After the Brexit vote: can the EU reform itself? (part 1)

by Michael Wohlgemuth

The September 12, 2016 State of the Union Address by European Commission President Jean-Claude Juncker in Strasbourg, and the European Union’s informal summit in Bratislava soon after, were thick with calls for a new start, a new vision and a new narrative for the besieged EU. But at neither event was a plan unveiled.

A good solution, meanwhile, has existed since February, when it was approved by all 28 EU member states. It is the nearly forgotten deal that European Council President Donald Tusk reached with David Cameron, then prime minister of the United Kingdom.

Posturing and platitudes

“We have to assure (…) our citizens that we have learned the lessons from Brexit, and that we are able to bring back stability and a sense of security and effective protection,” Mr. Tusk warned in Bratislava. But what the lessons from Brexit are exactly and how to restore stability instead of sclerosis or protection without protectionism remained as unclear as it was before June 23rd, when UK citizens opted out of the European unification project.

The situation resembles that of 2005, after the draft European Constitution was scuttled by referenda in France and the Netherlands. The French rejected the “neoliberal agenda” of the European single market. The Dutch feared the creation of an overreaching European “superstate.” In both countries, a slogan akin to the battlecry of the Brexiteers propelled the protest vote: to “take back control” from Brussels, already perceived as a detached and undemocratic machine.

In 2005, just as after the Brexit referendum, there was a feeling of shock and disbelief inside the Brussels’ bubble. Its dwellers solemnly promised to “learn the lesson” and use “a period of reflection” to come up with “a plan D” – for “democracy.” However, after a few years of reflection, they quietly opted to continue with “plan A” – business as usual. The European Constitution was symbolically amended, renamed the “Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community,” and finally put into force on December 1, 2009. The French and the Dutch voters were not asked to have a new ballot on it.

Knee-jerk reaction

Since then, the EU has remained stuck in crisis mode. It has been hit hard by a common currency drama that nearly forced Greece out of the euro last summer; a refugee crisis for which the EU has found no common-ground response; and now Brexit, the historic decision of the British to abandon the European project, which proves that European integration is not irrevocable.

Once again, there is no plan. The British government has no plan B on what Brexit would mean in terms of future UK-EU-relations; and the EU has no strategy on how to respond. All this leads to a fundamental question: can the EU reform itself?

Despite politicians’ vows to the contrary, the Strasbourg and Bratislava events left a strong impression that “plan A” is still the preferred default setting, even if a white book of ambitious reform initiatives is supposed to be put together by March 2017. And as usual, reflexively, more public largesse has been promised.

The president of the EU Commission put on the table free wireless internet for all by 2020, a total of €500 billion in “investment” spending, plus a €44 billion development fund for Africa. More modestly, the leader of the largest party group in the European Parliament proposed to hand out free internet rail tickets to young people.

A more radical idea, which many countries found highly controversial, was floated by the German and French governments: the establishment of a “common European armed force.” The first reactions were distinctly mixed. The leaders of the Baltic states wasted no time warning that the project could weaken the EU’s obligations to NATO. On the issues of refugees, migrants and economic governance, the Bratislava summit only ratified fundamental disagreements.

Italian Prime Minister Mario Renzi plainly stated that the Bratislava summit was a waste of time. “I’m not satisfied with solutions on economic policy and migration,” he told the press. This remark no doubt was aimed also at the Italian electorate, which votes later this year on crucial constitutional reforms on which Mr. Renzi has bet his political survival.

United States of Europe

European leaders obviously have no ready solutions to counter growing euroskepticism in France, Italy, Denmark, Netherlands, Hungary or Poland, to name just a few. To be sure, there are plans for “more” or better Europe in such important areas as securing the EU’s external borders, fighting terrorism or improving digital connectedness. But there is no “plan D” to address the fundamental call for democratic control and subsidiarity; and there is little the EU can do to overcome the economic stagnation and malaise in large parts of the continent.

At the same time, recent weeks have shown a welcome soberness, even humility, on the part of many European leaders. The great narrative of a “kind of United States of Europe” has lost its appeal – ironically, on the 70th anniversary of Winston Churchill’s visionary Zurich speech in which he used the term while calling for European integration (with the UK as a supporter, not a participant). This disillusionment is also a reaction to the newly emerging national romanticism shown by populist movements on the political right and left.

While these political movements, old and new, may be a healthy brake on overreaching EU centralization, they also pose a threat to the liberal agenda on which Europe’s economic and political success has been built: open markets, free trade, tolerance and mutual cooperation. Historically, these values were particularly promoted by the UK. And while some Brexit proponents also based their arguments on them, the emotional appeal of “pulling up the drawbridge” may have swayed the British vote to a larger extent. This may explain why the “Brexiteers” never agreed on a post-Brexit plan B and still have none.

Mutual self-mutilation

If such a political mood affects the supposedly pragmatic and globally minded folks in the UK, it may just as well be at work in other countries and pave the way for more “exits” to come. Many in Brussels, but also in Paris and other European capitals, therefore think it best to “punish” the UK for its “unwise” decision and deter copycat initiatives at home. This is a dangerous approach. It would entail reerecting barriers to trade and barring the UK from full access to the EU single market and, probably, other mutually beneficial EU programs such as student exchanges, joint research or even antiterrorist cooperation.

Such a sadomasochistic orgy of mutual self-mutilation would damage the European project more than any folly committed so far. Instead of banking on deterrence, the Europeans should seek to increase the attractiveness of membership as a way to prevent further exits.

“Plan DC”

One such plan has already been on the table and agreed to by all 28 member states; no invention is required. It could, somewhat ironically, be called “plan DC” (for David Cameron). The “legally binding and irreversible” conclusions by the bloc’s 28 countries in February 2016 were intended to keep Europe’s second-largest economy and oldest parliamentary democracy as a member of the EU. However, these reforms would have taken effect only in case of a “remain” vote; and some provisions would only have been applicable to the UK itself. Even if these measures failed to convince British voters to stay in, they would have gone a long way toward making the EU a more attractive place for many euroskeptic citizens and governments.

The agreement covered five issues:

Flexible integration: European integration is “compatible with different paths of integration being available for different Member States and [does] not compel all Member States to aim for a common destination.” That means “one-size-fits-all” and dependence on an irrevocable path toward “ever closer union” do not define the sole model for future EU governance. A “variable geometry” bringing together different member states in different policy areas is equally possible and in keeping with EU primary law. This clarification might assuage many EU-weary citizens who fear that their political destiny is a one-way road that can only lead to Brussels.

Fair treatment of non-eurozone nations: further steps toward deepening eurozone governance shall not lead to discrimination against businesses outside the euro area when it comes to trade and access to the single market; non-eurozone members will also not have to pay for eurozone bailouts. This declaration should be welcome in countries like the Czech Republic, Denmark, Poland and Hungary. Indeed, it would be disastrous if the only way to avoid entering the euro club would be to leave the EU altogether.

Subsidiarity and democracy: a certain number of national parliaments should be able to effectively stop the drafting of a EU legislation if they believe it violates the principles of subsidiarity and proportionality. This could help to at least partially alleviate worries that EU institutions make laws without regard to the national parliaments and citizens’ interests.

Social benefits and free movement: The UK was given an “emergency brake” on EU migrants’ access to in-work benefits, which would have been triggered immediately after a “remain” vote. The brake would have allowed the UK to limit access to benefits for four years. It has also been stated that there would be an option for all member states to index child benefits for children living abroad to the conditions of the member state where the child resides. Since “welfare tourism” has become a major concern for many EU states that have been offering generous welfare benefits (especially Germany, Sweden, the Netherlands and Denmark), this attempt to clarify the conditions for free movement of labor within the EU should be reassessed and general rules applicable throughout the bloc should be laid down.

Growth and competiveness: here the February agreement remained vague, only hinting at “lowering administrative burdens and compliance costs on economic operators, especially small and medium enterprises, and repealing unnecessary legislation.” But it is precisely in its core economic policies that the EU urgently needs better-quality regulations. In particular, the internal market for services is far from completed; a single market for energy and digital networks is in the very early stages, and not much progress has been made a unifying capital markets.

Perhaps even worse, the EU has been very clumsy when it comes to finalizing free trade agreements (whether CETA with Canada or TTIP with the U.S.) If the EU wants to demonstrate its economic attractiveness, it will have to be much bolder when it comes to opening markets, and thus promoting competition and growth.

First step

Now that the February deal has formally lapsed because the British voted themselves out of the union, the rest of the EU should enact it anyway – precisely because of Brexit and the growing disenchantment of other member states. After all, “plan DC” was designed to avoid the disintegration of the EU and appease euroskeptics.

Admittedly, this plan did not suffice in the case of the UK. More radical reforms of the EU may well be needed in the longer run (and will be covered in another report). But as a first step, “plan DC” could work. Backsliding to “plan A” and refraining from even modest steps to inject more flexibility, subsidiarity, fairness and competitiveness into the Union would merely prove that the EU is indeed unable to reform itself. More than a few European empires have succumbed as a result of such an inability.

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Source: Geopolitical Intelligence Service