Britain's Osborne and Cameron Walk a Tightrope on EU Reform

LONDON (TheDeal) -- Dear Mr. Osborne,

Congratulations on your Conservative Party's recent win in the U.K. general election. Frankly, you "Tories" were probably many people's second choice; but in Britain's first-past-the-post electoral system there was undoubtedly a lot of tactical voting, aimed at keeping others out rather than putting you in.

Many will also have voted for you because their own preferred candidate didn't have a prayer, so your mandate to implement the policies you campaigned on might not be as clear as you would like us to believe. However, you did have a personal part in organizing the election campaign. One should recognize the hard work and co-ordination that went into it.

The Prime minister, David Cameron, seems to have rewarded you already. Not only has he kept you on in the powerful role of Chancellor of the Exchequer, the medieval title we use to describe our finance minister, but he has designated you chief negotiator on European Union reform.

It's up to you, and your diplomatic skills, to find an agreement with your European peers that will permit Cameron to fulfill his pledge to the electorate. He has promised to put a simple question to the country in a referendum in two years -- maybe less.

The question will be: Have we and our partners in Europe reached sufficient agreement on necessary changes to the way Europe works to make it possible and desirable for the U.K. to stay in this club of 28 nations, or do we want to leave?

Footloose hedge-fund managers might disagree, but the country's biggest businesses have made it clear where they stand on the fundamental issue of a British exit, or Brexit. Leaving Europe would be mad, economically and politically, condemning Britain to a life on the sidelines of world affairs and to long-term economic decline. Continued access to our biggest markets would be rendered vulnerable to the whims of our former partners.

Our so-called special relationship with the U.S. would not help us, if we no longer have the firepower to join America's battles either literally or metaphorically and if we cannot even act as a bridgehead into Europe for American banks or companies. But the point is not now whether the Eurosceptics are right or wrong. The point is whether the anti-Europe bandwagon that you and Cameron have been riding, however reluctantly, can be kept under control and directed to Britain's maximum advantage, or whether you crash it ignominiously into a ditch as deep and wide as the English Channel.

An accidental exit would be the worst of all worlds, leaving Britain with neither the advantages of membership of a reformed EU nor the benefits of a friendly disengagement on mutually acceptable terms.

Because, so far, you and Cameron have shown a lamentable lack of diplomatic skill in your dealings with Europe. Too often, you have simply assumed that you have natural allies in Northern Europe who will come to your defense, secretly agree with you on the need to reform and will help you push through the things you want.

But the Swedes, for instance, failed to support you over regulation of hedge funds and private equity and the Poles warned Cameron more vehemently not to expect their support in wrecking or paralyzing the EU. The Germans, by far the most important player in any negotiation, have already rebuffed you on immigration and made you look arrogant and petulant in the public row over the choice of the president of the European Commission. They made it clear that your ideas for reform of the Eurozone -- of which you are not even a member -- are unwelcome. German finance minister Wolfgang Schäuble recently attacked your "silly" and "unnecessary" interventions during the Eurozone crisis, reportedly suggesting that many Europeans believe London deliberately tried to undermine European monetary union.

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