EU at the crossroads

Now that “The Exit” is done and a new relationship between the United Kingdom and Europe is being mapped: What of the EU itself? The much-ballyhooed concept of a closer EU played poorly in the UK referendum. Nonetheless, this concept of “more” integration of the EU is creating a schism within the union. Which road to choose is a debate that could have global consequences.

On the morning of the 24th of June when the announcement came that Britain would leave the European Union, it was unclear who was more shocked, the United Kingdom’s own Prime Minister David Cameron or Germany’s Chancellor Angela Merkel. Both leaders in the lead up to the referendum sincerely believed there was little chance of the UK leaving the Union but were keenly aware of the schism developing between those seeking closer integration between EU members and those (like Chancellor Merkel and PM Cameron) believing that the Brussels based-Eurocracy was suffocating enough. There are decidedly two different visions of Europe and the European Union. Many in the EU, especially in France, Belgium, Italy and surprisingly Greece, envision an integrated more homogenous “Europe” which through its economic, political, military and even cultural clout can leverage (and more so, is entitled to) a greater role of leadership in world affairs. George Papandreou, the former Prime Minister of Greece (2009-11), perhaps framed the “more” argument best by saying, “We [EU] have to become more a United States of Europe.” This idea of a “more” united Europe hasn’t played out as well as Brussels might have imagined. First it was the re-emergence of Putin’s new Russia and the Ukraine adventure. More recently, it has been the region wide failures to address the terrorist threat from Isis and the ongoing refugee crisis. In retrospect, it is a genuine question whether the UK would have voted to exit the EU had there been no refugee crisis? In the post-Brexit EU, Chancellor Merkel, now finds herself as the primary opposition leader to the President of the European Commission (EC), Jean-Claude Juncker, a life-long Luxembourg politician and leading proponent of “closer” Europe. In many respects, it is a collision of both substance and style, representing the real division in the EU. When UK Prime Minister Cameron was negotiating last February for concessions to help bolster the “Remain” side, he did so with the Juncker’s EC - a commission whose composition has been often described as Eurocrats or EU-theologians or worse. Essentially, Cameron was negotiating for concessions or “wins” with the very parties that were more than happy to show both Cameron and the U.K. the door out of the EU. Since the U.K. referendum vote there have been calls for Juncker to resign (reportedly by the Czech and Polish foreign ministers). While some of the dissatisfaction with Juncker and the Eurocrats in Brussels is to be expected, there is little doubt Juncker and the EC are squarely in the crosshairs of Merkel. In short, the German Chancellor is trying to cut out Juncker and the Eurocrats from the negotiations with the UK. This is critical to an amicable parting of the EU and UK, which in turn is key to readdressing the economic fallout associated with the referendum. Merkel wants the negotiations of separation in the European Council, which is composed of the 27 heads of government, rather than the European Commission, composed largely of Brussels-based political appointees. And it is likely Merkel will get her way, as a coalition of nations such as Poland and other Baltic states are aligning behind Germany. The Road to Bratislava The Slovakian city of Bratislava is around 740-miles from Brussels with the majority of the pan-European route in Germany. On September 16th the members of the European Union will meet in Bratislava to discuss the UK’s departure from the EU and attempt to devise the terms of disengagement – if not for the UK, at least for themselves. With Brussels far in the rear view mirror, the chances of a German led coalition setting the ground-rules for an amicable separation with the U.K. is plausible. But it is worth taking into account that France and Italy and others have resented (tinged with some envy) the UK’s euro-exceptionalism – for example, retaining the £ (Pound) and other factors. Both countries believe (whether rational or not) that they would be the benefactors of financial services leaving the City of London (It is worth noting that among financial pundits, a migration of services to the Middle East and Asia or even Berlin seems more likely). In any case, the U.K.’s departure from the EU represents a road not travelled and now they are compelled to map out an acceptable exit strategy. From Germany’s point of view, most of the trade issues can be resolved without “punishing” the UK for the decision to leave (covered under Article 50 of the Lisbon Treaty). One idea that has been bandied about in the German press is an “Associate Membership” for the U.K. However, it is unlikely that even Germany would sign off on a deal to open the “single market” to the U.K. without the UK agreeing to the “free movement” of people – the very issue that fueled The Exit in the first place. The Associate Membership idea also has merit from the UK’s perspective. With Scotland and Northern Ireland both on the losing side of voting to remain in the EU, the potential for an un-United Kingdom is frighteningly possible. Although there is no guarantee, for example, that an independent Scotland would be welcomed into the EU with open arms. The UK’s geo-political role as the EU’s insider-outsider would likely remain intact. This is important for NATO and other international organizations. In trade pact terms, negotiations like the TTIP (Trans Atlantic Trade and Investment Partnership) or TFTA (Trans Atlantic Free Trade Area) without the UK’s presence in the EU have a new layer of complication. In the case of the US and its “Special Relationship” with the UK, having a voice, or at least a whisper into an ear, in Brussels is invaluable (see article on page 2). Crossroads Juncker once said, “It is not acceptable that the European Union countries are divided into those who give and those who take.” Many citizens of Germany and the UK remain unsure of exactly what Juncker meant. Who specifically is doing the giving and the taking? It’s fair to remember, the EU was first and foremost an economic and trading agreement. The goals were to create a trading bloc to be able to compete with the US in global markets. From the onset the EU was an assembly of vastly differing socio-economic systems which with the addition of new nations has become even more so. With such economic diversity is it surprising that moves to tighten the system would chaff at a country like the UK that values its sovereignty so highly? Now in the EU, political leaders in France, Italy and Austria and other EU nations are calling for their own referendums. Where it will all lead to is difficult to say. But whatever lies ahead for the EU will have global consequence.