Brexit and the future EF

By: Tony Czarnecki

Posted: November 2018

The British referendum on continued membership in the European Union, held on 23 June 2016 may lead to profound changes not only throughout the UK itself (largely very negative) but also much more importantly throughout Europe. EU and Britain cannot turn back the tide. It is now a damage limitation exercise for both parties. I do not believe that the EU would have collapsed under the pressure coming from the UK referendum result. However, the EU could not afford to plough on at the current pace for some years, being unable to form a viable and well-functioning government. That is a longer-term danger. Therefore, Brexit was a trigger for the remaining 27 countries to finally get their act together and do something significant to accelerate their integration processes, which for Britain was an unacceptable direction to follow.

It would be very easy to blame the UK as a country for making a deep wound in the European body. I believe Britain was right about the political weakness, centralist and bureaucratic tendencies in the EU. Britain was also right criticizing the uncontrolled economic migration from the poorer EU countries to those ones that offered higher wages and better benefits. Such a system was unjust and unsustainable.

But Britain also wanted to regain sovereignty, as if in principle it would not have had it. It is enough to say, that sovereignty means the capability of achieving the country’s own goals in relation to the whole world. The effect of Brexit will be precisely opposite – the country will have far less impact on the world stage than before. The UK’s wish to control migration from the EU could have been achieved even today, if only Britain had seriously applied the available measures, which some EU countries have done for years. Anyway, the level of migration from the EU has drastically fallen already, so that becomes almost a meaningless subject.

Regarding the ability to do ‘deals’ with countries outside the EU and in that way compensate for the losses of not trading most effectively with the EU, is just a pure fantasy. About 45% of Britain’s trade is with the EU. We have already been trading with the rest of the world for centuries, so we are not starting from scratch. Any extra trade, theoretically possible, will in no way compensate for the loss of trade with the EU or higher cost of trading with this organisation. Britain’s ability to increase trade in goods is really dependent on our productivity, which is one of the lowest among the G7 and quite low even within the OECD. Finally, trade in goods constitutes only about 20% of all British trade, the remaining 80% being services.

I have been a staunch supporter of the EU for all my life. No wonder I voted ‘Remain’ in the Brexit referendum. That does not mean that I believe the EU has been a shining example of an effective organisation. Far from it! After all, that’s what my previous book was about – how to reform the EU so that it not only becomes a more effective organisation but also that it takes at some stage the role of a de facto World Government. So, Britain was right that the EU was malfunctioning but to some extent it was Britain’s own fault, by delaying any significant reforms from the fear that it may lead to a closer integration. Simply, the way Britain wanted to turn the tide was utterly wrong. Similarly, the EU’s position to stick to its guns and not to be more flexible in the period of the negotiations before the Referendum was also wrong.

On 7 March 2017, three weeks before Theresa May’s government invoked article 50 of the EU Lisbon Treaty, which started formal Brexit negotiations I made 3 scenarios on how Brexit might end up. My key prediction was Scenario 1 with 90% probability: Great Britain will not exit the European Union in any meaningful form. I believe this is still the most likely outcome. We may know for sure perhaps even earlier than on 29th March 2019, if the Brexit negotiations must end with Britain’s formal exit from the EU.

It is neither in the long-term interest of the EU nor for the UK to be outside the EU. Neither it would have been in the interest of the Eurozone and the EU as a whole to expel Greece from the Eurozone in 2015. The situation with the UK is somewhat similar. Therefore, when the Brexit negotiations reach almost the point of no return and Britain does finally realize it cannot get what it wants, then the EU Council should make the following resolution:

  1. The EU intends to significantly revise the existing Lisbon Treaty in the next few years, which may ultimately lead to a new Constitution
  2. It is quite likely that the new Constitution will be a big step forward towards the EU’s integration
  3. Without pre-empting the final wording of the relevant articles of the future EU Constitution it is clear that the overall direction of the EU will be to give the member states more flexibility in how fast, or how closely they want to be integrated with the EU. It will be a policy of pulling new members towards a closer integration rather than pushing them
  4. To implement this policy, it will be necessary to have a multi-speed EU, i.e. a multi-zone European Union, giving the member states much more flexibility than they have ever had before in both the depth of integration and the speed of the integration process. It will be up to the member states what they choose
  5. One of the zones being envisaged is Zone 2, initially called the European Federation Single Market area
  6. The United Kingdom is offered the possibility of joining Zone 2 of the EU, which will have the following terms for all members:
  • Zone 2 members must sign an Amendment to the current Treaty of Lisbon that will apply only to this zone
  • Member states of this zone must be a member of the Single Market and Customs Union
  • Member states in this zone can have up to five opt-outs of the EU policies. They can change the opt-out that they already have for another one if they already have used all their opt-outs.
  • Representatives of member states in this zone will be able to participate in all debates at all levels of the EU structure, apart from those ones that require Treaty changes and the future shape of the EU. However, they will have no voting rights outside their own Zone
  • The member states of this Zone accept the ruling of the European Court of Justice, of which they cannot opt out
  • Any member state in this zone is allowed to implement its own benefits policy for other EU citizens that may differ from its own nationals. This will be done by putting a condition that the EU citizens may only be entitled to the benefits in another EU country, if they have previously worked and paid taxes in that member state for a certain period. That period cannot exceed five years and does not have to be contiguous.
  • No member state can have any rebates to his annual EU budget contributions
  • All other terms and conditions of the exiting Lisbon Treaty would apply to members of this zone
  • If the UK accepts these terms then Britain can return to the EU on the day of signing this Agreement and restore its membership.
  • To avoid a lengthy process of ratifying the amendments to the Treaty, the European Council unanimously confirms that this amendment will form part of the new EU Constitution.

Some of these proposals President Macron included in his 23 steps towards closer integration in September 2017, proposing “A multispeed Europe with Britain possibly re-joining a simplified version”. In this way, most of what Britain wants would fulfil almost all criteria of a “soft Brexit”, apart from the ECJ jurisdiction, i.e.: unfettered access to the Single Market, membership of the Customs Union (albeit no freedom to make its own trade agreements outside the EU), migration of labour only, and control of the benefits for the EU citizens by the government. It would also have part of its sovereignty restored since it would be up to the UK if it wants to integrate further with the EU (the shackle of ‘ever closer union’ will be removed). This would also allow the EU to move fast forward, because Britain will no longer have a vote on the future shape of the EU. At the same time, Britain would still be within the EU and would continue to provide an increasingly important strong support in the EU’s defence and the security area.

But what might happen, if Britain really stays outside the EU. The EU has no other option than moving faster towards a closer integration, ultimately leading to a federal Europe. There are several reasons for that, which can best be illustrated in these hypothetical scenarios:

  1. EU disintegrates and each country trades on its own based on the WTA rules. In commercial terms it would have been a disaster for every country (and that is precisely what Brexit illustrates so well). Additionally, this would have stirred up muted disputes about the borders, such as the very current dispute between Slovenia and Croatia, potentially leading to wars.
  2. EU goes backward and becomes a purely economic co-operation area, each Eurozone country returning to its own currency. In this situation, its effectiveness and EU members’ external competitiveness e.g. towards China or USA would have been worse because, for example, of the lack of common currency. It would be an economic and political disaster, opening the door to Russia, which could then almost openly meddle in the European countries’ internal affairs and quite probably annexing the Baltic countries.
  3. EU stays as it is and ultimately all current EU members join the Euro. Then, as the recent events have so evidently shown, the Eurozone would have been in a permanent crisis because without a common fiscal policy and budgets, the fault lines between the richest and the poorest countries would ultimately lead to the breakup of the Eurozone and the fall of the EU.
  4. Therefore, the only way forward is to follow the route towards a closer integration. By that I mean Federation at a very shallow level i.e. defence, foreign affairs, common currency, budget, fiscal policy, and environment. At the same time there should be a repatriation of many current common policies that could (and should) be best dealt with, at a national or regional level. For most people freedom and democracy is best served at the lowest possible level dealing with matters that they can understand and appreciate best.

From the above it is clear that the EU has only one realistic option – to move towards federation.

By the time the European Federation comes into existence, Brexit may have become a long forgotten Odyssey of the British Government into the unknown. However, there will be a few lessons that the future legislators of the European Federation’s Constitution may wish to learn from the Brexit process, such as:

  1. A multi-speed, multi-zone EU is the only credible, safe and also the fastest route for the EU to integrate, ultimately becoming a federated State. One of the key conditions to achieve that is for the EU to give member states more flexibility in how fast they would like to move towards closer integration. It would make integration much “smarter”, more flexible and leaner.
  2. It is necessary to give the leaving country more than one alternative in its future relationship with the EF, after the member state would have left the Federation. The articles in this area should be much more precise, and yet flexible, which can be made possible by the creation of zones within the future Federation.
  3. It should be possible to suspend the membership of the member state in the Federation for a certain period, say up to 5 years, with very specific identification of the consequence both financial, as well as those related to various freedoms and market accessibility rights for goods and services. Such an option of suspension might apply to the member state, which wants to leave the EF temporarily, i.e. because of the incompatibility of its Constitution. It could be similar to the transition period that Great Britain may get if it exits the EF, i.e. it would have all the privileges and obligations except of participating in the EF decision making process, unless being invited.
  4. There should be a distinction between the rights of the leaving member state and the rights of its citizens, i.e. that the citizens of the leaving member state would still retain the citizenship of the EF.

Keeping the UK within the EU’s Zone 2 would become the first very concrete example of a new direction of the EU towards giving the member states more flexibility in how fast they would like their integration process with the EU to proceed. If a member state of Zone 2 changes its mind after some years and decides to join the federal EU, then such process would be much easier than if that country had stayed altogether outside the EU.