Honeyball’s Weekly Round-Up

Labour Party

At the start of this week results came out from Switzerland’s referendum on migration, revealing narrow backing for plans to impose a cap on migrants. The ‘Federal Popular Initiative Against Mass Immigration’, which was passed by 50.3% to 49.7%, represents the effective rejection of freedom of movement pacts negotiated between Switzerland and the EU. The initiative, which was put forward by the anti-immigrant, anti-Europe Swiss People’s Party, was not just opposed by those on the left but by figures across the Swiss the business community. In the aftermath of the vote economists at Credit Suisse wrote that Switzerland would pay “a high price” for its decision, and the Swiss Bankers Association sought to distance itself from the move. One financier told the Financial Times, “The Swiss are delusional to think they can just cherry pick what they want from the EU”.

The wider implications of Switzerland’s decision look to be severe. Despite being a non-EU country Switzerland has historically benefited from many of the trade perks enjoyed by EU member states. Indeed, UKIP and Eurosceptic Tories have pointed at Switzerland as a model of the type of country Britain could supposedly become if we left the EU. However, the result of Monday’s plebiscite has led the European Commission to re-examine Switzerland’s access to the European single market, with all treaties now up for negotiation. EC vice-president Viviane Reding pointed out on Monday that free trade and free movement were inextricable: “You take them all or you leave them all.”

Switzerland’s neighbours voiced similar warnings, with Laurent Fabius, the French foreign minister, calling the move “worrying” for a small country which “lives off the EU.” His German counterpart, Frank-Walter Steinmeier, said the country had “harmed itself,” and the Luxembourg government were also concerned for Switzerland’s economic prospects, with their foreign minister warning “there will be consequences”.

The response to the Swiss referendum shows the absurdity of the ‘pick ‘n’ choose’ approach to the EU advocated by many on Britain’s political right – especially those, including David Cameron, who plan to limit freedom of movement for migrants. Even Switzerland, a country which has over several hundred years been very successful at negotiating its relationship with the EU, will ultimately struggle to decide things entirely on its own terms.

Being part of Europe is ultimately about maturity. It requires certain sacrifices, but in return we get tremendous rewards. As the Swiss referendum looks set to demonstrate, you cannot shirk your responsibilities without jeopardising your privileges. The present UK government would do well to take note.

On Thursday, meanwhile, it was good to see Labour fend off UKIP at the Wythenshawe and Sale East by-election. The run-up to the vote was dominated by headlines about Nigel Farage’s attempts to woo “patriotic, working-class Labour voters”, and Labour frontbenchers including Douglas Alexander – who last week set up Labour’s “anti-Ukip” unit – worked with party members to expose the ‘purple peril’ in the constituency. In the end, despite an aggressive UKIP campaign, Labour extended their share of the vote, and it was the two coalition parties who suffered from UKIP’s poll bounce.

Although the outcome sent a strong signal that Labour can withstand UKIP pressure in Northern communities, the extremely low turnout was a source of concern. It is vital that politicians of all parties reconnect with the electorate, otherwise apathy will translate into votes for UKIP and other parties even further to the right.

The cost of the Euro breaking up is too high to contemplate

Labour Party

If Greece, Ireland, Italy, Portugal and Spain were to leave the Euro it would have a massive effect on the UK. Credit Suisse has recently estimated that were the peripheral countries to exit, Barclays would face losses of €37 billion and Royal Bank of Scotland €26 billion.

And that’s just what will happen here. If the Euro crisis results in the single currency breaking apart few large Eurozone banks would be left standing and the banking sector could face a €370 billion loss. Reported in the Guardian yesterday, Credit Suisse has conducted one of the first in-depth analyses if the Eurozone disintegrates.

The Credit Suisse report makes grim reading indeed, more so in the light of Spain’s debt rising to seven per cent and the election in Greece over the weekend.

Just to add a further layer of gloom, Credit Suisse also considered what would happen if three of the worst case scenarios – Greek exit, exit of the peripheral countries and a situation where banks retrench domestically – all happen at once. The upshot would be that the banking sector would need capital injections of up to €470 billion.

As has been said many times on this blog, the UK is deeply involved in these dire predictions. We are an island only geographically, not in any other sense. The only thing on which I have ever agreed with David Cameron is that what happens in the Eurozone will deeply affect us in Britain.

The Credit Suisse analysis of the consequences of the Eurozone breaking up follows closely on the heels of a report from the right-wing think tank Open Europe warning of the consequences of Britain leaving the European Union. The Open Europe paper says: “While acknowledging that the cost of EU membership remains far too high, the EU continues, on a purely trade basis, to be the most beneficial arrangement for Britain. The alternatives often suggested – the Norwegian, Swiss and Turkish models – would all come with major economic drawbacks, not least for key UK industries such as car manufacturing and financial services, with the Norwegian model being particularly ill-suited for Britain.”

There is, of course, only one overarching conclusion to be drawn from the Credit Suisse and the Open Europe research, neither of which can be charged with being either left-wing or Euro-fanatic. It is that Britain is profoundly affected by what happens in the Eurozone and is so completely tied up with the European Union that coming out is not a realistic option.

Meanwhile, back to the banks. It was banks rather than sovereign countries which precipitated the current economic crisis. Fanny May and Freddie Mac started it all with toxic mortgages to people who could not repay their debts. This was, however, just the tip of the iceberg. Banks were deemed too big to fail. Tragically, though, people were thought fair game, hence the austerity measures which are causing so much suffering across Europe.