Thursday, 2 March 2017

Five paths for the post-Brexit EU27

Wednesday's Commission tract on the EU's future suggests a 'two-speed Europe' is probably the way forward. But wouldn't this just create more chaos and confusion?

Should the European Union separate or federate, or somewhere in between? 

This was the question posed in yesterday's remarkably honest and self-reflective white paper on the future of the EU, published by the union's executive body in preparation for a 'declaration of purpose' to be adopted at a summit in Rome next month by the 27 member states who will remain in the EU after Brexit (if it ever happens, that is).

The paper outlines five scenarios for how the EU should react to the Brexit vote - not in terms of how it should proceed with the divorce negotiations, but whether and how it should change itself to avoid any more member states choosing to leave.
It outlines five options:
  1. Carry on with things the way they are now
  2. Dismantle EU and make it only a free trade zone
  3. Split EU into a federal core and a more independent outer ring
  4. Give EU sovereignty over fewer areas, but with more power
  5. Go for a full federal Europe
Carry on Brusseling

The European Commission acknowledges in the document that nobody is feeling very optimistic about the chances of success for option number one. Eurosceptics, of course, aren't happy with the way things are now. But neither are pro-Europeans.

The paper notes that the EU has only gone halfway with federalisation and that has meant that while these crises can only be solved at EU level, the EU's 'federal' government does not have the power to act quickly and decisively to solve them. The result has been that “many Europeans consider the Union as either too distant or too interfering.” 

In other words, the EU at the moment has all the responsibility for solving these crises, but little of the power to do so. Leaving this system in place can, at best, deliver only "incremental progress" the Commission concludes. The paper points to the Schengen system as an example, acknowledging that the migration crisis has exposed flaws in the Schengen system - namely that there are now EU external borders but no EU border control (the power to patrol borders is still only national).

The Commission warns that leaving things the way they are, countries are going to start introducing (forbidden) internal border controls between EU countries - and the entire Schengen system will unravel. 

Single market only

So, perhaps the solution is to get rid of the Schengen common border system and go back to passport controls between EU states. This would be just one of the many walkbacks if the EU went for option two - downgrading to being only a free trade zone.

This, of course, is what many in the UK have been calling for for a long time. Brexiteers say that the last referendum on joining the EU in 1973 was a choice to join a single market, and since then the EU has morphed into a quasi-federal entity. On this, they do have a point. The EU today is unrecognisable from what it was in 1973.

But there is a reason that EU-level governance has spread to more and more areas since then. Most of the extensions of management have come as a way to improve the single market. 

Take the Schengen Area, for example. It certainly has symbolic meaning: that someone can now drive from Portugal to Estonia without ever having to go through an immigration control has a symbolic and practical effect in bringing Europeans together. It also greatly eases the lives of people who live in border areas and people who travel frequently. But more importantly, it eases trade between the states of the EU. 

The utility of goods being able to "flow freely" within the EU is of limited value when the truck driver transporting those goods has to stop at every border for a passport check. The ability for a Frenchman to set up a business in neighboring Germany is less enticing if that person has to go through immigration every time he goes between his business and his home.

This is just one of the 'extra' dimensions of the EU that seem to be beyond the single market but are actually quite related. Take away the accoutrements of the single market, the Commission warns, and the EU will be left with the same problem - the responsibility to maintain a prosperous single market with even less power to maintain it than it had before. A single-market-only EU "may be simpler to understand but the capacity to act collectively is limited”. Citizens would still expect the EU institutions to deliver economic benefit, even after stripping them of their power to do so. This would "widen the gap between expectations and delivery at all levels," the Commission notes.

Do more with less

I will skip option three for the moment and focus on option four. The main idea here is that the EU would be given authority over fewer areas, but it would be given more power to act in the areas that are left.

So for instance, the EU might drop any pretense of having one single European foreign policy, abandon efforts to enshrine and enforce inalienable rights for EU citizens, and abandon the Schengen passport-free zone. At the same time, member states would give the EU institutions more power to act quickly and decisively on things like trade agreements (perhaps no longer needing unanimous national approval) and fiscal/economic policy (the EU would set inviolable budgets for eurozone countries).

Or, perhaps, the other way around. Maybe the EU is given more power in those big sensitive areas (foreign policy, military coordination, border control) and less in the smaller economic ones (no longer setting standardisation over things like toilet flushes and lightbulbs energy use at EU level). 

Essentially, this option assumes that the EU has too much on its plate at the moment, and needs to be left to focus either on the big things or the small things.

Full federation

This was the dream of EU founding fathers like Robert Schuman, and it is still the dream of many a European federalist today. Therefor, it needed to be included on any list of scenarios, just like the option for its opposite - degeneration into a free trade zone - needed to be included. 

But the Commission knows that such federalisation is not on the cards at the moment, despite the evidence of the benefit it would bring.

Under this scenario the EU would get its own dedicated resources - the power to tax EU citizens directly (people would pay tax to both their state and federal government, just like in the US). The EU would be given the power to set budgets and spending for eurozone countries, and the eurozone would have one finance minister. The EU would have one foreign minister who would have the final say on foreign policy decisions (in the same way that California cannot set its own unilateral foreign policy, neither could France). The EU would set trade policy for the bloc without needing unanimous approval from member states (again, just like in the US where one state cannot veto a free trade deal). 

In short, this option is the "United States of Europe".

Such a strategy would allow for more efficient governance and "far greater and quicker decision-making", the paper notes. But it also acknowledges that the European public is not ready for this kind of Europe. "There is a risk of alienating parts of society which feel that the EU lacks legitimacy," the Commission notes. Those parts of society are fairly significant.

Two-speed Europe

That leaves us with option three. In truth, the trend toward a two-speed Europe, in which some countries move ahead with greater integration in certain areas while others do not, has been developing for some time.

It started with the 1992 Maastricht Treaty, in which the UK, Ireland and Denmark negotiated opt-outs to some of the elements of the newly-formed EU. Denmark and the UK would not participate in the euro, not would they participate in some aspects of justice and home affairs. The UK and Ireland would not participate in the Schengen free travel area.

This set the stage for later ad-hoc coalition-building and the creation of an "enhanced cooperation" mechanism to enable some members states to move ahead with integration even if not every state wanted to. It was most famously used recently for the European Patent.

Europe had a series of 28 different national patents, which made securing copyright protection for your invention or creative work a nightmare. A proposal was made to create a single EU patent, but Italy and Spain were unhappy that the languages used would be limited to English, French and German. They vetoed the legislation that would have created the patent. So the other 26 member states went ahead and passed it on their own using enhanced cooperation.

The end (and perhaps moral) of the story is that in the end Spain and Italy had to relent and are in the process of joining the patent.

Option three assumes there's going to be a lot more arrangements like this in the future, and they will involve things much more serious and sensitive than patents. 

The most obvious inner ring and outer ring will be the eurozone and non-eurozone. The eurozone will move forward with economic governance (a process that has already begun with the establishment of the European Semester of budget oversight), while the countries not using the euro will maintain their own fiscal independence and set their own budgets. The treaties would most likely be changed to end the obligation for all EU member states to eventually join the euro (a requirement which only the UK and Denmark have an exemption from).

Ring after ring would develop in Europe. Some countries would choose to pool their military capacities, while others would not. Some would choose to set a common external border patrol, while others would not. Some would collect an EU tax, others would not.

On the positive side, this would allow those countries who want deeper integration to move ahead without being vetoed by the more reticent ones. For instance, France and Germany have wanted to move forward with defence cooperation for many years, but the UK has vetoed any prospect of such an "EU army". The scenario ends the situation where some countries hold the rest of the EU back.

But there is significant risk to this situation, as the Commission notes. The European supranational bodies are already a confoundingly confusing system of overlapping rings (just look at this headache-inducing euler diagram).

Adding even more complication would mean more confusion for citizens about exactly which circles they're in, something they already have trouble understanding (I continue to be shocked by the number of EU citizens who do not know whether their country is inside or outside the Schengen area).

Can this option deliver the single, strong voice that Europe needs to be relevant globally? It seems doubtful. It certainly doesn't answer Henry Kissinger's famous question "who do I call when I need to talk to Europe?" Yet it appears from the analysis that the Commission has concluded it is the only way forward for the moment.

While the paper is generally neutral in tone, it seems clear that option 3 is what the Commission is putting forward as the best scenario to shape the declaration at the Rome Summit on 25 March.

The summit is being held to commemorate the 60th anniversary of the EU (a claim of longevity I find highly dubious, but that's another subject). EU leaders are keen to come out with a statement that reassures the world that while it is taking the implications of Brexit seriously, it still has a solid plan to move forward as a bloc without the UK.

Why two speeds when the brakes are leaving?

Personally, I wonder if this paper isn't giving up too soon on options four and five. After all, doesn't the removal of the UK negate much of the need for a two-speed Europe? It is not always the UK that is blocking progress, as illustrated in the patent example. But usually it is London exercising its veto on further integration, most notable on anything involving militaries or foreign policies. 

Are there really so many similarly uncooperative countries left in the future EU27 that Europe needs to go this two-speed route? Perhaps option four is the better choice, although I fail to see from the paper's analysis how this works in practice. It's all well and good to say "the EU needs to be big on the big things and small on the small things", but if every country starts setting their own standards because the EU institutions decided they're too busy to do it (or that they're tired of taking the blame for them), what happens when all those different standards conflict within what is supposed to be a single market?

To me, option five is the no-brainer solution. But I understand there are sensitivities around this area in Europe, where the spectre of 19th century nationalism still looms large over these nation-states. I hope, however, that option five at least gets some robust discussion in the month ahead.

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