David Cameron’s veto of the new EU fiscal arrangements should reopen the debate on the UK’s relationship with the EU. Euro zone membership is politically inconceivable but unless the tone of the debate changes it is likely to be treated by other members as a pariah or even a traitor. There is an alternative – the European Economic Area.
The EEA was established in 1992 as a sort of half-way house between full membership in what was then called the European Community and total autonomy. EEA countries participate fully in the common market and have to follow the EU rules and regulations which keep markets free. But they do not participate in the governance of the Union. As far as other European matters go, they can more or less pick and choose whether to participate.
It’s not a bad economic deal, but the group has shrunk as its founding members joined the EU. The EEA today is only Norway, Lichtenstein and Iceland, with Switzerland legally out but practically in. The UK would be a natural. By leaving the EU, it would save most of its annual 10 billion pound contribution, a sum which could rise by 50 percent if irritated members carry out their threats to its rebate. UK governments would have less at stake in arguments with continental governments they don’t really understand.
Of course, outside the EU, Britain would have even less influence on European decision-making. That decline would be felt in financial markets: euro bond and currency trading would probably migrate to inside the euro zone. But then again, the current arrangement is artificial. Strictly euro business would probably leave London anyway. In higher value-added businesses such as global finance and asset management, London will stay strong as long as the City keeps its skills edge.
The challenge would be to make the transition to the EEA amicable. But it is worth making an effort to keep the benefits of the EU’s large market while minimising costs, friction and bureaucratic meddling. Quietly and non-confrontationally, the EEA should be Britain’s goal.