Saturday, 2 July 2016

Why England in the EEA would be a victory for France

France has always resented British influence in the EU. Excluding the UK from EU law-making could reshape the union in the French model.

In 1963, when the United Kingdom first applied to join the European Community, the answer from Paris was a resolute 'non'. 

French President Charles de Gaulle vetoed the application in '63 and again in '67. He said that "a number of aspects of Britain's economy, from working practices to agriculture...made Britain incompatible with Europe". He added that the UK had a “deep-seated hostility” to any pan-European project.

It wasn't until De Gaulle relinquished the French presidency that Paris finally relented and allowed the UK to join the club in 1972.

So what were the "aspects of Britain's economy" that De Gaulle was so worried about? It was free market liberal economics. De Gaulle, and his successors, distrusted the "Anglo-Saxon" (The French term for Anglo-American) model of capitalism and had a very different vision for Europe.

West Germany, on the other hand, was more inclined toward the Anglo-American model. For obvious reasons, Bonn's influence in EU decision-making at that time was constrained. Paris seemed to view the EU as a vehicle to project French power - and the French model of social democracy. Germany wanted the UK in the bloc in order to counter French influence.

Thorn in Paris's side

Germany got the accession, but perhaps not all the help it wanted. Although the UK joined, London always kept an arms-length distance from EU policymaking. While Paris created a strong Latin bloc with Spanish and Portuguese entry into the EU in 1986, the UK failed to build alliances in Brussels. On the continent, the view was that though London understood it needed to be in the EU, there was something psychologically upsetting to the Brits about acknowledging that fact. And so their involvement in Brussels was limited.

Then came the two waves of new accessions in the 1990s and 2000s, following German reunification. The first was the entry of the Nordics and Austria in 1995. These countries probably wouldn't have joined the EU if the UK wasn't in it, given their more free-market orientation. They saw the UK as a counter-balance to French dominance. Indeed, Denmark and Ireland had entered the bloc at the same time as the UK because of this reassurance.

In the late '90s the UK pushed for the accession of the former Communist states of Eastern Europe. Paris resisted. The new democracies of the East were quickly developing using an Anglo-American model of capitalism that the French did not like. But the desire for the symbolism of a united Europe, and the importance of supporting these new democracies, trumped French (and to some extent, German and Italian) objections.

The British obstacle removed

Now, the UK has voted to leave the European Union. The public vote has thrown the country's political leadership into disarray - with the resignation of the prime minister who called the referendum but campaigned for a remain vote. 

The UK's future relationship with the EU will be determined by who wins the Conservative leadership battle to replace him. Boris Johnson, the de-facto leader of the campaign to leave the EU, shocked the nation on Thursday when he announced he would not stand for the leadership. It now seems clear he didn't actually intend for the leave camp to win. Instead he wanted to position himself to plan a future leadership challenge based on being the 'people's champion' in a campaign that would lose. So much for that plan. He is now one of the most reviled people in UK politics.

Michael Gove, the second-most prominent leave leader, is standing for the leadership. But the markets, and the UK establishment, seem to be leaning toward the home secretary Theresa May, a close ally of Cameron who ostensibly supported the remain camp, but was very quiet about it.

They are hoping that May will choose to take the EU into the European Economic Area (EEA), a group of small countries that are technically not in the EU but have to follow most of its rules in exchange for access to the EU's common market. That way, the UK's position in the common market will remain the same, and everyone can relax.

Well, not quite the same. Because as a member of the EEA, the UK will no longer have a vote in shaping EU legislation.

The EEA countries - Norway, Iceland, Liechtenstein and (de-facto) Switzerland, are what's referred to as "fax democracies". They have to follow almost all the rules in Brussels (with some areas ring-fenced, such as fisheries for Iceland), but because they are not member states they don't get a seat in the Commission, a vote in the Council or representatives in the Parliament. It is exactly the kind of 'diktats from Brussels' situation many misinformed leave voters thought the UK had today.

In short, after two years of protracted negotiations the UK would be exactly where it started, except it would no longer be represented in the law-making process.

And that would suit France just fine.

Impotent London

It's the best of all worlds for France, which has long been stymied by the British in EU law-making. France gets to keep access to the British market, while at the same time they get to decide, without a British vote, what rules have to be followed in that market. And you can bet those rules won't be of the "Anglo-Saxon" variety.

The UK hasn't been great at wielding power in Brussels, but it hasn't been completely absent either. It was through British insistence, overcoming French objections, that the EU was expanded to the East. The UK continues to push for Turkish accession over strong French and German objections. And it was the UK that pushed for the existing free trade deals with Canada, Japan and Korea, and is now pushing for the TTIP free trade deal with the United States. France, far less keen on free trade, may kill off TTIP negotiations once the UK leaves.

This is what has much of Europe so worried about a Brexit. I think the degree to which other governments are afraid of referendums in their own countries is being overblown by the British and American media. Of course, if you poll people and ask them if they want a referendum on anything they're going to say yes. It's a result of the way we are educated in the West.

But there is no EU country that comes anywhere close to the Brits in their projected support for an EU exit. In the Netherlands, often cited (absurdly) as the next country to go, support for leaving the EU hovers around 20%. The stats are similar for other eurosceptic countries like Sweden, Czech Republic and Denmark. 

What these countries are worried about, however, is the loss of the biggest free-market liberal voice at the table. Together they are not big enough to counter the influence of France (with its Mediterranean allies) and Germany. This could very soon start causing serious rifts, and TTIP may be the first battle.

It is no wonder, then, that French President Francois Hollande has been the most aggressive over the past week in insisting that the UK invoke Article 50 and start the process of negotiating the exit. Once that article is triggered, the UK is excluded from the decision-making table at the Council. 

Frankly, Paris can't wait. They see where this is headed, and it seems like there are few options but for the UK to join the EEA or create an arrangement mirroring the EEA, like Switzerland has done.

This isn't to say that I think Paris was rooting for a Brexit. Certainly not. It presents a grave challenge to the entire European project and will damage the European economy as a whole. But with every crisis comes opportunities, and there are significant opportunities for Paris now to reclaim the power they once had in Brussels. Perhaps nothing is more symbolic of that than the fact that, if neither Ireland or Malta are willing to remove Gaelic or Maltese as EU official languages, English could no longer be an official language of the EU after Brexit.

EEA not a good fit

Of course, as I've written before, I just don't see how joining the EEA makes any sense for the UK. It would fundamentally betray the referendum voters on the main issue of the campaign - curbing immigration.

The EEA was created in the 1990s for the remaining countries in the (now defunct) EFTA, the free trade zone created by the UK in the 1960s for countries in Europe but outside the EU. 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', completely mimicking EEA membership (including the right of free movement).

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 - and they can veto the UK's entry (as can any EU member state).

Yes, the EEA countries have some areas of policy ring-fenced against EU interference. But in fact they have less opt-outs from EU legislation than the UK has today. The UK has had the best of both worlds - benefitting from special treatment with exemptions from the euro, schengen, security and human rights rules while still getting a vote on the lawmaking. 

Perhaps the UK will be able to get a few more opt-outs out of EEA membership. For instance, exemption for the Common Fisheries Policy rules or rules on workers rights such as the working time directive which guarantees 20 days of holiday per year for all workers in the EU. But there is no way they can get an exemption from free movement rules, the main issue of the Leave campaign.

EU leaders unanimously reaffirmed this at their summit on Wednesday. The UK was excluded from that meeting, and it was the first European Council without the UK in 40 years.

The EU is made up of four pillars: freedom of movement for goods, capital, services and workers. These four pillars were non-negotiable in the 1990s talks with Norway, Iceland and Switzerland and they will be non-negotiable now. So how exactly is this going to work? The leaders on Thursday said that no caps on freedom of movement, of any kind, would be acceptable if the UK wants access to the EU common market.

The only other option, then, is to instead create a free trade deal between the UK and EU, similar to the one that Canada has with the bloc. But this would only reduce customs tariffs and put the UK common market. This would almost certainly cause a huge exodus of businesses out of the UK, if the country is no longer a gateway to the European market.

Whoever becomes the next leader will be faced with a choice. They must either anger the working-class voters who supported Brexit by joining the EEA, or anger the world business community who supported remain by leaving the common market. One could lead to unimaginable economic damage. The other could lead to unimaginable political damage. It's not an enviable position to be in. Small wonder that Johnson decided he didn't want to be the one to get stuck in this catch-22.

Joining the EEA would be an incredible act of self-castration for the UK to take, and it would be a huge victory for France. But it may just be the least-worst option out of a bad bunch.

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