IWHAT WILL HAPPEN TO THE EUROPEAN UNION?

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Amidst the sound and fury of the Brexit debate, there has been precious little analysis of the ever-shifting organisation at its heart, namely the European Union. But if voters are to make an informed decision on 23rd June, it is vital they understand what they are electing to Leave or Remain. 

 

In its simplest form, there are four main scenarios for the future of the EU: deeper integration, loosening, decay and collapse. 

 

The first of these has a strong political imperative since the logic of the euro zone requires it to behave more like a state. Unless the euro zone’s south can become as competitive as its north - unlikely given fundamental differences in culture and politics - the only way the south can maintain its existing standard of living in a single monetary framework where it cannot devalue its currency is for the north to make large fiscal transfers, every year, in perpetuity. 

 

Not only does this imply the creation of a euro zone treasury with tax-raising powers, an executive to determine how to raise and spend this money, and a representative parliament to scrutinise this executive. It also implies the downgrading of the various national governments which currently lead on fiscal matters. The only alternative is permanent stagnation in the south. 

 

In reality, however, there is minimal political will for such an endeavour because of the implied costs to the north and a dearth of ‘European solidarity’. Instead, the north has attempted to close the competitive gap by means of punishing fiscal and structural reform that aims to turn Greeks into Germans. 

 

If political union is not happening, the most viable alternative is a loosened EU in which national capitals reclaim those powers which cannot be wielded successfully at the European level because of the absence of political consensus. 

 

This would begin with a partial dismantling of the euro zone, setting free the less competitive south from the more competitive north in a deal that includes massive debt cancellation. But dismantling should also include other areas of policy where the absence of consensus is fuelling discord among EU members, most obviously those concerned with people – immigration, asylum and the free movement of labour. 

 

In this scenario, the EU could continue to integrate in those areas where there is a genuine European consensus (or on a la carte basis where there isn’t). But, crucially, the EU would be free of its main source of internal tension, the need for all member states to move forward in lockstep, and would have a reasonable chance of survival, even revival. 

 

What is less clear is whether the politics support this kind of loosening because of the multiple vested interests at stake. As David Cameron discovered during his attempted renegotiation, one state’s essential reform is another’s red line. While everyone may recognise the need for reform in principle, this doesn’t necessarily mean it will happen in practice. 

 

If the EU cannot go forward and cannot go back, the most probable alternative is that it will decay as an institution. This is not to say it will cease to exist. On the contrary, the Commission will continue to initiate policy, the Council and Parliament will continue to meet, and member states will continue to profess their support for the European cause. 

 

In reality, though, the EU will become increasingly irrelevant as a place where politics is conducted and decisions are made. Instead, member states will abide by its dictates only when it suits them, ignore them when it doesn’t and assert themselves as sovereign actors in the international sphere. 

 

In many ways, this is the direction in which the EU is already moving. In the unfolding migrant crisis, a plethora of states has abandoned the Schengen and Dublin arrangements (on free movement and asylum, respectively) and de facto refused to accept agreed quotas of migrants from Italy and Greece. 

 

Meanwhile, states in Eastern Europe, which never really internalised the tenets of liberal democracy and free market economics, are asserting a more traditional social model in defiance of EU norms. Hungary and Poland, in particular, are reviving a form of democracy based on a powerful parliament with relatively few checks and balances in the system, and a form of hybrid state capitalism in which strategic sectors of the economy are returned to domestic control. 

 

Despite threats of fines and sanctions, Brussels has been unable to stop any of this. In a fundamental sense, it is already losing its authority. 

 

But there is a fourth scenario in which the EU does not fade into insignificance but collapses suddenly and uncontrollably. This may sound far-fetched but that doesn’t mean it can’t happen: Yugoslavia and the Soviet Union both prove that long-established entities can disappear in the blink of an eye. 

 

If the EU does collapse, it will be because one of its powerful second-tier states drops out, fundamentally destabilising the overall construct. France and Italy are both potential candidates but the most likely state to secede is Britain because of the upcoming referendum. 

 

The immediate impact of this would be to increase Germany’s dominance over the rest of the EU. And the question then facing those states that remain is whether they could trust Germany to act in the collective European interest rather than its narrow national interest. 

 

Unfortunately, there is no guarantee of this. In recent years, Germany has sacrificed Greece to bail out its banks, fuelled a burgeoning migrant crisis and is now pressing for a relaxation of trade sanctions against Russia, to the alarm of Eastern Europe’s frontline states. 

 

If Britain were to leave, others would be bound to question whether their national interest lies in an EU in which such a Germany stands supreme. Eurosceptic Denmark and Sweden could follow Britain to the exit in short order. And with each secession, the EU would become increasingly German-centric, fuelling further departures. 

 

All of this has implications for the upcoming referendum. Those who are minded to vote Remain must be clear there is only one scenario – a loosening EU - in which continued membership demonstrably serves the British national interest. And this is not necessarily the most likely scenario. By contrast, it is not in Britain’s interests to be entangled in a decaying institution marked by deepening rancour and recriminations. Instead, it would be better to get out now and embrace the opportunities offered by the rest of the world. 

 

However, those who are minded to vote Leave should understand that the act of doing so could potentially trigger the fourth scenario, namely the EU’s collapse. 

 

David Cameron was roundly mocked for his predictions of World War Three but adjustment to a Europe after the EU would undoubtedly be laden with risk. A disorderly collapse of the euro zone would cause economic turmoil. Fragile states such as Spain and Belgium may not survive. And Germany would be released from its European straightjacket. In Eastern Europe, there would be no one to police the fractious Western Balkans and Russia would have a much freer hand. 

 

Britain can leave the EU, but it cannot escape its geography. It is not in Britain’s interest to stay in an unreformed-EU’s rickety house. But it is not in its interests to set that house on fire when the sparks could so easily set light to its own.

This article first appeared in the i paper on 15th June 2016

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