Brexit - But what happens to Scotland?

FROM SUNDAY HERALD

It seems only yesterday that everyone was talking about a "Grexit" - the forecast, made by most of the UK press, that Greece was about to leave the European Union because of the onerous bailout terms imposed by the EU and IMF. Now, suddenly, we are talking about the "Brexit" - the possibility, indeed probability, of a British exit from Europe when the current Lisbon Treaty comes up for negotiation in 2015.

Last week, three prominent Tory grandees - the former Chancellor, Lord Lawson, the former Defence Secretary, Michael Portillo, and Boris Johnson, the Mayor of London, called for British withdrawal from the European Union. The former Tory Scottish Secretary, Sir Malcolm Rifkind said they'd "hurled a hand-grenade into a small building". It certainly put a bomb under David Cameron's policy of promising to renegotiate the terms of British membership, and then putting the result to a referendum after the next general election. Tory backbenchers, emboldened by Lord Lawson and co. are demanding a firm commitment right away. Labour says it is opposed to a referendum now, but agrees on the need for reform, and is not ruling out its own referendum on independence from Europe.

Viewed from Scotland, where opposition to Europe is muted and where we have another referendum on our minds, this all seems more than a little surprising. Most Scots still want to stay in the EU, according to the latest Ipsos Mori poll, and only a third want out. But in England - especially the south - there has been a growing frustration with Europe that finally erupted two weeks ago in the English local elections, when UKIP - the party seeking withdrawal from the EU - won up to 25% of the vote. There is little doubt that many people in England feel that Europe is a "bureaucratic monstrosity" to use Lord Lawson's description, and that their democracy is being subverted by Brussels.

But what exactly do they mean by this? When you ask eurosceptic Tory MPs they tend to reply with relatively trivial examples - compulsory seat belts for children under 12, regulations on food standards, health and hygiene. Those infamous straight bananas. But most of these relate to the terms under which the UK is a member of the Single European Market, where standardisation is necessary to ensure a level playing field for all trading nations.

Similarly, the social protections of the EU, like the working time directive, are intended to make the single market work fairly and prevent some countries seeking advantage by forcing their workers to spend longer at work. The "social Europe" as it is called is hardly onerous, and Britain anyway has an opt out from the 48hr working week.

Eurosceptics also talk of the Human Rights Act and claim that the failure to deport suspected terrorists like Abu Qatada has something to do with the European Union. This is completely wrong. The Human Rights Act is based on the European Convention on Human Rights which was set up by Winston Churchill after the Second World War to prevent totalitarianism returning to Europe.

None of these, it seems to me, are reasons to go to war with Europe, and deny the benefits of the single market which has undoubtedly boosted prosperity. Trade within Europe has doubled since 1992, thanks to the abolition of tariffs and barriers to the free movement of goods and services in Europe.

The reason Lord Lawson has come out now and demanded withdrawal, appears to be to do with the future not of Britain as a whole but of the City of London. The EU is in the process of constructing a fiscal and banking union, as a result of the eurozone debt crisis. European central bankers have come to the conclusion that the only way to prevent any such recurrence of financial turmoil is to create a central European treasury with powers to regulate banks and to issue bonds backed by the entire EU rather than simply members states. This would prevent borrowing costs rising unsustainably as they did in Greece and Spain last year.

To finance all this, and to police the banks, the EU wants to cap banker bonuses and to introduce a financial transactions tax - a so-called Tobin Tax - on the banks' activities. This money would go into an insurance fund to guarantee that, next time there is a banking crisis, the bailout is paid for by the banks not the tax payers. Many regard these measures as the very least that are necessary to get banking back onto some kind of stable and socially responsible footing.

But the City of London is fiercely opposed to the transactions tax, which bankers fear will hit their business. They don't want to lose their bonuses either. They say that financial services is one of Britain's biggest earners and that Europe simply wants to cut British finance down to size. But it's a curious way to go about it, since a lot of the earnings of the City come from Europe and pulling out now would hand much of that over Frankfurt and Paris. Anyway, do we really want to leave Europe just to make life easier for delinquent institutions like Barclays and the Royal Bank of Scotland?

Lord Lawson argues that Britain could become like Norway or Switzerland, both of whom are out of Europe. But Norway is a member of the single market and pays quite a lot of money for that privilege. It has to abide by all the rules about bananas and working times, without having any say in how they are framed. Switzerland is similarly bound by many of the conditions of membership in order to keep within the free trade area of the EU. The alternative is to have tariffs slapped on their agricultural exports to the European Union.

America is opposed to British withdrawal from Europe, and President Obama made his views fully known to David Cameron before the PM's speech on Europe in January. This partly strategic - to do with geo-politics and a lingering fear of Russia. But it is also because a lot of American firms have located to Britain in order to service European markets, and they don't want to find that they are excluded from trade with Europe.

David Cameron says that he wants to negotiate a change in Britain's relations with Europe rather than simply a withdrawal. But there seems little chance that any such negotiation will succeed. Europe is determined to introduce major financial reforms which will strengthen the EU at the centre, and reduce the fiscal liberties of members states. This is not going to be acceptable to Britain, Which means there is a very serious possibility hat Britain will leave the EU as we understand it.

Scotland has long benefited from Europe, not least from EU structural fund money, though this has reduced in recent years. Many electronics firms that set up in Scotland in the 1990s came because of the EU. The Scottish government say Europe has been directly responsible for over 60,000 jobs in the last decade. Scots also benefit from the social chapter regulations on maternity pay, working hours and the like.

The big question in the next year is what impact the impending Euro referendum has on the Scottish independence referendum. Unionists have attacked the SNP for risking Scotland's membership of the EU by becoming independent. But it looks just as likely that Scotland could find itself out of the EU by staying in the UK.