Friday, 24 June 2016

Can The European Union And The UK Avoid A Complete Train Wreck?

After the UK’s slightly surprising referendum results, the ‘Brexiters’ are gleefully extolling Britain’s new found ‘independence’ from the perfidious European Union while most of the sober main-line newspapers are wringing their hands over the country’s descent into prolonged economic and political confusion. Both reactions are premature, at best.

While there are clear winners -- Vladimir Putin and real estate agents in Frankfurt and Dublin for example– and some likely losers such as Prime Minister David Cameron and London’s financial district, the full impact will take months if not years to become apparent.

The biggest loser of the UK's referendum
If, and I do realize it is an enormous If, both the UK and European Union officials exercise just a bit of imagination and some flexibility both sides could emerge from this mess with a semblance of order. There is precedent for the EU forging a new type of relationship with the UK, but other EU countries would first have to get over their collective anger and pique that someone could reject their over-engineered structure.

That precedent, something like a privileged partnership, has been on the table for several years with Turkey. While most of the EU countries reject the very idea of a country as large and autocratic as Turkey becoming a full member they have from time to time offered the idea of this privileged partnership. Essentially, such a partner would enjoy most of the benefits of the trade privileges of the EU, but would not be part of the decision making process. Turkey, with its exaggerated amour proper, always rejected this compromise as being beneath its dignity. What the Turks so indignantly rejected could be very usefully be offered to the UK.

While the exact nature of this partnership would take long and tortuous negotiations to hammer out it is far better that both sides work out a compromise rather than storm off in a huff of injured pride. Broadly speaking the UK would have to recognize that a complete rupture could do serious damage to the Western European economic and geopolitical structure that – while imperfect – has provided an unparalleled level of political and material security to its citizens since the end World War II.

It would be idiotic beyond belief to put this at risk just because of injured pride. A look at Vladimir Putin rubbing his hands in glee at the self-immolation of the EU should reinforce this point. How long does anyone think he would take to increase the pressure on the Baltic states or countries like Romania and Bulgaria to return to the ‘true’ fold?

The EU would have to realize that such a complete rupture would not be in its best interests. Free trade between the UK and the EU benefits both sides enormously. The ‘Brexiters’ in the UK will also soon find out that trade with the rest of the world without the EU behind it could be very difficult with all the new treaties that would have to be negotiated.

Most likely the cost of this trade relationship is the continued free movement of labor within the EU and the UK. Again, while the ‘Brexiters’ loudly condemned this free movement, it is very difficult to see how this free movement within the EU has hurt the UK. Quite the contrary, with the UK’s unemployment rate hovering around 5% it is clear this movement of labor has supported the UK’s growth.

In this new relationship, it is difficult to see the City of London retaining its pre-eminent position. Yes, London, even outside, the EU, offers much deeper financial services than any other place on the continent. But the EU may well insist as part of any deal that UK financial service firms can operate in the EU only if they are based in the EU. The only two EU cities that have any of the required financial infrastructure to handle such an influx of business are Dublin and Frankfurt.

In short, there is plenty of room for both sides to reach a compromise that does not threaten the geopolitical structure of Western Europe. But first, EU officials must recognize that the common perception of them as elitist, dogmatic, undemocratic technocrats out of touch with real citizens has led to this impasse. It is well past time for them to do a little soul-searching about their constant over-reach and intrusion into the life styles of member states.

It would also be nice if the ‘Brexiters’, for their part, recognized that no country has the absolute sovereignty they loudly proclaim. The world is simply too interconnected these days. A wrong word in London, Beijing, New York, Tokyo, or Berlin can have an instant economic and political impact. We will soon see if both sides are mature enough to step back from the abyss they have opened to reach a reasonable compromise.

          Then again, maybe nothing much has changed Britain's view of the European Union since the days of the famous comedy series Yes Minister.


Marina Marinopoulos said...

Well described! Let's see what happens...

Leonidas Cambanis said...

But "both sides" are NOT mature enough, which is also the case for the rest of the members of western civilization - there are ample, disturbing examples of this in recent times.

ahmet said...

Well put...but now its time for the politicians to dance and cover up "what went wrong". Your suggestion makes sense in that one can find a synergy and strength out of the mess, but this is true for people with brains and not for the politicians who are desperately trying to win the hearts of the voters! Lets see their dance first and then maybe "the square token" will drop in its place.

Richard Royds said...

Good analysis, David, and a lot of good material here for our 'leaders' to digest, were such thoughts winging their way to them - let's hope common sense prevails before we reach the abyss.

I feel the shock that this represents had to come from us, given our past history over these last five hundred years of opposing dictatorial forces that did not have our interests at heart or wish to take over from an arrogant undemocratic (or religious) standpoint, as is the case with the EU!

I hope this shock will turn the politicians involved into statesmen and women as a potential crisis emerges...

Richard and Violanda Royds