Tuesday, 28 March 2017

Brexit creates window of opportunities for the EU

The British government has officially started the "divorce" procedure from the European Union. This procedure must be completed within two years. In April 2019 the UK will cease to be a member of the EU.
Most divorces are painful affairs mainly because an agreement has to be found on who pays whom. The same will be true for the divorce of Great Britain and the European Union. The European Union intends to present a stiff bill to the British Government. According to some estimates this could go up to 60 billion euros. The hard line in the Conservative government of Theresa May does not want to pay a cent. These are the people who during the referendum campaign promised that Brexit would create massive budgetary means to be used to save the National Health Service from bankruptcy.
Between 0 and 60 billion there are many numbers waiting for a possible compromise. But the latter will be very difficult because the hard camp in the British government considers each number above 0 as an act of treason to the British people.
The Brexit Ministers continue to repeat that a new trade agreement between the UK and the EU is easy stuff and can be completed in two years, at least if the Europeans are "reasonable". If they are, they will see that it is in their own interest to meet British demands. If they don’t it will be proof of their vindictiveness.
The British demands are derived from the very successful referendum slogan: "to take back control of our borders, our laws and our money." This means full control over immigration; the end of the jurisdiction of the European Court of Justice on British soil; and not a penny more for Europe. The prime minister has made it clear that the first two demands cannot be negotiated away. About the third one a compromise is possible but no one knows how much negotiating space the British prime minister has.
These UK demands imply that the UK excludes itself from the internal market. The UK government, as the representative of a fully sovereign nation, will therefore have to negotiate a new trade agreement. And like any trade agreement this will drag on for years. As a result, one can say with great certainty that in April 2019 there will be no trade agreement between the UK and the EU.
What is striking in this drama is that under the spell of nationalism the British government has based its policies on a big illusion. It is the illusion that, as in the past when Britain ruled the waves, it can be fully sovereign and freely trade with the rest of the world without having to accept rules that are decided elsewhere. This was possible when Britain was the master of the world and decided about the rules that the other nations would have to accept to trade. Today, however, Britain is a small country. Its GDP is only 15% of the EU’s GDP. If this small country wants to trade with the European Union it will have to accept the rules that are decided on the European continent, not in Britain. If it wants to trade with the rest of the world, it will also have to accept rules drawn up elsewhere. It will be a painful awakening for the British who have been misled by their government into believing that they can have free trade and full sovereignty.
For the EU Brexit creates a window of opportunities. When the British joined the European Community in 1974 their intention was not to make Europe stronger. On the contrary, the British strategy was to weaken the European integration effort from inside. Since their accession the British governments have opposed attempts to apply majority rule in the union, and instead have tried to force an inter-governmental approach where each country maintains a veto power. The British entered the European house not to strengthen it, but to halt its further construction and even to deconstruct it.
The fact that Britain now leaves the house creates new possibilities to take steps towards further integration. In the tax field, for example. This is an area where,  at the insistence of Britain (but not only Britain), veto power of national governments has been maintained. As a result, multinational companies have exploited the lack of coordination in setting corporate income taxes to blackmail individual governments. This has led to a race to the bottom where major multinationals pay almost no taxes, although they profit from public goods provided by European governments. This problem can only be solved by jointly deciding about corporate income taxes. This will not be easy, as there are other countries that benefit from not having a common approach to taxation (Ireland, Luxembourg). But at least the major obstacle to a common policy will have been removed.
Thus the decision by the UK government to leave the European house should be welcomed by EU-member states instead of being deplored. It creates a window of opportunities for further integration on the European continent. This window of opportunities, however, can only be exploited if the EU makes her negotiating position clear. This should be one in which the EU recognizes that the UK wants to be fully sovereign. The EU therefore should make it clear that this makes UK access to the internal market impossible. This is not a choice of the EU but the logical consequence of the UK’s quest for full sovereignty.
Business lobbies both in the UK and the EU will push for a different outcome. One in which the UK will be allowed to enjoy exceptions to the rules governing the internal market while maintaining access to it. The EU should resist these lobbying efforts. Failing to do so will open the door for other nations to do similar “cherry-picking”. This would undermine the integrity of the union and would contribute to its disintegration. 

4 comments:

  1. This is a good time to re-think the faulty concept of proceeding down the pathway of a multi-speed Europe. At times, further integration that is good for the Union is stifled by the veto power of an individual member state. Giving opt-outs and exemptions as a way to integrate in less contentious areas means the politics of future integration will be even more difficult to achieve. The lower hanging fruit needs to be reserved to sweeten any further but more politically contentious integration in the future. One direction, one speed and post-Brexit, let's hope we are all driving on the same side of the road.

    ReplyDelete
  2. The probably Brexit trade outcome seems to look at the import and export between EU and UK for the obvious. Free trading only for goods, intermediary products including components and fuels, plus finished products. Hence the UK remains because of geographic proximity, part, and parcel of European assemble and supply chains. A free trade agreement on the business services and financial services sector stacks against the cards. No free access to services is eventually beneficial for EU even from an enduring Ricardo’s perspective. It stimulates their already evolved service sectors in the Netherlands and Belgium (and perhaps France and Germany).

    ReplyDelete
  3. The very idea GB joined to weaken the EU from within is far outreacjing amd extremist! They joined the EEC as it was at the time to be involved in a trading bloc which was desperately needed after a long hard fought world war. The sadnesses is it has evolved into too much more. Controlling borders of the 28 and laws and money? Further intergration and control is sought by Brussels and people are feeling the pinch now in there own countries. The economy is the slowest growing economy and the red tape that garrotte's the 28 is now reaching an all time high in dissaproval. Lets hope that Brexit is the temour that improves the Brussel beauracrats stranglehold and it starts to reform for the sake of the 27 remaining. Somehow I doubt it but we live in hope! It would be good to for once read the truth and reality of what is happening to the EU and prople fight to improve it instead of blaming the UK?

    ReplyDelete
    Replies
    1. Bekah, I trust that you will enjoy reading this as Moravcsik is masterful at providing a viewpoint to re-examine one's orientation:

      http://foreignpolicy.com/2017/04/13/europe-is-still-a-superpower/

      Cognitive dissonance regarding the impact of the EU to the UK or any other actors comes w/peril.

      Delete