The Core That Wasn't

Has Britain joined France and German in a "super core" that will dominate the EU for years to come? Not for long, writes Martin Hutchinson.

British Prime Minister Tony Blair's Berlin summit last week with French president Jacques Chirac and German chancellor Gerhard Schroeder raised the fears of other European Union members that the three leaders were about to form a "super-core" that could preserve Franco-German dominance of the EU's agenda even after the EU expands to 25 members in May. When looked at closely, however, there is no economic basis for more than occasional agreement between the three countries. It's clear why a closer alliance is attractive for all three leaders.  For Chirac and Schroeder, the entry into the EU of ten new countries, albeit mostly small ones, changes the dynamics of the EU and reduces their ability to dominate the process.

Under the current voting structure, Germany and France together have 20 of the 87 votes in the Council of the European Union, but in their statist, Federalist moments, even when Spain and Italy are ruled by the right, they can usually rely on additional votes from Belgium (5), Greece (5), the Netherlands (5), Portugal (5), Sweden (4), Ireland (3), Finland (3) and Luxembourg (2) for a total of 52 votes out of 87, enough to preserve dominance even if a smaller ally defects on a particular issue.  (While 62 votes out of 87 are required to take a formal decision, the ability to control a simple majority is crucial in day to day activities.)

After November 2004 (there is a 6 month transitional delay), the above coalition could muster only 135 of the 321 votes at stake, nowhere near a majority. Even if you add reliable statist allies Cyprus (4) and Malta (3), together with Hungary's current leftist government (12), you get a total of 154, still less than the 161 needed for a majority.  Hence they need to add another big member to the coalition.  Poland (27 votes) would do it, but it is too unreliable and apparently heading into financial crisis, while Italy and Spain remain ruled by the right (Spain might change sides in its upcoming April election, but probably won't.)  So the ideal solution is to add Britain, which with 29 votes gives the core coalition 183 votes, enough to keep a majority even if a minor ally or two defects, although short of the 232 needed to make a formal decision.

For Tony Blair, the calculus is a little different, but also favors a close working arrangement.  While coming from a country that (at least since Margaret Thatcher's reforms of the 1980s) is rather more free-market oriented than its Continental neighbors, Blair leads the more statist of the two major parties and is under criticism from the left wing of his large parliamentary majority for not being statist enough. Further, the rapid rise in public spending under Blair and his chancellor of the exchequer Gordon Brown has produced large British budget deficits, which in turn have required and will require tax rises that converge lighter-taxed Britain towards the overtaxed Continental countries, thus reducing the element of "destructive competition" in tax systems.

Most important, since the new EU constitution may well be presented to national parliaments for ratification later in 2004, before the next British election, Blair wants to avoid any disputes with the EU core in the run-up to the election, in the hope that he can ratify the constitution without holding a referendum (which the constitution would almost certainly lose) and without the opposition Conservatives having a major populist election issue with which to beat him.  Hence Schroeder and Chirac's commitment to greater "reform" (which they need to carry out anyway to prevent their economies falling into a black pit of public spending as their baby boomers retire and claim generous state pensions) can be presented to the gullible mushy middle of the British electorate as a genuine conversion by our friends in Europe to the greater free market openness and economic liberalism that is supposedly Britain's gift to the EU.

 In the long run, it won't work.  When dealing with the 10 new members of the EU, particularly the 8 from Eastern Europe, and with the next 2 members, Bulgaria and Romania, scheduled to join the EU in 2007, Britain's interests and those of France and Germany diverge, because of the different natures of their economies.

Germany, and to a lesser extent France, are primarily manufacturing nations, whose economic strength derives from the great efficiency and superb quality of their manufacturing workforce.  Automation has reduced this advantage somewhat (as young and cynical London merchant bankers, we used to joke that the German economy had problems because "robots are even better at being Germans than are Germans themselves.") Nevertheless, as the painful process of integrating the former East Germany has demonstrated, the principal threat to German manufacturing capability is a cheaper workforce with educational and quality standards similar to those in Germany itself. In other words, after 10 years of post-Communist restructuring, the workforces of the Czech Republic, Slovakia, Slovenia, the Baltic States and to a lesser extent Poland and Hungary compete directly with Germany's.

Britain isn't like this.  The British automobile industry isn't threatened by East European competition, it disappeared two decades ago after Britain entered the EU (given its inefficiency, poor quality and appalling labor relations, it would probably have been devastated by a customs union with Haiti!)  Britain is pre-eminently an entrepot economy, with trading links worldwide rather than merely in Europe, and with skills in banking, insurance and consultancy for which the East European countries continue to have a large appetite.

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