Bracing for ’Brexit’?

Even as the threat of a "Grexit" recedes, European leaders are grappling with the possibility of a "Brexit" as Prime Minister David Cameron prepares to speak on Britain’s place in the European Union. [Editors’ note: David Cameron announced on Thursday that he will postpone his long-awaited speech on Europe again due to the hostage crisis in Algeria.] Rather than making a case for loosening ties with the EU, the prime minister will most likely focus on "negotiating the right relationship with the EU," says Robin Niblett of British think tank Chatham House. The task ahead for Cameron, he says, is to ensure that the UK’s membership remains principally focused on the single market and not on any other aspect of EU integration. "[Britain] wants to be a big player in an open Europe and on trade, but it does not want to have anything to do with economic and fiscal union--nor does it want to be tied up in any other deeper political union," Niblett says.

While Cameron has rejected an immediate referendum, the expectation is that he will be making a case for Britain loosening ties with the EU. Do you agree?

I don’t think he will be making a case for loosening ties with the EU. He’ll be making a case for the UK negotiating the right relationship with the EU at a time when the EU is preparing to undertake a process of deepening [ties] in which the UK will not be involved. In the next few years, the process of creating a banking and monetary union for those members of the euro will create a much more tightly integrated core to Europe. And what Cameron will say is that he has to make sure that as the EU changes, the UK will not be disadvantaged by the deepening process that will be undertaken by the seventeen, soon to be eighteen, members of the eurozone, which the UK will not take part in. So what he might say is that he is looking to repatriate certain powers back to member-states as part of that process, i.e., back to the UK, but also that all member states would have certain powers repatriated as part of this process.

Cameron did not come into power planning to make Europe a central part of his prime ministership. In fact, he thought he had a deal with other EU leaders that after the ratification of the Lisbon Treaty, which took place [in 2009] before he came to power, there would be no more treaty changes. Lo and behold, two years later, Cameron finds that he’s got a fiscal compact, where states that are members of the eurozone and some that aren’t are pledging to keep their budgets and deficits down to certain levels, with the [European] Commission meant to oversee this. The minute they started talking about treaty change, Cameron had to get involved.

A lot of people paint this [speech] as Cameron kowtowing to ever more rowdy back benches, but one needs to understand the context. The back benches have been brought to life by the new talk of treaty change in Europe, which, from their point of view, has provided the perfect opportunity for the UK to repatriate some powers that they feel should have been repatriated a long time ago. And because Cameron is in such a weak domestic position, because the economy is not growing the way he said it would, he is suddenly in a much weaker position from which to defend himself against these attacks.

What does he risk in his attempt to repatriate powers from Brussels?

Cameron feels that he must demand something from the rest of Europe in return for saying "yes" to treaty change around monetary union in the future. So the first risk he runs is that other EU members will call his bluff. In which case, when he calls the referendum--because he will probably promise a referendum--rather than arguing in favor of staying inside the EU under a new deal, he will be forced to campaign against staying inside the EU.

The second risk he runs is that even if he gets some of what he wants, he’ll never get 100 percent of what he wants. So let’s say he goes ahead and renegotiates, and he manages to convince his party that it’s enough, and then when it comes to the next parliament, he holds the referendum. At that point maybe the British economy isn’t doing particularly well. People may vote against staying inside the EU just as a way of voting against Cameron. In other words, he runs a risk that the vote is never about whether we stay in the EU or not; it becomes a mixture of people who want to leave the EU and people who want to punish Cameron.

The third risk is that all the talk about a referendum--the fact that the UK would even be talking about holding a referendum about whether it should or shouldn’t stay in the EU, which no one else in the EU is talking about at this particular time--has already damaged the UK’s standing with other EU member states and potentially the U.S. Even if we win a referendum, people will not feel that the UK really is committed to Europe the way everyone else is, and that we will be surely pushed to the sidelines.

Opinion polls have consistently shown that a majority of Britons would vote in favor of exiting the EU. Can we attribute this sentiment solely to the euro crisis or are there other issues at play as well?

First of all, one needs [to stay abreast of the] the current polls. ComRes conducted a poll back in October, where a little more than 50 percent [of those polled] voted to leave. Their latest poll now has 42 percent voting to stay and 33 percent voting to leave. In the last two to three months, there have been active campaigns by some of pro-European elements in the UK basically saying, "Hey look, this talk about leaving the EU is ridiculous."

If you ask people the question, "Do you like the EU?," you’ll hear, "No I don’t like it." When asked, "If you had the chance to get out, would you get out?," some people reply, "Yeah, I think so." But if you really present them with the facts--"Would you be willing to risk British jobs or growth leaving the EU?"--they [are less sure]. We did some polling on this, and given the ideal solution--where we are principally focused on the single market and not on any other aspect of EU integration--the majority votes for remaining in an EU. This is what Cameron is trying to get himself into the position to be arguing for in his speech. That is, the UK is truly committed to the single market and is an active player in foreign policy (e.g., the Iran sanctions, Syria sanctions, etc.). It wants to be a big player in an open Europe and on trade, but it does not want to have anything to do with economic and fiscal union--nor does it want to be tied up in any other deeper political union.

So is it fair to say that for countries like France and Germany, the EU is part of a larger political project that can trace its provenance back to WWII, whereas for Britain, it’s mainly about economics?

It always has been and it always will be. We did not enter the EU with the same political imperatives [as France and Germany]. We had not been invaded, we did not lose the war, and we have historical connections to all sorts of other parts of the world from our empire and commonwealth. To the extent that Brits are emotional about Europe, it’s to be against Europe; when we’re pragmatic, we’re for it. Whereas you could say many continental Europeans, when they’re emotional are in favor of Europe; and when they’re pragmatic, they’re against it. So we come at it from almost the other side of the coin.

Just how important is the common market to the UK? And how would a "Brexit" affect British trade relations?

UK trade with the EU is a little under 50 percent of its total trade, so it is, by far, the biggest block. Trade is important. As important, and if not more important, is the fact that barrier-free access into the EU market, combined with the fact that the UK taxes less on labor than other continental European countries, means the UK has been a top target for direct foreign investment in the whole of the EU over the last ten years. So if we were outside the EU market--even if we renegotiated access into that market as some type of free trade agreement--we would no longer be sitting at the table writing the rules. And that could affect Britain’s attractiveness as a destination for foreign investment.

Finally, the UK would no longer be part of the EU when it negotiated trade agreements with third parties, whether it be with Japan, ASEAN, India. The UK would have to negotiate its own, separate deals with those large countries and blocs. The question is, would we be able to get as good a deal? Probably not.

We saw the United States and Germany recently both warning Cameron to proceed with caution. What’s at stake in a potential UK departure, and why has it caused so much alarm in the international community?

The fear in Germany is that an EU without the UK in it would not be an effective EU. From Germany’s perspective, it would change the internal balance of the EU from a more open EU to a more closed EU. The UK is also a net contributor to the budget of the EU, so there would be a financial implication. [According to the European Commission, Britain’s net contribution in 2011 was 7.3 billion euros.] From a foreign policy standpoint, the EU without the UK associated with its policies on Iran and Syria would weaken its voice on the international stage considerably. And there would also be the whole uncertainty of the financial center. Europe’s largest financial center would be outside the EU, perhaps gaming the EU, maybe taking advantage of it, or maybe just fragmenting Europe’s capital markets precisely at a time when they need the deepest capital markets they could possibly get.

From all of those standpoints, the UK being outside the EU, for most EU members, would be a negative development rather than a positive development. Not that they’ll pay any price to keep the UK in--they’re feeling rather fed up. But given the preference, they definitely would rather see the UK in.

From the U.S. standpoint, just take [U.S. Assistant Secretary for European Affairs Philip] Gordon at his word. From my point of view, the United States would much prefer to have the UK inside the EU. But you know what? If the UK chooses to pull out, the United States will work with it.

You don’t think it would jeopardize the special relationship?

I don’t think it would jeopardize the special relationship because the special relationship isn’t built around the UK’s membership in the EU anymore. The special relationship is about security, intelligence, military cooperation, counterterrorism, etc. And regardless of whether the UK is inside or outside the EU, the United States and UK would carry on operating very closely together. What the UK has to watch out for is that the United States maybe doesn’t care as much as we think it should. And the UK could find itself in a very weak position if it were to leave the EU, because we would carry on depending on the United States as much as we do right now, but we’d have less influence over it outside the EU than inside the EU. To me, it’s bad all around.

In your opinion, how likely is a "Brexit"?

When it comes to the vote, 30 percent. I don’t think it’s likely to happen.