Cameron's EU reforms: You can't always get what you want

David Cameron has outlined six areas for EU reform. In five, compromise is possible. But restricting in-work benefits for new EU migrants requires treaty change, which is not on offer. Thus he faces confrontation with the anti-migration wing of his party or with the EU – and he should choose to face down the former.

David Cameron has made treaty change the totemic issue in his quest to renegotiate the UK’s relationship with the European Union: he believes that he must have it to convince his party that the EU has been reformed. But he is engaged in two negotiations – one with his own party and eurosceptic press, and the other with the rest of the EU.

Cameron’s problem is that Britain cannot get the treaties changed before the referendum, since other member-states do not want to re-open them, especially if Britain might leave anyway. Germany’s finance minister, Wolfgang Schäuble, said on May 12th that treaty change would not be possible by the end of 2017, Cameron’s deadline. Many governments would need to hold referendums on an amended treaty, and do not think they could win them. And Britain does not seem to realise that other governments face political constraints too: a treaty tailored specifically to Britain’s interests would be an impossible sell to their voters.

Charles Grant has already set out a five-point plan for winning a referendum. This insight looks in more detail at the six areas of reform that Cameron has outlined in articles and speeches. In five of them there is some possibility of compromise if Cameron backs down on treaty change (which will be tricky enough, because he has made it so totemic). But on the sixth – stopping EU migrants from claiming benefits for the first four years of residence – compromise between the EU and Britain looks very difficult. This is the area where British public opinion is most hostile to EU rules, where Cameron has been most specific in his demands, and where treaty change is most needed to secure them.

Cameron’s first demand is a safeguard for the single market to prevent the eurozone from caucusing, and potentially damaging the interests of the euro ‘outs’. Ultimately, this issue is something of a red herring, since the eurozone is – on average – more economically liberal than it used to be. But there is a case to be made that financial rules made in the eurozone’s interest could damage the City of London: the European Central Bank’s attempt to repatriate euro-denominated clearing and settlement is one example. Britain and other outs could be given observer status in the Eurogroup to act as advocates for the single market in eurozone meetings. The Fresh Start group of Conservative MPs has proposed that Britain should be able to refer new financial rules it disliked to the Council where unanimity would apply, handing the UK an effective veto. But any new legal safeguard of that sort would require treaty change, and would receive little support in the rest of Europe.

Second, Cameron has said he wants a stronger role for national parliaments. One idea, floated by Britain’s Europe minister, David Lidington, is for national parliaments to be able to club together to give Commission proposals a ‘red card’. Currently, they may give proposals a yellow card, which forces the Commission to reconsider, but a red card would make it drop a proposal. While a ‘legal’ red card would require treaty change, the Commission could promise to treat all new yellow cards as red ones. This would not require treaty change, and the other member-states could agree to write this into the next treaty. Meanwhile the UK could use the current yellow card system more effectively if it improved its own parliamentary scrutiny procedures.

The third demand is that powers should flow back to the member-states. This is already possible under the Lisbon treaty, if member-states agree to do so. But which powers? The British government’s own balance of competences review did not find any that should be returned to Westminster, so it will be difficult for Cameron to convince the others that it is necessary.

The fourth demand – removing the ‘ever closer union’ text from the treaty – is symbolically important to British eurosceptics, for whom the phrase threatens inexorable progress towards a European super-state. Dropping it entirely would obviously require treaty change, and other member-states would oppose this. But Britain might be able to secure an opt-out, with a so-called ‘interpretative protocol’ to make clear that it did not apply in Britain’s case.

Fifth, on promoting free trade and extending the single market, there are several policy changes that are already underway. Cameron wants TTIP and other free trade agreements to be ‘turbo charged’, but that is up to the European Commission and the countries they are negotiating with, not the UK, since external trade is an EU competence. On trade within the EU, there are already plans to open capital and digital markets, so it would be difficult for Cameron to claim that this was the result of his negotiation. And the same is true of better regulation, although Frans Timmermans, the commissioner in charge, should take up some of the proposals of Cameron’s business task force and give Britain credit for the reforms.

The electoral threat of UKIP – and defections to the party from his own MPs – forced Cameron to be specific about EU migrants’ access to benefits in a speech in November 2014, and it is in this sixth area that trouble awaits.

In that speech, Cameron demanded that EU migrants should not have access to either unemployment or in-work benefits for four years. The former will be easier than the latter to renegotiate, but still extremely difficult. The right of unemployed people to move to another country and claim unemployment benefits, though not unlimited, has been endorsed by the European Court of Justice in case law. To deny workless EU migrants unemployment benefits, a new directive would have to be passed through the EU’s ordinary legislative procedure, which could take years. And this would require the Council and Parliament to agree, and the latter has been very hostile to the idea.

Changes to in-work benefits would require treaty change, since they would in effect skew labour markets in favour of domestic workers. As CER’s Camino Mortera-Martinez pointed out, article 45 of the Treaty on the Functioning of the European Union says that there will be no discrimination between EU workers “as regards employment, remuneration and other conditions of employment”. Should in-work benefits be considered as such? There are very good reasons to think that they should.

Consider the average Central and East European migrant working in the UK (all data are from Britain’s quarterly Labour Force Survey). He is male, aged 32, has one child, and is either married or cohabiting. He works full-time, and his household’s earnings are 60 per cent of the British median. He lives in low-cost private housing in the south east of England. Overall, his weekly earnings after tax are £265 per week. This would be barely enough to cover his rent, bills and council tax. Under the new universal credit, that income would be topped up by £305 per week, to allow him to cover his other costs.

Many in Britain might consider withdrawing benefits a fair outcome, believing that if a migrant cannot support himself then he should return to his home country. But the legal test is whether this constitutes discrimination under the treaties. It must, since the equivalent British worker – or EU migrant who has been in Britain for more than four years – would receive more than twice as much income, and would be much more willing to do the job. Newcomers, especially those with children, would be discriminated against in the bottom end of the labour market.

The Financial Times and others have argued that it is not against the EU’s fundamental principles to restrict benefit access. This is, at a stretch, true of unemployment benefits, because European judges have been responsible for extending rights, not the member-states, and the treaties give rights to workers, not the unemployed. But restrictions on access to in-work benefits will discriminate against immigrant workers, which free movement rules are supposed to prevent. Thus this reform would require treaty change. Treaty change requires unanimity. And it is difficult to see Central and East European governments agreeing to it.

Free movement is the least popular part of EU membership among Britons (at least, in relation to other EU citizens coming to the UK – around 2 million British citizens live in other EU countries), but Cameron should seek to divert attention from the issue rather than pander to these views. Optimists point to the opinion poll lead for staying in the EU, and to Cameron’s strengthened authority in his own party after his shock election victory. But a drawn-out wrangle on migrants’ benefits could see the polls swing back in favour of Out. Cameron’s best hope is to ally himself with the pro-business wing of the party, which is more in favour of open labour markets, focus his reform proposals on steps to promote jobs and growth in the EU, and face down the Conservatives’ anti-migration wing. That way, he might just get what he needs.

John Springford is a senior research fellow at the Centre for European Reform.