The EU is flunking its Brexit opportunity
Credit: Sean Gallup / Getty   

Brexit may have dealt an existential blow to the European Union; but the EU was already at an impasse. And Donald Trump’s election has proved even more disruptive. What, though, if the British people had delivered a different verdict? Would our continued participation have helped stabilise the European predicament?

In the early summer of 2016, the EU was trapped in a political stasis – primarily because of the ongoing fallout of the eurozone crisis. There may have been strong imperatives for a more politically unified Eurozone, but how could it resolve the tensions of having euro and non-euro members within a single legal and constitutional order? And how could it advance more integration when the Lisbon Treaty had shown the acute political difficulties of securing political consent to change?

The eurozone crisis appeared to demand significant constitutional change. Yet the two treaties that were agreed – the Fiscal Compact and the European Stability Mechanism treaty – were drawn up on an intergovernmental basis, outside the Union’s legal framework. And the massive changes that occurred to the European Central Bank’s (ECB) effective remit as a result, took place without any alteration of the existing treaties – ones that under any reasonable interpretation should have prohibited some of the ECB’s actions.

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Furthermore, the Commission’s weakness in non-Union treaties made enforcing their legal provisions difficult. Indeed, Jean-Claude Juncker noted in his State of the Union speech the autumn before the British referendum that more than four years after the Fiscal Compact’s ratification, no member state had implemented all of it.

The absence of a new EU treaty in good part reflected a set of issues around legitimacy that had bedevilled the EU since the Dutch and French referendums in 2005. These had led to the Constitutional treaty’s demise. Although the EU was able to replace the Constitutional treaty with the Lisbon treaty, the new agreement created more political problems. The French government had to proceed without a referendum, for fear of losing it – despite the clear resemblance between Lisbon and and its predecessor – and the German Constitutional Court insisted, just a few months before the Greek crisis began, that there could only be more integration of any kind if there were clear democratic support for it in Germany.

The failure to move to a new EU treaty during the eurozone crisis also reflected the lack of any policy consensus about how to reform the currency. Juncker claimed in his 2015 State of the Union speech that the Five Presidents’ report on the euro was a “roadmap that should allow us to stabilise and consolidate the euro area by early 2017″ so that thereafter “on the basis of a renewed convergence of our economies” the Eurozone could “achieve more fundamental reform”.

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 But in the summer of 2016, the hard reality was that the German government had an effective veto on any substantial change to the way the euro worked – not least because of the legal constraints established by the German Constitutional Court. This separation of Germany from all other member states left the French government without an EU strategy, a problem compounded by President Hollande’s decision, when he first came to office in 2012, to side with the southern European states over Germany.

Germany’s structurally privileged position within the eurozone crisis allowed its government’s power to spread in other areas, as was dramatically shown during the refugee and migrant crisis. Angela Merkel shaped the EU’s response in the summer of 2015, when she discarded the Dublin convention on asylum rules to open Germany’s borders. She did so again, in 2016, when, with the Dutch Prime Minister, Mark Rutte,she secured an EU deal with the Turkish government to stop the flow of refugees from Turkey that included a path to reopen Turkey accession negotiations.

While Merkel’s role in this caused consternation in some member-states, the eurozone crisis had, in practice, already shifted the EU to an ‘emergency’ mode of decision-making; formal rules had yielded to arbitrary power. Nonetheless, it was clear by June 2016 that the German Chancellor’s ability to exercise political discretion within the EU could not save her from the domestic problem she had caused by deploying German leverage to welcome one million refugees to her country.

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A win for Remain wouldn’t have made much difference to the EU’s internal stasis. But Brexit did provide, in principle, an opportunity to resolve the problem of how a singular legal and constitutional order can co-exist with a multi-currency Union. Juncker, President Macron, and Martin Schulz all set out their ideas for a way forward after the referendum. But they couldn’t even agree on the fundamental question of whether the EU should aim to become a union with a single currency for its members.

Britain had generated most of the immediate difficulties arising out of this structural tension of a multi-currency union, not least because of London’s position as the Eurozone’s offshore financial centre. And if Britain had remained inside the EU, the conflict between the Single Market’s universal rules and the French government’s and ECB’s desire to regulate euro activity in London may well have intensified.

Regardless of what Britain does, though, part of the problem remains. Brexit did mean that talks on the financial transactions tax were put on hold because the majority of the revenue from the tax would be collected in London. But these tax plans had already been pushed back several times before the referendum in good part because they involved fewer than half of the EU’s members using the enhanced co-operation procedure. Quite simply, the predicament of an incomprehensive monetary union runs deeper than Britain, and London’s position as the euro’s financial centre does not go away with Brexit.

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Britain staying inside the EU would have intensified the problem of moving to any new treaty. In his Sorbonne speech, President Macron made the treaty difficulty primarily a matter of domestic French politics, describing the post Lisbon era as a “glacial period” when proposals were not made because France had made “treaty change taboo” from “dread” of having to ask voters their opinion.

But Britain was as much part of the treaty problem as France. Britain remaining would have reinforced this political stasis because of the referendum ‘lock’ legislation passed by the British parliament in 2011 whereby any new treaty required a referendum. This ensured that if David Cameron had not vetoed the Fiscal Compact as an EU treaty in December 2011, he would have caused more political problems for the EU than his veto did, as by using an intergovernmental treaty the other EU states could proceed without Britain.

Without Brexit, perhaps New Hanseatic League bloc wouldn’t have emerged; it is a group of northern European states, including euro and non-euro members, who have allied together on various issues including Eurozone reform, and whose incentive to form, at least for Denmark and Sweden, came from losing Britain as the largest north European non-euro member. Whether, though, the non-emergence of the New Hanseatic League would have made any decisive difference to Macron’s Eurozone reform agenda is dubious. Certainly, it has caused consternation in Paris. But in practice this new axis provided some political cover for Merkel to oppose Macron on debt-sharing and a sizeable Eurozone budget without her having to exercise a German veto purely in the sphere of the bilateral Franco-German relationship, as past German governments have done in the past with similar French ideas.

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Brexit has, more generally, complicated Germany’s power. It has, perhaps, contributed to weakening Merkel’s domestic position – it opened up another line of attack from those on her right flank claiming that she had privileged French concerns over keeping Britain inside the EU when they tend to think that Germany’s long-term political interests require checking French integrationist ambitions. It has also allowed Macron to present himself as the guardian of Europe against so-called populism.

Nonetheless, it is not clear how Germany’s position on any issue since the referendum would have been strengthened by having Britain’s support where it has not in practice been available. Moreover, a British government still led by Cameron trying to ensure that he could hand the Conservative party’s leadership to George Osborne – or another Remainer if Osborne had been too damaged by threatening an emergency budget in the event of Leave winning – would have looked for new fights in the EU.

All this, though is to reckon without the shock Trump’s election has delivered to Europe – and the fracturing this has exposed. Trump has hastened a long inevitable crisis for the EU about the Atlantic relationship and the paucity of the EU’s geopolitical power. At the centre of this problem lies Germany, which has the largest European economy, weak military capability, an electorate with strong anti-military tendencies, and a dependency on Russia for oil and gas imports. It is extremely difficult to see how, by staying inside the EU, Britain could have persuaded Germany to move more quickly to spending 2 per cent of GDP on defence or to retreat on Nord Stream 2.

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Neither could we have expected Britain to side with France in pushing for what Macron called in his Sorbonne speecha ‘common strategic culture’ because the British government thinks that the response to the Trump shock should to rise to existing NATO commitments not find an alternative to it.

Nonetheless, on Iran, where President Trump has most dramatically ruptured what had been a common US-EU policy stance, Britain has thus far allied with the EU states and not the US, despite warnings from the Americans. Whether, however, this stance will endure if and when Britain leaves the EU is quite another matter, especially for any British government seeking a trade agreement with the United States.

But even here, the decisive causal factor may only be partly down to Brexit. If, Trump aside, the change in US policy towards Iran has ultimately been shaped by Russia’s military intervention in Syria, three months after the Iran nuclear deal was agreed, which guaranteed the survival of the Iranian-supported regime in Damascus, the British government sees Russia more as Washington does than any government in Berlin is likely to, given Germany’s energy interests. Whether we’re in or out of the EU won’t change that.

Indeed, take Brexit away and much about the EU’s internal stasis remains the same. It’s very constitutionalised order – which in theory is supposed to evolve towards ever closer union – has caused significant legitimation problems and meant the Union has struggled to adapt in the face of the eurozone crisis. Brexit was, in a number of ways, caused by those problems.

But Europe now has a large external issue to contend with – one that exposes the chasm between its position as a regulatory super-power and a geopolitical Lilliputian. The timing of the Trump shock made Britain’s Brexit choices more difficult by making them, in geopolitical terms, more binary. But an EU that included Britain would soon become even more divided, not least because there is no consensus between Germany and the two strategic European powers, Britain and France, regarding how to deal with the overriding issue of resurgent Russian power. With or without Britain, ever closer union doesn’t seem to be getting any closer.