The continental view of Cameron's renegotiation

Insight
Charles Grant
16 December 2015

As EU leaders gather for their summit in Brussels on December 17th and 18th, they are puzzled by David Cameron’s fixation on excluding EU migrants from in-work benefits. On the other dossiers of the British renegotiation, compromises are within reach. But even the influential Germans cannot see how the disagreement on benefits can be resolved. This means that Cameron cannot secure a deal until the summit of February 18th and 19th, 2016.

For those trying to follow Britain’s tortuous negotiation with its EU partners, the last few weeks have been confusing. On November 30th, David Cameron raised the stakes in meetings with other European leaders, demanding a treaty change to allow Britain to discriminate against citizens from other EU countries by excluding them from in-work benefits, unless they had lived in the UK for four years. According to some reports, Cameron even threatened to lead the Out campaign if he didn’t get what he wanted. Subsequently, when other EU leaders refused to yield on this point, British officials briefed that the four year exclusion was no longer a red line. Then other British officials insisted that it was. To the extent that the prime minister has a consistent position, it is that he wants the four year exclusion, but is open to alternatives that deliver the desired result of less immigration from the EU.

British political correspondents have written thousands of words on the nuances of the shifting British tactics during the renegotiation. But surprisingly few of them have travelled to European capitals to ask how other governments view Cameron’s demands (one person who has done this leg-work is the CER’s Agata Gostyńska-Jakubowska, whose new policy brief describes where the 27 governments stand on the five key British requests). Britain’s partners have mixed views of Cameron’s efforts to negotiate a package of EU reforms.

Some of their analysis is positive. They recognise that most of the British demands – set out in broad terms in Cameron’s November 10th letter to Donald Tusk, the European Council president – are serious, sensible and negotiable (my recent policy brief outlines Britain’s negotiating priorities in some detail). Cameron ignored the wilder fringes of the Conservative Party which had urged him to do things like abolish ‘social Europe’, give individual parliaments the power to veto EU laws or allow member-states to negotiate their own trade agreements – the first of which would have prevented the Labour Party and the trade unions from campaigning to keep Britain in, and the second and third of which would have been incompatible with the way the EU works.

Cameron’s partners appreciate that he and his senior ministers have – rather late in the day – engaged in some old-fashioned diplomacy, travelling from capital to capital to make their case. Some member-states welcomed the December 15th British-Italian initiative on ‘ever closer union’ – proposing that a more flexible, multi-currency EU should allow different countries to pursue diverse routes to integration – as a good example of British engagement. On other issues, too, such as giving national parliaments a bigger role, making the EU more competitive and introducing safeguards to prevent the eurozone acting in ways that could hurt the single market, many member-states think that a deal is doable.

But when it comes to Cameron’s priority of excluding EU migrants from in-work benefits, his partners are more critical. They are baffled as to why he has made such a fetish of this one demand, which is incompatible with an essential principle of the EU treaties, non-discrimination. They understand that immigration is a big political issue in the UK and that Cameron needs to bring back something from the renegotiation to appease the many voters who think there are too many immigrants. But as Steve Nickell, an eminent economist at the Office of Budgetary Responsibility has commented, changing the rules on in-work benefits will make little difference to the numbers of migrants: most come for the jobs, not the tax credits. 

EU leaders are particularly puzzled that Cameron has not focused more on limiting migrants’ access to out-of-work benefits: for one thing, British public opinion seems to be more concerned about ‘welfare scroungers’ than workers who claim tax credits, and for another, recent rulings by the European Court of Justice show that it is increasingly tolerant of governments that exclude EU migrants from unemployment and other out-of-work benefits.  

It is not just other governments which think Cameron has over-done the emphasis on in-work benefits. At a CER panel in Westminster on December 14th, Conservative MPs with very different views on Europe – Liam Fox, Jesse Norman, Dominic Grieve and Flick Drummond – agreed in broad terms that changing the rules on these benefits would not make a big difference to the outcome of the EU referendum. (The CER’s John Springford recently explained the context which led to Cameron’s government emphasising in-work benefits.)

On a recent trip to Berlin, I found German officials gloomy about the prospect of keeping Britain in the EU. They thought that the British could easily vote to leave and that the details of the deal that Cameron achieved would not make much difference to the outcome. They were worried that, because of Germany’s leading role in Europe, their government would be blamed for Brexit. They emphasised that they were not in charge of the British renegotiation and that it was up to the Brussels institutions – led by Tusk and Commission President Jean-Claude Juncker – to do the work required to keep the UK in.

Despite the strong wish of most Germans that Britain should stay in the EU, senior officials are hostile to some key British requests. They don’t like the idea of giving groups of national parliaments the right to block legislative proposals from the Commission, for fear that this would slow decision-taking. And they are unsympathetic to the priority of George Osborne, the Chancellor, which is to negotiate safeguards for euro-out countries against the risk of eurozone caucusing; they worry that new procedures could constrain the eurozone’s ability to act speedily in a crisis. However, Merkel’s friends claim that, in contrast to some of the legalistic and conservative officials who advise her, she is willing to accommodate British concerns and to corral other member-states to support a deal.

On the key issue of in-work benefits, it is hard to see how – even with Merkel’s good will – a compromise can be found. In legal terms, a two-year qualification period is no different to four years. One possible way forward could be for Britain to apply a four-year residence qualification to all those claiming in-work benefits, including its own citizens returning from abroad. But that could be construed as indirectly discriminatory against non-British EU citizens. Another idea could involve the British government withholding benefits from young Britons who had not worked for four years – but that would be politically difficult to sell at home. An alternative scheme, being developed by the Commission, would allow a member-state to act against a sudden surge of immigrants from elsewhere in the EU, for example by withholding certain benefits. However, defining the scope of such an ‘emergency brake’ would be extremely difficult, and if the Commission alone adjudicated on whether and when the brake could be used, Cameron could probably not accept it. Perhaps, in the end, British and EU officials will be clever enough to design some highly complex arrangements that are satisfactory to the UK and legally watertight. 

German officials may be wrong to think that the details of Cameron’s deal will not affect the referendum result. It is true that most British voters will not read the piece of paper that Cameron brings home from Brussels. But Conservative MPs will read it, very carefully. In recent conversations with backbench Conservative MPs, I have been struck by how many are genuinely undecided on the In/Out question. To some degree they will be willing to follow a lead from Cameron and Osborne. But they will have to justify their stance to their mostly eurosceptic constituency activists. If Cameron’s deal is half-credible, a lot of Tory MPs will come out for staying in, and that would influence the tone of the referendum campaign and the way it is reported. But if the deal is not credible the Tories will split down the middle and the In campaign will struggle to win. 

So Britain’s partners should take the details of the renegotiation seriously, and give Cameron enough meat for him to be able to convince wavering Conservatives that he has won something of substance. However, Cameron himself also needs to think very carefully about his tactics. Until now he has been reluctant to say that the EU is a good thing per se; his line has been that only when he has achieved reforms will the organisation be worth defending. But the truth is that, though several of Cameron’s reforms are likely to be useful and desirable, they will not radically transform the way the EU works. If Cameron makes claims to the contrary, they may not withstand rigorous scrutiny. He will not be able to persuade the British people to support membership unless he starts to argue with conviction that leaving the EU – whatever its faults – would damage Britain’s prosperity and security. The sooner he starts to make this case, the better.

Charles Grant is director of the Centre for European Reform.