On Thursday the UK delivered a stunning victory to the Conservative Party. Not since 1992 has the Conservative’s had a clear majority. By now the Champagne has probably lots its fizz and the realization of what is ahead will be setting in. In year’s past such razor thin majorities have proven to be difficult to manage and a huge distraction. The prime minister can ill afford to wonder about carrying the votes in the house, and needs really to focus on the road map as a matter of priority. His cabinet shuffle and his whips are the key to keeping the house in order. If he does, he can focus. If he does not, he will fail. Now David Cameron has to focus on the key issues. If he gets this right, and there are more chances against than for, he can secure the Conservative’s position at the next election and possibly beyond.
Cameron promised an in/out referendum on European Union membership. It is vital that he carry the vote to remain inside. It is needed in order to protect and help grow trade, preserve what vestiges of influence the country has with others, and to also preserve the countries relationship with US, Japan, and China. Outside the UK will diminish faster.
To carry the “yes” vote he has to first negotiate changes in the relationship between Britain and the EU. Currently Cameron is sidelined in Europe. Though his goals generally align socially and economically with Germany and the Nordic region, he has few favors in the bank to call on. The French are far more motivated to grow their employment first, constrain Germany second, with EU stability third and keeping Britain “in” last. Though France’s priorities suggest little help from the French, there is still hope. 70 years ago Friday Europe ceased hostilities with Nazi Germany. In WWII Britain and France were very close. At one point, near the fall of France, Churchill even offered a union with France. Though not at war, the oldest of enemies have much they could collaborate on if only they could both look beyond their noses.
Cameron thus has a choice. First he can take an offensive move and seek explicit and headline term changes. This will cause trouble in Europe but appease his hardliners at home. Even this approach does not secure a ‘yes’ vote in the referendum. So he should avoid this. The alternative is a mixed strategy: offer some increased involvement in Europe, even leadership, while at the same time seek continued exceptions over some of those polices that drive the chance of a ‘no’ vote. Britain is overall a liberal (old sense of the word), pro-business and free market nation. It is a financial services powerhouse. It is also the eight largest economy in the world experiencing pressure that will likely drop it down that league table. Here are some ideas:
- Re-apply membership of EPP-ED and shut down the anti-federalist bloc. When the Conservatives left the EPP-ED it took the UK from being member of a mainstream euro group including Merkel’s party to what constitutes a fringe party.
- To help reduce the attack on London’s financial system, offer to share responsibility with Berlin and Paris in developing all three markets in terms of governance as well as business development. Britain can ill afford to try and stand alone. Better to share in a larger pie than alone in a smaller one.
- Lead the discussion and offer a framework for mutualized debt obligation, European-wide. France will like this (Greece too), but Germany won’t. But this has to happen if the euro is to survive. Better to lead this charge and help save the euro. Intrinsically this is not harmful to sterling. It is just a trading block.
- Before setting out his minimum requirement for treaty changes, prioritize which are most important. Some changes are possible; wholesale changes are not. Better to explain which are really important and which are less so. This does not expose his hand at the negotiating table. It simply provides a basis for where to negotiate and to what degree.
Natural economic stabilizers will start to play in Cameron’s favor. The U.S. economy is picking up steam, and there are signs that Europe’s economy is also showing some signs of action. The emphasis on austerity has certainly helped provide a stronger springboard for the UK, but the country cannot relay on increased government spending. It maybe that only a little tinkering is required for the next year. The rest of the world will improve slightly and ease the pressure on the UK. In this domain the value of sterling is ascendant. The very weakness of Europe (having one currency across an unevenly leveled economic zone) is the UK’s strength.
The UK’s debt overhang is a challenge. Additional austerity is not needed per se but the current polices need to continued. Thankfully the budget before the election did not ransom short term gains for longer term votes. Thus Cameron is less likely to need to focus here assuming the world continues on its current trajectory.
Scotland and the Union
This is a troubling development. Cameron negotiated the recent vote on the union but in so doing he promised increased devolution. His move is now clear: he will need to give increased taxation and spending power to Scotland, and present clearly the link between the two. He needs to be transparent regarding how much money is collected in Scotland and how much is spent. Once Scotland realizes that they get more money from the south than they earn or pay for in taxes, the SNP will be in trouble. Their polices are much like the Labour Party in the 70’s and 80’s: it’s not economic and does not add up. Cameron will need to push devolution fast in order to allow enough time for the SNP to fall in their own petard.
So Europe is the main threat and focus. It brought Thatcher down; it can undo the Union more than Scotland even could. I hope David Cameron is ready. I am sure he is up for it.
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