Brexit and the Future of Europe

Jean Pisani-Ferry

PARIS – No one yet knows when the United Kingdom will present an agenda for negotiating its withdrawal from the European Union. But it is already clear that Brexit will reshape the map of Europe. And, especially given Britain’s stunning unpreparedness for the consequences of its own decision – its strategy, priorities, and even its timetable remain uncertain – that means that the EU must start figuring out how to make the best of it. Here’s how.

Let’s start with the only certainties: the Brexit negotiations will be long, complex, and acrimonious, and the divorce will have far-reaching geopolitical effects. The immediate impact is a halt to 60 years of integration momentum. Europe will suffer in the short and medium term as well, as considerable political energy is likely to be devoted to Brexit for the next five years, at a time when the EU needs the strength to confront internal and external dangers. Over the longer term, Brexit is likely to accelerate Europe’s exit from the top table of global decision-making.

Britain will not escape these consequences. Whereas it can leave the EU, it cannot relocate away from Europe.

That is why, though Britain’s European partners did not choose Brexit, they must manage its consequences successfully, which requires balancing two priorities. Their tactical goal must be to reach a deal with the UK that maintains the integrity of the EU. The strategic goal is to preserve Europe’s prosperity and influence.

It is with these ideas in mind that I, together with several European colleagues – all of us acting in an individual capacity – recently co-authored a paper proposing a concept for Europe in 10-20 years: a continental partnership that would create a new basis for continued economic, foreign policy, and security cooperation with the UK.

The basic economic idea is a template for a relationship that is considerably less deep than EU membership, but rather closer than a free-trade agreement. If adopted, Britain and the EU could not only preserve their economic ties, but also provide a new model for the future relationship between the EU and neighbors that will not join it anytime soon: Norway, Switzerland, Turkey, Ukraine, and eventually southern Mediterranean countries.

Any proposal regarding the future of the EU-UK relationship must start from an interpretation of the Brexit referendum’s meaning. Ours assumes that UK voters rejected both the legal impossibility of limiting inflows of workers from the EU and the principle of pooled sovereignty.

These two political constraints should be taken as a given. The first implies that a lasting arrangement between Britain and the EU cannot include free movement of labor. The second rules out participation in a common polity, and thus implies that any cooperation must be based on intergovernmental agreements.

The first constraint is a serious stumbling block, because the EU is based on the free movement of goods, services, capital, and workers. The UK’s European partners adamantly claim that these four freedoms are indivisible, and that if Britain wants to maintain free access to the continental market for its data processing and financial services, it must accept unlimited access to its labor market for Polish or Irish workers.

Freedom of movement of workers is undoubtedly integral to the EU. Indeed, the fundamental right to settle and earn one’s living in another country without asking for permission does not exist anywhere else in the world. For millions, this right most fully embodies what the EU stands for.

But Britain has made its choice, and the right question to ask now is whether strong economic links can be preserved without free movement of labor. From an economic standpoint, the answer is yes: a deeply integrated market for goods, services, and capital does not require full labor mobility. What is needed is only enough temporary mobility to accompany the integration of services markets.

In other words, freedom of movement of workers is politically essential within the EU, but economically dispensable when dealing with third countries. An economic agreement with Britain does not need to include it.

The second constraint is of a different nature. Unlike a market for nails or screws, a market for financial or information services must be based on detailed legislation that ensures fair competition and protects customers. A large part of the EU’s task is to prepare this legislation. So the question here is how British producers can retain access to the EU market (and vice versa) if they are no longer party to the legislation.

Solving this conundrum would be one of the main purposes of the continental partnership. Through it, Britain would participate in a multilateral process of consultation on draft EU legislation and would have the right to raise concerns and propose amendments, so that the outcome of the process would remain as far as possible consensual. Both sides would be politically committed to listening to the other. The EU, however, would have the final say, so that its laws would apply and be enforced.

To enjoy full access to the EU market, Britain would need to agree on a package of policies essential to the proper functioning of an integrated market: competition rules, consumer protection, and fundamental social rights, for example, and perhaps also minimum tax rules to avoid distortions of the type recently exemplified by Apple’s practices. Britain would also need to contribute to the EU budget, from which development funds (the counterpart to single-market access) are delivered.

Some object that the deal would be too harsh for Britain to accept. But would the UK be better off losing access to the market of its main trading partner?

Others worry that the EU would surrender its decision-making powers were it to consult with outsiders. But how would the few without a vote – Britain and others – dominate the many with a vote?

Still others claim that such an arrangement would concede too much to Britain, compelling other countries to aim at a similar status and causing the EU to unravel. But why would an EU member be better off abiding by rules and paying into the EU budget without having a vote on the design of policies? And, far from undermining European integration, a continental partnership could support the consolidation of the EU’s core.

True, there would be a price to pay for everyone. But it would be far lower than the price, in terms of lost prosperity and diminished global influence, of failing to create a continental partnership./project-syndicate