Sunday, 12 June 2016

After divorce, UK and EU unlikely to be 'friends with benefits'

The EEA was not built for a country the size of Britain. To think that the EU will allow it to easily join is folly.

This week the EU's most powerful finance minister, Germany's Wolfgang Schäuble, will say in an exclusive interview to be published by Der Spiegel that the UK should not be given special access to the EU common market, à la Norway, if it quits the bloc.

"In is in, out is out," he will say in the interview, which was seen and previewed by The Guardian.  “That won’t work, it would require the country to abide by the rules of a club from which it currently wants to withdraw. If the majority in Britain opts for Brexit, that would be a decision against the single market."

The comment flies in the face of the assertions of the Leave campaign, which has said that the UK's economic might mean that the EU would quickly allow the UK access to the single market without being a member of the EU, an arrangement given to Norway, Iceland, Liechtenstein and Switzerland.

There has been much debate over why on earth the UK would want the 'Norway model', considering that in exchange for access to the EU market Norway still has to follow almost all EU law and pay into the EU budget, without having any vote in making EU laws.

It is their business

But a more important question has not been discussed as often. People in the UK seem to have the impression that having a Norway-like relationship with the EU is the prerogative of the UK. It is not.

If the UK wanted to join the European Economic Area (EEA), the mechanism through which Norway, Iceland and Liechtenstein get access to the common market, it would need to be approved not only by those three countries (who have all signalled they are not keen on the idea of Britain joining), but also by all 28 EU member states.

Watching the reaction in the UK to The Guardian article about Schauble's comments, I was struck by two things. One common reaction was, "Well what does it have to do with them? They should mind their own business." 

But, it is their business. The remaining EU states will be very worried about contagion in the event of a Brexit. It will be in their interest to make life difficult for the negotiators who will have to work out Britain's future relationship with the EU.
The UK's European Commissioner, Jonathan Hill, this week compared it to what happens after a divorce. He's right. To put it in terms the millennials might relate to, if your husband divorces you in an acrimonious split, why on earth would you then offer to be "friends with benefits"? He decided to leave, he doesn't get access to your common market anymore. Am I right ladies?

Many Brits have also been countering on Twitter that Germany would never shut the UK out because Britain is Germany's third-biggest trading partner. But what those people fail to see is that while the UK is just one medium-sized portion of Germany's trade, the EU makes up the vast majority of the UK's trade. 

The UK can't negotiate trading relationships with each country individually, it has to do it with the EU as a whole. That puts each EU country in a stronger position than the UK in these negotiations. All it takes is one country to veto giving the UK access to the common market, and the deal unravels. So each country will need to be bought off.

The idea that the UK would be the more powerful player in these negotiations is just delusional.

No UK in EEA

Complicating matters further, the prospect of joining the EEA is slim at best. It would be the easiest option, because it's a pre-existing organisation. It was created in the 1990s for the remaining countries in the (now defunct) EFTA, the free trade zone for countries in Europe but outside the EU created by the UK in the 1960s. It was created because these four small countries had just voted against joining the EU, but they couldn't remain outside of the common market without seriously damaging their economies.

There was one hitch when the Swiss then voted against even joining the EEA (the other three countries voted yes). The EU and Switzerland then created a series of 'bilateral accords' in order to bypass the need for another referendum. These accords created a 'pseudo-EEA', almost completely mimicking EEA membership.

The problem is that the EEA was a work-around, the product of a very specific time and circumstance. It was created for small countries who had never been EU members. All of these countries have economies kept afloat by one major activity (fisheries, oil, financial services). They are all a bit similar to each other, and all four bear no resemblance to the UK or its economy.

Norway is, rightly, worried that the UK applying to join the EEA would destabilise the whole arrangement, which is already on shaky ground. The UK would also quite obviously be the dominant player if it were to be let in, crowding out the Western Scandinavian interests. In short, it is not in Norway and Iceland's interest to have the UK join the EEA.

So rather than immediately dismissing Schäuble's comments as irrelevant foreign meddling, Brits should pay heed. Self-flattering delusion about the power of the British economy may feel nice but it is not recognising the realities of the situation on the ground. 

1 comment:

David said...

The FWB question is totally wrong. I know of couples who do exactly that after they split - they remain friends with benefits. It's how the world is. And the same goes for the UK.