What Would Happen if the EU Broke Up? (Part 2)

The former Prime Minister of Ireland discusses the possibility of the UK leaving the EU, and the questions it raises about the political structure of the union. This is the final part. Click here to read part one.

………… And Meanwhile in the United Kingdom

As if Europe did not have enough problems, one important EU country, the United Kingdom of Great Britain and Northern Ireland, is preparing to renegotiate the terms of its membership of the EU and hold a referendum on the outcome, which would potentially decide whether the UK would stay in the EU or leave. 

The first thing to say is that the UK is entirely free to do this. Unlike other unions, like the United States or the United Kingdom itself, in the European Union states are free to leave, so long as they fulfil their normal obligations under international law, which arise when any country withdraws from any international treaty. The UK, unlike Greece, chose not to join the euro and, therefore, is not a part of EU’s monetary structure.  This makes its situation fundamentally different to Greece and a hypothetical decision by the UK to leave the EU does not pose the same dire consequences that a Greek exit portends.

A Threat to Veto the EU Budget

The United Kingdom is also threatening to veto the entire EU budget, again something it is legally entitled to do, unless there is an absolute freeze on the size of the budget. The difficulty with this stance is not legal, it is political.

The EU single market, which guarantees free movement of people, goods and services, was created as a political deal. 

Weaker economies opened up their markets to stronger ones, and removed protection from local businesses, on the basis of a promise that they would qualify for structural funds to modernise their economies. These funds are provided by the EU budget. (Some of the EU budget also goes to agriculture, but the proportion has fallen from almost 80% of the total originally, to only 30% today.)

The political difficulty with the UK stance is that of fairness.

In the past, when countries like Ireland, Spain, Greece, Portugal, and even the UK itself, joined the EU, we all qualified for substantial EU structural funds, in the form of aid for agricultural modernisation, general infrastructure, training, communications etc.  Now, when the EU has taken in 12 central European countries who are  relatively much poorer vis-à-vis the rest than we were when we  joined, these 12 are to be told, if the freeze the UK wants is to go into effect, that they are not to get even a fraction of the help Ireland, Spain, regions of the UK and others qualified for as of right after we joined.

I heard an Estonian Minister complain recently that, under the existing EU budget which is already an unfair compromise, his farmers have to compete in the same EU market with west European farmers who are getting  three times the subsidies. Unless there are to be drastic cuts, this sort of anomaly can only be put right be an increase in the EU budget.

The problem is that the UK Government has made the size of the budget a red line issue without  getting into any informed debate about what the money is actually spent on, or about what sort of EU budget is necessary to ensure that the EU single market, to which the UK itself is very much attached, works fairly and is preserved.

The UK wants access to the single market, but is not prepared to pay any entry fee.

A Demand to Renegotiate 

The same problem arises in the renegotiation of the terms of UK membership for which the current  UK Government is preparing. In preparation for this renegotiation, the UK Government is now doing a comprehensive audit of all EU laws, to identify areas of activity that could be taken back from the EU to be administered exclusively under UK law instead. There may be some good ideas emerging from this, on which all other members could agree, but there may also be a lot of problems. 

The difficulty is that the UK wants to take back yet to be specified powers, but also to retain full and unfettered access for its goods and service exports to the EU single market. Some 50% of UK exports go to the euro zone whereas only 15% if euro zone exports go to the UK, so this is important. 

The difficulty with this is that the EU single market, like any market, is a product of common rules, regulations and conventions. A market is a political construct. Without common rules no one  could rely on what he or she was buying. That is why, for example, there have to be common EU quality standards to construct a common EU market. Otherwise one country could impose specific standards, designed to exclude competitors from its market and to enable its own producers to make monopoly profits at the expense of its consumers. Any rulemaking power that could be abused in this way, cannot be handed back to national level without endangering the single market.

The competition in any market also has to be fair, and someone has to regulate that. If competitors have different environmental, or product liability standards, or if some firms are operating monopolies or cartels, the competition will not be fair. These matters cannot be handed back to be decided by national authorities without endangering the single market.

If the UK were to construct an agenda of present EU rules they would like to make in Westminster rather than Brussels, the other 26 could also do the same, but they might come up with a very different list. The process could quickly become bogged down in serial reopening of compromises made years ago on issues that have little relevance to the existential threat that the EU faces today. 

One gets the impression that many in the UK do not really care about that. The EU is still regarded by many in the UK as a foreign country, not a Union of which the UK itself has been an integral part for the past 40 years. Membership of the EU is seen as a convenience rather than as a commitment. If the price of satisfying UK voters is to cause more problems for the “foreigners”, in “Europe”,  it is not seen by some UK political leaders as such a bad thing.

The difficulty is that the “foreigners” in Europe may not see it like that. 

With so many genuinely urgent things to do, such as safeguarding the very existence of the EU itself, the other 26 member states may just not be inclined to devote time to a painstaking case by case analysis of a series of requests for bits of some rulemaking authority the UK wants to opt in or out of – a judicious analysis of whether each one of these decisions might affect the integrity of the single market, either now or at some time in the future. 

And the European Court of Justice would certainly have difficulty interpreting the consistency with the basic freedoms for all on which the EU is based, of a special EU menu for one country.

There is also the old question of whether UK Ministers and MEPs should continue to have voting right on things they are opting out of. As it is, one has to say that it is distinctly odd that the present Chairman of the Committee of the European Parliament that deals with euro currency matters, is from the UK, which has no intention of  joining the euro.

If, at the end of its proposed renegotiation, the UK is dissatisfied with the result because not enough powers are being handed back to Westminster, it will have little option but to recommend  that the UK withdraws from the EU. It is setting itself up now to find itself in exactly that position in 2016.

The UK’s Options Outside the EU

This will require careful handling because 50% of UK exports go to the EU, and London is Europe’s main financial centre, for the time being anyway.

How is the UK to protect these interests if it is outside the EU?

One possibility is to join Norway, Iceland and Liechtenstein in the European Economic Area, which would guarantee full access for UK goods and services to the EU market. But the price for that would be having to implement all EU legislation that was relevant to the single market and contribute to the EU budget, but without having any say in EU decisions.

This would be worse – from a Euro sceptic point of view – than the UK’s present position even though it would guarantee access for  the UK to the EU market for both goods and services

The other possibility is to follow Switzerland and negotiate a series of bilateral trade deals with the EU. The UK would not be entering such negotiations from a position of strength, because it relies more on the EU market than the EU relies on the UK market.

Switzerland has negotiated full access to the EU market for goods, but not for services. Services are the UK’s key export sector, so a Swiss style deal would not be attractive. 

If Britain negotiated a Customs Union with the EU, like that of Turkey, it would find its trade policies with the rest of the world were still being determined in Brussels , but with less input from London than at present. Again, it would also only have a guarantee of access for goods exports but not for services.

Finally, the UK might simply leave the EU, without negotiating any special deal. That would leave it paying tariffs on its exports to EU member states, including Ireland, and would necessitate the reintroduction of customs posts on the border in Ireland. It would undermine years of peacemaking by successive Irish and UK Governments, and would cost thousands of jobs in export firms in both the UK and Ireland.

Conclusion

My sense is that the pressures that cause fracture in the EU derive from a lack of understanding among the general public of the extent to which their livelihoods  depend on economic developments in other  countries and of how unrealistic, in modern conditions, is an “ourselves alone” policy.

Political leaders make little  effort to explain this, because to do so would undermine the  nationalist myths which brought most states into being in the first place, and also because it is often convenient to blame the EU for the effects of decisions that were necessary but are unpalatable. For these reasons, little effort is made to forge any form of patriotic pride in the EU or its achievements

No space has been created in which an EU-wide public opinion might take form.

European Parliament elections are not truly European; they are 27 different elections, in 27 different countries, in which national issues predominate. The European Parliament itself has refused to contemplate the election of some of its members from EU-wide party lists, which would begin the process of creating an EU-wide debate because it would necessitate an EU-wide political campaign on behalf of the rival lists of candidates. 
The President of the European Commission, and the President of the European Council, are selected in private meetings by heads of government. They do not have to win the votes of EU citizens, and consequently EU citizens do not have the feeling that they can vote the government of the EU out of office, in the same way that they can vote their national government out of office.

Thus the EU does not enjoy democratic legitimacy in quite the same way that national governments do. As a member of the Convention that drafted what eventually became the Lisbon Treaty, I urged unsuccessfully that the EU should have a Presidential election along these lines. I suggested that the President of the European Commission should be selected in a multi-candidate election in which every EU citizen would vote, rather than be selected, as at present, by 27 heads of Government  meeting in private, to be approved in a single candidate vote in the European Parliament.

This proposal received almost no support at the time, although it has since been adopted as policy by the German Christian Democratic Union. If that had happened when it was proposed, the EU would now be in a stronger democratic position to devise a more coherent response to the euro crisis and to find a solution to the UK’s difficulties. The Commission, headed by a President with a full EU-wide democratic mandate, would have more authority to propose solutions. The council of 27 heads of government would still play a vital role, but the EU would be less constrained by the electoral timetables of individual countries, as is the case with the German election of 2013.

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