Donald Macintyre: This is one summit that should swing Britain's way

'If Tony Blair wants to prepare the public for entry into the euro, a result in Barcelona would help a lot'
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The Independent Online

One of the paradoxes of Europe is that many of the issues of most direct relevance to you and me are also the most fiendishly difficult to grasp, and by extension to cover. A fine example is at hand: the document published yesterday by the European Commission ahead of the Spring European Council meeting in Barcelona.

The summit at Lisbon two years ago was largely notable to British newspaper readers because of the number of aircraft required to convey senior members of the Government to it. Its real significance, however, was that it laid the foundations for an ambitious policy of economic reform throughout the EU.

Some of its proposals were for long overdue completion of the single market. For example, schemes were put forward to stop countries giving their companies preference in awarding public contracts, postal services, energy, telecommunications and financial services; in short to prevent national barriers and/or state subsidies preventing fair competition.

Other proposals sought to ensure that Europe adopted some of the supply side tax and benefit reforms successfully enacted here by the Chancellor, Gordon Brown, as a proven means of creating more employment. Others still sought to improve European economic performance by measures as varied as an EU-wide patent system, common rules for pension funds, and a "Single European Sky" – co-ordinating air traffic control as a necessary first step towards liberalisation of the airline market and, hopefully, fewer delays and cheaper fares.

Yesterday's document, for all its complexities, is an admirably objective account of progress so far. The picture it paints is distinctly patchy. On the one hand, the reforms are on target with liberalising telecoms, international rail freight, creating more transparency for state aids, and (with the exception of agreement on a VAT regime) instigating a common regime for e-commerce. On several others, including creating a single market for venture capital and financial services, progress has been much slower. There are still fierce arguments about public procurement and the regime for pension funds. And so on.

The European Commission is now trying to put the pressure on. Not only does it want progress speeded up, but it is making fresh proposals that include reducing early retirement, removing barriers that prevent professionals working across the EU, and reforming means-tested benefits to create more incentives to work.

But the big one, by general agreement, is to persuade the French to end their opposition to liberalisation of energy markets, and with it the regime under which the state-controlled French utility EDF can, for example, export electricity to British homes and businesses but its British would-be competitors can't do the same back. As usual, domestic political considerations, in particular the French presidential election, are paramount – partly because the French Prime Minister is expected to base part of his electoral appeal on maintaining public services, and partly because his Socialist Party has close links with the power supply unions, who are much warier than the EDF management about free competition.

In this, and in other respects, last year's Stockholm economic summit was a serious setback. The French, having refused to agree a liberalisation timetable then, are, on the face of it, even less likely to do so in Barcelona.

It's true there are some potential routes out of the impasse. It's just possible that the French will, after all, agree a timetable for liberalising supply to business customers, leaving a decision on homes for later. Even if the French continue to resist, which looks likely at present, it may be possible to find a holding form of words which would then allow the decision to be taken at the upcoming regular European Council, where the decision would be taken by qualified majority vote and couldn't be vetoed by France alone. That would depend on Germany losing patience with its partner and voting against her, which it could well do.

Another possibility – already floated by the Commission – is for its President, Romano Prodi, to wield the big stick of Article 86, which was used to force through telecoms liberalisation. But if he did that at Barcelona, it could make the EU a highly destabilising issue in the French election.

So while progress isn't impossible, it won't be easy. Which may be one reason why ministers are doing their best not to talk up expectations. It is, however, pretty vital, if Tony Blair is to have anything like a smooth ride towards his apparently still lively intention to hold a euro-referendum sometime in 2003. Barcelona is by no means the only key to economic reform. There is a big political question, for example, over whether Gerhard Schroder will react to the accession of his CSU rival for the Chancellorship, the tough free marketeer Edmund Stoiber, by creating clear water between them and slowing the pace of labour market reform, or whether, as the British hope, he will be conversely spurred to maintain the pace of change. But Barcelona, and its aftermath, still matters to the British euro-argument in two ways.

The first is that a successful outcome to the summit ought to inspire some market confidence in the new currency, strengthening it against the dollar and helping to bring exchange convergence closer. The British Government – as Peter Hain reminded a business audience yesterday, without mentioning the euro – is extremely anxious to see this outcome for its own sake. By contrast, an outcome as negative as Stockholm might well have the reverse effect.

The second is the less tangible matter of confidence among the British electorate itself. At the very least, anything which looks like failure at Barcelona would make it correspondingly harder for euro-supporters to argue against the proposition that Britain will be subordinating a successful British economy to more doubtful prospects in Europe.

Some issues – like pensions, over which the UK wants to see European pension funds allowed greater investment in equities – would be easier to resolve if she had joined the euro. Generally, Britain would be in a significantly stronger position to continue to keep up the pressure for economic reform. Overall, it is hard to underestimate the influence Tony Blair would enjoy as the leader of the only EU country that had actually put euro-membership to a referendum and secured a mandate. Indeed, that is one of the most telling political arguments he can put if and when the referendum happens.

But first he has to get there. There are plenty of other reasons for the UK to hope for a positive outcome in Barcelona after the disappointments of Stockholm. The health of the European economy matters to the UK in or out of the euro. But the euro still looks like being a central issue, transport, health and education not withstanding, for this parliament. If, as he surely does, Tony Blair wants to prepare the British public for entry, a result in Barcelona would help a lot.

d.macintyre@independent.co.uk

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