What should the EU’s priorities be in negotiations with the UK over Brexit? Paul De Grauwe writes that the EU should offer the UK two options: either following a Norwegian style model or leaving entirely and negotiating a free trade agreement in the same manner as other nations such as the United States and Canada. He argues that offering any concessions outside of these two options would risk fatally weakening the EU and should be avoided at all costs.
The mandate of Theresa May’s government, as she stated when taking over as the UK’s Prime Minister, is to “make a success of Brexit”. Although the detail of what success here means is unclear, there can be no doubt about what it means in general. It should be interpreted as keeping access to the EU single market while gaining concessions from the EU about the rights of the United Kingdom to control immigration. In other words: trying to square the circle. Something the Brexit campaigners have led millions of British citizens to believe can be done easily.
What negotiation strategy should the European Union take? Here is the choice that must be presented to the UK. Either the UK government takes over the Norwegian model or it stands alone and negotiates new trade agreements with the EU and about fifty other countries (or group of countries) in the framework of the rules of the World Trade Organization (WTO). The EU must make it clear that there is nothing between these two choices. There can be no “special deal” with the United Kingdom.
If the UK accepts the Norwegian model, it retains full access to the single market. In that case there are no obstacles for British goods and services in the EU and for EU goods and services in the UK. But the price the UK pays in this model is the free movement of EU citizens in and out of the UK. Without the free movement of people there can be no free movement of services. This is the core of the single market. Moreover, the Brits will have to accept two other things in the Norwegian model. First, they will have to abide by the rules on standards, health and safety that are decided in Brussels without being involved in the decision making process. Secondly, they will have to contribute to the European budget.
It is very unlikely that the UK government will accept this model. The Brexit camp considers free migration and Brussels legislation as diabolic and will revolt if the UK government accepts these conditions. True there is an important faction in the new government that is attached to maintaining full access to the single market and sees few problems in accepting free movement of people and Brussels regulation. But this faction is probably too weak to counter the demands of Brexit supporters.
I assume, therefore, that the British government will reject the Norwegian model and will try to obtain concessions from the EU that reduce migration flows, while ensuring access to the single market. Here, the EU must make it clear that a special deal with the UK is excluded. The EU must insist that the only other option for the UK is to stand on its own feet, and to start negotiating new trade deals with the EU and other countries after Brexit is completed. In other words, the UK must be treated like the US, China, Brazil, etc., i.e. as sovereign nations that insist on maintaining full sovereignty over their trade agreements. The trade negotiations between the UK and the rest will take years, if not decades. Their outcome is uncertain. It is not clear, for example whether the UK will be able to maintain free movement of services with the EU as this freedom is intimately linked to the free movement of people. But that is a problem for the Brits who have chosen to embrace full sovereignty.
Here are the reasons why the EU should not accept to be dragged down in negotiating a special deal with the UK. Some EU-countries are tempted today to also organize referenda. I have no problem in principle against such referenda. If citizens of a country dislike being the member of a club, they should be able to leave. This will be better for all. There is no point in living together with people who intensely dislike each other. However, it is in the interest of both parties that the terms of the divorce should be made clear in advance.
That is why the EU should make it clear what potential exiters should expect. It will be either the Norwegian model or a “standalone-model” in which the newly sovereign nations will face the difficult task of establishing new trade agreements on their own. Clarity is essential for those who consider leaving the EU. This clarity can only be achieved by excluding a privileged trade agreement with the United Kingdom.
When the UK joined the EU in 1973 its main strategy was to prevent the union from becoming too strong. The UK political elite decided that this could best be achieved from inside the Union. Now that the UK is departing, the century old British strategy remains the same, i.e. to weaken the forces that can make Europe stronger. The UK can achieve this by insisting on a special deal between the UK and the EU whereby the UK maintains the benefits of the Union while not sharing in the costs. Such a deal, if it comes about, will signal to other member countries that by exiting they can continue to enjoy the benefits of the Union without the costs. Such a prospect would fatally weaken the European Union.
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Note: This article originally appeared at Paul De Grauwe’s personal blog. It gives the views of the author, not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.
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Paul De Grauwe – LSE, European Institute
Professor Paul De Grauwe is the John Paulson Chair in European Political Economy at the LSE’s European Institute. Prior to joining LSE, he was Professor of International Economics at the University of Leuven, Belgium. He was a member of the Belgian parliament from 1991 to 2003. His research interests are international monetary relations, monetary integration, theory and empirical analysis of the foreign-exchange markets, and open-economy macroeconomics. His published books include The Economics of Monetary Union (OUP, 2010), and (with Marianna Grimaldi), The Exchange Rate in a Behavioural Finance Framework (Princeton University Press, 2006).
What options should the EU offer Scotland?
Mi trovo perfettamente d’accordo in ogni punto dell’articolo.
“Brexit” should be interpreted as keeping access to the EU single market ….”
Oh dear ….. another article from an “expert” that doesn’t seem to understand what the “Single Market” is !
We don’t want “access to the SM” because it is more than just a “market”.
The SM includes the Acquis (body of EU law) and “free movement of people”.
The former includes many Rules that have little or nothing to do with cross-border trade.
The latter is understood to mean “stop moving”, i.e settle.
We want to trade – and allow relatively “free” short term visits, whether for business, pleasure or study.
“…. (Norwegians) …. have to abide by the rules on standards, health and safety that are decided in Brussels without being involved in the decision making process”
Perhaps you should view the video by Norwegian Minister, Anne Tvinnereim
https://www.youtube.com/watch?v=N8GpzDDurR8
She describes how Norwegian Officials get early sight of proposed EU laws and make suggestions – sometimes before some of the 28 EU members.
If the outcome is sensible the Norwegians adopt. If not, they don’t. No drama. No angst. Just business-like and pragmatic.
Your article seems to miss the distinction between EU officials – who still can’t believe our vote and are trying to preserve their status quo – and many national politicians who recognise that the UK is their biggest export market that their voters don’t want disrupted.
In summary, the main premise of your article – namely that everything is about the EU and most go through the EU is being challenged.
This is about the resurgence of the Nation State – and hopefully a restoration of democracy closer to the people than the EU is now – while retaining co-operation and good neighbourliness..
“There is no point in living together with people who intensely dislike each other.”
That is quite a statement (btw also applicable to multiculturalism), and indeed, the reason why the EU has very little future in its current format. Independently from Brexit, the EU is destroying itself from within. The Europeanists are doing the job, not even the Eurosceptics. Who created Brexit? Cameron. Who has destroyed Schengen? Merkel and Renzi. Be braced from the next catastrophic mistake by our heroes.
It’s difficult to disagree with the author’s conclusion, but some of his statements and assumptions are wrong and/or misconceived. I write as one who has been strongly in favour of the UK’s membership of the EEC/EU ever since our tragic, short-sighted failure to take the lead in its establishment in the 1950s when Europe was imploring us to do so. I was saddened by the referendum result, but have to acknowledge there were (some) good reasons for it.
To assume that those voting for Brexit all share the outrageous opinions of the most extreme Brexiteers is ridiculous. It is not at all the case that the Brexiteers as a group intensely dislike the continental Europeans and the Irish, or that they regard Brussels legislation as diabolic. But: over the past decade south-east England, which was already seriously over-crowded, has been exposed to massive uncontrolled immigration, from Eastern Europe in particular, amounting to many hundreds of thousands of new people every year. Whatever the economic case for this may be, it has had real and significant adverse social impacts, especially on the least well off. Public perceptions of these impacts have doubtless been aggravated by some right wing and irresponsible newspapers, but there are indeed well-founded grievances. Many who would accept a manageable degree of immigration, with the migrants fully integrating with their host society and accepting its values, have been stirred to revolt at movements of people vastly in excess of this. As for “Brussels legislation”, if those framing it genuinely respected and applied the subsidiarity principle, then there would generally be no major objection to it.
The debate over what the UK should seek in its Brexit negotiations has hardly started. I suspect that the longer it takes us to formulate a realistic negotiating stance, the more the disadvantages of Brexit will become apparent to the electorate as a whole. If the City of London cannot get passporting rights to allow it to supply its services from London, then it will move to wherever it can operate freely, and the UK’s tax revenue will drop substantially. Multinational corporations will tend to make their major investments elsewhere, and run down what they already have here. The border with the Irish republic will have to become a hard border for the first time ever, with serious adverse consequences for the relationship between the two parts of Ireland. The Scots may yet choose to secede from the UK – if they could attract a decent share of the City’s financial business to Scotland, as they almost certainly could, their current account deficit would disappear. Do the English still care what happens to Gibraltar, or indeed to the rest of the UK? If I were negotiating for the EU against the UK, I would play hard-ball and let matters move slowly – as they most probably will anyway. The UK’s appetite for going it alone may yet evaporate.
Not blame me when it all goes bad. I voted REMAIN!
Don’t blame me when it all goes horribly wrong!
I voted to RemaIN.