Cameron Is Making a Bad Call on Europe

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By Marc Champion

Britain's Prime Minister David Cameron gave a clear signal during his party's annual conference today that he plans to hold a referendum on whether Britons want to renegotiate their membership in the European Union.

Like so much else that's happening in Europe at the moment, this is politically clever but strategically awful.

Let's start by saying it could be worse. In his interview with the BBC's morning radio show Today, Cameron could have called for a vote on whether to leave the EU altogether. There are plenty of people on the right wing of his party who desperately want that.

There are also lots of things about the EU -- an engine for excess rule-making as all bureaucracies tend to be -- that could usefully be changed. But the signs are that Cameron and his party will cave in to his party's Little Englanders and focus on restricting migration.

Asked if one of the areas he'd like to target for change is the EU's rules giving any EU citizen the right to go work in any other EU country, Cameron didn't commit but pointed to the U.K.'s high unemployment levels. A few days earlier, Home Secretary Theresa May was quoted in The Sunday Times newspaper saying the government wanted to review the "whole area of the abuse of the freedom of movement."

This would be tragic. The U.K. led in 2004, when the EU expanded to take in ex-Communist countries from Eastern Europe, by declining to take advantage of a 7-year delay to the EU's free movement laws. Others, including Germany and France, kept their borders closed to the new member states. As a result, hundreds of thousands of Poles, Estonians and others flooded into the U.K. to work.

At the time, the U.K. economy was doing well. Suddenly, bus companies in Glasgow that had been struggling to hire enough drivers, found their canteens full of Polish drivers. Hotels and restaurants in the Scottish Highlands had Estonians and Lithuanians serving haggis, sometimes dressed in kilts for the tourists. It became the exception to find a coffee shop in London staffed by Brits -- It still is.

Businessmen loved the influx of young, motivated and often well-educated Eastern Europeans. Open borders are also a key element behind the success of U.K. universities, which have become a significant source of export income for a country that suffers from a persistent trade deficit. The influx is the reason why the U.K. does not face the same severity of demographic deflation that Germany and Italy are looking at over coming decades.

Yet British jobseekers and conservatives found the wave of foreigners shocking. They blamed the EU. The government promised to slash net immigration below 100,000 people per year and has been cracking down on students with irregular visas, much to the universities' dismay.

Data from the U.K. Home Office show that there was an uptick in net migration in 2004, but the numbers suggest the trend began long before EU expansion, in the mid 1990s. Net immigration went from roughly zero in 1993 to settle at about 150,000 people per year by the end of the decade. After the EU expansion, that rose to about 200,000 per year. (In 2011, it was 216,000).

Those net figures were far less dramatic that the change in gross inflows -- from about 160,000 in 1993 to about 600,000 in 2004 -- because emigration rose, too. Many of those Poles and Estonians went home, something that angry Britons failed to recognize.

As Philip White at the Center for European Reform, a London-based think tank says, Cameron would be playing with fire to try to reopen this issue. Free movement of people is pillar of the European Single Market, which in turn was the great achievement of the British Conservative Party -- under Margaret Thatcher no less -- in Europe. If the U.K. wants to renegotiate its EU membership, its primary goal will be to do so while keeping the single market intact. At the best of times, that would be a struggle, as the single market is loathed by the left in many EU countries, such as France.

"If the U.K. government wants to unpick free movement of people, others will want to unpick the free movement of goods and services," says White. That would create a further drag on growth in the economies of the EU. Is that what the U.K., or Europe need now?

(Marc Champion is a member of Bloomberg View's editorial board. Follow him on Twitter.)

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-0- Oct/09/2012 17:42 GMT