Ed Balls backs calls for new referendum on Europe

Ed Balls, the shadow chancellor, shifted Labour thinking on Europe on Monday by suggesting that there was a future case for holding a referendum on UK membership of the European Union. Although he said the time for a referendum was not now, it followed a similar call on Monday by Lord Mandelson, the former Labour cabinet minister and EU commissioner. Speaking at a Centre for European Reform seminar in London, Mandelson also praised as prescient a speech by Balls in 2010 in which he set himself up as an early opponent of the coalition's government's deficit reduction policy. At the same event, a former CBI director general, Richard Lambert, called for a government rethink on the economy, adding that a private sector-led recovery "had not materialised". Senior Labour policymakers see an opportunity to intervene in the European debate in the wake of the election of the French president François Hollande and the relative public silence of the coalition leadership. "I don't remember a time when British economic and political leaders in our country were less influential in debates which had more profound significance for growth and jobs in our economy," Balls told the seminar. "The eurozone is incredibly important to us, in or out." Balls and Mandelson are calling for a more interventionist European Central Bank, a willingness by Germany to tolerate higher inflation, and injection of demand through the European Investment Bank. On the possibility of Labour backing a referendum on UK membership of the EU, Balls said: "This is some years away. That might be an issue whose time comes, but I don't think that that is now. I don't think that is either the right priority for Britain in its relations with Europe, nor do I think it would be sensible politics when we have big arguments to win on reform." There has been private discussion in Labour circles about whether Labour should seek to get in ahead of David Cameron and announce that it will include a referendum in its manifesto. Mandelson said that the renewal of the UK's vows with Europe would have to be conducted by the people, and not by the elites. He also endorsed much of the current Labour leadership's critique of coalition economics. He said: "What the [Balls] speech [in 2010] did was cast doubt on the central assumption of the government strategy that private sector demand and investment would grow as measures to tackle the deficit worked. We have not seen the measures to tackle the deficit work and we certainly have not seen private investment coming in to replace public sector demand. So on that core observation, you have to say that Ed in his Bloomberg speech was prescient." Lambert also called for a government rethink, saying "the problem is that the hoped-for recovery in private sector investment and trade – an essential part of the package when it was set out two years ago – has not materialised. The UK government can borrow at unimaginably low rates and my question is now whether it has achieved enough credibility for what it has done so far to allow it to flex the programme without driving the bond market into a tizzy. "Could it announce some big, time-limited investment incentives to persuade companies to start investing the enormous piles of cash they have got building up on their balance sheets, or some public investment programmes, or some more ambitious approach to credit easing?" Also speaking at the seminar was EU competition commissioner Joaquín Almunia, who warned that a Greek default "would have serious consequences for the whole of Europe for years to come". He claimed EU policy at present was not working, and rounded on France and Germany for seeking to run the euro area as a duopoly, saying: "This duopoly is not working, is not efficient, is not able to enforce decisions and not able to convince all the others who have to accept and implement its decisions."He singled out the German parliament, saying the Bundestag's mistake was "to think that … it can adopt decisions that will affect immediately the other 16 countries in the euro area. It is not possible and is not democratically sustainable." He added that the Italian and Spanish governments were "also seeking to participate in the debate that was taking place behind the closed doors every time Mrs Merkel and [Nicolas] Sarkozy met. Now other voices are joining this dialogue about what needs to be done."