The Not-Brexit Negotiations as UK Referendum Looms

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To be clear, even the loving-to-fan-controversia media are playing down the notion of a possible Brexit resulting from the surprising Conservative victory. While Cameron put the issue in play by promising a referendum on continue EU membership in 2016 or 2017, the sceptered isle has a specific set of demands, and the European political leaders are looking to negotiate a deal. Ambrose Evans-Prithcard sets forth the UK’s probable position:

While the Government has yet to lay down its precise demands, the broad contours are by now well known. The list includes a clamp-down on benefits for EU migrants, an opt-out from “ever closer union”, safeguards for the City, guaranteed access to the single market for the ‘outs’, an end to protectionism in services, and powers for national parliaments to issue “red cards” on EU laws.

Most of these are goals are achievable. The EU’s creative lawyers have a knack for crafting ways to meet the needs of Europe’s exasperating political geometry.

Mr Cameron has gone quiet on demands for wholesale repatriation of powers or for a whittling down of the ‘acquis’ – the EU’s vast corpus of directives and regulations – knowing that both are anathema for Germany.

Evans-Pritchard also points out that British negotiations will lead other countries to press their claims. European officials are therefore thinking in broader terms:

Stephen Booth from Open Europe said the faint outlines of a “grand bargain” are starting to emerge, with three blocs of states each securing some of what they want: the German-led hawks gain more powers to police budgets; the French-led social bloc unlocks more investment; and the non-euro ‘outs’ – chiefly Britain, Sweden, Denmark, and Poland – secure a new dispensation that recognizes their different status and prevents hostile stitch-ups by the eurozone.

Emmanuel Mourlon-Druol points out at Bruegel that the stances of the main European players, France and Germanys, resemble their stances during the last Brexit-prevention talks of 1974-5. Germany then saw accommodating the British as important while the French were more of the “rules must be obeyed” line of thought. Mourlon-Druol describes how negotiations that got off on a good footing became more strained, ultimately strengthening France-German ties and isolating the UK.

By Emmanuel Mourlon-Druol, the Lord Kelvin Adam Smith Fellow in the Adam Smith Business School, University of Glasgow and Visiting Professor at the Université Libre de Bruxelles. Originally published at Bruegel

As it begins its EU renegotiation, the UK risks antagonising even close allies such as Germany.

The Conservative Party’s election victory leaves little doubt as to the holding of a referendum on continued British EU membership in 2016 or 2017. While the official content of British demands remains vague at the moment, the reaction of Britain’s partners to the prospect of negotiations is made public every day.

German finance minister Wolfgang Schäuble has just declared that he is ready to open talks with the UK about demands to rewrite the rules of Britain’s EU membership. Although more cautious in other public appearances, German chancellor Angela Merkel had made similar comments last year. By contrast, soon after Cameron’s reelection French president François Hollande reacted curtly to the British plans. He stated “it is legitimate to take into account the aspirations of the British, but there are rules in Europe, and among these rules there is dialogue.”

This tableau is reminiscent of the previous Brexit attempt of 1974-1975. Back then, British prime minister Harold Wilson wanted to renegotiate the UK’s terms of entry to the then European Economic Community (EEC), which the UK had joined about a year before in January 1973. The British political landscape was virtually the opposite of what it is today – a Conservative party in favour of the Common Market and a Labour party split on the issue. However, the continental European picture is bears some resemblance to what happened then.

French president Valéry Giscard d’Estaing was strongly sceptical of British demands. In particular, he rejected the idea that the EEC budget should be reformed to suit the needs of the British government. By contrast, West German chancellor Helmut Schmidt was much more open to Wilson’s requests. Through culture and strategic thinking, Schmidt was closer to Britain. Often described as an ‘Atlanticist’, and famously voting against the Treaty of Rome in the Bundestag (partly in fear that it would isolate Britain!), the appointment of Schmidt at the German chancellery in May 1974 was excellent news for the prospects of the British renegotiations.

A little less than 40 years later, an interview with the former German chancellor in the press came as a relative surprise. “Fundamentally, I think de Gaulle was right [to veto British entry in the 1960s],” declared Helmut Schmidt in 2010. “I used to believe in British common sense and state rationale… I was brought up in a very Anglophile way. I was a great supporter of Edward Heath who brought Britain into the European community. But then we had Harold Wilson and Margaret Thatcher, who didn’t always behave so sensibly.”

How can we make sense of such a change of mind? The turning point in Schmidt’s perception of Britain arguably occurred during the renegotiations of 1974-1975. Schmidt’s support for British membership contrasted with Wilson’s ambiguity in his public appearances. While the German chancellor would have liked a stronger British commitment to EEC membership, Wilson maintained an ambiguous line, chiefly for domestic political purposes. Schmidt did not understand why the technical details of the renegotiations were being transformed into proxy for the much deeper question of British membership of the European Community. In addition, even though Schmidt was critical of European integration before and during his time in office, he was always convinced of the need to organise the interdependence of European economies. He did believe in more, not less, integration – something that British officials failed to understand back then.

A negotiation that started off on a promising basis ended up in a much more difficult atmosphere. Most British demands in 1974-1975 were not met; those that were, only in a cosmetic way. What seemed to be an ideal situation at the beginning – having an ally in the German government, the most economically powerful member state and greatest contributor to the EEC budget – failed to lead to a successful deal for the British government. Worse, antagonising the German chancellor revived the Franco-German axis and contributed to British isolation in Europe. Schmidt refused to make concessions during the last stages of the renegotiations in early 1975, and the Franco-German duo took centre stage in European politics during the remaining years of the Labour government.

Schäuble’s comment should therefore sound a note of caution for British officials. A disproportionate disconnect between the high stakes of the discussions – yes or no to the EU – and the technicality of the negotiations’ process can easily turn someone who appears a best friend at the start into a staunch opponent at more crucial stages. Instead of finding comforting thoughts in Schäuble’s remark, the British government should be wary that in a few years the German finance minister could end up agreeing with what de Gaulle said in the 1960s: that there is a fundamental incompatibility between Britain and Europe.

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  1. PlutoniumKun

    I’ve noted a certain strange resignation in parts of the UK and non-UK press to the referendum – an assumption that Cameron will fudge some sort of deal, and the country will reluctantly fall in behind him. I’m not so sure – there are a number of potential compounding factors:

    1. I don’t think its fully appreciated in the UK just how incredibly weak and unpopular the Conservative government is within European politics. They long ago left the mainstream centre-right groupings in the European Parliament and now only have allies among various nutty East European far right parties. They quite simply have no natural allies – its no secret Merkel strongly dislikes Cameron and has no respect for him. It is very difficult to cut a deal in the EU without some sort of coalition behind you.

    2. A face-saving ‘fudge’ will be very difficult for Cameron simply because his own party is so deeply anti EU they will put a huge focus on everything they have signed up to. There is a real possibility of a major split in Conservative ranks if he doesn’t negotiate something of substance, and it is hard to see what that substance can be.

    3. The assumption that the UK will vote to stay in is not a foregone conclusion despite polls suggesting a consistent majority want to stay in. Its entirely possible you could see an election where millions of left of centre voters simply stay at home in horror at the notion of supporting a Cameron fudge, while a more passionate ‘no’ vote gets people to the polls.

    The consequences could be the worst of all worlds – a disorderly exit organised by a PM who doesn’t really want to exit and is unprepared for it (although no doubt he would probably be forced to resign if he campaigned for a ‘yes’ and lost).

    1. Yves Smith Post author

      Yes, you’d never get a sense of that, even from the Eurosceptic Torygraph. It sounds like there is a tacit agreement, that the media won’t stoke bad outcomes by severely downplaying their odds of happening.

      1. PlutoniumKun

        first off, I meant ‘confounding’, not ‘compounding’ above (blame my lack of coffee so far this morning).

        Yves, yes, its interesting that there seems a sudden loss of confidence in mainstream euroscepticism in the UK – it seems a case of ‘beware what you wish for’. I think that for a lot of right wingers in Britain its fun to moan and complain about the EU over a few glasses of port, but faced with the actual possibility of an unruly exit, they are suddenly realising that the consequences could well be very serious indeed. I’ve noted that whenever you challenge British eurosceptics about what will happen to the UK economy, they always say things like ‘Norway and Switzerland do fine, and trade freely with the EU’. They forget that those countries are largely irrelevances in size and scale and are not real competitors to core EU countries. The UK is, and once out, French and German companies in particular will gleefully set about fixing the rules to make life very difficult for UK exporters.

        1. Fair Economist

          The odds are very much against an EU exit, though. The last time the polling was for departure was during and shortly after the 2007-8 crash, which people were looking for big changes. Now that things in England are steady, even though still bad, polling is consistently against (60-40). Add to that a certain “cold feet” tendency on big change referenda where the public tends to shift to the status quo at the last minute.

          I think this has more to do with Cameron’s depressingly skillful manipulation of the British public on divisive issues. He used the Scottish independence referendum to split Labour from its Scottish base and then flirted with Brexit with the referendum promise to split off Labour euroskeptics – successfully, it seems, as there was a big Labour -> UKIP move. An actual Brexit is bad for him as he’ll lose the Europhile Tories, including a lot of business interests. He’ll do everything he can to have a referendum *and* have it fail. With control of the negotiations and favorable ground (based on polls) odds are very much in his favor.

          1. PlutoniumKun

            I’m not sure I agree with that analysis. To take the example of the Scottish referendum, that was seen as a sly political move by Cameron – to propose full independence rather than the devo-max the Scots Nats wanted. The polls suggested that only 20% or less of Scots would support it. It ended up as 45%. And that was for a very uncertain overturning of the status quo.

            Add that to the fact that a very high proportion of those 60% who say they want to stay in the EU are left of centre voters who will be very loath to come out in a vote to support Cameron, it would be very easy to see a low turnout referendum reversing the 60:40 split, even if opinion polls did stay steady. In UK elections, with traditional low turn-outs, its quite possible for motivated minorities to out vote ambiguous majorities.

    2. Nell

      I agree that it is not a forgone conclusion that the UK will vote to stay in. The EU has been blamed for pretty much everything that voters worry about. Are you having trouble managing on your income? Blame the EU and its migration policy as migrants will work for low wages. Are you having trouble seeing your doctor? Blame the EU and its migration policy as migrants are over-burdening our public services. Are you having trouble finding accommodation? Blame the EU and its migration policy as migrants are taking up all the housing space.
      Are you stressed out by all the red tape interfering with your ability to do business? Blame the EU whose bureaucracy is a constant downward pressure on the natural entrepreneurial spirit of UK citizens. Are you worried about the UK’s economy? Blame the EU and the profligacy of those socialist countries that we have to pay money to.
      This is has been a constant backdrop for several years now. A YES to exit from the EU would not surprise me in the least.

    3. digi_owl

      With the City being pretty much the Wall Street of Europe, and them sitting outside of EU would complicate matters for big finance in Europe, the propaganda wing of big finance, the for profit press, has to maintain the line that there will be a deal eventually.

      Or maybe that is just my cynical side stepping forward…

  2. vidimi

    the referendum will go ahead – why not? – but it’s got a snowball’s chance in hell of passing. even if 95% of the voters voted to exit the EU, the results would be fudged to make sure it wouldn’t happen. Brexit would be a disaster for London finance and it would repatriate a lot of jobs to the continent. it would be great for Europe, great for the british working class, but lousy for the british and transnational elite who are the tories’ real constituents.

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