Exit Costs

Will Britain leave the European Union? This question would have been unthinkable even just a few years ago. Unfortunately, recent developments have made it an eminently sensible question.

One of the first acts of the government newly elected in 2010 was to pass the European Union Act which received its royal assent in July 2011. This act requires that a national referendum be held on any proposal which might be deemed to move powers from the U.K. government to that of the European Union. It was a clear statement of an attitude that prevents any constructive engagement of the U.K. in the development of the European Union.

On January 23 of this year, British Prime Minister David Cameron gave a long-awaited speech in which he set out a series of actions that would–providing the Conservatives form a majority government in 2015–allow for a referendum in 2017 or so on whether the United Kingdom should stay in or leave the European Union.

Leaving aside the wisdom of giving political and economic commentators a subject on which to speculate for nearly the next five years, to the political and economic detriment of Britain, David Cameron’s speech is understandable when one steps back to examine the political landscape. There are large numbers of MPs within Cameron’s own Conservative Party and others who are actively plotting on a day-by-day basis to get Britain out of the EU, and who are happy for David Cameron himself to go down with the ship. They form the basis of the almost constant scrutiny and leadership challenges he faces. There is also significant anti-EU sentiment in the Labour Party.  Senior figures who are fed up with the problems of the U.K.’s membership of the European Union increasingly seem happy to go along with anti-European Union rhetoric. These individuals are certainly not inclined to join any serious campaign to promote British membership of the EU.

The accepted wisdom across all parties is that popular sentiment is hostile to U.K. membership of the EU. This hostility is clearly voiced on the subject of migration into the U.K., with EU member states being blamed for the migrants coming from other parts of the Europe, particularly Eastern and Central Europe. Adding further populist fuel to the fire is the imminent arrival of migrants from Bulgaria and Romania who, seven years after their countries joined the EU in 2007, are now permitted to move to the U.K. Reinforcing the feelings of frustration with the EU over migration issues are the economic difficulties of Southern Europe and the problems these have created for the eurozone. The decision this past week to appropriate money saved in Cypriot banks, which angered U.K. depositors, is only the most recent example.

The United Kingdom Independence Party (UKIP) campaigned for U.K. withdrawal in the 2009 elections to the European Parliament and did very well, coming second, and pushing the Conservatives into third place. They terrify many Conservatives who believe that a strong UKIP performance in 2015 could well split the Conservative vote and allow the Labour Party to return to office. UKIP leader, Nigel Farage, recently spoke at the Manning Networking Conference in Ottawa. The BBC reported that he hopes to learn from the experience of Canada’s Reform Party and of Stephen Harper’s road to political success. It is not difficult to see why British Conservatives all feel rather nervous of him and the UKIP threat.

This is the political background to David Cameron’s landmark speech, and to his decision in December 2011 to remain in a minority of 1 out of 27 on a vote about banking regulatory issues that the EU was considering – the first British Prime Minister to end up in such a position. And these are circumstances that make asking the question “Will Britain leave the European Union?” predictable and reasonable. A reasonable answer, however, as will be argued below, is “no”.

The Case for Cooperation

Global Challenges

The fundamental case for U.K. membership of the European Union rests on the need for international co-operation to address the challenges of globalization, which are becoming greater with every passing year. It is the same reason we require a far more effective and active United Nations than we have at the moment, and a Commonwealth with Canada and the U.K. as leading members – one that stops posturing as a mini-UN and starts really working seriously on those things which unite us, including education, our democratic and legal systems, and the perpetual need to promote human rights.

The Single Market

The development of a single European market for goods and services not only requires freedom of movement for capital and labour, but also common manufacturing standards for everything from cars to pharmaceuticals; common trade agreements with other counties; common consumer standards; common health and safety requirements; common environmental safeguards; common approaches to the regulation of business (including competition policy); common agricultural and fisheries policies; and a whole range of other common approaches.

Moreover, the single European market should also require common approaches in areas where they do not yet exist or have not been fully enough developed, such as the energy and financial services sectors. A common approach in both of these cases would be in the national interest of the U.K. because these sectors are amongst the most efficient in Europe.

In fact, all of the common approaches listed above are very much in the interest of U.K. producers and consumers, and they fit with the market-based economic approach characteristic of most of the British economy, and large parts of Europe. That there will be issues when 27 members try to negotiate the details of a precise common approach for a particular area on account of differing market structures is inevitable. It is also quite likely that the standard finally agreed upon may not be precisely that which the U.K. would have preferred. Neither of these realities undermines the central point, which is that common standards benefit us all. And overall, the U.K. actually does far better than most EU members in securing agreement to standards that suit its preferred way of doing things.

Fiscal issues are more controversial. A common approach here is are often framed as a fundamental violation of the prerogatives of national governments. That argument, however, is not as clear as some believe. The U.K. has already accepted the EU framework for setting rates of Value-Added Tax and there’s a good case for harmonizing rates of corporation tax across the EU rather than permit the continuing competitive reductions of corporation tax that only persuade companies to shift their headquarters around the European Union. Attacking corporate tax evasion by companies like Amazon, which avoids billions of pounds of U.K. tax payments by reporting European sales through a unit based in Luxembourg, would seem to be far more vital to the national interest than protecting the sovereign right to fix excise duties.

Broader economic co-operation, the single currency, and the eurozone, are big questions that deserve greater attention than given here, but even a brief discussion reveals the dangers of going half-way to achieve an ambition. Willing the ends of a single currency that brings real economic benefits without the means–proper and properly enforced co-ordination of economic policy–carries very real dangers, some of which we have already seen. The economic benefits for the U.K. of international economic co-operation within the European Union are recognized even by those who oppose U.K. membership. These are the individuals who argue that the U.K. could leave the EU but retain the benefits of the European Single Market. The flaws in this argument are discussed below.  

Justice and Home Affairs

International co-operation offers similarly significant benefits when it comes to fighting crime and promoting human rights. Crime is now global. The major areas of criminal enterprise are now organized by international syndicates using international lines of distribution and taking advantage of differing national approaches to policing and criminal justice. These organizations pose major threats to our societies, as has been set out clearly in both the Europol Organised Crime Threat Assessment and U.K. police analyses.

These analyses conclude that the greatest threats to our communities come from drugs, trafficked to Europe from throughout the world; organized immigration crime, including human trafficking and people smuggling; frauds of many different types, including counterfeiting; and trafficking of weapons and cigarettes. And, of course, the threat of terrorism remains significant throughout Europe.

In these rapidly changing circumstances, the challenge for policing across Europe, including in the U.K., is to bring together law enforcement agencies in ways that make it possible to bring these criminals to justice, and make it far more difficult for them to operate effectively. The two core requirements for success in achieving this are enhanced, high quality use of intelligence, and effective operational partnership and co-operation, both between countries and between agencies within countries. The European Union has established a framework for fulfilling these requirements.

Beyond purely policing issues, judicial co-operation is the final weapon that strengthens law enforcement against criminality, including aspects such as the power of arrest, extradition, and sentencing policy. The EU agency EUROJUST promotes such co-operation through, for example, the European Arrest Warrant, which has significantly sped up national abilities to bring suspected criminals to justice.

Multi-polarity

In the realm of foreign policy and international relations, the case for much stronger European international co-operation and world influence is also very strong. The certainties of 1945, unpleasant though some aspects were, are now gone. The bipolar Cold War world, dominated by the United States and the Soviet Union, was replaced after 1989 by a unipolar world in which many believed (including many in the United States itself) that U.S. power alone could create stability across the planet. 9/11 shook that view and the U.S. mid-term elections of 2006 confirmed that the American people reject this idea.

We have moved to a world with many uncertainties but no superpower or group of superpowers capable of addressing them. The U.S. can no longer take the strain of sorting these matters out, for better or worse.

This means the European Union really does have a role to play, particularly in its own back yard, in North Africa, in the former Yugoslavia, and perhaps even in the Middle East. The days when the conflict in the Balkans would be sorted out in Dayton, Ohio are gone. The European Union has to take up its responsibilities and become more active and more effective. It has to show through international co-operation that it can be a force for stability and prosperity in place of the disharmony that is still far too prevalent in many parts of the world.

Case Closed?

The compelling and fundamental argument for active British membership of the European Union lies in the benefits and advantages of working within the European Union to strengthen our ability to defend our communities in an era when the challenges of globalization are becoming ever greater. This case will become stronger rather than weaker over time as the pressures and challenges of globalization intensify, which they most certainly will as enormous developing world economic powers become stronger and stronger. However, popular support for these arguments will only exist if the practical value of international co-operation can be demonstrated in a way which can be easily and directly understood.

And that is where the difficulty lies. Set against the fundamental case for co-operation and ambitions for its success is the question –a legitimate one–of how well the European Union has used the powers of international co-operation that national governments have given it.

The balance sheet shows that the essential rules of the eurozone, for example on limits to borrowing, have not been honoured; that strategies to promote economic growth, such as the Lisbon process, have been unsuccessful; and that countries have not been ready to work together in foreign policy even within Europe–EU member states remain divided on whether or not recognize Kosovo, for example. Furthermore, ambitions to work far more closely together in controlling migration into the EU and to establish common standards of asylum have not progressed; the development of mutual recognition of educational qualifications at all levels has made little progress; and the resolution of civil legal disputes in other EU countries remains very difficult.

Such problems have been compounded by an often arrogant and elitist form of decision-taking by too many, a thoroughly patchy system of executing and implementing EU decisions across the continent, and an ineffective general political debate. No clear philosophy of ‘subsidiarity’ or a definition of appropriate spheres of responsibility has evolved. Too much time is spent on windy rhetoric rather than practical action.

No one is particularly responsible for this; in some cases member governments have been unready to act; in others the Commission has been too inflexible; and in others, insufficient attention has been given to the attitude of public opinion. But the consequence has been a fostering of the growth of inward-looking and nationalist political parties. These parties define themselves in opposition to the European Union which they present as the main source of national problems like immigration. The whole tone of political debate has become infected as mainstream parties and mainstream politicians have adopted similar rhetoric. And in big votes like the referenda in France and Holland, an anti-EU majority has been mobilized to defeat the governments and main political forces.

This EU track record does, to some extent, mitigate the attitudes of mainstream national politicians like David Cameron, who decide to play politics with U.K.. membership of the EU and are guided principally by party political considerations rather than the U.K.’s national interest. But that is a dangerous course when we still lack a coherent alternative strategy for the U.K.’s relationship with Europe and the world.

Alternative Approaches

The alternative approaches on offer are not convincing. The simplest to describe is that promoted by a number of Conservative Members of Parliament, and by the new UKIP political force, which is essentially that the U.K. should leave the European Union and suspend all related legal and other agreements into which we have entered over the last 40 years. This approach would see the U.K. renegotiate such agreements as it considered in the best interests of Britain, such as much of the single market, and drop what is not in our interest.

The advocates of this course believe that the U.K. is such a significant and attractive economic partner that all of its EU partners would be desperate to negotiate new agreements with the U.K. But this approach is flawed at the core. Quite apart from the complexity of negotiating with 26 other countries, for any individual negotiation it takes (at least) two to tango. There is not the slightest iota of evidence that other countries would be prepared to make agreements with the U.K. Nor is there any evidence that the (hypothetically 26 member) EU would negotiate with the U.K. on these issues, particularly when one considers the fact that this approach would have the U.K. leaving in a way that would create an atmosphere of extremely bad relations with the rest of the members, making positive negotiations very difficult indeed.

Norway is an interesting model from this point of view. Norway is outside the EU, but as a recent and very thorough report to their government has set out, it has been forced to accept a whole range of EU decisions without any ability to influence, or even debate, them. Moreover Norway pays far more to the EU per capita than any EU member state, including the U.K. Switzerland is another example, though with a different legal framework to Norway’s. Their referendum decision not to join the EU was followed by a ten-year-long negotiation that established a set of agreements which many in Switzerland still find extremely unsatisfactory and that give the Swiss very little flexibility – even their famed banking secrecy is threatened by increasing EU regulation. Essentially, non-EU member European countries have been forced de facto to accept EU decisions without amendment.

Some argue that the U.K. could rejoin EFTA which by the time any U.K. decision happens, may well consist only of Liechtenstein. This is not a real model for the U.K. The readiness of other EU countries to ‘renegotiate’ is in rapid decline. Even states like Germany, which are extremely sympathetic to the U.K.’s active participation in the EU, are losing the will to bend over backwards to meet British preoccupations as they have traditionally done. There are also plenty of examples of individual small member states blocking EU agreements, including on very important matters.

The idea that the U.K. does not need significant economic, political, and international relationships and can just go it completely alone ignores the importance for international investors of working within the European Single Market. Advocates of this approach have to accept, but in general do not, that the direct consequence of Britain ‘going it alone’ is a significant drop in our international trade and internal investment and an enormous loss of international influence. The idea of ‘Commonwealth preference’ is now pretty much out of time, though obviously it had its supporters before the U.K. joined the EU. It is very difficult to see how new life could be breathed into the idea.

The position of the British government and David Cameron is different from that of those who simply want straight U.K. withdrawal from the EU. David Cameron asserts that he wants to see the U.K. stay in the EU, but that he wants to renegotiate the terms of the U.K.’s membership. He says that if the Conservatives form a majority government after the 2015 general election, they will present a series of demands for change and that after those have been dealt with, there will be a referendum on U.K. membership. The list of Conservative demands (it is important to note that the liberal democrats will not associate themselves with this approach) has not yet been elaborated and apparently work is proceeding at the moment. An interesting illustration, however, is now arising in the field of justice and home affairs.

The U.K. government has to decide, once and for all, whether to stay ‘opted-in’ to 133 European Union measures for police and criminal justice co-operation or not by May 31, 2014. U.K. policing and crime prevention would be significantly strengthened by full U.K. participation in the European intelligence databases, European operational co-operation, and European judicial co-operation. U.K. withdrawal would significantly damage the country’s ability to contest major criminality with significant implications for crime in Britain. The Conservative government has stated that it wants to withdraw from all of these measures and then renegotiate entry into those it wants. It is already clear, whatever the merits of the overall policy (if there are any), that this approach will not succeed and the government will soon have to set out how it intends to address this reality.

Ultimately, David Cameron’s overall strategy will fall at the same hurdle as the out-and-out withdrawers. Renegotiation is a myth. In political folklore, Harold Wilson pulled off just such a renegotiation in 1974 to keep the Labour Party together and then won the subsequent referendum. That’s the model for David Cameron. The problem is that we’re now 40 years on–the politics have changed and the old tricks won’t work. More importantly, the alternatives to U.K. membership of the European Union simply do not hang together. Advocates of withdrawal make their case without reference to the very real and problematic issues which a process of withdrawal would have to overcome, quite apart from the fundamental case for international co-operation in Europe.

The Need for Change

Though the arguments for withdrawal are weak and are not sufficiently thought through to offer real policy options, there is no doubt that the political mood in Britain on this subject is erratic. Pollsters, on balance, think that a referendum would probably vote for continued U.K. membership, mainly because most referenda tend to vote for the status quo and against change. Much would depend upon the circumstances of the referendum and the alignment of political forces.

However, in politics accidents can never be discounted, and David Cameron’s strategy is an accident waiting to happen. The most effective way of minimizing the risks of such an accident is for the European Union to become more effective in demonstrating its capacity to use international co-operation to address the concerns of average citizens, especially economic concerns.

The structural flaws in the construction of the eurozone still need to be sorted out. The operation of the banking system remains a major Achilles heel and increasingly co-ordinated economic policy is inevitable. Despite dire predictions to the contrary, the eurozone seems likely to increase in size; of the ten current EU members outside, seven still want to join at the appropriate time. Britain needs to face up to the fact that the eurozone won’t collapse and so we need to find the best way of addressing that. Currently, there is insufficient analysis of the impact upon the U.K. of a continuing eurozone; of the ways in which the U.K. should behave if we want to stay outside the eurozone; and of where we should form our economic relationships.

Other areas besides the economic one are important too. We need to strengthen, not weaken, the EU’s ability to fight crime, control immigration, and get fair justice across the EU. We need to demonstrate the importance of the EU in securing environmental improvement and protecting consumers. We need to change the way in which the EU works so it better reflects the concerns of regular citizens.

U.K. politicians and opinion-formers have to recognize that European Union is potentially a force for good in developing international co-operation to address global changes that impact every part of our lives. The European Union does need to perform better in many different areas, but particularly in relation to the operation of the eurozone. That said, any close examination of the real options for the United Kingdom demonstrates that withdrawal from the European Union simply is not a realistic or beneficial option for the long-term interests of the country or its citizens.

“Will Britain leave the European Union?” can thus be answered with a resounding “no”.