As I explained in a previous post, I've reluctantly concluded that the U.K. needs to consider its options for becoming a non-European Union country. I put it that way -- consider the options -- because this isn't a matter of stay or go. Depending on how it's done, leaving the EU spans a range of outcomes running from "terrible" all the way up to "better than remaining a member."
These different forms of separation need to be discussed. This should happen long before the referendum that Prime Minister David Cameron has promised to hold by the end of 2017 (if his Conservative Party is still in power).
In case you're wondering, up to now I've been a timid euro skeptic who believed that Britain's decision was a closer call than most intelligent commentators -- almost all of them pro-EU -- maintained. I didn't go along with the mainstream view that such an exit would be insane, or that there's simply no choice but to stay, but I did think leaving the union would be unwise.
The fiasco over Jean-Claude Juncker and the European Commission has shifted my view. It isn't that Juncker is such a terrible choice -- though he is, by the way. The problem is the process.
What happened was a mockery of democratic procedure, with the characteristically European conceit of pretending it was the opposite. If you didn't follow the link in my previous post, here it is again: Read the account by the Guardian's Ian Traynor of how the appointment came about. And remember that this latest surge in the power of EU institutions follows elections in which voters expressed grave doubts about the whole idea. The process appears to be unstoppable.
So what are Britain's exit options? A good place to start in thinking about this is "The Economic Consequences of Leaving the EU," a study published last month by the committedly pro-EU Center for European Reform. This looks at several possible post-separation arrangements:
If Britain withdrew from full membership of the EU, there would be a number of potential options for managing its trading relationships: membership of the EEA (the Norway option); a customs union, similar to the one the EU has with Turkey; a basket of bilateral agreements such as that which exists between Switzerland and the EU; a so-called "vanilla" free trade agreement such as the ones the EU has with countries ranging from South Korea to South Africa; and finally trade with the EU under World Trade Organisation (WTO) rules.
The CER finds none of these to be of much use. Essentially, the study argues, Britain can have independence or it can have privileged access to EU markets, but it can't have both. And there's no good middle way. It's all or nothing.
Membership of the European Economic Area, for instance, would oblige the U.K. to accept EU trade rules but deny it any say in writing them. What's the point of that? The Swiss model, even if the EU would agree to it, likewise gives mostly the illusion of independence, because Switzerland has to write rules that it thinks the EU will accept; in addition, its access to many parts of the EU market is limited. The Swiss are testing the limits of their supposed independence, having voted by referendum in February to limit immigration, which violates a treaty commitment. Unless they think again or a loophole can be found, this would void other Swiss-EU treaties as well, badly damaging the Swiss economy.
The Financial Times's Martin Wolf, a member of the commission that worked on the study, sums it up:
All attempts to preserve some form of privileged access to EU markets while being outside the EU would merely add humiliation to all the other disadvantages. Full exit would at least be an honest choice. But it would also be extraordinarily stupid. It would bring no important economic benefits, while certainly delivering significant costs.
These are complex issues and I'll come back to them in more detail in further posts. For now I have a one-word answer: Canada. I know that Wolf and the Center for European Reform are aware that Canada exists, because they mention the country once or twice in their document -- but they don’t grasp its relevance to the issue at hand.
Is Canada extraordinarily stupid for failing to see that it must seek ever closer political union with the U.S.? I'd say no. I'd say its current arrangement is quite good. And it isn't clear to me why the U.K. can't aspire to a relationship with the United States of Europe that's akin to Canada's with the U.S.
Canada's economy is highly integrated with the much larger economy to its south. Thanks to the North American Free Trade Agreement, it has privileged access to the U.S. market, and it grants privileged access to its own in return -- a good deal for both sides. At the same time, it has its own distinctive form of government and rules itself as a sovereign nation.
It's odd that Britain's commentators aren't more interested in Canada. Quite possibly, pro-EU and anti-EU politicians agree at least on this: It's an insufficiently grand ambition. Populist euro skeptics pine for a Britain that means what it used to in the world, whereas pro-EU types believe the U.K. can find a new destiny and a new significance by committing itself fully to the European project and bending that to its will.
The second of these ideas is more respectable in elite circles but hardly less delusional than the first. Britain can be a middle-sized economy of diminishing global significance running its own affairs, or it can be part of an ever closer European Union, with no more say than it had, for instance, in the decision to appoint Juncker as head of the European Commission. Neither alternative is especially grand -- but the last thing Britain needs in making this choice is delusions of grandeur.
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