02 November 2012

Martin Wolf: UK rushes needlessly towards the EU exit

Assume, for example, that a more integrated eurozone emerges, with, notably, a banking union under the supervisory control of the ECB. That would have big implications for the UK. The worst, from the UK perspective, is that financial regulations would be agreed within the eurozone and then imposed on the rest of the EU. The UK might find itself permanently outvoted. The eurozone would surely seek to ensure that the UK cannot subvert its regulations. Moreover, such common eurozone positions might end up going far beyond financial regulation as the eurozone’s integration deepens.

If this were to happen, the UK might consider a number of radical options. True, it might stay inside, as it is. It might also seek to move into the European Economic Area. This would deprive it of a vote in decisions on the single market but it might believe that, by then, its vote would count for nothing, anyway. If this could be agreed – a big if, since the existing members are small countries such as Iceland, Norway and Lichtenstein – this would spare the UK the costs of membership of the common agricultural policy and put it outside the common fisheries policy, both of which are potentially highly popular. However, the UK would continue to contribute to costs associated with the single market. If even this were too onerous, it might rejoin the European Free Trade Area, with Switzerland, thereby putting it outside the single market. Beyond that, it could leave everything and stand on its rights in the World Trade Organisation. Choosing among these alternatives and then negotiating over them with the members would be quite a business.

Yet sufficient unto the day is the evil thereof. None of this needs to be decided now. The UK is a bystander at the eurozone drama. Its sensible policy is to keep its options open until the outcome is far clearer.

The question is whether domestic politics will allow it to be so sensible. A combination of Tory euroscepticism with Labour opportunism is generating a battle over the EU budget, in which the UK will alienate virtually every other member. Increasingly, the UK is viewed as a member of a club whose rules it rejects and norms it despises. A desire to repatriate powers is a rejection of existing rules. A refusal to compromise is a rejection of club norms. The British understand clubability. Eccentricity is usually acceptable. Obstructionism is not.

The relationship between an inward-looking eurozone, trying to resolve its problems, and a UK trying to become ever more detached, will be difficult. Indeed, it was always likely that the long-run consequences of the creation of the euro would be an EU in which the UK – or at least England – felt it did not fit. (Scotland might decide to leave England so it can stay in the EU.) No decision needs to be made as yet. But UK politics may not allow it to be a patient and co-operative bystander. As unnecessary irritation over relatively unimportant issues grows, the UK may be driven into a referendum over membership, even though neither the options nor the implications would then be clear. That referendum might lead towards exit. Would England at last enjoy being an offshore island off a united Europe? I strongly doubt it. But that outcome no longer seems distant.

© Financial Times