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Brexit Could End Up Strengthening the European Union

Posted by hkarner - 11. August 2016

Date: 10-08-2016
Source: YaleGlobal

The European Union may strengthen after voters in the United Kingdom elected to withdraw from the Union, and Chris Miller, associate director of Yale’s Grand Strategy Program, offers analysis as to why: Britain’s economic challenges could prompt hesitation among other members contemplating a similar move. The EU will drive a hard bargain, refusing to give in to unreasonable demands by voters who were lulled with wild promises. Finally, the EU remains a key force for resolving Europe’s many challenges. With 7 percent of the world’s population, EU trade with the rest of the world accounts for around 20 percent of global exports and imports. Even without the United Kingdom, the union’s second largest economy, the EU would remain the world’s second largest import and export market, CIA data suggest. Uncertainty and withdrawal for the United Kingdom carry heavy costs. Polls indicate that news of Britain’s economic struggles is reinforcing European appreciation for the common market. – YaleGlobal

The European Union closes ranks and wins new support as voters learn that Brexit carries high costs

Johnson CC2Falsehoods and second thoughts: Britain’s Brexit proponent Boris Johnson gave false hopes to voters, whileHofer CC Austria’s far-right presidential candidate Norbert Hofer has chosen to support EU

NEW HAVEN: Events since the Brexit vote suggest that rather than leading to the disintegration of the European Union, the United Kingdom’s referendum result may actually bolster European cohesion.

There are three reasons why. First, Britain is likely to suffer economically from its vote, sending a message to electorates in other countries about the economic value of the EU. Second, Europe’s leaders will drive a hard bargain with London, which will disprove claims that the UK or any other country leaving the Union is likely to succeed in negotiating a better deal with EU partners. Third, perhaps most importantly, the EU remains an indispensable arena for solving European problems.

After the Brexit vote, the European Union, the group of 28 countries that collaborate on issues such as trade, justice, and education, was widely seen as a loser. The Brexit referendum marked the first time a country had voted to leave the European Union. UK voters have long been divided over the EU, but they are not the continent’s only Euroskeptics. France and the Netherlands, two founding members of the European Union, have populist parties that seek referenda. France’s far-right leader Marine Le Pen, for example, declared that the Brexit vote showed that the EU is “objectively a total failure.” Dutch politician Geert Wilders called on a similar referendum for the Netherlands, declaring “Now it’s our turn.”

But leaving is already proving not to be easy. Start with the pain that Brexit will bring to Britain. There is little doubt that the economic effects of Brexit on the UK are largely negative. In the short and medium term, Britain’s economy will visibly suffer from the Brexit vote. Most economists have sharply downgraded expectations of British GDP growth over the next year. The International Monetary Fund reduced its estimate of Britain’s GDP growth by 1.4 percentage points. Withdrawal of the European Union and its constituent institutions from the UK will mean reduced spending and employment. British farmers or universities, for example, may lose valuable EU subsidies unless the British government steps in to fill the gap. Similarly, the London-based European Medicines Agency, which evaluates the safety of medicines in the EU, will likely move to different country if the UK leaves.

More significant is the decline of business investment, likely to be visible in official data later this year. Many multinational companies, from easyJet to Burberry are based in London but sell across the European Union. Attention has focused on the City of London’s financial sector, but tariff-free trade and harmonized regulation are essential in industries from pharmaceuticals to professional services. For example, Vodafone, the telecommunications company, announced that it will consider moving its headquarters out of London pending the outcome of the Brexit negotiations with the European Union.

A second reason why Brexit may bolster EU cohesion is that the UK’s post-referendum experience already demonstrates that a key claim of pro-Brexit campaigners was false. Brexit backers predict that the EU will agree to give the UK access to the single market, key for the country’s economy, without requiring the UK to allow free movement of labor. Initial signs from other European leaders is that a compromise along these lines is unlikely. Brexit can “serve as a lesson for those who seek the end of Europe,” French President François Hollande argues. “Is it good to be outside?” If the UK wants free flow in goods and capital, it must also accept free movement of people. France, the Netherlands and other countries with Eurosceptic parties have no reason to give the UK a good deal. And some of the most powerful countries in the EU, including France, see Brexit as an opportunity to increase their own weight in EU deliberations. Paris has little incentive to compromise with the UK when some French policymakers view Brexit as a blessing in disguise. For other countries, a failure of the UK to secure a good deal with the European Union would prove that exit votes are not a useful negotiating tactic. This would make future referenda far less appealing.

A third factor is that the European Union is proving indispensable in dealing with many of Europe’s challenges. For example, Europe was struggling last year with the latest iteration of painful negotiations over Greece’s debt burden, with some experts predicting that the country would leave the eurozone. At the same time, the massive influx of refugees and migrants into Northern European countries such as Germany and Sweden – and the perception that other EU countries were unwilling to help share the burden – led some analysts to conclude that the EU’s guarantee of freedom of movement was under threat. The temporary installation of passport checks on some European borders caused many people to question the future of passport-free travel in Europe.

Trade within EUCommon market: The importance of trade among European countries provides support for integration. Intra-trade among EU-28 partners for 2013 declined by 6.3 percent from 2002 – the rose bars signify countries with greater declines. Only the United Kingdom, Greece and Malta have more trade with countries other than EU-28 partners (Eurostat data)

The crises that once threatened the European Union appear much less dangerous today. Greece’s debt has been restructured in a way that means the country does not have to make large payments for years. And refugee and migrant arrival numbers have plummeted. Indeed, pan-European coordination via the EU was key to addressing both of these issues.

Polls reveal that support for the EU is rising. Voters realize that exiting the union is serious business.

As a result of these factors, many European voters and politicians are far more supportive of the EU today than they were before the Brexit vote. In Austria, for example, far-right presidential candidate Norbert Hofer has gone out of his way to assure voters that he backs the EU. “I’m not in favor of an Austrian exit from the European Union,” Hofer declared. “I’ve been annoyed for days that people have assumed that I am.” According to one poll, 60 percent of Austrians oppose a referendum on European Union membership. Another poll suggests only 23 percent of Austrians want to leave the EU, an 8 percentage point decline since pre-Brexit polls.

Austria is not the only country where Brexit has increased support for the European Union. Across the continent, polls suggest that support is increasing. The most likely explanation is that voters who previously backed leaving the EU as a means of expressing unhappiness about other issues have realized that exiting the union is serious business. Disgruntled Brits who voted against the EU may soon realize that Brexit was an expensive protest vote indeed.

Many across Europe are now telling pollsters that they are more supportive of the EU than before the Brexit vote. Some polls are showing large jumps in the number of pro-EU voters. According to an IFOP poll, support for the EU has increased by 18 percentage points in Germany and 9 percentage points in Spain. Belgium and, most significantly, France saw similarly large upward bumps. These may be short-term movements yet as the costs of Brexit emerge, even more Europeans will realize the benefits of staying in the EU.

Chris Miller is associate director of the Grand Strategy Program at Yale and a fellow at the Foreign Policy Research Institute. He is currently finishing a book manuscript on Russian-Chinese relations.

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