01 April 2016

Financial Times: A British breakaway would hurt its European partners

Less than three months before the June 23 “Brexit” referendum, domestic politics is concentrating on whether remaining in or leaving the EU is right for Britain. For the rest of the world, a bigger question is what impact a British exit would have on the EU. Precise calculations are impossible, but Brexit would probably harm the EU economy. The real damage, though, would be political.

About 2m jobs in the 19-nation eurozone depend on trade with Britain. Eurozone exports to the UK would suffer a shock if, as foreign exchange markets expect, sterling fell sharply after a pro-Brexit result. Another concern relates to European companies that use their UK operations to sell to the world. They would face tariff barriers in non-European markets if, post-exit, Britain failed to keep its EU-based free trade accords with the rest of the world.

Brexit would plunge trade and investment between the British and their European neighbours into uncertainty, especially if attempts to work out a new relationship turned nasty. They might well do so, in the event that David Cameron resigned as UK prime minister, George Osborne fell on his sword as chancellor of the exchequer and a more anti-EU Conservative government ruled the nation.

Keep in mind that, with Britain out of the EU, Germany, France and other net contributors to the 28-nation bloc’s budget would have to make even bigger payments than they do today. Ideally, a new British-EU trade regime would be completely free of tariff and non-tariff barriers damaging to businesses on both sides. But political frictions might put that goal beyond reach. [...]

Brexit would demonstrate, for the first time in the post-1945 era, that EU integration can go into reverse as well as forward. It would boost anti-establishment, anti-EU forces across the continent. In some places, nationalist pressures would build for concessions similar to those extracted by Mr Cameron in his renegotiation of membership terms. After all, he proved that the squeaky wheel gets the grease.

According to one recent poll, 53 per cent of French voters want a referendum on EU membership. Anyone assuming that France, as an EU founder member, would vote to stay in should remember that the French shot down the EU’s proposed constitutional treaty in a 2005 referendum.

By reigniting demands for independence in Scotland, where a majority would probably be keen to stay in the EU if an English majority voted to take Britain out, an exit would fan the flames of separatism in other states, first and foremost Catalonia in Spain. It would also risk destabilising the peace that has prevailed in Northern Ireland since 1998 by throwing up barriers between the British-ruled north and the Republic and reviving the radical nationalist project of Irish unification.

All these dangers would emerge when the EU already has its hands full with the refugee crisis, weak economic growth, high unemployment, the problem of Greece’s eurozone membership and tensions in EU-Russian relations.

It is, however, possible to construct a case that Brexit would represent an opportunity, not a threat, for the EU. In this scenario Britain’s departure inspires eurozone governments with courage to make a big leap towards closer financial, fiscal, economic and political union. Some European politicians — Michel Rocard, the former French prime minister, comes to mind — would welcome Brexit. They see Britain as a country that, from the day it joined the EEC in 1973, has tried to put the brakes on European integration. [...]

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