in
the Bundesbank mould; the Bank of England could offer its recent
experience of successful inflation-targeting and direct accountability
to parliament.

On fiscal policy, Germany has found the stability and growth pact too
restrictive during the current economic slowdown. It might warm to
Britain's "golden rule" and "sustainable investment rule", which, unlike
the inflexible stability pact, distinguish between current and capital
spending and encourage governments to save during growth years as well
as restricting deficits during a downturn.

Some structural convergence between the UK and German economies has
taken place in the past decade. For example, Germany has slowly
liberalised its financial sector, tax regime and pensions system.
Further convergence would take place if Britain were to join the euro
because it would integrate their economies more closely and remove the
cyclical problem of exchange-rate fluctuations.

There is a further political incentive to team up. Berlin would be able
to share the burden of reforming the Union with another large,
reform-minded country. And Britain, by working with the eurozone's
biggest economy, could at last break out of its defensive position in
Europe and have a real hand in shaping new projects.

Germany and Britain: an alliance of necessity, is published by the
Centre for European Reform on Wednesday.

The writers are, respectively, research director at the CER, and editor
of FT Deutschland.

Full article at:
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3MLI45MXC
&live=true&useoverridetemplate=FTD1OUN2DNC&tagid=FTDNE3BOBNC

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney at mbs.fi