Libya and the Euro Pact: Pressures for Change

The European Union is continuously forged by the pressure of events. Far more than individual member states the EU is in a state of permanent flux as it changes and adapts to meet new challenges.

That’s never been more so than it is today. The turmoil across the Arab world, and particularly the civil war in Libya, is testing the reality of a European external relations policy, while the eurozone is being transformed as it seeks a long-term response to the euro crisis.

Libya presents some stark choices, an acid test for EU foreign policy. A no-fly zone against Gaddafi may be the favourite option of David Cameron and Nicolas Sarkozy, but the Germans – and the Americans – have their doubts. Its imposition might show a willingness to act tough, but the EU could only support such a measure in the light of a UN resolution, approved by the Arab states and undertaken by NATO.

What’s more, it is questionable how effective a no-fly zone would be in protecting Libyan opposition forces when they are up against tanks and heavy weapons. The EU has to consider a policy of containment, support for the opposition and provision of aid, and must play for the long term.

“Prudent careful planning for all options” was as far as High Representative Catherine Ashton would go following the informal meeting of foreign ministers in Hungary, in advance of her trip to meet the Arab League in Cairo.

The EU must approach the “jasmine revolutions” across the Arab world with the same bold decisions it took following 1989 and the fall of the regimes in central and eastern Europe.

That’s also the theme of a letter in Saturday’s Financial Times from Lords Mandelson, Kinnock, Ashdown and others, which calls for a more ambitious EU offer of aid, trade and mobility to the Arab countries subject to “strict conditionality” for better governance and improved human rights. (How Mandy would have loved today’s job as EU High Representative, as he makes very clear in his autobiography!).

So from no-fly-zone to eurozone, as Van Rompuy remarked at his press conference following the euro group summit. The so-called Pact for the Euro agreed early on Saturday morning is a big step towards an economic policy for the eurozone. Although the Pact does not contain legally binding requirements, it effectively lays down the conditions which a country must accept if it hopes for the support of the European Stability Mechanism. The hand of Germany is clear to see.

The Pact echoes the soft policy options of the old Lisbon Agenda but this time the options are not so soft, with concrete commitments and actions “more ambitious than those already agreed”, with timetables, monitored politically and overseen by the Commission. For instance, wages should be aligned with productivity, while pension, health care and benefits policies should be scrutinised. Retirement age could be aligned with life expectancy and early retirement schemes limited.

Poor old Ireland got it in the neck again last week for its 12½ per cent corporation tax rate – a bruising introduction for the new prime minister Enda Kenny who wants to negotiate better terms for Ireland’s EU loan. The Pact suggests a common corporate tax base “could be a neutral way forward” and the Commission will soon put forward proposals, but it looks as if Ireland is between a rock and a hard place as the French and Germans pile on the pressure.

The Pact goes to the European Council on March 24-25, when the 17 eurozone members will state their plans to implement its provisions and countries outside the euro must say whether they intend to adopt its principles. These ten outsiders must decide whether they are willing to lose some freedom of action in return for a say in decision-making or to stay on the sidelines.

Talking of opting out, the need for greater flexibility in EU law-making is reflected in the decision to use the enhanced co-operation procedure to adopt European patent legislation, allowing 25 member states to reach unanimous agreement, while leaving Spain and Italy in the cold. Another piece of the variable geometry which brought us Schengen and the euro!