European Affairs

What, then, is the benefit for the UK to embark on the delicate process of organizing a referendum on continued membership of the European Union?

The first benefit that David Cameron was expecting in January 2013 when he pledged to organize a referendum before the end of 2017, was to weaken the UK Independence Party (UKIP) and limit the internal divisions within the conservative party. Judging from the results of the 2015 British general election, which brought the Prime Minister back to 10 Downing Street with a comfortable majority of 15 members and 24 additional seats in the House of Commons, Cameron has already succeeded in winning an important battle.  UKIP, while gaining the third largest vote share, won only one seat in the House of Commons. The referendum expected to take place before the end of 2017  is now tentatively planned for June 2016, and it is supposed to determine the outcome of this internal war.

The only way for the Prime Minister to be able to argue now for a yes vote in favor of the EU is to obtain concessions from the European Union before the campaign really starts. Collective efforts to maintain Greece within the Eurogroup have convinced him that his chances of getting what he wants have increased.

Besides the right to opt out of any Brussels initiative it does not approve, and a renegotiation of the Schengen treaty dealing with the situation of non EU immigrants, the UK would like to place on cap on the number of unskilled migrants and limit the way work benefits apply to EU migrants. In the last 10 years 1,5 million people from Central Europe, mostly from Poland, have settled in the UK.  However a leaked Home Office report recently found that EU migrants have had a largely positive effect in the UK.   Any attempt to reconsider the free circulation of people in the EU would be considered a breach of the Treaties, and no one envisages a renegotiation of the treaties at this stage. It is also noted that some 2,2 million British citizens live in Europe outside the UK.

However, last May Chancellor Merkel who plays the role of undisputed leader in the coming negotiation, declared: “It is impossible to say that a modification of treaties is absolutely impossible.” Some indirect ways to do it are possible, and it is widely believed that the German Chancellor might use the opportunity of the discussions with London before the referendum to allow limited EU reforms that she wishes for anyway, as they could allow the British Prime Minister to demonstrate improvements justifying the continuation of the British involvement in the EU. Governance in the Euro zone could also be a theme examined, possibly with a view to a Europe composed of entities evolving at different speeds. Mr Cameron has a point when arguing that this negotiation “is an opportunity to make the case for reform across the EU”.  But drastic changes are not to be expected because they would require unanimity within the EU to be accepted.

The business community is overwhelmingly opposed to a British exit of the EU. Sir Michael Rake, President of the Confederation of British Industry, has warned against a Brexit. For him, remaining within the community of 28 is beneficial. He mentions Switzerland and Norway as examples not to be followed. The European Economic Area, uniting Iceland, Liechtenstein and Norway, is not considered a good option. Most business organizations and lobbies are on the same line. “We must remain one of the engines of the European market of financial services,” said Mark Boleat, President of the City of London Corporation. Multinational companies, headquartered outside the country, argue that they use the British territory as their base to enter in the European Union, something that they would not do any more if the UK was not a member of the EU. Four million jobs are linked to their activities, particularly in technology, research, and the automobile industry (Toyota, Nissan, Tata). The head of Airbus in the UK also warned against a Brexit. And so did Vodafone’s president.

Deutsche Bank, employing 9000 people in the UK, openly said that it was studying the possibility of moving some activities out in the event of a Brexit. Bank of America City Bank, Morgan Stanley would consider moving their London operations to Dublin. HSBC indicated that it would bring its Headquarters back to Hong Kong in any case.

Large banks in London would like to remain in the EU, but hedge funds, smaller and more interested in tax advantages, are more ambiguous. Small and medium companies are less unanimous than big business.

To be able to continue having access to the Single Market in case of a Brexit, the UK would have to comply with its regulations without a chance to participate in their elaboration. And the most serious would perhaps be that in case of a Brexit, Scotland might also organize a referendum asking for the right to re-join the EU.

Blaming Europe for all sorts of internal difficulties is easy and politically tempting, and it feeds euroscepticism. The conservative party still includes around sixty members who want to get out of the European Union.

According to a recent study by the Bertelsmann Foundation, Brexit would in fact have a negative effect on all the EU members, starting with the UK. And there is rising support among the EU Member States for the reforms Britain is asking for.  The polls indicate that a small majority of British voters are in favor of remaining in the European Union. But the British people have a record of occasionally contradicting the polls, so that it is difficult to forecast the outcome of this adventure.

As Pascal Lamy, former Managing Director of the World Trade Organization says it is a matter of “navigating between the majority of the British opinion who does not want to get out of the European Union, and the majority of the British opinion who hates the European Union.” This explains why professional observers do not exclude that Brexit happens by accident.

What about a Europe Union without the UK? The City of London is the leading financial market in Europe. The UK is also a valuable military power, and security issues have recently gained a renewed importance due to Russian antagonism. There is no doubt that the EU, without the UK would be weaker. But it would also be more homogenous, and therefore more able to make progress in its integration.

Voters’ choices can be expected to be more emotional rather than rational. General De Gaulle used to warn against calling for any referendum because  “ in a referendum the public does not respond to the question.”

It is likely that the British public will calculate its economic and financial interest and “vote with its wallet”. But, assuming that its choice is for staying in the EU, another debate will quickly follow about the degree of integration to be reached in the EU. And Britain will continue to promote its preference for loose intergovernmental mechanisms over supranational integration, as well as a greater interest in free trade over economic integration and sectoral policies; a policy considered to have torpedoed the European Union integration since British entry in 1973.

Fear of the unknown will play an important role in the outcome of the referendum. For the time being no credible alternative has been offered for “the morning after.” A humorist summarized the UK position: “the British would like to sleep in the European bed without getting married.” A hazardous proposition difficult to implement in practice. But not impossible.

Jacqueline Grapin is the Founder and co-Chair of the Board of The European Institute