As if there weren’t enough slightly-but-not-very informed comments out there… here are my €0.02 on the Cyprus bail-in, as seen from a ‘pro’-EU perspective.

1.  On a personal level, I’m horrified by the proposal to strip ordinary savers of their money to bail out the banks.  I completely understand the anger of people who feel it’s daylight bank robbery.  I would go mental if it happened to me!

2.  As I understand it, Cyprus’ problem has arisen because its government pursued a deliberate policy of using its euro membership to increase its attractiveness to offshore investors, including those of a, well, less savoury character.  In so doing, its banking sector badly overstretched itself.  There are clear parallels with Iceland in 2008.

3.  So I’m not remotely surprised that taxpayers in the richer eurozone countries balk at bailing out Cypriot banks.  They will naturally be asking themselves why they should be paying to save the skins of wealthy Russians.

4.  So I’m also not surprised that eurozone ministers insisted on a massive haircut from the Cypriot government.  Politically, they had little choice but to insist on this bitter ‘sweetener’ for their voters and taxpayers.

5.  I’m guessing that eurozone ministers felt that they could not tell Cyprus how to conduct its haircut; that would be meddling.  But I really wish they had.  Leaving the Cypriot government room to impose part of the burden on ordinary depositors was a monumental political blunder which will feature in future text books.

6.  Let’s be clear: according to the reports I’ve read, the choice to impose a levy on small deposit holders was a CYPRIOT one, not a Eurozone one.  The Eurozone said “haircut equal to one-third of the bailout” – and I guess they assumed, or hoped, it would be targetted on the big offshore depositors.

7.  But the Cypriot government chose to spread the shock and hit small deposit holders too.  Why??  I guess they couldn’t face the prospect of imposing more than 10% on offshore investors (i.e. the Russians).  We can speculate as to why that is, but I can’t think of many reasons that don’t leave a very nasty taste in the mouth.

8.  But wouldn’t the Cypriot people rebel against such a cruel decision by their government?  I’m guessing the Cypriot government calculated that they could choose to hit small investors and blame Brussels/Berlin for it, even though it wasn’t Brussels or Berlin that did it.  The Cypriot government comes away looking like the victim, not the villain.

9.  This is a disaster for the EU, any way you look at it.  Brussels and the EU Institutions are not to blame; Eurozone ministers are the ones who took the decision to impose a haircut, apparently against the advice of Brussels; and the Cypriot government chose in turn to target small investors.  But there is no way that the EU can escape the resulting PR shit-storm.  How do we avoid the impression that poor southerners have been stitched up like kippers by Brussels?

10.  This is a really horrible situation – especially for my fellow European citizens in Cyprus, in the short term, but for all of us in the long term, I fear.  It will be a huge shot in the arm to eurosceptics everywhere.  This is unfair, because I think this is a case of poor policy, poor political judgement, and poor institutional architecture, rather than a clear argument against European government or even against a single currency.  I still believe there’s an overwhelming case for governance at the European level.  But my faith in the existing Treaty architecture – not exactly strong to begin with – has taken another hard knock.

(DISCLAIMER: I post as a private citizen with some inside knowledge of the workings of the EU but no specialist knowledge of eurozone matters.)

edit – I’m told that the FT is now reporting that it was the Commission that first floated the proposal to target small depositors.  If that’s true, then that seriously undermines my defence of the EU institutions (as opposed to the eurozone ministers and the Cypriot government) but it reinforces my final point in para 10.

It’s a label I dislike, and not just for the obvious reasons; but it’s the label that has stuck, so let’s be clear what we mean by it when we use it.  Here’s my understanding of the term:

A eurosceptic is someone who wants less European Union.  It’s an existential thing.  There are shades of grey: a eurosceptic might be opposed to his or her country being a member of the EU; or they might think that the EU should be watered down in some way; or they might want the abolition of the entire project.  But, generally speaking, we can presumably agree that a eurosceptic is looking for less EU.

A eurosceptic is NOT someone who opposes, dislikes, is unhappy with, hates a current EU policy.  You might disagree with the CAP; you might hate the common visa policy; you might think that the EU’s environmental legislation is much too weak; you might think that the EU’s working time directive is an outrageous burden on business.  These are not existential arguments against the EU; they are arguments against current EU policies.  Holding those views does not make you a eurosceptic, though of course you might *also* be a eurosceptic.

The two concepts get muddled all the time.  Why is that?  We don’t see this confusion in national politics.  Most politically literate people don’t call for the abolition of national government from Westminster because they oppose cuts to benefits, or the Iraq War, or the stealth privatisation of the NHS, or gay marriage.  If there’s an issue in national politics which bothers you, you might go out and vote for someone who agrees with you; or you might write to your MP; or you might go on a demo; or you might even get involved in party politics yourself.  But you’re not usually a UK-sceptic.

Clearly, this is part of the EU’s problem.  We need to ask ourselves how we can develop a greater sense of engagement by citizens in the European tier of government and politics.  The fact that the EU’s citizens don’t feel sufficiently engaged to seek to influence policy, the fact that they conflate the policy of the current Commission with the entire edifice of the European Union itself, is a real challenge.  It might in fact be a legitimate ground for euroscepticism.  But the policies themselves – the CAP, the austerity, the fisheries, the working time directive… these are not legitimate grounds for euroscepticism.

Ask yourself this: if the EU were to ditch a policy you hate, and introduce a policy you love, enforcing it throughout the EU and using its international muscle to establish it as a global norm, would you still think that the EU is a bad thing?  If not, then you’re probably not a eurosceptic.

Just how undemocratic is the EU compared to the UK?  Well here’s a quick and dirty comparison – don’t hesitate to correct me if I’ve got something wrong, I’m not a political scientist nor a constitutional lawyer.

Edit – as @FrazerGoodwin points out, the table doesn’t tackle the whole issue of Royal Consent, and the role of the British monarchy in UK law-making.  In case you think that’s purely ceremonial, with no real impact on modern-day legislation, think again.

Edit (September 2017) – I wrote this piece a long time ago, long before any of us really imagined that the UK might vote to leave the EU. A lot has happened since I wrote it, and quite evidently my arguments have fallen on deaf ears, because democratic legitimacy is still cited as a key factor by many who voted to leave. One major change since 2013 was the introduction of the Spitzenkandidat procedure for the 2014 European Parliament elections. This now means that the leader of the EU’s executive (the President of the Commission) enjoys the same degree of legitimacy as the leader of the UK’s executive (the Prime Minister) – in fact – and I would argue more, in law, as the UK’s chief executive is the leader of the largest party only by convention and not by constitutional law.

A very good article written by Isabelle Durant MEP in the context of this week’s Budget Summit (“Van Rompuy’s Silent Coup d’Etat“) touches on a theme which is close to the hearts of those of us who feel that the institutional balance in the European Union is off kilter; namely, the overweening power of the Council. As @eurocrat astutely observes, perhaps this is an area where there is some common ground between EU federalists and eurosceptics? (Perhaps, though our common distaste for what we see as a democratic deficit leads us in very different directions.)

In 2004, I was asked to give a talk to students at Concordia University in Montreal on the topic of EU enlargement (the ‘big bang’ having only just occurred). This gave me an opportunity to explore some of the big questions: widening versus deepening; the community approach as opposed to supranationalism; and what the EU is actually for.

I’m posting the text of the talk I gave below. To summarise, my conclusion was that things had gone to the dogs since Maastricht, but perhaps that didn’t matter as the EU had already done what it was created to do: make Europe a secure and peaceful continent.

Also on the panel with me was the Dutch Ambassador, who was not happy with the talk I gave. He tore up his own prepared text and used his slot to tear into mine; but I think he kind of made my point for me.

Anyway, here it is.

It can be difficult for non-Europeans to appreciate quite what a new thing the European Union is on the international stage. When people think of the European Union, sometimes they see it as a kind of souped-up NAFTA, a free trade area on steroids. Or, they see it as a mini-United Nations, a force for international law and stability in the region. The truth is that the EU is both these things, but it’s also much more than that.

To understand today’s European Union, we really need to go back and appreciate the motivation of its founding fathers. They had grown up in a Europe almost constantly at war with itself. Millions had died, economies had been shattered, Europe’s leadership in world affairs had been given away to the United States and the Soviet Union. Europe had to find a new way of living with itself. The European Economic Community was not just about rebuilding economies – it was about surviving in a new world.

I make that rather dramatic observation because I think it’s fundamental to the understanding of the way the EU has evolved, and continues to evolve. The members of the EU have all been prepared to sacrifice part of what it is to be an independent country in order to safeguard the security and prosperity of their citizens. The EU plays a direct role in the everyday lives of nearly half a billion people. In an increasing number of areas, policy is made at the European level, not in national capitals. European governments have voluntarily given away their powers, pooling sovereignty in exchange for peace, prosperity and global influence. It’s multilateralism taken to its logical conclusion.

The history of the EU’s evolution also needs to be seen against this backdrop. If World War II was the shock that Europe needed to embark on the road of political union, then the Cold War was the constant threat that kept the European project on the rails. I think that this is something that we’ve only really been able to appreciate in hindsight. With the end of the Cold War, we saw two developments in Europe which have arguably changed the path of European integration:

The first development was the disappearance of the obvious external threat on our doorstep, and the demilitarisation of the continent. The second development was the realisation, if you like, of the European dream: war between the nations of Europe was no longer imaginable. It is simply impossible for a European of my generation to imagine one Member State of the EU going to war against another. As a result, European security was no longer the driving force behind European integration. A new generation of Europeans was no longer bound by the post-war taboo against nationalism. With the success of the EU, so resentment against the encroachment of the Brussels machine in daily life has grown, not only in traditionally “eurosceptic” countries but right across the EU.

My own view is that future generations may see the late 80s and early 90s as the high tide mark of European integration. With the Single European Act of 1985 and the Maastricht Treaty of 1992, we finally saw a comprehensive economic union, going even beyond the level of economic integration seen in many sovereign countries – Canada being one example. We also saw a significant step towards political union, with EU Member States deciding to work together also in the fields of foreign policy, security policy, justice issues and home affairs (what we call the second and third pillars of the EU – with the original European Community remaining as the first pillar).

But the Maastricht Treaty also saw the first major watering down of the ‘Community’ approach. Traditionally, the European Commission had always played a central role in European policy making. As the executive, the European Commission was the originator of policy proposals, which then went to the Member States (acting as the European Council) and to the European Parliament for amendment and approval – often by a majority vote. This is known as the ‘Community’, or ‘communautaire’, approach. Now, with the Maastricht Treaty, the European Council itself is the executive branch of government – at least, for foreign policy and security policy issues, and most justice and home affairs issues: that is to say, second and third pillar issues. The role of the other institutions, the European Commission and the European Parliament, is sharply reduced. In addition, the EU can only take decisions in the field of foreign and security policy by unanimity. This ‘supranational’ approach is an entirely different kettle of fish to the really unprecedented level of integration which exists in the First Pillar.

Hang on, you say. Didn’t the EU launch its own single currency a couple of years ago? Aren’t you debating a new Constitution that would create an EU Foreign Minister? Hasn’t the EU undertaken its own military operations for the first time in its history? Haven’t you just admitted ten new members? Yes, those things have happened, or are happening. They are momentous developments. But while we’re widening the EU, both geographically and politically, talk of deepening the EU has dropped right down the agenda.

The terms “widening” and “deepening” are commonly used in EU circles to represent two different, and often opposing, visions of Europe’s future. The wideners advocate a looser association of sovereign Member States, with membership extended across Europe and even beyond, to reap maximum economic benefit from a huge Single Market while safeguarding the independence of its constituent countries. The deepeners want to see further political integration, more pooled decision making, leading to a federalised form of government for the EU.

Over recent years, since the fall of the Iron Curtain, after Maastricht, the debate in Europe has between those who advocated rapid enlargement of the EU to bring in former Warsaw Pact countries, and others who argued that any enlargement – any widening of the EU – without first reforming our structures – without first deepening our integration – would damage the special character of the European Union. This debate was effectively resolved during the last two Treaty revisions, in Amsterdam (1999) and Nice (2003), where European Heads of Government failed to agree on any significant reform to the way the European Union functions, but where they nevertheless agreed to proceed to admit ten new Members. As you will know, those ten new Member States joined the EU on 1 May of this year.

This brings me then, finally, to an analysis of the factors behind this most recent enlargement. Why did the existing fifteen countries agree to admit the ten new members? Why did those ten new members want to join? I can only give my own personal reflections on these questions. Certainly, there are economic motives on both sides. All EU members will greatly benefit from a vastly bigger internal market of half a billion consumers. The experience of newly joined Member States in the past has been very positive – countries like Ireland, Spain, Portugal and Greece have benefitted enormously from EU membership, and the ten new members can expect to benefit to a similar degree. Then there are other, political factors. Both for the fifteen and for the ten, there is the security question. Better to tie these new democracies into the EU family than to let them find their own way outside. Again, the experience of former admissions, notably those of Spain, Portugal and Greece, has shown us the way. Then of course there was almost a moral imperative to bring our European siblings into the family. Just as German reunification was arguably driven more by a sense of moral inevitability than any other single factor, so European reunification has had a moral dimension that few would deny.

But, underlying these factors, I think that this most significant enlargement of the EU in its nearly fifty year history is also an expression of the kind of Europe that most Europeans want in the 21^st century. It may not be the “United States of Europe” that Churchill foresaw; it may not always speak with one voice; but it is a diverse Europe, a rich Europe, and an inclusive Europe.

Nine years and one Treaty change later, I think this holds up pretty well. Indeed, I think the euro crisis has shown that I was right to point to Amsterdam and Nice as lost opportunities, for which we’ve since had to pay dearly.

Some thoughts on ‘that speech’, for which I’ve given up my lunch hour:

Cameron set the scene by acknowledging the EU’s greatest achievement: peace in Europe.  OK, he slightly undercuts the message by giving NATO a name-check in equal terms, but I suspect that was shoe-horned in there to keep the Liam Foxes happy.

This is actually a good start.  What a pity then that he goes on to argue that, its objective achieved, the purpose of the EU now needs to change.  Now, Cameron argues, “the main, over-riding purpose of the European Union is different: not to win peace, but to secure prosperity.”

No.  No, Mr Cameron, no.  No no no.  What a thing to say on the day after Germany and France celebrated 50 years of the Elysée Treaty!  We have an EU because we know what happens when the countries of Europe do not cooperate.  We have an EU because it gives us peace.  This cannot be taken for granted.  Peace leads to prosperity, but this is emphatically not its over-riding purpose.  There is no zero-sum game here; it’s not either peace or prosperity.  See this text which I ghost-wrote for Jose Manuel Barroso a few years ago.

So when Cameron says that the EU is not an end in itself, but a means to an end, he fundamentally misunderstands – or perhaps deliberately misrepresents – the philosophy behind the Treaty and the true meaning of the EU to its citizens: the EU is, by its very essence, the negation of war.  It represents peace.  Its complex, opaque machinery delivers peace each and every day, by bringing together the people who run our society, at all levels, and giving them the habit and the expectation of working together in the common good.

Cameron claims to speaks for his entire country when he says: “we come to the European Union with a frame of mind that is more practical than emotional.”  He doesn’t speak for me.  I don’t see it as a badge of pride that emotions are left at the door.  I do get emotional about government, about politics, about the way in which my society, my civilisation, is run.  If think you should get emotional about such things.  Be practical too.  Again: no need to choose one or the other.  You can be both.

So.  The Prime Minister sets out his store as a practical man with advice on how to make Europe better.  He is not, he insists, driven in any way by emotion (having spent the first few minutes of his speech making emotive points about the British national character, British sovereignty, and the British role in World War II).  Defensively, Cameron hedges his advice with a number of strawman arguments:

There are always voices saying “don’t ask the difficult questions.”

Whose are these voices, Dave?

The biggest danger to the European Union comes not from those who advocate change, but from those who denounce new thinking as heresy.

Who are these small ‘c’ conservatives who denounce new thinking as heresy, Dave?

(An aside: bookmark this quote, substituting “Britain” for “the European Union” if you like – it’s as useful an argument against Conservative philosophy as you’re likely to find…)

Let’s welcome that diversity, instead of trying to snuff it out.

Who is trying to snuff out diversity in the EU, Dave?  Unless you mean governments which clamp down on minorities, restrict migration, and seek to impose restrictive, traditionalist syllabuses on schools…

The European Treaty commits the Member States to “lay the foundations of an ever closer union among the peoples of Europe”.

This has been consistently interpreted as applying not to the peoples but rather to the states and institutions compounded by a European Court of Justice that has consistently supported greater centralisation.

We understand and respect the right of others to maintain their commitment to this goal. But for Britain – and perhaps for others – it is not the objective.

Is he reneging on the Treaty objective of an ever closer union among the peoples of Europe?  Or suggesting that this can be achieved by his recipe of dismantling the institutions of the EU?  Either way: I object.

Dave’s big fix for the EU comes in five parts: competitiveness; flexibility; repatriation of powers; democratic accountability; and fairness.

I’m not going to go into a lengthy, point-by-point, take-down of Cameron’s arguments, but do let me point out a few fallacies:

Competitiveness means a level playing field; so does fairness.  You do not create, or maintain, a competitive, fair Single Market by repatriating powers on a ‘flexible’ basis.  Cherry-picking which rules to follow may be attractive to free riders but it is not the way to make the European economy more competitive.

Democratic accountability?  Yes please.  The quickest, surest, easiest way of achieving this tomorrow would be to loosen the Council’s stranglehold on EU affairs, reversing the path to intergovernmentalism which we have been assiduously hoeing since Maastricht.  You want a democratic EU?  Then the last thing you do is adopt the Cameron version of “flexibility” by repatriating powers.  On the contrary: we need a return to a communautaire European Union.  This has the added advantage of being good for competitiveness, and being fairer.

It will be a relationship with the Single Market at its heart.

No it won’t, Dave, not if you’ve opted out of social, environmental, employment, consumer safety legislation.  They are as much a part of the Single Market as whole vehicle type approval regulations.

To end with, channelling Herman van Rompuy for a moment, a haiku:

Cameron’s Europe:

“For us, a means to an end”

Now the end is near.

In 2009, I ghost-wrote an article for Commission President Barroso on “security, freedom and wealth”, his contribution to a collection of essays edited by Karl von Wogau.  It predates the Euro crisis, but I think its arguments still stand, and will stand.  This is an extract from an early draft, which I reproduce here without permission (but hey, I wrote it):

If one were to identify a single theme to define global preoccupations over the last decade, that theme might be ‘security’.  To some, the quest for greater security has come at the expense of certain freedoms.  If wealth has a role in this trade-off, it is as a divisive force, providing the means to bolster the security of a few, while its absence is seen as a root cause of insecurity for the many.

I believe that this perceived trade-off is fallacious, and that security, freedom and wealth mutually reinforce each other in a virtuous circle which can raise the quality of life for whole populations.  There can be no greater demonstration of this than the European Union.  The driving force behind European integration has always, first and foremost, been security.  The present EU was born out of the destruction of two catastrophic wars in order to ensure that Europe never again fell prey to such devastation.  We have sought to assure the future security of our continent by bringing our people together in a community which guarantees their fundamental freedoms and generates wealth.  We have extended membership to our neighbours emerging from the shadow of totalitarianism, binding them into our union for the sake of our mutual security, and doing so by sharing with them our wealth while safeguarding their freedoms.

The result is a community of healthy democracies, membership of which has brought both stability and prosperity to us all.  The European experience is a model for other regions around the world.  Security does not have to be bought by sacrificing freedom; on the contrary, security guarantees freedom, which in turn generates wealth.

The EU’s founding fathers were committed to making it impossible that the countries of Europe should ever go to war against each other again.  They saw that to do this they had to bind the economies of Europe’s core countries together in such a way that it would be impossible to mobilise them for war against each other.  They also saw the importance of binding the shattered populations emerging from the nightmare of national socialism into a wider community of democracies.  That this experiment was a success is self-evident: we have enjoyed an unprecedented period of peace and prosperity in Europe over the last half century, and the original community of six has grown over successive enlargements to include twenty-seven countries.  Many of these countries, including my own, emerged from dark periods in our history where fundamental freedoms could not be taken for granted.  By joining the European Union, we sought to cement this hard-won freedom in an irreversible manner: we sought security.  Our partner Member States in turn saw their own security interests served by bringing these new democracies into the union.

A crucial tool in this extension of security and freedom was the integration of Europe’s economies.  The new democracies of southern and eastern Europe often lagged behind economically.  Their partners had the vision to agree to huge transfers of wealth from the richest to the poorest regions in a spirit of solidarity.  The resulting investments have transformed some of the poorest regions of Europe into some of the wealthiest.  The knock-on effect has been to raise prosperity levels right across Europe.  New wealth and new markets create jobs and opportunities for all.

Unsurprisingly, other regions have witnessed our success and sought to emulate us.  However it must be emphasised that Europe’s economic success is not and has never been purely about wealth creation.  While economic success is an end in itself it is also the means by which we achieve our twin goals of freedom and security; two sides of the same coin.  This is the model which we offer the world.