Brussels must be seriously irritated and slightly alarmed by Anglo-German plans for a sweeping bilateral treaty. The emerging axis between Sir Keir Starmer and Chancellor Olaf Scholz cuts across swaths of EU legal supremacy and would appear, on the face of it, incompatible with treaty rules on trade and the single market.
“The Commission doesn’t think any of this can go far before it clashes with the ‘competence question’. There is going to be a big argument,” said Andrew Duff, a former Euro-MP and a leading federalist in Brussels.
Proposals to integrate the supply chains of the British and German defence industries, and ease rules on military procurement, collide head on with the big push by France and Brussels for an integrated EU defence industry, under a newly-minted defence commissioner, all linked to the EU’s law-making machinery, and therefore subject to the European Court of Justice.
This emerging structure is highly protectionist and designed to keep “third countries” well away, especially Britain.
“The French think we are too close to the Americans. They want to rule the roost in European defence industries, and they are taking a very hard line,” said Charles Grant, director of the Centre for European Reform.
Labour’s calculation is that Paris lacks the clout to impose its anti-Nato vision of EU defence. Sir Keir aims to win over Germany, bringing it closer to Holland, the Nordics, Poland, Italy and others less wedded to EU ideological purism and defence mercantilism. “Starmer hopes that when the time comes, Scholz won’t support the French plan,” said Mr Grant.
What mystifies me – and others – about this Anglo-German bromance is why Berlin is so enthusiastic. It knows that the comprehensive treaty being floated cannot be squared with competing EU treaties but has chosen to go ahead anyway. Is this part of a larger choreographed rapprochement or is Germany co*cking a snoot at Brussels, pursuing its own national economic and military interests?
The EU institutions can bring almost any member country to heel if it strays too far. “We have instruments of torture in the basem*nt,” said Jean-Claude Juncker, only half in jest, when he was Commission chief.
Enforcers toppled an elected Greek government in 2010, and toppled the elected Italian government in 2012 after Silvio Berlusconi threatened to take Italy out of the euro. In both cases they parachuted in an EU loyalist. They starved Greek banks of Target2 liquidity in 2015 until Syriza rebels finally capitulated.
But they cannot treat Germany like that without risking serious consequences. The county remains the EU’s dominant economic and industrial power by a wide margin. It is the anchor of the eurozone. The bond yields of every member state trade off the benchmark Bund. Should German patience with the euro project ever be called into question there would be an instant run on Club Med debt.
Regional elections in the Eastern Länder this weekend are a warning to Brussels that it can no longer take German acquiescence in the EU project for granted. The hard-Right Alternative für Deutschland leads the polls in Thuringia at 30pc.
“The EU must die so that a true Europe can live. It is not capable of reform and must be turned into a new European confederation of states,” says the premier-in-waiting, Björn Höcke.
The hard-Left BSW party of Sahra Wagenknecht is at 18pc. She ends up in the same ideological place: anti-immigrant, anti-green, anti-woke, pro-Putin, and viscerally hostile to Brussels, which she deems a cesspit of corporate lobbyists in league with a “Kafkaesque” technocracy that threatens “democratic principles and cultural identity”.
It is much the same in Saxony, where these eurosceptic frenemies are together at 44pc and seemingly willing to work together. The larger story, perhaps, is that this uprising is forcing the Christian Democrats (CDU) to harden their tone, with incipient Euroscepticism spreading through the party much as it spread through the Tories in the 1990s.
While it is hard to pin down why Germany is falling out of love with Europe, it has much to do with the conduct of the European Central Bank over the last decade. The founding contract of the euro was that the ECB should be a replica of the Bundesbank. Instead, a debtors’ cartel has abused its majority on the governing council to force an ultra-loose money policy on Germany.
The ECB continued bailing out Italy under the cover of quantitative easing bond purchases long after deflation had passed. Interest rates were negative for eight years until July 2022, by which point inflation was almost 9pc.
This subverted the business model of the local German savings and cooperative banks. It led to an inflationary property bubble with a destructive effect on German society, where half the population still rent, have no financial assets and keep their money in savings accounts. These people have been violently pauperised.
Furthermore, they must pay taxes to fund large transfers to southern Europe through the Covid Recovery Fund, which had nothing to do with Covid in the end, and leaked into corruption. So yes, Brussels must watch its step.
Sir Keir says he wants a reset in relations with Europe but Rishi Sunak already did this with the Windsor Framework. The striking feature of Labour’s demarche is how much it looks like the Tory playbook.
The Prime Minister has ruled out the single market and the customs union. He is proposing little beyond tweaks on vet controls, help for touring artists, and mutual recognition of professional qualifications, none of which has macroeconomic importance.
Instead we have the remarkable spectacle of Labour doubling down on Global Britain. Jonathan Reynolds, the Business and Trade Secretary, lauded the Latin America-Pacific trade pact (CPTPP) over the weekend as a “real win” for British exporters. He talked up trade deals with India and the Gulf countries. Labour hopes to clinch the biggest prize of a US deal next year whether Trump or Harris wins the White House.
All of this means that the UK can never return to the EU single market, let alone the EU. Those who thought that Sir Keir was a closet Rejoiner have been sorely disabused.
Whether by cunning or by accident, he has alighted on the ideal strategy for dealing with the EU: smile and ask for nothing much at all on trade.
If the EU wants better trading terms – and Germany certainly does after a drastic loss of export share in the UK market – it must meet us halfway and offer to scrap the impediments that it imposed in the Brexit deal, rather than lecturing on cherry picking. Above all, let Germany and the EU’s free-trade states argue the case for us in Brussels.
Playing hard to get is a masterstroke.
