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Cutting Brexit risks

30 June 2014 By Hugo Dixon

It is not just Britain which would be damaged if it quit the European Union. So would other members. Jean-Claude Juncker’s nomination as Commission president at last Friday’s summit increases the chance of Brexit – Britain’s exit from the EU. Leaders from all countries now need to work to limit the risk it happens.

David Cameron went out on a limb to block Juncker, and failed. The UK prime minister mishandled the diplomacy, notably by seemingly threatening to pull out of the EU if the former Luxembourg premier got the job.

The chances of Britain quitting the EU in the next five years are probably about 20 percent – assuming a 50 percent chance of the Tories winning next year’s general election and a 40 percent chance of the British people voting to quit in a referendum Cameron has promised to hold by 2017.

The opposition Labour party won’t hold a plebiscite if it wins the general election. That doesn’t mean the question will go away. Tory eurosceptics and the UK Independence Party will not give up – so there could well be a referendum after 2020.

Some continental politicians may trumpet indifference at the Brexit prospect, on the grounds that the United Kingdom has always been an awkward member and that, without it, the EU would be able to run its affairs more smoothly. But there are five strong reasons for keeping Britain inside the tent.

The first is precisely because Britain is often prepared to be awkward, calling a spade a spade – for example, when it raised doubts about the single currency project.

Second, the UK has a track record of pushing for free-market reforms – both to liberalise the EU’s market and cut trade deals with other economic blocs. Without the British voice, the EU might become more protectionist.

Third, the UK accounts for 15 percent of EU GDP. It now has the third-largest economy after Germany and France. In 30 years, it could have the largest, because its population is growing rapidly while Germany’s is falling. If Britain cuts itself off even partially from this single market, it will be badly hurt; but the rest will also suffer.

Fourth, a Brexit would upset the EU’s internal dynamics. Many other countries would fear an increase of Germany’s influence. Berlin, meanwhile, would worry that southern states would find it easier to gang up against it.

Finally, the EU’s foreign and security policy would suffer a severe setback. It is easy to mock the current approach which has little to show for itself. But one only has to look at the EU’s unstable neighbourhoods – Ukraine and Russia to the east, North Africa and the Middle East to the south – to appreciate that it is going to need to get serious in the years to come. Without Britain, the EU would have less clout.

So how can EU leaders cut the risk of Brexit?

For a start, Cameron needs to play the EU diplomacy game better. That means quickly making peace with Juncker. Why not invite him to Downing Street? The British premier should also propose a heavy-hitter as the UK’s own EU commissioner – somebody like William Hague or Michael Howard, both former leaders of his party.

Meanwhile, Cameron needs to build more alliances. He relied too much on Germany’s Angela Merkel. She may be the most important leader in the EU. But Britain also needs allies in Italy, France, Spain, Poland and so forth.

EU members offered Britain a couple of concessions at the summit. They said they would review the system of nominating future Commission presidents. This is important because the way in which Juncker was chosen amounted to a power grab by the European Parliament. The leaders should make clear that this will not set a precedent. Otherwise, power will have permanently shifted from national governments to the European Parliament. It’s doubtful that this is what the people want in any major EU country.

The summit also interpreted the phrase in the EU treaty calling for ever closer union among the people of Europe as “respecting the wish of those who do not want to deepen [integration] any further.” That formulation won’t satisfy British eurosceptics, for whom the phrase is a bugbear. But with a few tweaks this olive twig could become a full olive branch.

If Cameron does propose a heavy-hitter as Britain’s commissioner, other leaders should respond by offering that person a top job – ideally the task of completing the single market, which is still patchy in services including those delivered via the internet.

They should also sharpen up the work programme they have sketched for the next five years. The core of this should be: a renewed drive to complete the single market; free trade deals with the United States and Japan; a revamped energy policy; building up non-bank finance so it can take up the slack as banks shrink; and cutting red tape.

A plan like this wouldn’t just be good for growth and jobs in the EU. It would help the case of the Brits who want to stay in the EU. By cutting the risk of Brexit, that would help the EU too.

 

 

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