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Sunday, September 16, 2012

In defence, as in finance, the truth is clear – our future lies in Europe | Will Hutton

The Eurosceptics are just like the Tea Party, living in their own parallel universe and making up the facts to fit their story

Germany, France and Spain want a defence industry – so does Britain. The only structure that makes any sense as defence spending is slashed everywhere is for the national industries to be brought together into one single European defence contractor. Last week EADS, the umbrella company for the German, French and Spanish defence industries, and Britain's BAE Systems proposed to do just that in a £30bn merger.

It will be a giant company. All four governments will jockey for advantage; the deal could fail. The US might signal it is not interested in giving business beyond the British. But for all that, the logic is obvious. Divided, European defence contractors will fail. United they might hold the line – giving European countries a defence capability to act independently from the US, along with maintaining jobs and frontier technology.Everybody in the defence community has understood the inevitability of this for years.

Similarly with the armed services. British defence chiefs have always been privately in favour of developing a joint European army, navy and air force A British general and admiral would have a good chance of commanding the European army and navy, forces with real clout..

European countries' strategic defence interests, after all, are almost identical. What the British military faces instead is decades of decline in morale, ageing equipment and military marginalisation, increasingly neutered. It is a parallel story in finance. Our Eurosceptic chancellor was in Cyprus to defend British interests to the last as the EU launches its new system of banking supervision – which even he concedes is a vital precondition to securing the future of the euro. Treasury officials privately admit we don't have a negotiating position. Britain can be safely ignored. Essentially the European Central Bank, Germany, France and the European Commission will decide on the pan-European regulatory regime: British banks, to sustain their business, will have to follow suit.

In other words the fate of two great British industries – defence and financial services – is now intertwined with the EU. There is no other option. You might think that as a country there would be some resolve to stay in the governing councils of the political architecture managing our continent, and of which, ineluctably, we are part. This is the only way to nurture our great industries and remain an influence within the power relationships that determine the modern world. Supranational governance and collaboration are inescapable: and for a European country that means engaging with the EU.

Yet almost no one will say so – virtually no politician, commentator or business leader will speak out. They might get castigated as "guilty men" by a media mob for "selling out" to Europe, when in truth the guilty men and women are those conniving – actively and passively – in the process of our marginalisation. Modern Europe is characterised as a spent force hidebound in red tape, welfarism and preoccupied with the absurd ambition of creating a single currency. National sovereignty and the Anglo-Saxon community are what Britain must cherish. The future allegedly lies in China, despite the fact that a Chinese Spring – and associated turmoil – is drawing closer.

It is a mindset in which the immediate end of the euro has now been joyfully – and wrongfully – predicted some half a dozen times in the last two years. Almost every self-respecting commentator on left and right has felt it a badge of honour to deride the euro and anyone who supports it as a fool and a knave. Yet the euro is still standing. When there are elections and referendums – in Greece, Ireland and Holland – pro-European parties win, democratically validating this alleged anti-democratic project. The key measures to make the euro survive – the creation of a European Stability Mechanism, the buying of euro bonds by the European Central Bank and pan-European banking supervision – have been or are being put into place.

Real wages are falling painfully to produce the required adjustment, especially in Ireland and Greece. Greece will get more time to service its debts. Although the next 18 months of collective austerity – in my view vastly more than what was needed – will be tough, after that the EU will start to grow again. The euro will survive.

There is rational Euroscepticism – grounded in genuine concerns about the likelihood of creating a pan-European democracy and integrating disparate economies. In fact one of the by-products of the crisis has been the creation of a phenomenal cross-European democratic discussion: Europeans know more about each other than ever before.

Equally, the German challenge to many eurozone countries – be serious about production and wealth-creation as we are – is well made and being accepted. But the proposed EADs/BAE Systems merger highlights that even rational scepticism is trumped by another reality: if we want to preserve strategic industries and grow others they need the clout and scale that only European countries acting collaboratively can provide.

I can't and don't pretend the current euro is great; I only maintain that it is better than the way floating exchange rates work in reality – "dirty floats" (where central banks seek to manipulate their native rates) and competitive devaluations. Also, Europe gets some countervailing power on Germany. But none of these reflections cut any ice with irrational Euroscepticism – the fulminations of former defence secretary Liam Fox, for example, or those of Ukip leader Nigel Farrage or of most of our media.

Increasingly I see them as European versions of the Tea Party; passionately arguing for bonfires of red tape, low taxes; anti-Brussels instead of anti-Washington. And, like the Tea Party, if the facts don't fit make them up. Yet does anybody seriously believe that red tape – home- and EU-made – is really the cause of an even longer and deeper recession than that of the 1930s? Nor is social spending, as long as it is well-designed not to undermine incentives, anywhere associated with economic underperformance.

The future of our defence, like the future of the City, lies in making common cause with Europe. It will be a rocky ride – the sceptics could yet force and win an anti-EU referendum. But exit will only trigger a faster recognition of the reality that is forcing the proposed deal between BAE and EADS. Our only future is European. Before 2030 Britain will be applying to join the euro – and thus beginning a catch-up with a Europe which by then will be much more prosperous than us, looted by our feckless elite and their Eurosceptic apologists. Watch and wait.


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