No Plan B for Brexit


The news would be funny if the stakes weren’t so high. “European Commission economists have been banned from researching the impact of Britain leaving the 28-nation bloc, or even talking about it, for fear of getting embroiled in the heated British debate ahead of a referendum,” Reuters reported, quoting officials in Brussels. Just months before the European Union may have to face its greatest single challenge, its fate to be decided by a British electorate that right now appears evenly divided over whether to remain in the EU or not, those who should be planning for the worst have chosen to stick their heads in the sand.

This applies in London, too, where officials say that if the referendum ends Britain’s 43-year EU membership they will negotiate a new relationship with their former partners. They will, of course, be bargaining from a weaker position, having already walked away from the Union ostensibly because they could not get it to change sufficiently to their liking. David Cameron’s government is pushing to achieve a wide range of reforms within the EU and, once a deal is reached, will stake Britain’s membership on a referendum. Referenda, however, are very often decided by issues far more ephemeral than those on the ballot. Voters, for example, may want to send a message to their government rather than take a decision that could have far-reaching consequences for their nation and the EU as a whole.

Britain is pressing for reform in four main areas: achieving greater competitiveness, jobs and growth; negotiating a working relationship between eurozone members and EU states that do not use the single currency; narrowing the “democratic deficit,” the disconnect between national parliaments and the decision-making mechanisms in Brussels; controlling migration, with Britain wanting to exclude nationals of other EU member-states from receiving benefits provided to low-wage earners.

The eurozone issue is particularly enlightening: British officials understand that the only way the common currency can function is if it is part of a transfer union, where, as in Britain, revenues from richer parts go toward poorer ones. London understands the need for this, while not wanting to be part of it. This is the paradox at the heart of the issue: British officials often have a clear picture of what the EU needs to do to strengthen its position in the world, yet they are in danger of finding themselves outside the Union.

If Britain does gain significant concessions from its partners in next month’s EU summit, the government may push for the referendum as early as this summer and Cameron will call for a vote to remain in the Union. The outcome, however, cannot be predicted. If Britain stays, the backing of its people will make it an even more powerful player, creating a new dynamic in the EU; if it leaves, it will lose the comparative advantage of being part of a larger entity while offering a range of specialized services, as in finance. More importantly, losing the second-largest economy in Europe could be a mortal blow to the EU. At a time of economic uncertainty, mass migration and terrorism, Europe’s nations may find themselves alone in the world as their Union unravels. Is there a plan to deal with this?