Brexit: The European point of view

The prospect of Britons voting to exit the European Union (BREXIT) has generated a wave of analysis of what the gains and losses would be for Britain. But what about the EU’s other 27 member states that cover a single market of over 508 million people?

Although none of them will have a vote in this referendum, what’s in it for them? Would they vote to keep the British in, or, if asked, would they vote to chuck them out? After all, some of the potential costs for the British in leaving the EU could be gains for the remaining EU members.

At the forefront: economic considerations

The UK is the number one destination in Europe for inward foreign direct investment. Gain no 1: BREXIT would divert a significant proportion of those investments to continental Europe. Those countries now queuing up to join the EU would likely be the biggest beneficiaries of this trend because of their lower costs, attractive incentives and funding advantages. Turkey, Serbia, Albania, Bosnia and Herzegovina, Montenegro, Kosovo and Macedonia are all candidate countries to join the European Union.

Gain no 2: The cost of doing business with the UK could also increase if it were to start a distinct regulatory regime separate from the EU. For the UK, this would mainly include higher administrative costs and compliance costs such as customs procedures, though goods trade would remain relatively barrier free.

Gain no 3: UK services, while most often exempt from import tariffs, may suffer from non-tariff barriers. For example, it is expected that exporting financial services to Europe would become more challenging. The financial world already expects the export of financial services to Europe would become more difficult. The UK would also lose influence since the EU Commissioner for Financial Stability, Financial Services and Capital Markets Union is a Briton, Jonathan Hill. His directorate initiates and implements banking and finance policy, a key sector that accounts for 80 per cent of the UK economy.

In immigration, the UK would enact stricter entry rules that would most likely result in higher barriers to lower-skilled migrants. But much of the UK economy is dependent on such migrants. Gain no 4: They would simply search for opportunity elsewhere, which the OECD has already pointed out will hurt UK productivity.

No matter the outcome of the BREXIT vote, the EU’s Single Market will continue to operate according to the established policies, rules and regulations. Gain no 5: If the UK were to exit, these rules and regulations would provide the continent with a significant competitive advantage over the UK in terms of trade and investment flows.

This is particularly so in the competition to participate in global value chains (GVCs), where the processes of production and distribution of goods are increasingly spread across national borders.

These value chains are today’s ‘international workbench’, crossing a vast number of countries in the design, production, assembly, marketing and distribution of products. They provide employment, social benefit and value-add to the economies that host them, but any country’s participation in a chain needs local supports.

Considering that the EU is an important ‘local’ supporter for the UK’s activity in GVCs, the UK could well lose out if it exits the EU. GVCs are highly mobile because they deal with mainly intermediate goods. This means that Britain would need to renegotiate, item by item, the treatment of thousands of products and classes of parts, and its continuing role in value chains. Gain no. 6: The transition phase out of the EU would most likely be accompanied by GVC’s shifting operations out of the UK and into other parts of the EU where the rules are stable and a vast Single Market is harmonised.

Such a loss of international production, trade and investment could be significant. The OECD notes that due to expected “lower UK business investment and a decline in the capital stock over time (this) would negatively weigh on trade, innovation and reduce managerial quality (and) hit export capacity.”

Skepticism prevailing?

The UK’s history with the EU hasn’t always been rosy and has at times been toxic.

As the most Euro-skeptic member state, the UK has encountered internal difficulties in aligning with EU policy, partly because of the complications stemming from the UK’s tradition of common law, as well as political skepticism to the EU project. While providing some liberties to the UK, such difficulties have ultimately hindered the UK’s influence and impact in Europe.

Rivalries between empires and conflicting commercial ambitions have marked relations between Britain and Europe – with Germany as a result of the two World Wars, with Russia in the Cold War and with France through most of modern history.

Short periods were also marked by Britain allying with a former foe like France, but without any apparent long-tem perspective or recognition of the need for sustained constructive relationship building.

When the UK finally joined the EU in 1973 (or EEC as it was at the time), the foremost idea driving the union was the urge to foster peace and stability after hundreds of years of warfare and political competition. This was to be achieved through economic collaboration and integration. But from the start Britain was mainly attracted by economic benefits. First it declined to join, then, when it changed its mind, France vetoed its membership. When the UK finally joined it was a time of economic crisis that meant it didn’t get to enjoy the full benefits it had sought.

Partly as a consequence, the UK didn’t take advantage of many of the opportunities to shape the future of the EU.

The Delors vision of a more federal Europe, progress towards adopting a single currency and the development of a post-Soviet Europe, were all viewed with increasing suspicion in a UK focussed on its own, more functionalist European objectives.

When the UK signed the 1992 Maastricht Treaty, the associated transfer of powers to the EU was viewed unfavourably.

Britain soon secured opt-outs from the single currency and the social chapter. A referendum on a more positive outlook on Europe through the adoption of the single currency that was projected by Prime Minister Tony Blair never took place. In December 2011, when EU leaders sought to conclude on a treaty streamlining its functioning and setting new budget rules, Prime Minister David Cameron demanded exemptions only to then veto the entire deal. More recently, in February, David Cameron again negotiated opt-outs, this time on immigration and – more generally – against any potential UK obligations in regards to future European integration ambitions.

Reconsidering the eu mission and vision

It may come as a surprise to the UK that some in Europe view BREXIT as a potential opportunity that would finally initiate a new more federalist era in European integration. Others in Europe may be worried a UK exit may be just the first of several. However the latter is unlikely. Despite economic and migration challenges, the stability offered by European integration will remain a magnate for existing and new members alike.

The UK doesn’t necessarily need the EU economically, nor vice versa. However, whatever the outcome of the vote, there is a danger that it will create a sense of uncertainty and disaffection towards the UK both within and outside Europe. Only a majority rejection of BREXIT by Britons can prevent this. We need a real vote of the UK and its citizens in favour of continuing support of the Europe mission and vision.

Article I-3 of the Constitutional Treaty of the European Union reminds us that the EU works first and foremost to safeguard peace, freedom, security, and solidarity, based on the power of ‘loyal collaboration’. Despite the potential advantages the continent could possibly yield from a UK exit, let us hope that voters continue to believe in the fundamental idea of ​​Europe.

Professor Suder is Franco-German and the author of Doing Business in Europe.

Banner Image: Tyler Merbler/In Out UK/Flickr