4 May 2015

Why, and how, Britain might leave the European Union

Apr 29th 2015

GREECE has long seemed a decent bet to crash out of the euro zone, and perhaps also the European Union. But during the current election campaign in Britain, Britain's exit (or a "Brexit") from the EU has also started to seem a real possibility. David Cameron, the prime minister, has promised an in/out referendum vote on Britain’s EU membership by the end of 2017 if the Conservatives remain in power on May 7th. Several other smaller parties, notably the UK Independence Party (UKIP), are campaigning specifically to leave the EU. Moreover, polls show that any referendum would be an extremely tight one. Why might Britain be leaving the EU, and how would it happen?

Even at the best of times Britain has always been a semi-detached member of the EU. The first post-war Labour governments turned down the opportunity to participate in the negotiations that led to the birth of the forerunner of the EU in the early 1950s. Since then Britain has often been more sceptical of the European project than committed to it; the country has been called “the awkward partner”. Britain eventually joined what was then called the European Communities under a Tory government in 1973, as Europe seemed to be doing so well economically. But the next Labour government quickly held a referendum on membership in 1975. The majority, on that occasion, voted to stay in, but over the past few decades British governments have kept their distance as others within Europe pursued "ever closer union". Britain did not join the single currency, and it is not a member of the Schengen passport-free travel zone. Traditional hostility to the EU has increased in recent years with the arrival of hundreds of thousands of east Europeans (quite legally, under EU rules) to find work, which has caused parties such as UKIP to assert that they are hogging an unfair proportion of the housing, school-places and health services that should go to Britons. 


But it is unclear how the referendum would actually work. No country has ever voted to leave the EU before. Mr Cameron has promised to renegotiate the terms of Britain’s relationship with the EU before such a vote, to get a better deal for Britain. If those negotiations, in areas like immigration, proceed well then his government would presumably recommend that people vote to stay in the EU. If not then a Conservative government might conceivably recommend that Britain leave. But it may also be very uncertain by the time that the referendum is held exactly what these “renegotiations” add up to, especially if there is no agreement on a treaty change. The Labour Party and the Liberal Democrats oppose Mr Cameron’s referendum.

The consequences of a Brexit a hard to gauge. Those in favour of leaving argue passionately that it would liberate Britain from the suffocating hold of EU red tape and political interference, and free up the country’s businesses to trade more successfully with the rest of the world. Those against a Brexit argue, with equal passion, that it would jeopardise Britain’s trade with its major commercial partner (now worth about £400 billion a year). A Brexit would also make the country a much less attractive destination for foreign investment in Britain, as many companies come to the country in part because of its access to EU markets. In fact, much would depend on how Britain’s relations with the EU fare after a Brexit. The country could become like Switzerland, which has an association with the EU, or more like Norway and Iceland, which are inside the European Economic Area, and thus the internal market, but with no power to change the rules of that market. Or, Britain might find a spurned EU an unwilling partner. What is clear, however, is that any referendum will invite a prolonged period of uncertainty, both before and after the event. That alone should create plenty of political and economic turmoil in Britain, regardless of the referendum vote itself.

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