Europe

The absence of growth and the importance of credibility are recurring themes in this morning’s papers. John Lord Hutton has told the BBC that revised growth figures make pension reform even more urgent, and he added that the deal that was put before trade unions was ‘perfectly credible’. Meanwhile, David Cameron has insisted that ministers increase their pension contributions by an average of 4.2 per cent (more than the 3.2 average across the public sector) to show that ‘we are all in this together’. Pensions also feature in an Independent on Sunday interview with Tim Farron, the Lib Dem President.

Nicolas Sarkozy is grudgingly admired by French socialists as a political fighter, capable of thriving even in the most desperate situation. David Cameron is coming to understand what they mean. It is the best of times and the worst of times between Paris and London. Two months ago, David Cameron and Nicolas Sarkozy assumed the victor’s garlands in Benghazi; today, they met at odds, if not yet in animosity, over the contested logic of ever closer union in Europe. Sarkozy appears to have got his wish: the 17 countries of the Eurozone will deepen their economic and political relations in an attempt to save the single currency — and with it, he hopes, France’s economic and political strength on the international stage.

There probably hasn't been a meeting of European finance ministers as important as the one tonight. The euro is still at risk; with new governments in Spain, Italy, and Greece incapable of calming the markets, and Angela Merkel unwilling to let the ECB act. In a speech in Berlin, Polish foreign minister Radek Sikorski put it clearly: ‘I fear German power less than I am beginning to fear German inactivity.’ It is a fear shared in London and Paris as well. The 17 finance ministers will discuss the range of options on the table: from setting up an EU Treasury to the possibility of eurobonds or establishing a supra-national process to monitor national budgets.

There's just over a week to go until the crunch EU summit on 8-9 December, so David Cameron has to decide how best to play his cards — and quick. The problem, as Daniel Korski has pointed out, is that Britain faces the risk of ‘structural isolation’ in Europe in the short-term. To counter this, Cameron effectively has two options. First, work with allies on both sides of the euro divide to seek political assurances — formal or informal — against the formation of a two-tier Europe with a more integrated eurozone in the driving seat. Or, second, press ahead with UK-specific carve-outs from the EU structure.

The biggest bone of contention between the UK and its EU allies these days is the ‘Tobin tax’, the idea of levying a tax on financial transactions. To the UK this is folly. Unless it is levied globally, a tax will force business to move elsewhere. And there is a greater chance of Silvio Berlusconi being elected ECB chief than the Tobin tax being levied globally.   Based on the experiences of Sweden in the 1990s, the tax will achieve none of what its proponents believe it will — and at a considerable cost to Britain's and Europe's economy, as companies look to list elsewhere to avoid it. As Ryan Bourne from CPS points out, even the European Commission found that the tax may hurt the economy. The EC thought it could reduce Europe's GDP by up to 1.

Chatting to people in Brussels last week, I couldn't help feeling that David Cameron's EU problem is one of timing. The PM will probably be able to piece together a repatriation package that includes measures such as a withdrawal from the over-implemented Working Time Directive and a reduction in the EU budget. But none of this is likely to be enough for his party. Indeed, I suspect the budget won't be finalised until two minutes to midnight during the Lithuanian EU Presidency in 2013. Add to this the Tobin Tax, where there seems to be little leeway for the British government. Barosso, Merkel and Sarkozy are determined to introduce it, and even a Eurozone-only tax will harm the City.

Yesterday, Fraser wrote that 'reporting of European issues tends to ignore public opinion'. Today, Philip Stephens has neatly illustrated Fraser's point in his Financial Times column. Musing on Britain's possible exit from the European Union, Stephens writes: 'I am not sure this is what the prime minister intends; nor, when it comes to it, that British voters will accept such an outcome.' Stephens' conjecture ignores the European Union's own polling, which, as Fraser says, shows most Britons to be hostile to the EU. That said, Stephens' article is substantial. He argues that 'fiscal union carries its own remorseless logic: the progressive exclusion of Britain from Europe’s economic decision-making'.