international analysis and commentary

The UK and the eurocrisis: the realistic “Brixit” option

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The last few months have been particularly tough for David Cameron and his leadership. The success of the Olympic Games was the only gust of fresh air in an otherwise muddled summer session. The defeat over two important constitutional reforms aiming to transform the House of Lords and to re-shape the electoral districts have substantially compromised the stability of the government coalition.

Both reforms could have guaranteed Cameron and the Conservative Party a relatively peaceful relationship with the Lib-Dems after the heavy loss registered in the latest local election, but his party backbenchers led him into an ambush, boycotting  the reform of the House of Lords. As a consequence, the retaliation, actuated by the coalition junior partner, blocked the electoral reform which could have given Cameron’s party about 30 extra seats in the following election.

In addition, Australian media tycoon Rupert Murdoch has openly supported the candidature of Boris Johnson, Mayor of London, as leader for the Conservative Party for the next national election. Despite the scandals that have afflicted his media empire, Murdoch remains a very important ally for any English politician, as a well-connected figure in the Conservative Party who is able to move votes and influence public opinion through Newscorp.

Cameron’s lack of “grip” over Conservative MPs is a major obstacle faced by the Prime Minister and his inner political circle and will dictate, among other things, the relationship between the UK and the EU, as  Europe will be an especially complex issue for Cameron to sort out with his own party.

This political background has to be analyzed in the light of the evolution of the eurozone crisis. Several polls taken during the last month have showed a remarkable disaffection to the EU with only a small percentage of the population supporting the membership of the UK. Moreover, Cameron’s political weakness and the eurocrisis make an exit of the UK from the EU possible – something that was unthinkable just a few years ago. This prospect has been also mentioned, during an interview, by former PM Tony Blair: “I am deeply worried that Britain could decide by referendum to leave”.

A referendum over the exit is indeed possible but the timing is uncertain. Cameron has planned to eventually hold it in 2015 after the general election. The date has been announced to sedate the opposition within the Conservative Party. The press has already coined the term “Brixit” to describe the possible exit from the Union. Looking at the polls and at the mounting anti-euro campaign, the chances that a referendum could push out the UK from the European Union seems to be increasing each day, while the Prime Minister’s postponement plan may well unravel before 2015.  For instance, political controversies with other member states could provoke an escalation regarding the referendum this fall, such as the negotiation of the next EU framework budget, banking regulation schemes, a bank transaction tax, or whatever measure that discriminates against non-eurozone countries. Any one of these political disputes could trigger a campaign for a referendum.

On the other hand, if the eurozone does not collapse, a further integration and an additional transfer of power from the national capitals to Brussels seems to be only a matter of time. When the Treaty will change, the UK will likely demand that certain powers be renationalized during the negotiations. The EU partners will probably refuse any concessions if they touch the integrity of the single market. Should Cameron try to force his hand over a referendum, his coalition partner could decide to run for early election. More than the coalition partner, however, his own party is Cameron’s main problem. The “extremists” might push for a referendum at the first political incident that arises. Even if this does not happen, the election of the European Parliament in 2014 will increase the intensity of the anti-European message in a campaign where  the Conservatives will face the electoral challenge posed by the UK Independence Party (UKIP). 

Sooner or later, Cameron and the whole British establishment will face an important challenge concerning their relationship with the EU and the eurozone. As deeper integration is on the table, the UK shall soon find out what kind of relationship it wants with the EU. Three possible options seem most likely:

1) Deeper integration in the European Union with the UK asking for an opt-out clause from further transfers of power, in an effort to renegotiate to its own benefit some particular issues such as banking and labor market. This will require the UK to use “smart diplomacy” and the acceptance of some compromises. Such a strategy would still allow the UK to profit from the single market, but its inevitable downside would be the decreased negotiating and vetoing power regarding new regulations and policies.

2) After the decision to push for deeper integration in the eurozone, the UK and some other non-eurozone members  could decide to ask for an exit from the European Union by referendum  – the “Brixit” option. It is a leap in the dark without any clear understanding of the possible economic and political consequences. Indeed, many among the British political and economic establishment – including a relevant part of the city – are against this option.

3) Facing a scenario of deeper integration, the UK could opt for obtaining the same status of an EFTA country, i.e. free-trade agreement plus partial integration into the internal market. This could turn out to be the politically worst scenario for the UK, leaving it under the EU single market regulations yet without  the ability to influence decision-making in Brussels.

All three scenarios have something in common: the UK will face a loss of political influence in the European decision-making process even before or without actually leaving the Union. The reduced negotiating power and influence in Brussels will not allow London to veto further transfer of competences to Brussels, and this could likely trigger a domino effect providing Cameron’s internal competitors room for maneuver to boost the “Brixit” option through the referendum. It is exactly such a dynamic that makes a UK withdrawal from the European Union much more than a theoretical possibility.