Hugo Dixon

The European Union is underpinned by the so-called “four freedoms”: the free movement of goods, services, capital and people. There’s little controversy over the first three. But the free movement of people has become a hot political issue in many countries, often whipped up by nationalist parties. Some people who want to keep immigrants out are racists. There are also two supposed arguments for keeping foreigners out: that they take both “our jobs” and “our benefits”.

Immigration is a particularly live issue in the UK. In the European Commission’s latest Eurobarometer survey, 32 percent of the British people questioned thought it was one of the two most important issues facing the country. The average for the EU as a whole was 10 percent.

In a poll for The Independent last month, two-thirds of those questioned thought British firms should give UK citizens priority over other candidates from elsewhere in Europe when hiring new workers – even if this meant Britain had to leave the EU. Just 16 percent disagreed. The UK Independence Party, which wants Britain to quit the EU, has heightened anxiety by arguing that there will be a wave of immigrants from Romania and Bulgaria after the last restrictions on their citizens’ movements are lifted at the end of this year.

The free movement of people is one of the EU’s biggest pluses. And the number of EU citizens who engage in so-called “welfare tourism” – travelling to other countries to live off benefits – is exaggerated. However, it has become such a hot potato that it would be wise to tighten up the EU’s rules on immigrants’ access benefits. This is especially so in the UK, where David Cameron suggested last week in an interview with The Times that doing so could help sway a planned referendum on whether to stay in the EU.

First, though, look at the facts. Eight Eastern European countries, led by Poland, the so-called “A8” countries, joined the EU in 2004. A wave of migrants left for richer countries, especially the UK which didn’t impose any temporary restrictions. This was beneficial for the economy because most of the immigrants were skilled and hard-working. Most weren’t so young that the state needed to pay for their education or so old that it had to pay much for their healthcare.

Vodafone’s deal-making days are back – with a twist. The UK mobile giant still holds the record for the world’s biggest deal – its $203 billion hostile acquisition of Germany’s Mannesmann in 2000. It is now on the verge of taking the number three slot as well, by selling its minority stake in Verizon Wireless, America’s largest mobile phone company, for $130 billion to Verizon Communications, which owns the rest.

Over its 31-year life, Vodafone has completed an astonishing series of deals. As so often with mergers and acquisitions, it has been a better seller than buyer. The same is likely to be the case with the Verizon deal.

Vodafone began its life when Racal Electronics, a UK defence firm, won a licence to provide cellular communications in Britain in 1982. As mobile communications started to boom, it soon became the jewel in Racal’s crown – so much so that Cable & Wireless, another UK telecoms group, tried to buy Racal in 1988.

Rarely has a UK prime minister done so much damage to himself in a single week as David Cameron has with his mishandling of a vote authorising military action against Syria. Cameron may cling onto power after his stunning parliamentary defeat on Thursday night, but he will cut a diminished figure on the domestic and international stage. In the process, he has also damaged Britain’s influence.

Cameron’s litany of errors began with his decision to recall parliament from its summer holidays in order to give the green light to British participation in a military strike designed to punish Bashar al-Assad’s murderous regime for its alleged use of chemical weapons against its people last week. The decision to get parliament’s approval was right, even if not constitutionally necessary. The mistake was to rush things before all the evidence of Assad’s culpability had been gathered and published. In France, which is also contemplating military action, the parliamentary debate is scheduled for next week.

To be fair, Cameron tried to achieve political consensus. He initially persuaded Ed Miliband, the Labour leader, to back military action. He also got Nick Clegg, the deputy prime minister and leader of the Liberal Democrats, to sign up. Both of these are also partly to blame for the fiasco. They should have attached many more conditions to their support.

The drumbeats of a new Western military intervention in the Middle East are beating louder and louder. U.S. Secretary of State John Kerry said on Monday it was “undeniable” that chemical weapons had been used in an attack last week in Damascus. Meanwhile, the British foreign secretary said the UK and its allies could launch a military intervention without the approval of the United Nations. This is because a U.N. resolution authorising an attack on Syria would almost certainly be blocked by Russia.

The desire to do something to punish Bashar al-Assad’s murderous regime is understandable, particularly after last week’s gas attack. But the West still mustn’t rush in. Before it takes any military action, it needs to present compelling evidence that Assad is the culprit. Any intervention should also be a specific response to the gas attack rather than suck the West into this ghastly civil war.

Many people will argue that we already have the evidence we need to know that Assad is guilty. The weapons were used in a part of Damascus where his troops had been vainly trying to dislodge rebels. Assad has a big stash of chemical weapons and the means to deliver them. What’s more, he refused to give U.N. investigators immediate access to the site – seemingly the action of a man who wants to cover up a crime rather than that of an innocent who has been slandered.

The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the EU’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the EU – killing two birds with one stone.

It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the EU all the way back in 1957? Did the EU not complete the single market in 1992? And wasn’t a directive pledging free trade in services passed in 2006?

Well, yes and no. Free trade is not just about lifting intra-EU tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.

The European Union is facing a crisis of legitimacy. This is evidenced in a decline in support for the EU among citizens in pretty much every member country. The most extreme manifestation is in the UK, where pressure is mounting to quit the EU.

There are two main schools of thought about how to restore trust in Brussels. One is to increase the direct say citizens have over what the European Commission does – say by giving yet more power to the European Parliament or by having a directly elected European Commission president. The other is to stop Brussels interfering in things best left to nation states.

The former school of thought is based on a misconception. The EU does not have a demos: few Europeans feel European rather than Italian, German, French or whatever. Witness the low turnout for European Parliament elections. Trying to construct a democracy without a demos is artificial and so won’t solve the legitimacy problem.

It is becoming increasingly likely that the UK will have a referendum on whether to stay in the European Union. It’s not just that David Cameron, the prime minister, has promised to hold such a vote by 2017 assuming he is re-elected. The drumbeats from the opposition Labour Party that it too would hold a plebiscite are becoming louder. Opinion polls show that Britons would currently vote to quit.

Of the many industries that would be hurt by such a “Brexit”, the City of London is the most prominent. The damage would range from moderate to severe, depending on the extent of the amputation.

The City is not just the UK’s financial capital. It is also Europe’s financial capital and vies with New York to be the world’s financial capital. The UK accounts for 74 percent of the EU’s foreign-exchange trading and 40 percent of global trading in euros; 85 percent of the EU’s hedge-fund assets; 42 percent of its private-equity funds; and half of pension assets and international insurance premiums, according to a recent report by TheCityUK, which represents the UK’s financial services industry.

Three years on, debate still rages over what is to blame for the euro crisis and what to do about it. Meanwhile, large parts of the zone are in a deep recession and the talents of a generation of young people are being wasted.

In looking at what went wrong, some point to the profligacy of borrowers while others stress the design flaws in the system. Yet others pin the blame on how the crisis has been managed. There are still others who think that the euro zone is a victim of a credit crunch that began in the United States.

There is some truth in all these explanations. While the credit crunch did trigger the crisis, it exposed a host of problems that had been masked by a decade of easy growth. Peripheral countries had grown uncompetitive as a result of rising wages. Often there was corruption and excessive debt, while anti-competitive practices that suited vested interests kept productivity low. Almost everywhere, governments ran unsustainably generous welfare states.

After seven years of crisis, much progress has been made in fixing the financial system. There was, for example, a landmark European Union deal last week to make creditors rather than taxpayers foot the bill for bust banks. But there’s a huge job still to do.

In the years running up to the crisis, the financial system ran amok on both sides of the Atlantic. Among the long litany of problems was a clutch of distorted incentives, which encouraged banks to take excessive risks by rewarding success but not punishing failure. These heads-I-win-tails-you-lose incentives skewed the behaviour of individuals, banks and the entire system.

A crackdown on bankers’ pay is starting to deal with individual risk-taking. Compensation can be clawed back from financiers whose bets ultimately turn sour. There are also plans, mainly in Europe, to pay a chunk of bankers’ compensation in “bail-in bonds” – which will get wiped out or turned into lowly valued shares if a bank fails. That should get bankers to pay more attention to risk.

Italy’s new prime minister, Enrico Letta, is making the best of a bad job. After February’s inconclusive election, it looked like Italy’s dysfunctional political system might drag the country further into the abyss. There was a risk that nobody would be able to form a government, new elections would be called and that even these would end in a stalemate.

In the end, a grand coalition was formed involving Letta’s centre-left Democrats, Silvio Berlusconi’s centre-right PDL and Mario Monti’s centrist group. Putting together such a coalition was itself an achievement – given that the Democrats and Berlusconi hate one another and that the Five Star Movement, led by comedian Beppe Grillo, refused to make deals with anybody.

Even after the coalition was formed – largely as a result of pressure from Giorgio Napolitano, Italy’s respected octogenarian president – there wasn’t much hope that it could achieve anything. But Letta has been quietly getting on with reform, as I discovered when I spent a few days in Italy last week. Part of the explanation is that he is an intelligent, modest, consensus-builder rather than a charismatic figure with a big ego.