Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 4 April 2017

Why rejoining the EU is so problematic

In his latest piece Wolfgang Münchau writes that if Brexit happens then

“the EU you may wish to rejoin will be different from the one you are leaving. From a British perspective, the EU was little more than a customs union and a single market. If the UK ever decides to rejoin, it would have to do so under Article 49 of the Treaty on European Union. That would be the full Monty — with the euro, the Schengen zone, EU involvement in home affairs, no opt-outs, and no budget rebates.”

He is probably right. Probably because no one can be sure how the EU will evolve, but its history suggests it is unlikely to evolve in the direction of reducing its scope.

However he draws the wrong implication from this. He says that those arguing for Remain should give up, accept that the UK will leave the EU, and start thinking about making the case for rejoining. Münchau has gone from misunderstanding the economic arguments to simply discounting them.

If I was asked whether the UK should rejoin the EU on the terms in Article 49, which means joining the Euro, I would not know how to respond. Joining the customs union and Single Market is unquestionable beneficial from an economic point of view, but joining the Euro with its current structure is almost certainly bad for the UK.

Austerity may have ended in the aggregate Eurozone, but the lessons from the Eurozone crisis have hardly been learnt. The fiscal rules that EU countries are meant to follow are a disaster. The ECB was forced to create OMT, and therefore can act as a lender of last resort, but whether it invokes OMT or not remains entirely in the hands of this largely undemocratic and unaccountable institution. No other central bank in the world has this kind of power over whole countries, power that we have seen it deploy against EZ members during the crisis and after the crisis.

None of this means that the Euro has to fail. As we have seen, there is no popular will to leave the EU in Ireland or Greece. In addition most countries have no desire to formalise a two speed EU (which is in my view a shame). As a result, a country like the UK should think very seriously about giving up so much of its freedom by adopting the Euro. This is why the decision not to join in 2003 was correct, and why the opt out from the Euro within the EU was so useful to us. The arrangement that we had, and which we have decided to leave, is so valuable it is worth fighting for every inch centimetre of the way.  

11 comments:

  1. Rejoining the EU will probably also depend on the UK meeting the Maastricht criteria.

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  2. Your conclusions are, in my view, entirely correct about our joining the EZ being a bad thing.

    However, whilst you say that the Euro doesn't have to fail, you hint at why it might not succeed. Frankly this hugely understates the argument. Without a fiscal union, which effectively means political union, the Euro is most unlikely to succeed and the Germans (along with others) will not agree to a fiscal union.

    In my view the Euro was a huge mistake and will be the proximate cause of the disintegration of the EU, because the EU will never survive the demise of the Euro.

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  3. The decision to leave was so stupid because, really, we were able to have our cake and eat it: the advantages of membership but no Euro or Schengen. I was a strong Remainer; but if asked whether I'd favour rejoining on terms including the Euro, I'd have to say no thanks. The conclusion: don't wait until that's the choice but withdraw the Article 50 notification before it's too late. A number of commentators, including W Munchau, have dismissed this idea, arguing that we have to leave. I can see the force of the point that people won't accept that a mistake has been made until the consequences really hurt them. But I just don't agree that there's now no alternative

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  4. I voted Remain and came to the same sad conclusion weeks after the result: the UK looks set to leave the EU and I would not vote to rejoin given it meant accepting the euro and Schengen. Truly, the majority of us Brits didn't realise we have had it so good.

    S

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  5. Think about it the following way: whatever you do not like about the functioning of the euro area is something the UK could shape (or indeed could have in the past) if it (had) decided to join.

    UK observers like the single market but much of what it is today was a British idea and is a result of British leadership. A single market without British input would look different and you would "hate" it equally as the euro.

    Years of disengagement from the EU have caused that EU policies are widely seen as exogenous and "foreign" from a British perspective. If there was a strong British-German axis (or British-German-French triangle) at the heart of Europe, things could look different. There are few examples of this but the single market is one of them.

    I could write some analogy with a marriage here but you will get the point without that.

    The answer (for England) to whether to join the euro, Schengen etc will be a lot simpler once the UK has been internally dissolved by the force of regional nationalism.

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    Replies
    1. «Years of disengagement from the EU have caused that EU policies are widely seen as exogenous and "foreign" from a British perspective.»

      I have a rather different explanation than "disengagement" and it is "anger": that the core english "Leavers" are motivated, whatever excuse they use, by a deep feeling of humiliation that England, the ruler of a vast empire, has become "just a member" of the EU, and that for example the foreign servant classes can move to live and work in England without begging first for a temporary visa, but have the right to do so as if they were english too. Consider the fairly moderate and thoughtful "Leave" advocacy of Lord Tebbit:

      http://www.telegraph.co.uk/news/2016/05/16/its-time-for-britain-to-get-off-its-knees--freedom-awaits-us-out/
      It is time that the Brexit campaign seized its chance and set the scene for the debate: it's time for the British to get off our knees. .... Our record of successful self government, democracy and the rule of law is far, far superior to that of the other Member states of the EU. Time and time again, we have rescued the people of the continent from the follies of their leaders. They have never rescued us. ... Freedom beckons. Will a generation of politicians who have never fought for it betray the many thousands who died for it?

      Or a recent statement about reintroducing blue passports:
      http://www.express.co.uk/news/uk/786788/brexit-passport-design-uk-dark-blue-home-office-project-eu-article-50
      Conservative MP Andrew Rosindell, chairman of the Flags and Heraldry Committee, said:
      “It’s a matter of identity. Having the pink European passports has been a source of humiliation. It merged us into one European identity, which isn’t what we are. The old dark blue design was a distinct, clear and bold statement of what it means to be British, which is just what our citizens need as they travel abroad after Brexit.”


      or the comment of a Cambridge academic:

      www.theneweuropean.co.uk/top-stories/the_problem_with_the_english_england_doesn_t_want_to_be_just_another_member_of_a_team_1_4851882
      The problem with the English: England doesn’t want to be just another member of a team .... The destruction by the USA of the British empire, after its finest hour in 1940, was a traumatic blow to the psyche of two English generations, from which they have never recovered, largely because they have never recognised it.

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  6. Could you explain more why Greece has not chosen to leave the Euro?

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  7. The Germans have already agreed to measures that they strongly opposed, including interpretations of the ECB's mandate. Anyone predicting the demise of the euro really has to outline a viable path to that end, not just say there are problems. And as regards the UK 'rejoining' the EU, we haven't left yet and won't do so for a while yet. The option to change our minds and stay in, in an entirely democratic fashion, is still on the table.

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  8. I think, Robert, you make the mistake of Brexit thinkers who've been claiming for years that the EU will collapse. The nature of the institution, throughout its history, is that it never does the right thing but it (so far) always does just enough. That reflects its highly consensual character, and the difficulty of pushing things through with slim majorities. Thus, the Euro that the UK might need to consider entering in a decade will be significantly different - and hopefully better. The Germans will never agree to a fiscal union tout court, but they will agree to steps along the road, slowly slowly, until what we have is exactly that (but perhaps called something else). If Macron and Schulz both win this year that process might speed up, if Le Pen wins all bets are off. But history suggests that you shouldn't bet on breakup.

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  9. I wonder whether the 'compulsory Euro' point isn't a bit overblown. Plenty of countries are in the EU without adopting the Euro, and some - the Czechs - say that they never will. The Swedes won't, for the time being, and they don't have an opt-out either. No country can be forced to change its currency, whatever the wording of accession agreements says. There is no mechanism for doing so.
    The real villain of the piece is the deficit provision in the Stability and Growth Pact, which is a reflection of an ideology which hopefully will be replaced if enough people come together to push for that.
    In a world of 'independent' central banks, it's not clear why the ECB is any more undemocratic or unaccountable than any other one...

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  10. Not sure that Wolfgang Munchau's claim that were UK to ask to rejoin it would have to (re)join the full Monty, i.e. adopt Euro. As WM himself remarked some years ago apropos a different issue in Europe, ultimately politics trumps law (meaning, if necessary a creative interpretation or clever institutional ploy will be found, whatever the exact letter of the law, provided the political will exists.) The political triumph of having the UK asking to rejoin would be so great that a way would be found to make this possible. Given the questionable success of the Euro (and the real potential for making Euro-adoption a precondition of rejoining to scupper any membership application), it would seem likely that the UK would get a pass on that one. Which is not to say that the UK would be able to rejoin on as beneficial terms as it currently enjoys. Pounds of flesh would be extracted, but probably more in areas like rebate, end of opt-outs on social charter, financial regulation, etc.

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