A new social and political contract for Europe

There is one thing on which David Cameron agrees with his fellow Conservatives who supported Leave: there is no rush to declare Article 50 and start formal negotiations for the United Kingdom’s exit from the EU. On the other side of the Channel, there is one thing on which EU leaders seem to agree: Europe cannot wait, it needs clarity.

This is the result of the peculiar nature of the UK referendum held on 23 June: while the Remain side had to articulate a proposal and negotiate it with the other 27 member states the Leave side was not bound by any specific mandate. There are several ways in which the UK can leave the EU, none of which were on the ballot papers.

Besides issuing statements, EU leaders have little power to force the British government to declare Article 50. Yet, they can contain some of the ripple effects of the uncertainty now affecting the EU. This uncertainty was only aggravated by the British referendum. It is hard not to acknowledge that Thursday’s vote is just the tip of an iceberg of simmering dissatisfaction among large sectors of the European public who tend to see the EU as part of the problem of globalisation, rather than as part of the solution. 

Besides issuing statements, EU leaders have little power to force the British government to declare Article 50. Yet, they can contain some of the ripple effects of the uncertainty now affecting the EU.

To deal with the aftermath of the British referendum, the EU’s 27 member states must act on two tracks: one about Britain, the other about the future of the EU. Holding the latter hostage to the former would be a fatal mistake. Britain could potentially take a long time (some months at least) to figure out what to do with the vague mandate it has been granted by the public.

What to do with Britain until it decides

Contrary to what David Cameron announced in February, it seems the United Kingdom will not invoke Article 50 of the Lisbon treaty in the coming days. This means that no formal negotiations can start. On the one hand, this allows the Conservative party to figure out what it is going to do. On the other hand, Article 50 gives only two years for negotiations and many British policymakers want to buy time, conduct informal negotiations for a bespoke deal, reach a “framework agreement” and then, only then, invoke Article 50.

The problem is that neither the EU nor the UK can afford that. The EU cannot afford to treat its first departing member like a spoiled child but at the same time should show some respect for the workings of British democracy – and for the workings of the other 27 democracies unless they infringe on civil and political rights.

So while Britain decides what to do next, the EU should not engage in informal negotiations before Article 50 is invoked and the clock starts ticking. It’s that ticking clock that will give the EU decisive leverage in the negotiations. On the contrary, to add clarity to the British domestic conversation and to avoid higher degrees of uncertainty within the EU, the European Council should clarify that during the formal negotiations Britain will be offered two options:

Option A: membership of the European Economic Area (EEA) with freedom of circulation for both goods and people as a prerequisite. The EU should clarify that the two freedoms are interconnected and there cannot be membership of the single market without freedom of movement. With this in mind, the UK and the EU would be free to negotiate the conditions of Britain’s membership of the EEA. This option would, in other words, be the “premium package”, delivering the highest benefit (access to the single market) but at the highest price – namely compliance with EU norms including freedom of movement. British leaders will not be able to hide from their public that access to EU funds and the EU market comes with access to the UK for European citizens.

Option B: the EU offers to negotiate a Free Trade Agreement with the UK and sets aside a reasonable amount of time to do that (five to seven years, judging from the time it was needed to negotiate other FTAs) under Article 50. This would mean that while negotiations are underway the UK is still a member of the EU. This would give British, European, and global companies, time to adapt to the new reality, knowing that a UK based firm will probably be the equivalent of a Canadian one.

It should be clear that in either case, the referendum result means that the UK has lost its ability to shape what the EU will be in the future, and the EU will never negotiate terms at the request of a single member state, lest it ignites a race in each member state to ask for bespoke deals like the one wrongly granted to David Cameron in February.

Reforming the EU

The coming months will require high-intensity diplomacy and also an honest conversation about what Europe has become. Five years after the European Central Bank Governor Mario Draghi declared that the European social model is dead, it is the EU that is in a coma. Socially, economically and culturally marginalised Europeans think that the EU has become a vehicle for globalisation’s worst effects: loss of unskilled jobs, cuts to public services (think of the relevance of the NHS in Britain’s campaign), alienation from one’s community and feeling that it has been “invaded” by foreigners, loss of control over one’s own life and need to “take back control”.

The idea that Europe will become a mix of “variable geometries” policies is the only realistic solution for the short term but it does not offer any solution to the social and political problem now affecting Europe, namely how is the EU a shelter against the evils of globalisation while being the most effective way to take advantage of the (many) opportunities that it offers.

In practical terms, EU leaders should start a number of “strengthened cooperations” (the term for coalitions of the willing per the EU treaties) on a number of issues ranging from migration to tax havens.

One of these coalitions, preferably going beyond the six founding members, should also work on a declaration of principles for a more integrated and politically accountable EU that upholds civil, political, and social rights. This should lead to the creation of a real political union with elected institutions in charge of fiscal and foreign policy. The member states not signing up to this political union should still be able to be part of the single market and of individual coalitions of the willing.

One of these coalitions, preferably going beyond the six founding members, should also work on a declaration of principles for a more integrated and politically accountable EU that upholds civil, political, and social rights.

This amounts to a new political and social contract to which some UK citizens might even be attracted. This union should appeal even to the voters of Sunderland in the UK, host to Nissan’s largest plant in Europe. It should be clear to them that the EU is the only way the cars that they produce can be sold at a competitive price abroad but that the EU is their shelter against the uncertainties of globalisation through its provision of social rights and its unique ability to enact a fiscal policy in the age of globalisation – to have an idea, think of what the European Commission has done with large multinationals such as Apple and Google.

It should be clear to policymakers that this political union would need to challenge some of the most unbearable elements of the status quo, where “decent, hard-working people” such as those often invoked by the Leave campaign, have to pay a lot more taxes than transnational and cross-national companies (and individuals).

European policymakers have often used the EU as an excuse not to take responsibility for economic and fiscal policies that have alienated large parts of the European population. “Taking back control” should be the new slogan of a new political union, as only by joining forces can governments wrest control of fiscal policies, offer a new social contract and regenerate their democracies.