The EU: is it good for Britain?

The EU: is it good for Britain? - at - the best of the week's international financial media.

Business may be less pro-European than it was seven years ago, says Simon Nixon, but Britain's place is as a reluctant yet fully paid-up member of the EU.

Is business in favour of the EU?

Most employers are still canvassing opinion. But it is clear that business is less pro-European today than it was seven years ago. A group of 28 senior executives, including Sir Crispin Davis of Reed Elsevier, and Sir Rocco Forte, the hotelier, have signed an open letter to Tony Blair, warning that the constitution reflected a 1960s-style faith in centralisation that will "harm our prosperity". The Federation of Small Businesses warned that many of its four million members were against further European integration. Even the traditionally pro-European CBI expressed doubt over it.

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Why are businesses so concerned?

In the run-up to last week's summit, business feared that Britain would be forced to give up its veto on tax harmonisation and that the proposal to incorporate the European Charter of Fundamental Rights into the constitution would give unions new powers. Tony Blair insisted that these were "red line" issues for Britain and that he would not concede them. But many fear that the final agreement will allow the EU to breach these red lines via the back door.

Didn't Britain win on tax harmonisation?

On company taxation, yes, but the final document states that "the member states shall co-ordinate their economic policies within the Union. To this end, the Council shall adopt measures, in particular broad guidelines for these policies" by majority voting. This seems to pave the way for tax harmonisation elsewhere. Moreover, the price of Britain retaining her veto on this was that Tony Blair conceded that other eurozone members could go ahead with proposals to harmonise their own tax affairs without Britain, thus creating the possibility of the dreaded two-speed' Europe. If Britain were ever to join the euro, it would have to comply with any harmonisation measures that other member states agree. The constitution might therefore have made it less likely the UK will ever join the single currency.

What's wrong with the Charter?

The Charter was agreed four years ago in Nice, but has lacked legal force. Its incorporation brings it within the remit of the European Court of Justice, which will in future be able to interpret what it means. Business is particularly concerned by a clause that confers "the right to take collective action including the right to strike" on all workers. Tony Blair claims that the Charter "will not have legal basis". But a close reading of the text shows that this is simply not true.

Should Britain reject the constitution?

It depends upon whether Britain thinks it could renegotiate a better deal. But what would clearly not be in the interests of UK business would be to withdraw from the EU altogether. Some 60% of Britain's trade is with the EU and more than three million jobs depend on EU trade. Notwithstanding the scare-mongering of the pro-European lobby, there is little danger that these jobs would all disappear if Britain was to leave the EU. On the other hand, it is equally clear that Britain is bound to suffer over time from a loss of inward investment and reduced trade should it withdraw.

What would happen if Britain did leave the EU?

Britain would have to settle for a status similar to that of Norway. On the face of it, this might seem appealing. Norway has a higher per capita income than any country in the EU. But there are important differences. Norway has just 4.5 million people but huge North Sea oil and gas revenues. More importantly, Norwegian businesses complain that they are forced to adhere to a raft of EU directives yet get no input into drafting those rules. Norway is also forced to pay £250m a year to EU structural funds as part of the deal. There is no reason to expect Britain to be treated any differently if it left the EU.

So where does Britain's destiny lie?

As an awkward and reluctant but fully paid-up member of the EU. Indeed, the EU needs Britain every bit as much as Britain needs the EU. There is a clear risk that without Britain as a voice for reform, the EU would turn into an inward-looking protectionist trading block, doomed to low growth. Since Britain would still rely on the EU for the bulk of its trade, in or out of the EU, this would clearly not be in our interests.