NOT WHAT EUROPE NEEDS

New Statesman & Society leader, 15 December 1995

Throughout the European Union, politicians have lost any sense of vision for the continent – and in Britain, as the election approaches, it's even worse

After six months in which Europe has taken a back seat in British politics, this week's European summit has refocused attention on the future of the continent. For a month or so, the leading figures from the major political parties have been making keynote speeches about qualified majority voting, enlargement and the European Parliament. Meanwhile, the TV current affairs industry and the quality newspaper pundits have been working overtime to find Euro-rebels and Euro-splits.

It should surprise no one, however, that nothing new has emerged from all this. The parties' official positions and disagreements on Europe are well-rehearsed, and the supposed main talking-point of the summit, the 1996 Intergovernmental Conference (IGC) on European union, has long been destined to be a damp squib.

Of course, back in 1991, when the Maastricht treaty was negotiated, it looked as if the 1996 IGC might be something rather more important, a real battle between out-and-out European federalists and the rest over the very principles of the EU. Then, however, came the popular backlash against the whole European project in the Danish and French Maastricht referenda, and after that the collapse of the exchange rate mechanism (which was supposed to be the midwife of monetary union).

Subsequently, just about every government in Europe got cold feet. Neither the politics nor the economics of closer European integration seemed quite the priority after 1992. It became increasingly clear that only Germany, the Benelux countries and France were on track for EMU before the end of the century, with the rest either failing to meet the economic convergence criteria laid down by the Maastricht treaty (Italy, Spain, Greece, Portugal, Ireland) or else unable politically to embrace the idea (Britain, Denmark). Meanwhile, the Euro-Keynesian dream of European Commission President Jacques Delors – in which an expanded EU budget com-pensated for the effects of EMU and gave a boost to growth on top of that – was scuppered by British intransigence. Long-promised reforms of the Common Agricultural Policy, the EU's biggest redistributive existing programme, got stuck in the mud of procedure.

As for the democratisation of the EU's political structures, well, all that really happened was that ancient national prejudices found new confidence. Britain and France were able to block serious consideration of Germany's plans for the expansion of the European Parliament's powers to make accountable the secretive intergovernmental and appointed elements of the EU set-up.

Which, roughly, is where we are now – with the addition of German jitters about giving up the Deutschmark, a serious French crisis that could force Paris to give up on meeting the Maastricht criteria for EMU, and a lot of hot air about enlargement eastwards (which should be a strictly long-term project). The next IGC will see very little constructive on the long-overdue democratic reform of the EU's political structures that it was supposed to address. So, except on EMU, which will inevitably be the subject of protracted argument, this week's summit is a photo-opportunity and little else.

The faltering pace of European integration has had a marked effect on British politics: both major parties have adopted significantly more sceptical rhetoric on Europe in the past three years. It has been most noticable on the part of the Tories, whose Europhobes appear to have won the battle for the party's ideological soul (even if their representatives have been marginalised in the cabinet). But Labour, too, has taken a step away from its Euro-enthusiasm of the early 19905 since Robin Cook became shadow foreign secretary. Labour's "yes, but" and the Tories "no, but" have a lot in common: "perhaps" to EM U, a vague commitment to E U enlargement, no to big increases in the European Parliament's powers. All that is between them is the social chapter and disagreement on the extension of qualified majority voting in the Council of Ministers.

This is perhaps understandable in the light of the internal politics of the two parties and the scepticism clear in the opinion polls. (The latter is a particular problem for the Tories because of Sir James Goldsmith's promised intervention in the next election.) But it also has a detrimental effect on the European debate in British politics. Labour's sceptical turn means that the left's case for much closer European integration is now rarely made. What Europe desperately needs is a counter-cyclical and redistributive EU economic policy, based on a massively increased EU budget, and, to control it, a giant increase in the powers of the European Parliament. But it will never get it unless someone starts trying to persuade the public of its merits.

CE N'EST QU'UN DEBUT...

New Statesman & Society leader, 8 December 1995

The crisis in France marks the beginning of what promises to be a protracted battle over the future of western Europe's welfare systems

A re-run of May 1968 it is not. Despite the superfi­cial similarities – an unpopular right-wing gov­ernment, students and workers on the streets of Paris, the riot police wading in with truncheons and tear-gas – the current crisis in France is not a case of history repeating itself.

May 1968 was a revolt against the tedium and powerlessness of life in a bureaucratic welfare-capitalist con­sumer society in which steady growth and full employ­ment were taken for granted. December 1995 is a revolt against a government's plans to remove substantial parts of the welfare safety net from a society that has long seen steady growth and full employment as things of the past. 

But if that makes the current crisis rather less exciting for left- wingers brought up on 1968’s dreams of a self-managed socialist revolution, it is in many ways just as profound. The level of public spending on welfare in west European societies is the single biggest issue those societies face today, and the events of the past fortnight have brought it into sharp relief. The government of Prime Minister Alain Juppe says that France must reduce its generous welfare provision if it is to compete in the modern global economy: there is no alternative to the rigours of the marketplace. The unions say that they have paid for their benefits through taxation and don't want to give them up. As NSS goes to press, the chances of compromise seem remote.

What gives the crisis its particular edge is that the gov­ernment has been hoist with its own petard – or rather one it was happy to inherit from the previous socialist administration. For all Juppe's talk, international com­petitiveness isn't all that his austerity programme is about: he wants to cut welfare spending because, accord­ing to the Maastricht treaty, he needs to reduce the public debt if France is to participate in European monetary union.

But the reason that the public debt is so great is that growth is so low and unemployment so high – and the most important reason for this is that the franc has been overvalued as a result of a policy of pegging its value to that of the Deutschmark, the purpose of which is of course to ensure that France is able to participate in Euro­pean monetary union in 1999.

The stakes are thus extremely high. If Juppe gives in to the strikers and demonstrators and withdraws his austerity programme, his political career will be over and President Jacques Chirac's room for manoeuvre in his remaining six years in the Elysee palace will be severely constrained. More important, if the Juppe plan is killed off, France will be unable to meet the Maastricht treaty criteria on public debt until well into the next century – and the money markets will almost certainly force a devaluation of the franc into the bargain. Given that the Germans don't see any point in EMU unless France is involved – they only agreed to it because Francois Mitter­rand insisted on it as the price for political union – that would almost certainly destroy the prospects for EMU before the millennium.

It is not necessary to be a Eurosceptic to consider that this might not be quite the disaster that some commenta­tors think it would be. The timetable for monetary union envisaged in the Maastricht treaty was always ambitious, and the treaty always involved serious pain for all the larger economies locked into it apart from Germany.

Many on the left who backed Maastricht in 1992, including NSS, argued that the deflationary effects of the process envisaged by the treaty – caused by budget deficit cutting and over-valued currencies – necessitated serious compensatory measures organised through the EU if it was not all to end in tears. But, thanks largely to the most Eurosceptic government of all, our own, the best chance of such measures, the Euro-Keynesianism outlined by Jacques Delors as president of the European Commission, was scuppered last year. Since then, even the Europhile left has started to have doubts about the conditions and timetable laid down by Maastricht. A vic­tory for the strikers and demonstrators would, at the very least, force a welcome rethink about how we secure mon­etary union.

What it would not do, however, is end the argument about how much western Europe can afford to spend the welfare state if it is to compete internationally. Like the French strikers, NSS has always been sceptical of the idea that a welfare state largely funded through income and consumer taxation is such a disincentive to invest­ment that it must be constantly pared back. We can spend, in short, if we tax. But defending this view is likely to get increasingly difficult in years to come. The French crisis is just the beginning of a protracted struggle over the very nature of the society in which we live.

AN UNJUST PEACE

New Statesman & Society leader, 1 December 1995

It is by no means clear that the agreement on Bosnia signed last week in Dayton, Ohio, is 'more just than continuing the war'

The Bosnia peace agreement initialled by the pres¬idents of Bosnia, Croatia and Serbia last week in Dayton, Ohio, after three weeks of gruelling secret negotiations, is a shabby compromise.

On that, just about every impartial observer is agreed. It is all too easy to see that the ten articles, 11 annexes and 102 maps agreed in Dayton, which will form the basis of a treaty to be signed later this month, do not constitute a just peace. But is it, as Bosnian president Alija Izetbegovic claimed, "more just than continuing the war"? Is it true, as he put it, that "a better peace could not have been obtained"?

Looking on the bright side, it at least means that people are not killing one another – and that, after three-and-a-half years of the bloodiest war on European soil in half-a-century, is a start. The Dayton agreement keeps Bosnia as a single state, with the same internationally recognised borders as when the war began in 1992. Bosnia will have a single capital, Sarajevo, and a central government with a parliament, a supreme court and a national bank. All those found guilty of war crimes by the UN tribunal will be barred from office, including the president of the Bosnian Serb breakaway republic, Radovan Karadzic, and its senior military man, Ratko Mladic. And all those who have been forced to leave their homes during the war will have the right to reclaim them or get compensation. All of which is fine on paper. In reality, of course, no one believes that the right to return or compensation for the victims of "ethnic cleansing" will mean anything at all in practice; nor does anyone seriously think that Karadzic and Mladic will be effectively removed from political influence, let alone brought to justice. The likelihood that the political institutions agreed in Dayton will ever work is slim indeed.

And that is the bright side. Other elements of the Day¬ton deal are lousy even on paper. By dividing Bosnia into two "entities", with a Bosnian-Croat federation control¬ling 51 per cent of the land area, including Sarajevo, and a Serb republic the rest, Dayton effectively sanctions the Serb land-grab that began the war and the Serbs' subsequent murderous "ethnic cleansing". The idea that people of all religions and none can live together in a cosmopolitan, multicultural Bosnian society – for years the rallying cry of the Bosnian government in its struggle against the Serb aggression – has been buried, just as it would have been buried by the previous (unsuccessful) plans for an ethnically divided Bosnia put forward by David Owen and Cyrus Vance in 1993 and the Contact Group in 1994.

To make matters even worse, the way the country will now be divided blatantly favours the Serbs. The only minor concessions they have had to make of territory they held on 12 October, when the ceasefire began, is a small area in and around Sarajevo and the corridor from Sarajevo to Goradze – surely the most modest possible price to pay for their vicious ethnic cleansing in eastern Bosnia.

In northern Bosnia, the maps actually give them back some ofthe territory they had lost to this summer's offensive by Bosnian government and Croatian forces. The Dayton deal takes absolutely no account ofthe fact that, when the ceasefire began, the Serbs were facing a rout in northern Bosnia, with the surrender of their real capital, Banja Luka, weeks if not days away if the fighting had continued. In Dayton, the Serbs achieved by negotiation what they could not have managed by force of arms, the maintenance of their control of territories west of the Brcko corridor. Despite their now-official pariah status, Mladic and Karadzic have grounds to be pleased.

So too has president Franjo Tudjman of Croatia, who in Dayton secured agreement from the Serbs to return Eastern Slavonia – after this year's military successes in Western Slavonia, the only part of Croatia under Serb control. The Croats have also acquired, in the Bosnian-Croat federation, a dependent buffer state between themselves and Serbia.

The losers, as ever, are those Bosnians (mostly, but by no means all, Muslim) who have supported the struggle of the Sarajevo government to maintain a multicultural, tolerant society against the ethnic cleansers. They feel, with reason, that the Americans pulled the rug from under them just as they were beginning to win. Contrary to Izetbegovic's claims, even if the Dayton deal was all that was on the table for negotiation, it is not clear that the peace it has created is more just than a continuation of war. It is no wonder that there was no celebration in Sarajevo at the news ofthe peace agreement – and it will be no wonder if the Dayton agreement breaks down sooner rather than later because of its injustice to the Bosnian cause.

KEN'S DAMP SQUIB

New Statesman & Society, 1 December 1995

The budget was not quite the cynical attempt to buy the next election for the Tories that everyone expected, writes Paul Anderson. But wait for next year's effort

It was not what had been expected. The backbench Tories and the Tory press had assumed that the income tax cuts would be enough to make an early 1996 general election at least an option; Labour had done the same.

Just a week ago, Gordon Brown was talking about tax cuts of "even 3p, 4p, 5p in the pound" as the sort of outrageously irresponsible election-priming package that Chancellor of the Exchequer Kenneth Clarke would pull out of his battered briefcase on Tuesday; the Tories were looking to precisely the same level of hand-out to get the feel-good factor going.

Instead, it was a damp squib: a penny off the headline basic income-tax rate, 15p on fags, some incentives for savers and a load of dull technical stuff that has little or no popular appeal. The consensus in Westminster is that it means a 1997 general election, almost certainly in May or early June, after next year's income-tax cuts have found their way into pay packets at the beginning of the 1997-98 finan¬cial year.

Labour feels rather pleased that it doesn't have to gear up at once for an elec¬tion campaign; the Tories, for all Michael Heseltine's attempts to talk the tax cuts up as "£9 a week for the average family", are torn between despondency at the fail¬ure of the Chancellor to play his trump card and a sense of relief that the day of reckoning has been postponed. With the exception of the ever-supine Express, the best that the Tory press had to say for it was the Telegraph's sniffy "quite good economics and quite good politics". As far as the Sun was concerned, Clarke "blew a golden opportunity to revive the Tories when he cut income tax by just a miserly 1p". The most important political event of this parliament has turned out to be, well, rather less important than next year's version of the same.

So what was he up to? Clarke is not stupid. He knew that everyone on Fleet Street was expecting at least 2p off the basic rate for Wednesday morning's front pages, and that plenty of MPs on both sides of the House were of similar mind. But he also knew that the markets were expecting a gesture of responsibility – a continued campaign to reduce public borrowing – and that public opinion has turned against tax-cutting in favour of maintenance, if not improve¬ment, of public services.

Most important of all, he knew that his party is so far behind in the opinion polls that an early election would be suicidal. The answer? Try to give everyone a little in the short term, but reserve options after that.

Which is precisely what he has done. The tax-cuts are certainly there, if not quite on the scale expected. There are four crucially important measures – a reduction in the basic rate from 25p to 24p, increases in tax allowances, an extension in the scope of the 20p band of income tax and a reduction in tax on income from interest on savings – the cost of which adds up to around £4 billion next year. The various other tax cuts and increases cancel one another out. In the context of Clarke's stated intentions of getting the basic rate down to 20p and abolishing inheritance and capital gains taxation, the package acts as a tempting hint of what is to come in the 1996 budget, even if it doesn't add up to very much on its own.

But then the £4 billion giveaway is itself cancelled out by cuts in public spending. No matter that some of the spending cuts are achieved by sleight of accounting hand, many are real, includ¬ing those in defence (end of the cold war), civil service bureaucracy (cheap computers) and social security (meanness to the poorest). More important, however, the scale of the public spending cuts in some departments is enough to maintain or increase expenditure in others – at least on paper: more for education, more for the health service, more for the police. The detailed tables in the Financial Statement and Budget Report, the "Red Book", show that the headline increases hide cuts on previous projections in some areas in the longer term, and there are some vicious cuts of which Clarke seems proud, notably the reduction in housing benefit entitlements for the under- 25s. But the political message that the Tories care about the welfare state is convincing enough.

In his presentation of the slicing of the public spending cake – and indeed in the manner of his tax-cutting, which is broadly progressive in its impact – Clarke has stolen a march on Labour's claims that the Tories have lurched to the right since John Redwood's challenge to John Major's leadership this summer. This was a One Nation budget speech, and the more honest Labour observers admitted their surprise at the substance as well as the rhetoric: they had been reck¬oning on a much more brutal "slash-and-burn" assault on spending.

Just as important, the package was carefully designed to please the markets with its prudence. Of course, the figures for public sector borrowing are embarrassingly wide of the mark set down this time last year, the result, according to Clarke, of slower domestic growth than expected caused largely by a downturn in Britain's main foreign markets, which led to a shortfall in government receipts.

All the same, the projection remains that public borrowing is on a steady downward course. Even if Clarke's figures rest on an over-optimistic assump¬tion of growth in 1996-97, the neutrality of his budget – the balance between tax and spending changes – is enough to show the markets that he means business about reducing the PSBR in the medium term. With low interest rates to compensate for his tight fiscal stance (and a little luck with international conditions) it is just possible that he could pull off his trick and give himself space for further tax-cuts next year.

But will it work? There's no doubt that Clarke has adopted a very risky strategy politically, effectively putting a wager on the current stagnation of the British economy being temporary. If he is right, he will have plenty of room for man¬oeuvre next year. But if he is wrong, he could face political disaster. Forget about a full-blown recession: all it would take to make a real mess of his PSBR figures would be for growth to continue as it has in the past six months. If that happens, in November 1996 the Chancellor will have to choose between pleasing the markets (with austerity) and pleasing the voters (whether through tax-cuts or public spending) – unless he can persuade the markets that Britain is facing a dire reces¬sion that necessitates a temporary relax¬ation of fiscal policy.

In the meantime, he is hoping that monetary policy, in the form of low inter¬est rates, will give the economy the vigor¬ous boost it needs to reach his optimistic targets for growth. If the budget was a damp squib, it still leaves Clarke with the initiative. He is in for a nervous 18 months.

THE DOG THAT DIDN'T BARK

Labour breathed a sigh of relief at the budget: Clarke didn't impose a windfall tax on utilities

And so, in the end, Kenneth Clarke decided not to pinch all of Labour' s clothes. Most important of all, he was scathing in his budget speech about the windfall tax on utilities' "excess profits" that shadow chancellor Gordon Brown has promised to pay for Labour's flagship emergency employment programme. "A windfall tax would damage investment and threaten the quality of customer service," intoned the Chancellor. "It is an illusion that a windfall tax is paid by the company. lt is paid by the shareholders, including many small shareholders and pension funds. And it would mean higher future prices for customers. The whole point of privatisation is to benefit customers, not the exchequer. I do not intend to introduce such a tax."

Labour's big fear, given everything that the party had invested in the windfall tax, had been that Clarke would adopt a version of it and watch laughing as Labour cast around desperately for some populist alternative means of funding its programme. The signs of relief when he attacked the windfall tax were visible on the faces of the opposition front bench.

Of course, Labour still has a problem. With the opinion polls in their current state, it would be a big surprise if the public utilities don't make sure that they have nothing like "excess profits" in 1995-96 or 1996-97 as the general election approaches. By their nature, windfall taxes rely on an element of surprise if they are to work: by the time a Labour government comes in, it is likely that the utilities will be virtuously ploughing back their profits into investment.

At least, though, that gives Labour a year, not five minutes, to think up some alternative to the windfall tax, and the windfall tax still has enough life in it to last at least for the duration of the debate on the budget. Labour's other great worry had been that Clarke's tax cuts would be of a magnitude or nature that would make it very difficult for Labour to accept them. In fact, they were nothing of the kind. Blair immediately announced that Labour would not be voting against the tax cuts in his response to the budget speech, and he is unlikely to face a giant backbench revolt for saying it. The way the chancellor has cut income tax, reducing the basic rate, extending the lower rate and putting up allowances is, fort he most part, progressive, and the modesty of the cuts mean it is easy enough for Labour to live with.

Which leaves Labour with only minor problems arising from the budget-unless, of course, Clarke's package has an unexpectedly miraculous effect on the Tories' standing in the opinion polls. lt will be easy enough for the opposition to welcome those elements of the budget that are in line with its thinking – the increases in spending on education, the health service and the police, the measures to help the elderly who need care, the extra taxes on tobacco, or the green-tinged taxes on landfill and on petrol – while denouncing the whole as unimaginative and inadequate, particularly on unemployment and industry, and attacking the Tories for putting up taxes in the past three years.

For the first time since John Smith's pre-election shadow budget of 1992, Labour is helped by thefact that it now has a reasonably worked-out set of proposals of its own. It's not just the windfall tax, designed in Brown's words "to unlock a new solution to long-term and youth unemployment" by providing extra cash for training. Nor is it Labour's alternative tax-cutting strategy, outlined by the shadow chancellor last month, according to which Labour would aim at "a starting rate of income tax of 15p or preferably 1Op" and "cut VAT on fuel to 5 per cent", rather than trying to reduce the basic rate of income to 20p and abolish capital gains and inheritance taxation as the Tories want.

Labour can also legitimately point to its plans for tax-breaks and development agencies to encourage investment, as laid out in its "Budget for Britain" a month ago, its long-standing scheme for releasing receipts from council house sales for new building and its ambitious policies (albeit not yet fully formed)for partnerships between public and private sectors in developing the infrastructure (including a controversial deal with British Telecom under which BT would cable Britain's schools for free in return for being allowed into the lucrative cable market).
Of course, all these measures have their critics. Andrew Dilnot, director of the Institute for Fiscal Studies, described Brown's 1Op income tax proposal as "a con", and the Economist denounced his plans for investment tax breaks as "a gimmick". Others say that, even leaving the BT deal aside, private-public partnerships could well be less of a panacea than Labour thinks and that the release of capital receipts will not have the effect Labour claims.

But Labour's plans are credible enough to impress much of the City, significant parts of industry and many pundits. Whether they work the same magic on the voters, of course, remains to be seen.