The authoritative source for independent research on UK-EU relations

09 Aug 2016

Relationship with the EU


The direction the majority of people voted for in the UK’s EU referendum is clear: as soon as Article 50 is invoked, Brexit will mean just that. In the short term there will be no going back. It will then be simply a matter of time before the UK and EU enter a new stage in their relationship.

Negotiators are taught to go for ‘win-win’ wherever there is a chance for both sides winning something. There could be advantages for everyone in a new deal around Brexit. The trade options that motivated Brexiteers in the referendum were very broad: from staying as close as possible to the status quo (minus EU immigrants) to falling back on WTO rules at the other. In consequence, those who will decide the UK’s negotiating mandate have plenty of choice. They are constrained by what the EU is prepared to offer but they need to be open to new European ideas.

This referendum has revealed a changed UK, and over the next few years the EU will change too.  The UK will get a more positive engagement – and probably a better outcome – from its negotiations with the EU if it focuses less on what Britain found objectionable in yesterday’s EU and more on what might be acceptable in tomorrow’s. The EU will change for several reasons.

First, the euro. While the EU has no appetite for abandoning the euro or for expelling individual members, it is unlikely to soldier on indefinitely with the financial and social tensions the project has generated. It is possible the more strongly performing northern euro-subgroup will take further steps to integrate more fully, arranging a looser link to a southern euro-subgroup with a “soft” currency which could move – by agreement – against its stronger neighbour. That would leave the remaining eight members who have not joined the euro as a third group. The euro as two groups rather than one would no longer represent the overwhelmingly dominant economic block that it does at present. The balance of interests would shift and so would the negotiating strength of different players.

Secondly, free movement. With steeply increased migration from third countries, open borders within the EU are no longer sustainable. The physical and administrative barriers that several members erected in the face of mass migration from third countries was a reflection of their failure to organise a common policy that works. What is likely to emerge over the next two years is a “patchy” Schengen, where groups of states cooperate on migration policy, pursuing enhanced cooperation among those which find themselves in similar situations (perhaps Benelux, Denmark, Germany and Austria). As control of the EU’s external border improves, and negotiations with Turkey progress, so the shape of these groups will emerge. In that changing context, the balance struck between third country and intra-EU migration will allow some practical conditions to be set – in common – on the absolute principle of free movement. As the years pass and the negotiations progress, the UK will not be alone in asking for this.

Thirdly, retribution. The EU will not punish the UK economically, whatever the rhetoric of the Commission and the Parliament. The EU will engage with the UK to solve the economic issues of poor demand and weak growth within the single market. Otherwise the stresses of high unemployment and resentment towards migrants will continue to fuel anti-Brussels and anti-Establishment movements.

The EU would be more successful if it loosened its structure for some states and simultaneously provided for tighter political integration for others. Current stresses and strains force it to question the notion that ‘one size euro and one size Schengen’ fits all. It will be nudged into a position where groups of members which choose to integrate either their currencies or their borders, or both, can co-exist inside the single market alongside others which wish to do neither.

You could imagine a European single market that encompasses three semi-autonomous EU regions: a highly integrated core around Germany, a looser arc from Greece to Portugal, possibly with a weaker version of the euro as their single currency, and a third grouping of largely independent states from Ireland to Finland with perhaps some of the Baltic States associating around policies which exclude monetary union and keep their states outside even a revised Schengen.

Even before the UK triggers Article 50 Britain has become an outsider, no longer with the standing to suggest what the EU of 27 may decide about their future. However, the UK does have a direct interest in the membership and rules governing the tier of countries that are not so closely associated with the core EU or even the Mediterranean arc. A remodelled version of the European Economic Area (EEA) may well be Britain’s resting place when the dust settles.

If the EEA were made flexible enough to provide access to the Single Market but a) not require membership of the hard or the soft euro, and b) allow some reciprocal limitations on free movement, it could provide an answer for the UK and potentially other states around the periphery. If their security interests were sufficiently assured, the Baltic States and Poland as well as the Balkans might find this the most practical and least constraining group to belong to. For all players, maintaining the single market is the essence of the “win-win” solution. The EU cannot expand indefinitely, but the single market can continue to grow around its frontiers. Most relevant to the UK future is the possibility of reforming the terms of the EEA agreement, so it is a body within which it can feel comfortable.

The worst outcome for the UK would be short-sightedly to conclude an economic agreement under yesterday’s rules and assumptions, only to find that the EU of 27 was moving towards a new treaty in the 2020s with looser structures which we wished we had known about earlier. This argues for strong and effective UK diplomacy, with plenty of listening and dialogue on a bilateral basis, and taking time to focus on both our own and the EU’s future, not a quickly botched together deal that looks backwards.

By Martyn Bond, senior honorary fellow at Regent’s University London and Michael Starks, senior member of Lady Margaret Hall, Oxford


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