Waking up with a serious hangover!

 

While many of us went to bed last night reassured by the latest polls and the calm behaviour of financial markets, we awakened in a state of shock! Since then, the deluge of pronouncements inundating the media and the kneejerk reactions of financial markets, makes expressing a thoughtful commentary extremely hazardous. One should, nevertheless, attempt to decipher the possible consequences and the different alternatives available. One should avoid confusing subjects which, per force, are separate but will need to be addressed simultaneously. Most importantly, the divorce process with the UK should not get mixed up with the necessary reforms of a 27 member European Union.

 

I will review very superficially some questions relating to the withdrawal process from the Union, which will be tested for the first time.

 

David Cameron has expressed his intention to impose “his” agenda on the rest of the Union by announcing, without any prior consultation of his European partners, that the formal notification and the withdrawal negotiations are the responsibility of the next PM who should be appointed by next October. This unilateral declaration calls for a strong response on behalf of the Union which should not tolerate prolonging the suspense or being hamstrung in its decisions for the next three months or even longer, should the next British leader decide (or be compelled) to call for new elections before issuing the formal notification, which must receive the assent of the House of Commons.

 

At the next European Council, the conclusions should confirm that “the results of the Referendum will definitively prevent the entering into force of the agreements reached on February 20th between the UK and the EU”, without waiting for the formal notification under Article 50. It is indeed indispensable that the EU is in a position to undertake whatever initiative it deems appropriate without waiting for the UK’s approval.

 

Nevertheless, the 27 should take advantage of this interim period to define a common position and seek the European Parliament’s endorsement. The Commission should elaborate proposals by mid-August leaving the Council and the Parliament 6 weeks to adopt them. (The European citizen will not shed a single tear for the civil servants and politicians that will have their holiday plans upset!).

 

Concerning the consequences for Great Britain, be they political (territorial integrity of the UK…), economical (investments, employment…) or financial (Sterling, the City, financial and real estate markets…) let us leave the British to face the fallout of their decision. They will, however, have to face their own problem of democracy on which they have been so touchy. Indeed, the next PM will be chosen among two candidates designated by the 330 conservative MPs and selected by party members only. The party being divided, new parliamentary elections seem inevitable to give the next government a suitable democratic legitimacy in negotiating with the EU.

 

The EU should, meanwhile, take – unilaterally – all measures necessary to alleviate the negative impact that Brexit creates within the single market.

Let us now consider the heart of the problem: the indispensable reform of the EU.

 

A series of complex and controversial matters such as Immigration, completing EMU, or a common Defence and Foreign Affairs policy are both political and concrete in nature, and a broad consensus exists that these matters are best addressed at  “European” level. A workable consensus, however, can only be reached to the extent that agreement is found on a constructive application of a series of more abstract values, particularly those embodied in the concepts of Democracy and Sovereignty.

 

Over time, European integration has led to a transfer by its 28 “democratic” Members of significant elements of “national sovereignty” to the Union which is largely perceived as lacking “democratic legitimacy”. Furthermore, in exercising these sovereign powers the Union is considerably hamstrung by the European Council, an “intergovernmental body” at the heart of the European construction.

 

Clearly, Europe can have several “futures” but circumstances make it now imperative to choose once and for all between options that are mutually incompatible: either a democratic federal Union (the American model adapted to our own culture) which institutes a clear hierarchy between the different levels of power (Federal, national, regional and local); either a Union preserving the primacy of “national sovereignty”.

 

The first option implies transferring to the federal level exclusively the responsibility for managing the common currency, defence, foreign affairs, etc., as well as instituting a common base underpinning economic, fiscal, judicial, environmental etc., policies. This should not prevent devolving significant powers to lower levels through an appropriate application of the principles of subsidiarity.

 

The second option implies unpicking significant sections of the existing European construction, running the risk of bringing down the entire house in the process. Indeed it is hard to envisage how a return to national currencies (dismantling of the €) and manning internal national borders (to control immigration) is compatible with the survival of the single market or the freedom of movement of people, goods and capital which constitute the foundation of the EU’s prosperity (and security). A return to 27 national currencies would make them more vulnerable to speculative attacks by financial markets, reigniting currency risks, inhibiting cross border investment and creating a severe drag on growth prospects. The economic shock, that is expected to be significant in the UK despite not being party either to EMU or Schengen, would be considerably amplified in the event of the single currency’s dismantlement.

 

Nevertheless, as has been suggested by EU Council President Donald Tusk, public opinion is currently far from convinced of the pertinence of the federal option. The growing Euroscepticism is the direct result of the unacceptable explosion of inequalities induced by ultra-liberal economic policies worldwide. European leaders have proved unable to ensure that the undeniable prosperity generated by the EU be spread more evenly and equitably. The citizen seems ready to “try anything else” without necessarily understanding the risks involved.

 

The earthquake unleashed by Brexit should be seen as an opportunity to bring about a deep reform of the EU so that it is able to fulfil the aspirations of its citizens, in particular the younger generations. The stakes should be debated openly, avoiding any demagogic excesses which characterise the programs of all populist parties. Contrary to their assurances, the most vulnerable sections of the population would be the main victims of the adjustments induced by dismantling the EU; these additional hardships would cumulate with the grievances they aim at overcoming. One will need a significant dose of realism and pragmatism and above all avoid spreading the illusion that full national sovereignty is compatible with a truly democratic European Union.

 

Lorgues, 24th June 2016 

 

 

Paul N. Goldschmidt

Director, European Commission (ret.); Member of the Steering Committee of the Thomas More Institute.

 

 

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