Fight Racism! Fight Imperialism! 233 June/July 2013

On 23 January 2013, Prime Minister David Cameron announced, in his Bloomberg speech, that he would renegotiate the terms of Britain’s membership of the European Union (EU) and follow this with an in/out referendum on Britain’s membership in 2017. He did this in an attempt to appease the eurosceptics in his party, outflank the United Kingdom Independence Party’s (UKIP) anti-EU stance, and strike a populist pose to improve his party’s prospects in the next general election.[1] This gamble has spectacularly failed. DAVID YAFFE reports.

This was comprehensively spelt out by Lord Geoffrey Howe in a devastating attack on Cameron’s Europe policy in The Observer (19 May 2013). Howe was the longest serving Cabinet minister in Margaret Thatcher’s governments and had serious disagreements with her over Britain’s relation to the European Community. His House of Commons resignation speech of 13 November 1990 is widely regarded as the catalyst for Thatcher’s downfall. In The Observer Howe said Cameron had committed a grave error in making it clear he opposes the current terms of UK membership of the EU and raising the possibility of a referendum in 2017. The Prime Minister, he said, ‘has opened a Pandora’s Box politically and seems to be losing control of his party in the process.’ The ratchet-effect of euroscepticism, he argued, now has extended so far that the Tory leadership is running scared of its own backbenchers, let alone UKIP, allowing a deep anti-Europeanism to infect the whole party.

Recent events in the Commons, said Howe, had left the debate over Europe in the Tory Party at a ‘new, almost farcical low’. Panic had rapidly spread throughout the party after UKIP’s substantial vote in the local elections on 2 May. Within a week former Tory Cabinet ministers Lord Nigel Lawson and Michael Portillo said they were in favour of Britain leaving the EU. A few days later two Cabinet ministers Michael Gove, the Education Secretary, and Philip Hammond, the Defence Secretary, jumped on the bandwagon and said they would vote to leave the EU if there were a referendum tomorrow, although they are prepared to wait and give Cameron a chance to bring back powers from Brussels.

Meanwhile Cameron continued to make concessions to the growing anti-Europe wing of his party. At the opening of Parliament on 8 May he used the Queen’s speech, which sets out government legislation for the year ahead, to announce measures to decrease the flow of EU migrants to Britain. He let it be known that he was totally ‘relaxed’ about Tory backbenchers having a free vote to amend the Queen’s Speech because of the absence of legislation pledging a future EU referendum in 2017. This was followed by his extraordinary decision to instruct Tory officials to rush out a draft bill paving the way for the 2017 EU referendum, with the intention that it would be taken up by a Tory backbench MP and tabled as a private member’s bill. It would have little chance of being passed as Labour and the LibDems would oppose it. It was yet another desperate gesture by a Tory leadership trying to head off the influence of an increasingly strident anti-EU wing of their party.

While all this was happening Cameron was meeting President Obama in Washington. Clearly well briefed beforehand, Obama took the opportunity at a press conference to give some backing to Cameron’s strategy in relation to the EU. As has been pointed out in an earlier article,[2] the US still regards a strong British voice in the EU to be in the US’s own interests. Obama’s position expressed this standpoint. He said, in supporting Cameron’s rejection of an immediate referendum, that it would not make sense for Britain to leave the EU before it had attempted to renegotiate the terms of its membership. He made it clear that the ‘special relationship’ between the UK and the US centred on the UK’s participation in the EU as an ‘expression of its influence and role in the world’. One Cameron aide declared ecstatically: ‘Most powerful man on earth supports the PM’s position.’

On 15 May 114 Tory MPs, more than one-third of the party’s MPs and half of its backbenchers, voted for an amendment to regret the absence of an in/out referendum bill in the Queen’s speech. Cameron had ordered his ministers to abstain on the vote, but backbench MPs were told they had a free vote. The amendment was defeated with Labour and LibDem support by 277 to 130. These conflicts are set to run and run.

Austerity is not working

The deepest and longest crisis of the capitalist system since the Great Depression shows few signs of receding. The destructive and self-defeating impact of the austerity programmes are inevitably engendering resistance, especially in the eurozone, and are now forcing political leaders to question their scope and efficacy. The recession facing the 17-country eurozone has been the longest since the creation of the euro on 1 January 1999. Eurozone GDP fell 0.2% in the first quarter of 2013, the sixth successive quarter of decline. The countries of southern Europe fared worse with GDP in Spain and Italy contracting by 0.5%, and Portugal by 0.3%. The economy of Greece is still declining at an annual rate of 5.3%, more than five years after it first went into recession. France has gone back into recession with a fall of 0.2% in GDP and Dutch GDP declined by 0.1%, now having contracted for three successive quarters. Germany grew a meagre 0.1% in the first quarter of 2013 after declining by 0.7% in the previous quarter. The 27-country EU has also gone back into recession, declining by 0.1% of GDP in the first quarter of 2013, following a fall of 0.5% in the previous quarter.

Unemployment has reached a record 12.1% in the eurozone. The highest rate registered was in Greece at 27.2% followed by Spain at 26.7% and Portugal 18%. Youth unemployment highlights the social disaster enveloping these countries: Greece at 64.2%, Spain 55.9%, Portugal 43% and Italy 38.4%. In all the countries receiving bailouts from the EU last year besides Greece, debt levels have hit euro-era highs. Greece’s debt at 157% of GDP is still the highest in the EU falling from 170% in 2011 as a result of substantial debt restructuring. Overall sovereign eurozone debt last year reached 90.6% of GDP, the highest on record.

This is the material background that explains the increased political and social tensions within the EU and has led even the European Commission President, Jose Barosso, to suggest that Europe may have hit political limits to its austerity-led economic policies, because of the growing resistance in the eurozone’s recession-hit periphery. The European ‘dream’, he said on 22 April, was under threat from ‘a resurgence of populism and nationalism’.

In a document leaked to the press at the end of April, the French governing Socialist Party launched a forthright attack on the German Chancellor, Angela Merkel, accusing her of causing the single currency crisis that has been tearing Europe apart, and of acting intransigently in her own political and German national interests. The document demanded a ‘showdown’ with the ‘chancellor of austerity’ (The Guardian 27 April 2013). Soon after, a scathing German assessment of French economic weakness entitled ‘Europe’s biggest problem child’, written by Merkel’s coalition partner, the Free Democrats, was leaked to the German press. Nearly all the bailout countries in the eurozone are demanding more time to reduce their deficits in the face of increasing resistance to EU-imposed austerity policies. The newly appointed Prime Minister of Italy, Enrico Letta from the Democratic Party, in attempting to build a coalition government following the deadlock in the Italian elections, has also called for an easing of austerity policies imposed by Brussels and Berlin. He could not do otherwise after Italian voters resoundingly rejected the austerity programme of the outgoing Prime Minister Mario Monti.

These developments in mainland Europe have their reflection in Britain. The dramatic growth in popular support for the right-wing programme of UKIP is a xenophobic reaction to the prevailing mood of impotence in the face of rising unemployment, shrinking public services and falling living standards imposed by the government’s austerity programme. The main political parties are viewed with contempt by ever larger sections of the population with good reason as austerity destroys public services and with them the prospects and living standards of millions of working class people.

In or out of the EU?

Britain’s stagnating economy is not only dependent on the EU for around 50% of its exports, but critically dependent on the earnings from its vast overseas assets and particularly those of its parasitic banking and financial services sector. At the end of 2012 British international investments, including financial derivatives, amounted to £10,212bn or more than 6.6 times Britain’s GDP, £704bn less than in 2011. Of these, loans and deposits abroad by UK banks (‘other investments’) were £3,690bn or 2.4 times GDP and financial derivatives were £3,060bn or 2.0 times GDP – a gigantic usury capital. These assets are matched by even greater liabilities of £10,756bn. In 2012 Britain had net earnings of only £1.7bn on its international investment account, compared with £26bn in 2011, a serious development for the balance of payments and therefore the standard of living of British people. The decline in net earnings on the international investment account was split roughly equally between subsidiaries of British companies based in the EU and those outside of it, showing the impact of the imperialist crisis throughout the world. London still retains its place as the world’s leading financial centre – but for how much longer?

At the end of 2012 Britain had a balance of payments deficit of £57.7bn or 3.7% of GDP. The collapse of earnings on Britain’s international investment account had left Britain’s balance of payments at the worst level, as a proportion of GDP, since 1989. The deficit on trade in goods reached a staggering £106bn. Without the large surplus on services trade of £70.2bn – financial services are responsible for more than 70% of this – given the low net earnings on the international investment account, the balance of payment deficit would have been much greater. Britain is living far beyond its means. This situation is not sustainable.

How would all this be affected if Britain left the EU? According to TheCityUK, 164 financial services firms from the rest of Europe are based in the UK. EU banks hold £1.4 trillion assets, around 17% of total bank assets in the UK. The City accounts for some 40% of global trading in euro-denominated assets, with an average daily turnover of $868bn. The head of one large US bank was forthright about Britain’s prospects as an independent offshore financial centre outside the EU: ‘If the UK leaves the EU, the City is dead’ (Financial Times 2 April 2013). The chief economics writer of the Financial Times, Martin Wolf, seems to agree (10 May 2013). Today, he says, London is Europe’s New York. London could become an offshore financial centre, having left the EU, but he doubted if it would remain Europe’s financial centre. He believes that: ‘The idea that exiting the EU would secure substantial net gains is implausible.’

The Financial Times columnist Wolfgang Munchau agrees with Nigel Lawson that Britain does not need Europe, and especially with his argument that the EU single market carries higher costs than benefits for the UK. Lawson also maintained that the City was being hit by EU regulation that was ‘extremely damaging’. Munchau, however, goes beyond Lawson’s sloganeering and takes this argument much further. He rightly points out that a eurozone banking union would mean that the eurozone will ultimately end up with its own financial centre.[3] He cannot think of anything that could safeguard the role of the City in the long run, except a decision to join the euro. This, he says, is not going to happen (13 May 2013).

Cameron gambled and lost. The British ruling class now has to confront the forces that have been let loose. The day of decision is coming ever closer. With Europe or with the United States? Whatever choice is made, the independent role of the City of London will be severely curtailed and with it its contribution to the British economy.

1 See David Yaffe ‘Cameron fuels ruling class divisions on Europe’ FRFI 231 February/March 2013 on our website at

2 See footnote 1.

3 See David Yaffe ‘Edging towards a European imperialist bloc’ in FRFI 228 August/ September 2012 on our website at for a discussion of the eurozone banking union and the UK.