BREXIT NEGOTIATION OPTIONS

Authors: Thierry Chapin, Head of Research of the Robert Schuman Foundation, Associate Fellow at the CERI-Sciences Po and Visiting Fellow at European Institute of the London School of Economics and Political Science (LES); Jean-François Jamet, Lectuer on European and international economic policy at Sciences Po.

Basically the Brexit will lead to rethinking the manner in which the ‘two Europes’, i.e. the euro zone and the single market, will work together.

We know what the various existing models are: the ‘Norwegian' model, in which the UK would join the European Economic Area (EEA); the ‘Swiss’ option with the negotiation of bilateral agreements between the UK and the European Union; the negotiation of a free-trade agreement or an association agreement; the negotiation of a customs union with the EU (Turkish model). But none of these various options is deemed totally satisfactory by the British government since the UK would certainly continue to take part in the internal market but would lose the greater share of its ability to influence the rules, as it would no longer be taking part in the vote for their approval.

Although the options of the European Economic Area (EEA) and the Swiss model do not seem possible for the UK as matters stand right now, the UK could explore the opportunity to revise the EEA rules so that the non-EU members of the latter (like Norway, for example) have a right to vote regarding policies in which they participate, notably those involving the single market. This would provide answers to a certain number of questions and enable a deepening of the euro zone as well as a realignment of the two main levels of integration i.e. participation in the single market and participation in Economic and Monetary Union (EMU).

Beyond discourse about a multi-tiered Europe the present situation is unsatisfactory to all of the States involved. The EEA states which do not belong to the EU have to apply the rules of the internal market, but they do not take part in voting (even though they can give an opinion). Conversely, the UK preferred, until the referendum, to be in the EU to take part in the different decisions affecting the internal market but it complained that this means taking part in policies (and their financing) such as the common agricultural policy. Separately, Member States that have an obligation to join the euro zone have indicated that they want to have their say in the decision making process and the implementation of the EMU rules in the knowledge that they might one day apply to them. Finally the 19 euro zone members would like to be able to use the European institutions for the functioning of EMU but would prefer to avoid the intrusion in its functioning of States that do not participate or intend to join.

In the interest of clarification one possibility would comprise the realignment of the institutions with the various levels of integration and with the political choice of the European States. To do this the possible solution would be to turn the EEA into the relevant institutional framework for the management of the internal market  and to realign the European Union with the EMU and countries that are destined to join it.

The EEA Agreement signed on 2 May 1992 enabled the enlargement of the EU’s single market to the Member States of the European Free Trade Association (EFTA), except for Switzerland ; which did not ratify the agreement. It brings together therefore the Member States of the Union as well as Norway, Iceland and Liechtenstein. Although they do not belong to the EU, these States enjoy the advantages of the free movement of goods, people, services and capital. In exchange they have to apply the corresponding rules (the community acquis) except those which affect tax, agriculture and fisheries policies, as well as trade policy in regards to third countries. They are also able to take part in certain EU programmes (as is already the case in the area of research, education and cohesion) as long as they contribute to their financing pro rata to their GDP.

The British referendum provided the chance to debate in the UK over the opportunity for the country to leave the EU, whilst remaining in the EEA, thereby achieving a status similar to that of Norway. However critics of this idea have stressed that the UK would lose a major part of its capacity to influence the rules of the internal market and that it would no longer take part in the approval of these.

The inability of the EEA States to take part in the vote over the internal market rules is incidentally a problem from a democratic point of view. This could be remedied by amending part 7 of the EEA agreement that is devoted to institutional measures. The Council of the EEA would therefore become the competent Council (instead of the Council of the European Union) in the co-decision making process regarding legislative proposals (directives and regulations) governing the internal market. Participation in co-decision might also be extended to the Union’s programmes in which the non-EU EEA states have chosen to participate (for example R&D). Similarly, it might be possible for the mixed EEA parliamentary committee to be transformed to include all Union parliamentarians and ‘European Members of Parliament’ appointed by the non-EU EEA states. This parliamentary committee would meet in Brussels and have the competence to take part in co-decision in the same way as the EEA Council.

This arrangement might destabilize the rest of the EU, since this kind of status might tempt other Member States. On the other hand, the time has come to open up debate over what the Member States of the EU really want: which ones would be tempted by the British example? Which ones want to maintain the present status quo? Which ones want to continue the economic integration of the euro zone and provide it with a political dimension including in regalian areas? From this standpoint changes like this would help clarify the choice for States of Europe.

Firstly, for the States which want to take advantage of the internal market above, without taking part in all the other aspects of integration. It is likely that the UK would be tempted to join the EEA. This kind of arrangement would be advantageous to the UK in that it would offer it a compromise, thereby avoiding a brutal break from the EU and also provide a solution to the Scottish and Northern Irish questions. The UK would continue to participate in the internal market and apply the corresponding rules, which it would continue to help define. Of course it would have to contribute to the EU budget but only in certain policy areas (the UK would no longer take part for example in the common agricultural policy). Finally, the freedom of movement would continue to apply but the EEA Agreement provides safeguard mechanisms that can be activated unilaterally.

Then the use of the EU’s institutions will be facilitated for the other Member States in terms of management of the EMU, without them having to resort to legal contortionism. It would then become clear that all EU Member States (except for Denmark, which is exempted but which has pegged its currency to the euro by guaranteeing a tight fluctuation band of the Danish Crown vis-à-vis the single currency) can join the EMU (as it was planned for in the treaties). It would also be clear that they would have to participate in the EMU’s economic governance rules, in terms of supervision (macroeconomic, banking and fiscal) and also in the future establishment of common fiscal tools. The European Union might also move forward more easily along the path to political union without necessarily having to create ad hoc structures for the euro zone.

Finally, for candidate countries this situation would offer an alternative solution to full participation in the EU, thereby guaranteeing that the political choice to join the EU is fully embraced. It could indeed choose then between EEA or EU membership, thereby clarifying the terms of their own choice.

This type of scenario might ultimately lead to the realignment of the EMU with the European Union, whilst the EEA would offer an institutional framework for the single market. From this standpoint, it would not be necessary to create ad hoc structures for the integration of the euro zone. It might also offer an alternative to the candidate States which would choose to enter the EEA rather than the EU. This scenario is of course hypothetical, but it suggests that fundamentally the Brexit could lead to redesigning the way the ‘two Europes’ i.e. the eurozone and the single market, might function together. By modifying the EEA agreement it would be possible to solve several problems faced by the EU at present, whilst providing welcome clarification for citizens as well as economic and financial actors. Debate over the choice between ‘two Europes’ within national public opinion would then be facilitated.