What would Labour have done?

Wednesday, 14 December 2011

Synopsis

Friday’s European veto by David Cameron has shaken up European and British politics. In the UK, many eurosceptic Tories are jubilant and many pro-European Liberal Democrats are openly hostile to the veto (Nick Clegg’s interview with Andrew Marr and his no show at the Commons debate were extraordinary). However, one of the biggest questions in British politics is how the left as a whole, and Labour in particular, should respond to the veto, the treaty and its repercussions.

One issue for Labour is strategic and the other is philosophical. The big questions facing Balls and Miliband are what they would have done at the summit and, crucially, what they would do about a European treaty that effectively makes it illegal for eurozone countries to follow expansionary economic policies.

Douglas Alexander and Ed Balls have both moved Labour’s position in a more eurosceptic direction in the past few months. Not as eurosceptic as Michael Foot and early Kinnock , but considerably more so than Tony Blair (Labour’s 1983 and 1987 manifestos remaining the most Eurosceptic in recent British history, with the 1983 document saying that the then common market was a “serious obstacle” to the fulfilment of “radical, Socialist policies”). The veto is the first real public test of the recent shift in position.

The initial public reaction to Cameron’s veto has been positive. A number of polls have shown that around 60% support the veto, with less than 20% opposed. How can Miliband provide opposition, whilst not being seen as lining up against what are perceived as British national interests? How will he answer the question, “what would you have done”?

One of the great ironies of modern politics is that the allegedly principle-free, vote-chasing Blair of 1997 shifted Labour away from euroscepticism just as the British public (including Labour’s traditional, working class voters) was becoming more eurosceptic. Ed Miliband will have to deal with the effects of that irony over the next few months as he looks to reposition his party on the European issue.

The second big challenge facing Miliband and the eurozone is philosophical. In short, what can he say about a European treaty that makes balanced budgets legally binding and rules out the expansionary fiscal policy so passionately endorsed by Brown, Miliband and Balls in recent years? Douglas Hurd famously said that he was a fan of the European Union because it makes socialism illegal. In effects, this treaty makes any kind of Keynesian expansion illegal across the eurozone.

Paul Mason put it nicely on Friday:

I can only add at this stage that, by enshrining in national and international law the need for balanced budgets and near-zero structural deficits, the eurozone has outlawed expansionary fiscal policy.

It has done what the US Republicans would like to do - and if you think about it, it has made what Gordon Brown did, and what Barack Obama (and indeed Wen Jia-bao) is doing illegal.

The result, if it works will be stability. It is hard to see how it promotes long-term growth.

With the treaty, the eurozone has enshrined Gladstonian liberal and neo-liberal economic ideas in law in a way that right-wing governments can only dream of. Only a few weeks ago, the EU imposed unelected technocrats on Italy and Greece. In this treaty, the EU has further limited the powers of democratically elected national governments to pursue alternative economic policies and has rendered the views on national electorates, expressed through the ballot box, increasingly meaningless.

Astoundingly, the left has had little to say about the EU trying to render its favoured economic policies impossible.

It’s difficult to see how Labour can coherently preach Keynesian ideas at home, whilst, at exactly the same time, supporting a treaty for the Eurozone that makes exactly those policies illegal.

Indeed, Ed Balls has always made his views on such matters quite clear. As far back as 1992, in a Fabian pamphlet, entitled ‘Euro-monetarism – how Britain was ensnared and how it should escape.’

“the strict fiscal rules embodied in the Maastricht treaty would severely restrict individual countries ability to use fiscal policy to stabilise incomes by borrowing when times are bad… In short, monetary union… is an economically and politically misconceived project… the treaty’s inflation and fiscal convergence criteria are likely to impose slow growth and high unemployment.”

The eurozone treaty agreed on Friday and vetoed by Cameron involves a turbo-charged euro-monetarism, lionising balanced budgets and making expansionary fiscal policy illegal across the eurozone.

The challenge for Labour is to go beyond woolly talk about avoiding isolation and set out how they would have played the summit and how they will handle subsequent discussions. The left must consider why they support a treaty that runs in stark and direct contrast to their preferred economic policies.

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