Tuesday, 22 August 2017

My prediction: Britain will join the EEA

Like in Norway and Switzerland, British elites will have to accept an arrangement they know is bad in order to indulge the illusions of a slight majority of voters. 

The political class was stunned. After a nationwide in/out referendum on EU membership, expected to yield an 'in' result because the entirety of the political and business establishment supported it, people awoke to the news that people had voted out, by 52%. A yearning for national sovereignty had won the day.

This wasn't 24 June 2016. It was 29 November 1994, the day after Norway's referendum on whether to join the European Union. 52% voted for Norway to be outside the EU, while 47% voted to be in it - an almost exact mirror of the UK result 22 years later. The result was a political shock that sent reverberations through the government and business establishment. 

What happened in Norway in the ensuing years was a lesson in how politicians must sometimes pull their citizens along begrudgingly, or even unwittingly. Because even though EU membership had been rejected, Norway effectively ended up becoming an EU pseudo-member - under terms much worse than if it had become a member state. The same fate awaited Iceland and Switzerland. 

The lesson of what happened to these countries in the 1990s was not heeded by British politicians or the public ahead of last year’s Brexit referendum. In fact, as I wrote back in 2014, British people seemed to draw all the wrong lessons from these EU pseudo-members - seeing prosperous countries which looked like they weren't in the EU, but actually were for all intents and purposes.

In this way Brits did not see the incredible difficulty involved in being a Western European country outside the single market - a feat no country has achieved.

In the end, these three countries (plus Liechtenstein) had to work out an arrangement in which they maintained illusions of sovereignty while doing what was necessary for the economic health of the country. Knowing that they could not get a referendum on EU membership to pass a public vote, the governments of Norway, Iceland and Switzerland found a work-around.

Norway has access to the EU single market through a custom-created vehicle called the European Economic Area. In exchange for this access, Norway has to follow EU law and pay the same amount into the EU budget as member states. 

But because it is not actually a member state, the country has no say in crafting those rules. Norway has no commissioner in the EU executive, no members of the European Parliament, and no vote in the European Council. 

People have taken to calling this arrangement, shared with Iceland and Switzerland, a "fax democracy". As a opposed to a phone call, which is a two-way conversation, a fax is a one-way diktat. 

In short, it is exactly the vision of 'decisions being taken by foreigners in Brussels and forced on us without our consent' that has been created by British tabloids for 20 years. That description was always a lie. But it may be about to become a reality, thanks to the referendum that those same tabloids forced on the government.

Damage control

It seems to me this Brexit is headed in the same direction that we saw the Norwegians go in the 1990s. It is now clear that there will be no leaving deal in the Autumn, such has been the lack of progress in the Brexit talks. As 2018 dawns, businesses are going to conclude that no post-Brexit deal will be reached, and they will start pulling out. The government will panic. 

There will be one easy solution: join a ready-made entity that gives single market access without technically being part of the EU. The rules of the EEA are already written, very little would be needed in the way of negotiation. It is a quick way to stop the bleeding - one that makes sense given that this has now turned into an exercise in damage control.

It may be that the UK enters the EEA as a "transitional" arrangement, something that is already being floated by UK diplomats. Essentially, everything would remain the same for businesses - there would be no falling off the cliff's edge in March 2019. But politically, British politicians would have to vacate their positions in Brussels, no longer able to have a vote in shaping the EU's rules.

As we've discussed on the Brussels2Berlin podcast (listen below), such a transition period, being discussed as a three-year-deal, could easily turn into a permanent state of affairs. Yes, it would give breathing room to agree a future free trade deal in which the UK was not beholden to EU law. But is there really reason to believe that such an arrangement, impossible to negotiate in two years, could be agreed in five years? 

The UK would still be faced with the same intractable reality: if they want access to the single market, they have to accept fundamental EU principles including freedom of movement. Norway, Iceland and Switzerland accepted this on a permanent basis. It seems likely that the UK will as well.

Such an arrangement would leave nobody happy. The Brexiteers will not have received satisfaction on one of the main issues motivating the 'leave' vote - an end to EU freedom of movement. The remainers will be able to clearly see the absurdity of what the UK had just done - still being subject to EU law but castrating itself in Brussels by no longer getting a vote on shaping the laws that effect the UK. But it may be that this is the only acceptable compromise between the two sides.

It is clear that the leave vote was motivated by emotion - an urge to be free of Brussels control. Being part of the European Union was a humiliation for many British people, who have still not gotten over the loss of empire. The very idea that Britain needs to be in such a union is what they opposed. And so it may be that, like in Norway, Iceland and Switzerland, the technical status of being outside the EU will be enough to satisfy the leave voters' post-imperial trauma.

That will leave Theresa May as the sacrificial lamb, which is likely the reason she is still prime minister at all. It may seem odd that after such a disastrous election defeat, she has not been unseated by one of the many plotters in her cabinet who are sharpening their knives. 

But there is method to this madness. A journalist friend of mine recently described Theresa May's position as akin to a viking funeral ship. The Tories know that some very unpopular decisions are looming when it comes to Brexit. They are going to load the HMS May up with all of these incendiary decisions, set her out to sea and light her on fire. And then a Boris Johnson or someone else will come in and blame his predecessor for the undesirable state the UK has found itself in.

All of this was avoidable, if only British politicians and media had been more honest with people about what happened to Norway, Iceland and Switzerland in the 1990s. 

Referendum work-around

Even when Norway's prime minister Erna Solberg repeatedly tried to warn the Brits not to follow in Norway's footsteps - as early as 2014 as I wrote in this Entre Nous column at the time - the entreaties went unheeded.

Two years later, she told Politico immediately ahead of the Brexit referendum that Brits "won't like it" if they end up with the Norwegian model.
"That type of connection is going to be difficult for Britain, because then Brussels will decide without the Brits being able to participate in the decision-making,” she said. 
Norwegians had rejected membership once before, in 1972 also by a slim majority of 53%. But by the 1990s the situation had changed dramatically. The European Community which Norway had rejected in the 1970s had been transformed into the European Union in 1992, forming a more cohesive market that would be harder for European countries to be outside of. 

It was a time when it seemed that all of the remaining hold-outs in Western Europe were preparing to join the union. Sweden, Finland and Austria all voted to join. It left the European Free Trade Association (EFTA), the vehicle created to govern trade between the EU and non-EU Western European states in 1960, virtually empty. EFTA then became mostly defunct, and the EEA was created in 1994 in order to create a pseudo-membership for the remaining Western European states.
The Eastern European states then joined in 2004, further increasing the difficulty of being a European country outside the bloc.

Norway and Iceland joined the EEA in order to get single market access, but in Switzerland the situation was more complicated. Even membership in the EEA was too much of a loss of sovereignty for half (50.3%) of Swiss voters, mostly from rural cantons. And so the Swiss government recreated EEA membership through a series of 'bilateral treaties', which were accepted by 67% of voters in a referendum in 2000.

It was clearly a ruse, but the objecting Swiss voters fell for it. These were not individual treaties but rather a package which stipulated that if one of them is violated, they all get torn up. So in theory, if Switzerland violates EU law, it would suddenly lose access to the EU single market overnight - resulting in an economic crisis for the country.

This is now being put to the test. In 2014, 50.3% (noticing a trend here?) of Swiss people voted in a referendum (put forward by public signatures rather than by the government) to put caps on EU migration. This constitutes a violation of free movement, and put the Swiss government in an awkward position. It had to respond to the referendum in some way by enacting legislation, but to do so would be to violate its treaties with Brussels.

The result has been a series of protracted negotiations between Bern and Brussels over the past three years. The EU wants to "normalize" its relationship with Switzerland, getting rid of the bilateral system in favor of the EEA or something like it. The negotiations are ongoing, but what is clear is that the EU would never accept another arrangement like Switzerland's. It has not worked well for either side, causing a huge amount of legal and regulatory uncertainty.

Fax democracies

The message to the Swiss people is this: you may think you are 100% sovereign, but you are not. You cannot do whatever you please in referendums while still maintaining access to the EU single market. And you need that access to survive economically. 

It is the same conundrum that British voters are going to have to wake up to. Yes, the UK is a much larger country than these three. But it is still a middle-sized economy that cannot survive in a world in which it is locked out of trading with its neighbors - a bloc which constitutes its largest market. The UK is relatively big, but not America, China, India or Russia big. It's a concept many English (and I stress, English) people seem to not be able to wrap their heads around.

If membership in the European Union is so psychologically traumatic for these people that they need to indulge their delusions and fool themselves into thinking they are sovereign, than the EEA is the way to go. 

It is an objectively bad arrangement by any rational analysis, bringing almost no benefit to the non-EU country. But there are many in continental Europe, especially in France, who would welcome a world in which the UK is subject to EU rules but has no power in shaping them. By all means, be our guest, says Paris.

Tomorrow the British government will publish a paper with its intentions on how to handle the issue of the European Court of Justice. Theresa May has promised that any acceptable Brexit outcome will mean no ECJ jurisdiction over the UK. But as it has become clear that this is probably an impossibility, her government is now backtracking.

Rumor has it that the paper will outline a plan to instead use an EFTA mechanism to make the UK subject to EU court decisions. This is a fudge of the classically Swiss variety. Nominally May can keep her word, but effectively there is still jurisdiction.

If this is indeed what will be proposed tomorrow, it will signal the clear direction in which the UK is going: an EEA/EFTA membership. The only question will be how long it will take before May delivers the unpopular news to the British public.

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