 I'm going to divide my talk into three sections. Firstly, I will say a bit about the euro briefly. Secondly, I will say a bit about the shifting power relationships in Europe. And thirdly, I will say a bit about Britain and its relationship with Europe. On the euro itself, I mean none of us know what's going to happen. My guess is it'll survive for two reasons. Firstly, trying to actually organise its dismantlement would be incredibly complicated, but it would cause tremendous chaos. Secondly, because the political leaders in Europe are very strongly committed to keep it going, including crucially most German leaders. But there are two reasons why I'm not entirely certain that the euro will survive. One of them is that there's an intellectual ideological rift in the European Union about the nature of the problem. It's rather as if you have a sick patient on a bed surrounded by doctors. The doctors don't agree on the nature of the illness or which particular remedies are needed to cure the illness. And that is the situation at the moment. You have the Germans and a few others, or the mainstream German view, which is that austerity and structural reform are enough to cure the eurozone's ills, that moral hazard is a very serious problem and therefore you shouldn't have too big a bailite funds or too generous bailite schemes or too much financial support. And that the problem is all about the deficit countries, that the surplus countries such as Germany are not part of the problem at all. And then on the other side you have those who are more Keynesian in their approach, who think that too much austerity imposed too quickly is counterproductive that it will lead to such a decline of economic output that the debt burden grows and becomes unsustainable. This school believes that Germany is part of the problem because of the very peculiar structure of its own economy being a country that consumes very little, relatively little, that imports relatively little and has had low levels of investment. And this school obviously thinks that being Keynesian that you need to think more about demand, growth and investment and therefore they favour more generous rescue mechanisms, schemes such as Eurobonds and so on. Now, these two philosophies have been battling each other out for the last couple of years and I suppose if one is optimistic one can see there will be a kind of compromise that the Germans will have their fiscal compact and everybody will sign up to budgetary austerity but in return the election of Sarkozy, sorry of Oland I mean, will lead to the Germans to accept a greater emphasis on growth, investment and demand and we can talk about how we do that but it's very hard, there's no silver bullet, there's no easy answers but I guess there's talk of project bonds, greater role for the European Investment Bank using EU funds to promote growth more directly and spend on infrastructure and possibly role outside non-European financial institutions spending money on infrastructure projects and so on but that is the optimistic way of reconciling these two rival teams of doctors. The second reason to be concerned is democracy and the annoying thing that people don't always vote the way they're supposed to vote and if we are optimistic and the doctors agree on the remedies required can they persuade the people to follow them? Can Europe's leaders, if they think of the perfect scheme to save the eurozone can they get everybody to support it? I do worry that a referendum in one country or the parliamentary vote in another or a general election in a third could mess up the schemes to save the euro and obviously you must be thinking about this in Ireland with your own referendum on the way and as far as I can see, if the eurozone survives there will be more centralisation of economic policy making more, a greater role for super national institutions less economic freedom for individual member states of the eurozone and that concept of centralising power in super national institutions is not terribly popular with most of the peoples of Europe. Germany is a good example where I think most of the elite want to do what it takes to save the euro but do the German people go along with that? How will the Dutch vote in their general election in September? How will the Italians vote in their general election a year from now? I don't know. My own view is, and I'm just purely guessing, I have no insight and knowledge on this probably Greece cannot stay in the euro because of this democratic point. I think that Greece seems to be in a significantly different picture from the position from Portugal or Spain or indeed Italy or Ireland in that the political and social situation in Greece is so inherently unstable that I'm not sure the Greek people can really put up with year after year of relentless austerity and shrinking output and it does seem very very difficult to introduce serious structural reforms in Greece but I mean that's, I may be wrong about Greece and I don't claim to know what is best for Greece I just think there's a serious question mark about Greece's ability to stay in the euro which it may be they should leave but I wouldn't say that about any other country currently in the eurozone. Secondly, let me think about some of the power shifts in the European Union. Germany up, France down, the commission sidelined. Well I think for the first time in the history of the EU Germany is in charge in a way it's never been in charge before. This comes at a time when Germany is more a certificate of its own interest than it's ever been before. I wouldn't say more nationalistic I'd just say it no longer believes as it did when I was a journalist in Brussels 20 years ago that what is good for Europe is good for Germany and vice versa. There has been a progressive shifting of the German view they think that what's good for the majority of member states may not be good for them. This is caused partly by the generational shift those who are adult during the second world war like Helmut Kohl have retired and it's partly because of EU enlargement bringing a lot of poor countries into the European Union which has made the Germans see that poor countries coming to the Union want their money and their interests are not necessarily the same. I think the financial crisis and the eurozone crisis have highlighted a feeling in Germany that they want our money and that our partners cannot be trusted and this has made the Germans less willing to do what their colleagues partners wish them to do and of course we have seen over the last five years a big divergence of economic performance between France and Germany in terms of France's share of export markets its public debt, its employment figures Germany has powered ahead of France which has led to a real imbalance which is why Germany is basically in charge these days as far as I can see on all the key issues of the eurozone crisis for the last two years or most of the key issues the Germans have got their way should there be a new treaty nobody wanted it except for the Germans but there is a new treaty that's what is one example. Just a few qualifications of what I've said firstly I think the Germans are very reluctant leaders they don't really like many Germans don't like the fact that they're leading the EU because with leadership comes responsibility and some Germans are rather slow to appreciate that leadership does bring responsibility you have to think about the other countries in the union certainly in foreign policy the Germans are not really leaders anyway there's been very little assertiveness in that area on the economic side secondly more alarmingly there is an eye detector paranoia amongst some German leaders about Anglo-Saxons if you talk to people in the CDU and the FDP they really seem to believe there is an Anglo-Saxon conspiracy to undermine the euro led by the economist of the Financial Times Larry Summers, Paul Krugman leading Anglo-Saxon economists they really think that we want the euro to fail which isn't actually true for most I mean even many people in my country Britain which is pretty Euro skeptic most people in Britain didn't want to join the euro I did but I was exceptional most people in Britain who didn't want to join the euro still hope the euro survives because they think the economic cost of a break up would be very great the last thing I say about Germany is that to its credit there is a real debate in Germany although I've talked about Germany as an entity there of course isn't a German view there's a mainstream German view but really there are three different German views there's the Bundesbank view and the FRZ view which is the view I parroted somewhat which is austerity and structural reform what all you need to do and that economics is a branch of moral philosophy and so on which actually it is in Germany a branch of moral philosophy and that is one view it's the Bundesbank's view and I do believe and I have some reason to believe that some senior figures in the Bundesbank do not want the euro to survive in its current form it's not everybody's view in the Bundesbank I know but there are factions in the Bundesbank who never wanted the euro to be set up in the first place and they do not want it to survive that is not of course a mainstream German view the second school in Germany is the SPD and the Greens and the Foreign Ministry who want the euro to survive who want Germany to rebalance its own economy and reflate to some degree to create more demand to help people in the rest of Europe and they have a more generous view they think Germany has a responsibility to save the euro's own and to put its hand in its pocket and then the third view is Merkel in the middle who as far as I can tell doesn't have strong views of her own she's very pragmatic she's concerned about next month's state election or next week's parliamentary vote and sort of pragmatically models along listening to people around her and ultimately I believe she does want to save the euro so I hope that in the long run and I think it's likely the Germans will do what it takes ultimately although Germany has become more assertive in recent years I think that Germans identity of who they are and what their role in Europe is and what their place in history is is of the people who are committed to European integration so even if I'm right they don't understand all the economics as perfectly as they should they will do what it takes to save the euro very briefly a word on France which I've already said quite a lot about it by talking about Germany I think that not everybody in France is yet aware that France is no longer leading the European Union and its co-leadership role of the previous 60 years has really ended for now at any rate Sarkozy's strategy has been to hug the Germans close in the hope of influencing some of the details of EU policy but I think there is a danger that when the French realise that they are not leading the EU anymore then they will become significantly more Eurosceptic because the sort of the pro-European case in France has been we are building Europe in France's image it is a way of enhancing our voice and weight in the world I don't know Oland well I've met him but I can't say I know him well and I don't know what he's going to do about the euro and the EU I think he's somebody who is pro-European without knowing much about it without being very interested in it and my guess is that he will ratify the fiscal compact but he will insist on a new growth strategy in Europe which is the right thing to do in my view that sounds fine but there is also a risk that he may pursue policies on debt and borrowing which are seen by the markets as not serious and there is perhaps a danger that he may do in two months what Mitterrand did in two years between 1981 and 1983 when he basically tried to reflate in one country until the market stopped him and Helmut Cohen, Jack de Law persuaded him to do a U-turn these days markets move quicker than they did 30 years ago and I just don't know I mean if he appoints people like Michel Sapa former finance minister Jean-Pierre Jouillet who used to work for Jack de Law as he sort of key prime ministers, finance ministers, advisers then we can expect the moderate economic policies fiscal restraint that's fine but if he sort of is serious about attacking finance capitalism which he said he will do and follows a kind of hard left agenda around financial markets and thinks he could ignore them as he said he wants to tame the markets if he really thinks he can do that then France is going to be in trouble pretty quickly so we'll just wait and we'll see but I mean the good news about Alon if he wins is that I think he will get everybody to sign up to a growth strategy the European Commission one of the significant long term trends is that the commission is losing power, authority and influence it has been doing so over 20 years when the days of Jack de Law it overbeared it became too high on mythe and ever since the member states been trying to win powers back particularly the larger member states particularly France and Germany and in the last few years I've been truly shocked to hear the kind of rhetoric about the commission in the Elise and in the chancellery in Germany they're much ruder about it even the British Eurosceptics are I mean the French criticise it for being an agent of Anglo-Saxon liberalism but also for not understanding the need to foster new technologies and protect European industries and apply tougher reciprocity orientated trade policies and so on the Germans just complained that it's always trying to tell them to sort out their land as banks and reduce their state aid and so on but part of the commission's weakness now is its own fault and it does tend to focus on the wrong priorities sometimes asking for a big pay rise for its staff last year it wasn't terribly clever PR the quality of commissioners is pretty low to be honest compared with how it used to be leadership seems weak easily buffeted by the wins but much of the criticism is unfair much of the criticism is simply because the commission is doing its job of policing the market enforcing competition policy and we've seen the commission sidelined in the creation of the new bailout mechanisms in the fiscal compact treaty it is true the commission has been given a significant role in policing the new treaty and in the so-called six pack arrangements also the commission has a role in enforcing fiscal discipline I suppose what I'd say is that the legal powers and competencies of the commission have grown but its authority, its credibility, its real power has diminished because member states, particularly the large ones are so hostile to it I think this matters because the commission is the body that cares about the single market it is the body that stands up for the small countries and prevents the creation of a very goalist Europe and it does consider the wider European interest without the commission would we have had energy security and climate change put on the user gender as we have in the last few years I lament the weakness of the commission even though I think it's partly self inflicted only partly Finally, let me say a few words about Britain on the way out My own view is as somebody who wishes Britain to stay to play a strong role in the EU my own view is that there's probably a 50% chance that Britain will leave the European Union in the next 10 years The December the 9th summit when Britain famously did not sign up to the fiscal compact is not in itself proved hugely damaging yet there has been an effort to reach out to the British and engage them by many of our partners and the actual final text of the fiscal compact was a defeat for Sarkozy who tried to create a very intergovernmentalist fiscal compact with a small role for the commission a new economic club that could talk about any kind of economic policy including the single market and thanks to the Germans and others those ideas were shot down as I said before the commission plays a big role in the compact which is in the British interest of course because the commission will try and preserve the single market though of course people in Britain got this muddled up and they seem to think that the commission being involved was banned for British interest but not everybody in the Tory party understands that the commission for its faults is trying to help the market so in the short term not too much damage done in the long term I think the Eurozone crisis is going to increase the gap between Britain and the rest of the European Union because we're going to see a politically integrating Eurozone core of the EU which is not congenial for the British we've always thought of the EU as basically an economic club as a single market with a few bits added on and the more it becomes a political union the less we like it even if, as is the case with the fiscal compact we're not directly affected by the centralisation of budgetary policy I think the creation of a Eurozone core as the Germans and I say a political union will lead to pressure in Britain for a referendum because even though technically the EU act of 2011 which says there should be a referendum if any new treaties transfer powers to the EU technically the provisions of that act would not necessitate a referendum if the Eurozone core integrates because it doesn't transfer powers from Britain to the EU in practice it will lead to such pressure because the skeptics in Britain will argue that the nature of the EU is changing its character is changing it's a different kind of club not the kind of club we voted on in 1975 in our referendum on EU membership then what really matters for Britain's position that you at the moment is the state of the conservative party and the Tory party is split between Eurosceptics who want to stay in the EU which is George Osborne and David Cameron and probably William Hague and Eurosceptics who want to leave the EU which is a majority of Tory party members and probably at least half the backbenchers in the House of Commons and I think that the Tory party is absolutely crucial and although, as I said, David Cameron doesn't want to pull out and therefore he doesn't want a referendum he'd be opposed to a referendum on membership because the referendum would split the Tory party and be a distraction from other more important business I do think there's a risk that future generations of Tory leaders may well have a different view on a referendum Boris Johnson, who could well be a candidate to replace David Cameron he's the mayor of London at the moment he wants a referendum on EU membership for example he's a populist and anyone standing for the leadership of the Tory party would probably have to offer a referendum to members in order to get those members to vote for them as leader and it's as simple as that I fear to be fair to the Tory party the Tory party itself is just reflecting a shift of public opinion in Britain on the EU even if its Tory party members feel their Euroscepticism more strongly than the British people as a whole the British people have become more Eurosceptic last year for the first time in British history that I'm aware of a clear majority of British people said that they would support leaving the EU until a year ago it was about 50-50 now it's 60-40 in favour of leaving now why is this, well of course the obvious reason, the main reason for the shift is the Eurozone crisis it's very bad PR for the EU EU leaders are seen to be incompetent one emergency summit after another fails to solve the Eurozone's problems do we really want to be part of a club run by incompetent people that's part of it the Eurosceptics have developed a new narrative it used to be that the EU is an overwhelming super state that will take away British sovereignty the EU is all-powerful that narrative doesn't work very well because the EU is so obviously weak and pathetic rather than all-powerful so the new narrative is this Britain is an inherently dynamic entrepreneurial nation this huge great European millstone around our neck he's weighing us down holding us back red tape from Brussels bureaucracy, slow moving stagnant economies we need to free ourselves from the shackles of slow moving continental Europe and hitch on to the dynamic BRICS economies that's nice in theory until you look at the trade figures 7% of British exports sorry got too excited 7% of British exports went to the BRICS well the four BRICS not the five BRICS, the four BRICS Brazil, Russia, India and China last year and of course many people like to say that Britain exports more to Ireland and the BRICS put together which is technically true but I gather that quite a lot of those exports are then re-exported elsewhere so it's a slightly misleading figure so that's the new narrative another factor affecting British views of Europe is Michel Barnier, the single market commissioner who is a very controversial figure of Britain because he doesn't really believe in deepening the single market he's personally opposed to liberalising services industries because why he was the man in France who led the referendum campaign on the constitutional treaty in 2005 the reason why the yes campaign was defeated in 2005 was the fear of the Polish plumber it was all about the liberalisation of services in the bolgestine directive so he's personally stung by that and he's doing everything he can to make sure there's no more liberalisation of services though most serious economists that I know think that that is the best way to create jobs in Europe to liberalise the digital economy either and on the city of London he is coming up with rules and regulations some of which appear to be very damaging to the city and the British watering some of these done but not all of them done necessarily he's also in favour of the financial transaction tax as are the French and German governments if implemented a financial transaction tax would probably destroy a lot of the trading business in the city of London it would go to Hong Kong or New York or Singapore so such factors are one reason why the sort of financial elite in Britain are becoming more Eurosceptical even though to be fair to Barney of course his views on the city of London which are perhaps quite hostile are probably no different from those of many British people who do blame the city for a lot of the economic problems but on my point is that he's alienating some of the sort of political and financial elite with these measures migration is another issue that has really made the British more Eurosceptic as you know in Ireland we, you and the Swedes were the only people to open our borders in 2004 probably a million and a half century Europeans came to Britain didn't push up unemployment at all it probably did push down wages for unskilled labour and basically it's a class divide perhaps people thought it was great but people in labouring jobs in Britain didn't think it was great and are pretty unhappy about this and they blamed the EU for the surge of immigration and another factor pushing the Eurosceptics helping them is that they have some very effective lobbying groups there's a group called Open Europe which is well funded quite efficient publishing some quite serious work they send a sort of daily briefing to MPs telling them all the wicked things that the EU is doing and there isn't any equivalent pro-European organisation this is because British businesses don't really see the risk of us leading the EU they're rather able as well anyway and I haven't yet managed to persuade many business leaders to put millions of pounds into a new pro-European lobby I'm still trying but I haven't succeeded a footnote on Scotland my own view is that Britain is more like to leave the EU than Scotland is to leave Britain as the opinion polls suggest but if Scotland was to leave Britain and Britain is still in the EU then Britain is more like to leave the EU as a result because without the Scots you'd have a built in Conservative Government almost all the time in what's left of Britain and the chances of referendum would be greater and the chances of a referendum to leave the EU passing would be greater without the Scots who are a little bit more pro-European than the English a little bit more pro-European conversely if Britain with Scotland leaves the EU then Scotland would be more like to leave Britain because I think the Scottish people would not want to be part of a Britain that left the EU anyway finally my last couple of sentences and I'll stop on what should the British Government do I mean you're not the British Government but if you were the British Government this is what I would say and not just the British Government but what should pro-Europeans do clearly one thing we need to get businesses to Britain to speak out and explain that they think we get more FDI in Britain because of membership of the EU we need to get trade unions to speak out most of them support membership but for reasons I don't entirely understand they're very quiet and they don't say anything about the EU except that they welcome maternity leave and the agency workers directive and the working time director but they don't really say anything about the EU and we need more responsible politicians for decades now politicians including those in the Labour Party have been those who are quite pro-European don't like to admit this in public because it's a way of losing votes as simple as that all the focus groups show that pro-European policies don't win support so even though the Liberal Party are well known to be pro-European and they're in government they don't say this in public Nick Clegg has never given a speech on the merits of the EU membership because his media advisers were told not to do it so you have a very you have a tilted playing field where the anti-Europeans make a little noise and the pro-Europeans keep quiet for fear of losing votes so if this goes on we'll be out so that's why people like Ed Miliband who I believe is pro-European people like him are going to have to start speaking out and even Tory ministers are going to have to speak out too when the EU does things that are to its credit such as a successful process of enforcing an oil embargo against Iran or sanctions against Syria or helping with democratisation in Burma or a trade agreement with South Korea or negotiating peace between Serbia and Kosovo when the EU does good things British ministers need to say this it's a good day we might persuade William Hague to try and say these things which I think he does to his credit acknowledge that the EU has a role to play in some foreign policy issues but he doesn't yet make speeches saying the good things that the EU does in these areas so what the British government should do is change its rhetoric have a more positive rhetoric about the European Union it should come up with some positive ideas on the future of the EU not just the single market not just enlargement which is frankly dead perhaps in areas such as the neighbourhood policy defence, energy, climate Britain can contribute and then the British government needs to build alliances we've been very bad at doing this I suppose to their credit both Gordon Brown and David Cameron have made a fair effort to have good relationships with France and Germany that's sensible but they've ignored the little countries most EU countries are little countries and if you go to Denmark you find or many central European countries you find governments who say we'd love to be close to the British we'd love to work with the British on this issue but we never see them we always have French ministers passing through French officials but where are the British ministers British ministers don't make time to travel to other smaller European countries not very often, not sufficiently often nor do senior officials and we don't invest enough in building relationships I mean the prime example of this is Poland when Poland joined the EU it was a British ally a British friend, we helped to get it into the EU now there is almost no link between Britain and Poland Poland has fallen into the Franco-German sphere of influence partly because if they find our Eurosceptic policies very difficult to stomach but partly because we just didn't invest in the relationship we haven't cultivated politicians in Poland made visits to them that's just one example so I think if we had positive policies built alliances then the current government even the current government could show the British people that it works to the British people's advantage and it doesn't always work against us to our disadvantage, most British people see it as working to our disadvantage they see it as something driven by France and Germany and the Brussels bureaucrats against British interests and the British political elite helped by businesses and trade unions need to try and change that perception and if they don't we're out, thank you