The Causes and Consequences of Brexit

by Ana Palacio Ana Palacio, a former Spanish foreign minister and former Senior Vice President of the World Bank, is a member of the Spanish Council of State and a visiting lecturer at Georgetown University. 01.02.2016

MADRID – The prospect of a British exit from the European Union is well and truly upon us. It seems increasingly likely that the upcoming European Council meeting will result in a deal on the conditions of the United Kingdom’s EU membership – a deal that will be put before British voters in a referendum, possibly as early as this summer.

But, just as everything rushes forward, Britain and the EU need to take a moment to think carefully. After all, despite assurances from both sides, no one knows how the referendum will unfold, much less how to navigate the aftermath if British voters chose to leave.

The referendum is the most immediate unknown. Past experience shows that, when voters make such decisions, they rarely focus on the issue at hand. In referenda on the EU’s draft constitution in 2005, for example, the Dutch focused on the euro, while the French worried that Polish plumbers would take their jobs.

So far, the signs indicate that the upcoming British referendum will follow the same pattern, with voters focusing more on simplistic ideas, prejudices, and emotions than pragmatic considerations. And the anti-EU camp has been by far the more passionate – and the more inflammatory in its rhetoric – side.

From a European perspective, this is deeply worrying. It is well known that a British departure would deal a devastating blow to European integration, possibly causing an already-fragile process to unravel. But the British should also be worried about the consequences of withdrawal, if only because of how little is known about what it would entail.

The problem is that most Britons have little awareness of the turbulence that “Brexit” would generate. Beyond the impact on Scotland’s independence movement, Ireland’s Good Friday Agreement, and the UK’s “special relationship” with the United States, there are important questions regarding the future of UK-EU relations. Many advocates of withdrawal cherry-pick policies and regulations, such as provisions of the EU’s free-trade agreements with Canada and Singapore, to cobble together a vision of what life would like be for the UK outside of Europe. They want Britons to believe not only that the City of London would remain Europe’s top financial center, but also that the UK would retain access to the EU’s single market, even without free movement of labor.

This is pure fantasy. Although the UK would retain its strong international standing in terms of defense and foreign policy, its clout in negotiating trade and investment agreements – including with the EU itself, which accounts for half of British trade – would be severely diminished. That has been the experience of non-EU countries like Switzerland and Norway. In fact, EU leaders are already unhappy with Switzerland’s access to the single market; the idea that they would give the UK such access, especially after being slapped in the face, is not convincing.

Some claim that a Brexit could resemble Greenland’s easily negotiated 1985 withdrawal from the European Economic Community (EEC), the only such withdrawal that has ever taken place. But the circumstances could not be more different. The limited EEC of 30 years ago does not compare to the robust EU of today, just as Greenland pales in comparison with the UK in economic size or political significance.

Furthermore, Greenland’s withdrawal was eased considerably by its constitutional ties with EEC member Denmark, which continued to represent its interests in European bodies. With no equivalent patron to smooth the way for the UK, negotiations following a vote for withdrawal would be complicated and acrimonious, dragging out over a number of years.

All of this uncertainty would take its toll, on both businesses and ordinary citizens. Who would commit to a long-term investment in the UK without knowing what legal arrangements will be in place?

To avoid this outcome, the European Council should affirm the UK’s far more stable prospects as an EU member, while demonstrating Europe’s fundamental flexibility. Already, the UK has been allowed to opt out of the Schengen Area, the euro, and justice and home affairs. Now the EU has shown its willingness to seek reasonable compromises on British Prime Minister David Cameron’s demands.

In some areas, such as boosting competitiveness and streamlining regulation, consensus will be relatively easy to achieve. Agreement is also possible on giving national parliaments a greater role in guiding EU legislation, although Cameron’s proposal to allow parliaments to show a “red card” to EU law goes too far.

As for Cameron’s demand to end Britain’s treaty obligation to work toward an “ever-closer union,” the key to compromise may be nuance. Rather than moving to integrate member states more deeply, perhaps the EU should shift its focus to uniting, increasingly closely, the peoples of Europe.

The final issue may be the thorniest: immigration and welfare. Cameron has called for a four-year “timeout” on in-work and child benefits for EU migrants working in the UK – an approach that many agree is discriminatory. One shift that may ease the way toward a compromise on this highly fraught topic would be to enforce a clear division between this discussion and debates on the ongoing refugee crisis. The focus must remain on Poles and Latvians, not Syrians.

In 1953, Winston Churchill famously declared, “We are with Europe, but not of it; we are linked, but not compromised.” If the upcoming European Council can achieve a compromise that reflects this sentiment, Brexit may be avoided, benefiting everyone. But, with the referendum looming, even a good deal may not be enough. With fantasy and manipulation continuing to dominate the British debate, the UK – and Europe – may be in for a very sobering surprise.

Copyright: Project Syndicate, 2016.
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