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The Brexit Saga: Seven Lessons for the EU

The lessons that the EU will – hopefully – draw from Brexit should give it a good chance to weather other storms

By: EBR - Posted: Wednesday, October 23, 2019

The EU27 is a commercial giant. Because the big EU used the strength of its size, it has largely prevailed on many aspects of the Brexit negotiations.
The EU27 is a commercial giant. Because the big EU used the strength of its size, it has largely prevailed on many aspects of the Brexit negotiations.

by Holger Schmieding* 

In many respects, the departure of the UK will weaken the EU. For a long time, the EU had seen a pragmatic, dynamic and liberal-minded UK with strong foreign and security policy capabilities as a cornerstone member.

In the late 1980s, the UK made an outstanding contribution to the EU by helping to drive the completion of the Common Market, especially for services. Thanks also to Margaret Thatcher’s domestic reforms, the City of London became a prime beneficiary of that move.

Until very recently, the EU27 would have very much liked the UK to remain a member. But the times have moved on. Following a UK referendum which opponents to the EU won with claims that were partly based on fiction, and in the wake of hitherto unimaginable political turmoil in the UK during the last ten months, much of the EU27 is now endorsing the agreement for an orderly divorce.

The EU27 will have to focus on tackling many divisive issues in the near future ranging from the next seven-year budget (2021-2027) to migration control, enlargement, EU reforms and the response to populist challenges such as those posed by Poland and Hungary.

Under the current political circumstances, the new divorce deal with the UK is probably the least bad of all feasible options for the EU27.

So far, the bruising Brexit experience has strengthened rather than weakened the cohesion of the EU27. The club can draw seven key lessons from this.

1. A common approach pays off

Whereas we have to watch the Brexit back and forth in the UK House of Commons, EU leaders unanimously accepted the new Brexit deal immediately. After some nitpicking over details, the European parliament will likely ratify it fast as well.

Repeated UK attempts to play individual EU members against each have come to naught. For the EU27, this is an uplifting experience. Whether this will help to shape a common position versus Trump, Putin and China, remains to be seen, though, to put it mildly.

2. Harness your own power

The EU27 is a commercial giant. Because the big EU used the strength of its size, it has largely prevailed on many aspects of the Brexit negotiations.

In some respects, the new Brexit deal with a special status for Northern Ireland is even closer to the EU’s starting position than Theresa May‘s failed deal, which would have kept all of the UK in a customs union with the EU27 in the unlikely case that the insurance policy to keep the Irish border open after the UK’s full exit from the EU had to be activated.

Even for a Northern Ireland torn between a British and an Irish identity, the somewhat in-between status for its economy is probably a sensible outcome now that the bridging status of being in an EU encompassing both Britain and Ireland is no longer available.

3. Political solidarity counts

The EU is a political endeavour well beyond a mere free trade arrangement. The entire EU27 has respected the claim by the Republic of Ireland that the avoidance of a hard land border on the Irish isle is a matter of supreme national importance for Dublin.

As a result, the EU27 as the top trading bloc in the world lent its entire commercial might to small Ireland to let Dublin shape the terms of the border arrangements for Northern Ireland versus the bigger UK.

That UK Prime Minister Boris Johnson finally took Dublin serious during a walk in a Cheshire park with his Irish counterpart Leo Varadkar, and that Ireland has now blessed the new deal, made the crucial difference.

Like some other views of hardline Brexiteers, their oft-touted belief that German Chancellor Angela Merkel would eventually ride to their rescue and tell Dublin to back down in the wider interest of the German car industry has been exposed as wrong.

The case of Ireland shows that, being a member of a multinational club, can give a country extra clout to further its national interests.

4. Mind the unintended consequences of policy choices

In the summer of 2015, Germany had thrown open its borders for refugees as a humanitarian gesture. It also wanted to show solidarity with its European allies by taking in people already stranded in Hungary or elsewhere on the Balkans route.

In some respects, this decision and the subsequent decision to not control the German border more rigorously right afterwards, backfired badly. The number of people embarking on the perilous journey from Turkey towards Germany and beyond increased further for a while.

Although few of the migrants and refugees made it to the UK, the pictures of the refugee crisis gave opponents of the EU a further reason with strong emotional appeal to argue against open-border immigration policies.

This additional twist in the UK’s long-standing migration debate did not help the cause of the EU in the UK, to put it mildly.

5. Not too much of a special status, please

Every EU member is special. But a club needs rules. Since the 1970s, the EU has tried to accommodate UK demands for special treatment ranging from Thatcher’s famous budget rebate to exemptions from the Maastricht Treaty and concessions to then-Prime Minister David Cameron ahead of the UK’s 2016 EU referendum.

In every case, the EU got the impression that the UK came back afterwards asking for more exceptions to the rules. The EU should not repeat this experience with other members claiming special status.

Incidentally, when the EU finally decided to simply play it by the rules in the Brexit negotiations, the UK was at last forced to face the hard choices.

6. Debates are won or lost on the national level

The EU is and will remain a club of nation states. It takes national leaders to make the case for the EU.

In the UK, Cameron shied away from campaigning for the EU until he had secured some new exemptions from EU rules for the UK. Thereafter, it was far too late for him to sing the praises of the EU with sufficient conviction and emotional appeal.

The UK debate had long taken on a life of its own. Jointly with NATO, European integration has delivered the longest period of peace and prosperity on most of the European continent since the fall of the Roman Empire.

Making EU membership dependent on some modest changes, as Cameron had de facto done, instead of emphasising the fundamental advantages of being in the club, benefits those who make a much more emotional if somewhat misleading case for leaving the EU’s umbrella.

7. Common rules and exit costs can help to tame the populists

The rise of populist politicians with a knack to treat facts in their very own way is a menace across much of the world.

We are still grappling with the fallout from the two great populist accidents of the last three years, the rise of Donald Trump to power in the United States and the UK vote to leave the EU.

The same social and political forces that are causing the deep political divides in the United States and the UK are at work almost all over the European continent as well.

But helped by the constraints which EU and euro membership imposes on them, countries sharing the euro seem to be better at containing the risks. For eurozone members even more so than for EU members, exit costs could be substantial.

In addition, the common rules and the simple fact that national leaders meet each other roughly every other month to discuss and decide many issues often imposes a discipline. Members know – or find out over time – that, if they play foul on one issue, other members can get back at them shortly afterwards on other issues.

The discipline which membership of the club often entails is one reason why the populist tide seems to be receding in many parts of the continent. The left-wing radicals of Syriza (Greece) and Podemos (Spain) have lost ground in the last two years. In Italy, the 5Stars have morphed from a motley collection of radicals (think Beppe Grillo) into an almost standard pro-EU centre-left party (think Giuseppe Conte) within the last 16 months.

In Austria, the right-wing FPO has lost office and a major chunk of its vote. In France, President Emmanuel Macron has weathered the “yellow vest” challenge – to list the obvious examples.

The future of the EU: Toward a club of clubs
It may be one of the greater ironies of the Brexit saga: While UK Conservatives have turned more and more against European integration, the EU is gradually evolving into the kind of organisation that many UK observers would have wanted the EU to be in the past.

The EU is turning into what I call a “club of clubs.” Based on a common market for goods and services, capital and labour and some basic requirements (democracy, human rights and the rule of law) mandatory for all members, the EU is becoming more flexible.

As members differ, they can de facto choose whether they want to be part of overlapping clubs going for deeper integration (common currency, Schengen zone of open borders, common security policy etc.).

Conclusion

Together with the lessons that the EU will – hopefully – draw from Brexit, this degree of flexibility on a firm basis should give the EU a good chance to weather other storms now that the Brexit saga has – probably – moved one step closer to a resolution.

*chief economist at Berenberg Bank in London

**first published in: www.theglobalist.com

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