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Analysis
Turning Brexit into an opportunity

Turning Brexit into an opportunity

'Outer circle' of European co-operation to complement EU 

by OMFIF

Fri 9 Sep 2016

The British referendum vote to withdraw from the European Union marks a major constitutional change for the UK and a significant rupture for Europe. But the split engendered by Brexit could be turned into an opportunity by reorganising Europe in two circles, according to a paper by Jean Pisani-Ferry, Norbert Röttgen, André Sapir, Paul Tucker and Guntram Wolff, published by the Bruegel economic policy think tank.

Such a structure would look to the long term, say the authors. And it would help Europe preserve its influence in a rapidly changing world in which the balance of power is likely to alter significantly over the next 15-20 years – with a new ‘top table’ of highly populated countries with massive economies.

The inner circle would constitute the EU, with political aims and supranational constitutional structures. The outer circle, of European co-operation, adding European countries not in the EU, would have more flexibility and be based on an intergovernmental structure – the ‘Continental Partnership’.

CP members would build a wider circle around the EU without sharing the EU’s supranational character, except where common enforcement mechanisms were needed to protect the homogeneity of the single market. CP members, including the UK, would participate in a series of selected common policies consistent with access to the single market. They would take part in in a new CP system of intergovernmental decision-making and enforcement; co-operate on foreign policy, security and, possibly, defence matters; and – important for the UK debate after the vote – contribute to the EU budget.

The list of what CP countries would not do is also highly important. They would not participate in the freedom of movement of workers or share the political commitment to ever closer union, and would have less political influence over decisions of common interest.

Granting access to the domestic labour market to some 510m citizens is a significant political choice and a powerful symbol of integration. The UK electorate has effectively rejected this political project, the paper says.

The four freedoms of the European single market are closely economically connected, but not inalienable for deep economic integration, the paper states. Some degree of labour mobility is an essential counterpart of the free flow of goods, services and capital. Firms that operate in foreign countries need to be able to transfer workers abroad, at least for temporary periods.

Yet from a purely economic viewpoint, goods, services and capital can be freely exchanged in a deeply integrated market, without free movement of workers, though not entirely without some labour mobility. Free movement of workers, the paper maintains, is not indispensable for the smooth functioning of economic integration in goods, services and capital.

From a political point of view, the authors state that their proposal would constitute a significant concession by the EU to the UK on the free movement of workers. Politically, there may be a tendency in continental Europe to demand limits in other areas of the single market such as financial services.

They note, however, that under the proposal there is already a political ‘price’ to be paid by the UK: CP membership entails significantly less political influence compared to EU membership – and the UK would still make contributions to the budget. Whether that price is appropriate is a matter for political judgement, in both the UK and the other members of the EU.

The UK will have to decide whether it wants to continue to maintain close economic co-operation with the EU, continuing and potentially even strengthening its engagement in security and, conceivably, defence matters. This is ultimately a political choice that must be spelled out unambiguously.

These are matters of high principle and down-to-earth politics, say the authors, adding that the proposal for a Continental Partnership will not allow the UK and the EU to escape the need for tough decisions. But it may provide an intellectual and practical stepping stone to help governments negotiate what will be an arduous journey.

This article is based on a paper entitled ‘Europe after Brexit: A proposal for continental partnership‘. To read the full paper, click here.

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