Our EU Deal Gives Us The Best Of Both Worlds

After the Prime Minister’s renegotiation, the UK has the benefits of the single market while staying outside political, fiscal and monetary union 

Oliver Letwin

About 30 years ago, I wrote a pamphlet entitled Drift to Union. I explained that the EU was headed down two parallel tracks. The first was leading to the formation of a free-trade single market in goods and services. The second was leading towards a quite different destination — the establishment of a new political, fiscal and monetary union which would gradually become a United States of Europe.

I argued that the national interest of Britain lay in remaining part of the free-trade single market while staying out of the political, fiscal and monetary union.

I also argued that, in order to achieve this enviable best of both worlds, we needed to promote not a so-called “two-speed Europe” but a two-destination Europe.

The point of this two-destination Europe would be to create concentric circles. Countries in the inner circle would participate in the monetary union which, even 30 years ago, was clearly intended to be the precursor of full political and fiscal union. By contrast, countries like the UK in the outer circle would participate only in the free-trade single market.

Over the ensuing 30 years, we have witnessed a succession of treaties which the UK signed without the people of the UK being given the right to decide in a referendum. Throughout those years, I prayed and hoped for a time when a British government would renegotiate the terms of our membership and create the opportunity for us to be in an outer, free-trade circle of the EU while enabling some other member states to be in an inner circle of emerging political, fiscal and monetary union.

But I recognised that, in order to reach this position, we had to make a series of fundamental changes. First, we had to establish in a binding international agreement a fundamental shift in the concept of “ever closer union”. Since the time of the original founding treaties, “ever closer union” has been regarded by the European Commission and the Court of Justice of the EU as the goal towards which all member states are aiming. To create a Europe of concentric circles, it was clear that we needed this idea of “ever closer union” to be redefined as a phrase that describes the ambition only of some, voluntarily self-selected EU member states, and hence as a phrase that does not apply — legally or constitutionally — to other states like the UK, who have no desire at any time to be part of any inner circle involving political, fiscal and monetary union. 

Second, we had to establish that the EU is and will remain permanently a multi-currency area — with proper arrangements to protect the position of those member states like the UK who wish permanently to retain their own currencies, their own monetary authorities, their own fiscal control and, in short, their own power over the economy and public spending which is the foundation of independent government.

Although you wouldn’t think it from the reporting, the truth is that these changes were precisely included within what David Cameron set out to negotiate, and succeeded in negotiating over the last year.

The binding, international law decision that he agreed with the other heads of government in Brussels a few months ago provides explicitly for some member states to form voluntarily a full political, fiscal and monetary union. But it also makes it explicitly clear that this will not apply to other states (including, explicitly, the UK).

The agreement goes on to state explicitly that the phrase “ever closer union” does not provide the European Court with a legal basis for expansive interpretations of the treaties, that it is not the ambition of the UK to form part of an ever closer union, and that the phrase “ever closer union” therefore does not apply to the UK.

Second, the agreement acknowledges, for the first time, that the EU is and will remain permanently a multi-currency zone. And, to make a reality of this, it establishes a new set of protocols governing the relationship between those countries within the eurozone and those countries that maintain their own currencies. 

These changes are fundamental. Together, they create the opportunity for a new Europe of concentric circles to emerge — a Europe in which Britain can do exactly what very many of us have wanted for decades: namely, for Britain to be a permanent, full member of the outer circle, the free trade single market, while some other countries travel towards a different destination as members of the inner circle of political, fiscal and monetary union.

Given that this is now, for the first time in our history, available to us, I am genuinely surprised that there is as much debate as we are currently experiencing in the lead-up to the referendum.

If we can remain part of a single market that hugely benefits us without any risk of being dragged into the political union that many of us have wanted for many years to avoid, why wouldn’t we take that opportunity?

Yes, we might hope that if we leave we can re-establish some version of free trade with the EU on some other basis. But if we can be part of the free-trade single market without being dragged into political, fiscal and monetary union, why would we want to take the leap in the dark of leaving the single market in the mere hope of being able to agree some other free-trade  arrangement?

And yet, I see that the argument is raging around us. So it is clearly necessary for those of us to whom it seems obvious — that being in the EU free-trade single market but outside the emerging political union is indeed the best of both worlds — to explain why this membership of the outer circle of the EU will make us safer, stronger and better-off than we would be if we leave.

The root of the argument is of course the issue of free trade.This issue resolves into two distinct questions: “Is free trade with the EU an advantage to Britain?” and, if so, “Is being a member of the EU single market the best way of securing free trade with the EU?”

The second of these questions answers itself pretty much as soon as it is asked. True, it might be possible to negotiate some other Norway-style or Switzerland-style or Canada-style or US-style trade agreement between the UK and the EU. But, if our aim is to have free trade with the EU, then it is blindingly obvious that remaining a member of the single market is the surest, easiest and most complete way of securing that objective. If we vote to remain, then to have full free trade with the EU we need to do . . . nothing whatsoever.

So the serious question is the first one: “Is free trade with the EU an advantage to Britain?”

There are of course some people who take the view that free trade with the EU is not to our advantage. From time to time, some UKIP spokesmen seem to be saying this. And I’ve received emails often enough from various figures of the far Left who clearly regard free trade with anyone, EU or otherwise, as the invention of the devil.

But in the 21st century, these are eccentric views. Economic history and economic theory teach us that my ability to trade with you enables us both to benefit from the division of labour between us. It is for this reason that there is no serious body of economists anywhere in the world who doubt the general advantages of free trade between countries at similar levels of development as a way of increasing the prosperity of those countries. And if you don’t trust the theoreticians, then listen to the practitioners: I am not aware of any serious group of businesses anywhere in the world who would be more likely to invest in Britain if we faced trade barriers on exporting our goods and services to the EU; indeed, many overseas investors are attracted to Britain partly because we do have access to the single market. It is only the ideologues of the extreme Right and the extreme Left who cling to the illusion that we can protect employment, investment and prosperity by erecting tariff and non-tariff barriers to trade with the EU.

So it seems clear both that it is in our national interest for Britain to have free trade with the EU and that the surest way of guaranteeing that we retain such free trade with the EU is to remain a member of the single market outer circle of the EU.

Given that this is our best course from an economic point of view, and given that a strong economy makes us both safer and better-off, the last question is whether there is some other huge disadvantage that arises from being a member of the single market which would make it worth leaving that market despite the economic advantages of remaining — even when the Cameron agreement means that we will no longer stand in danger of being dragged into political, fiscal and economic union.

I certainly accept that there are many minor irritants associated with being part of a single market. I also accept that membership has an annual net cost to us equal to just over half of one per cent of our GDP. But these cannot be sufficient to weigh heavily in the balance — especially given that they are themselves balanced by the advantages that membership of the outer circle of the EU brings in terms of co-operation in a range of important areas from security and the environment to trade deals with the rest of the world.

So what is the great disadvantage, the great peril, that we will avoid if we leave, but that we will face if we continue to be part of the outer-circle single market without being absorbed into the inner circle of political, fiscal and monetary union?

The answer is that, so far, no one has been able to identify this terrible peril.

And there is a reason for this: namely, that . . . there isn’t one.

The truth is that the terrible peril, for those of us who have cared and worried for many years about the continuity of independent government in the UK, was the danger of being dragged into “ever closer union”. Because of the Cameron agreement, that danger is now, at last, behind us.

As a result, for anyone who believes in the value of free trade to our long-term prosperity, the option that clearly now provides the best chance of being safer, stronger and better-off is to remain a part of the outer-circle free-trade single market. That is why I will be voting “Remain”.

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