The negotiations about the exit of the United Kingdom from the European Union have started. The final bill could be expensive.

The past June 19th, 2017, the negotiations about the United Kingdom exit from Europe have started. Michel Barnier and David Davis represent Europe and the United Kingdom respectively.

Starting point: an economic approach

From European side, two priorities emerge during the beginning of negotiations. First one is to define the legal status and related rights of Europeans living in the UK (close to 3,3 million of persons) and the British living in Europe (close to 1,2 million of persons).

The second point, and maybe the more tough, is the UK voucher. European expenses plan is defined on a multi-yearly basis. The current plan covers all the expenses from 2014 to 2020. But engagements are validated on a yearly basis. These validated expenses can therefore be executed (paid) during the five next years to the engagement date. In these context, how much can Europe request to the UK? How much can the UK accept to pay? Pensions of European public workers have to be considered also: the UK has to pay only its citizens pension while it has made profit of the remaining European public workers during decades?

Similar questions are numerous…

Net participation of the United Kingdom to European budget is of nine billion of euros. But according to diplomatic sources, considering all the European programs, Europe would like recuperate a sum between 20 to 75 B€. An amount that will be strongly negotiated by both parts.

However, the main objective of the negotiations will be to define the frame of the future economics and politics relations between Europe and the United Kingdom. It will be crucial for the UK because their economy is more European-dependent than the opposite situation. This is applicable in the in terms of goods, investments and services exports (that could lead to a heavy impact for the UK Gross Domestic Product). But the European Union also defines its own future and its identity. Identity in which European society can feel identified or not.

Risks for the City: the long term

Regarding the short term impact, macro economics indicators seems to point to a stabilisation of the situation. The Pound Sterling has decreased its value as a normal mechanism of selling re-allocation. And even if this means that, from an international point of view the British economy is poorer, the citizen that lives far from the City will still see its familiar economy as stable.

However, the risk could appear in the mid and long term, depending on the output of the negotiations and the impact they will have in the United Kingdom economy.

One of the major stake for the United Kingdom is the future of its City. London is the financial core of Europe and with the Brexit, European government is already opening discussions with potential new cities that could welcome the financial center.

By leaving the Union, London will lose its right to deliver “financial passports”: the right to sell investment products from London. Moreover, London is the first place where the sophisticated financial products indexed in euros are exchanged. In case of crisis, the intermediary chambers in charge of these transactions will need European Central Bank credits (in euros) to be able to continue with their activities. Therefore the ECB will insist in being able to control these intermediary chambers.

In June 2017, the European Commission proposed to let the medium and minor intermediary chambers in the UK with a control of Europe but has requested the installation of the major chambers in Europe. One of the major “intermediary chambers” is the LCH, a private branch of the Bank of London. A private society that would lose a major part of its business.

The LCH example illustrates the situation that faces London at its financial heart: the global leadership in financials transactions. And for the United Kingdom, one of its remaining strong and dynamic economies.

The long term: The European Union identity

On the other side, the impact of the Brexit for the European Union has to be analyzed in the general current context of nationalisms explosions and eastern menaces coming from ex-URSS countries. Brexit represents therefore more of a social threat than an economic risk.

We usually tend to make a voluntary (or not) confusion between Europe and the European Union. Historically, these two terms could be even considered as opposite as the EU supported the borders suppression and contributed to build a supra-national identity: the Europeans. While Europe has been a large source of conflicts during numerous centuries.

Geographically, it is true that the expansion of the European Union has slightly aligned its borders with Europe but some difference still remains. But maybe the most important feature is the nature itself of the European Union. The Brexit reminded us that, on the contrary than Europe, the European Union is a politico-social construction whose expansion (and even survival) cannot be considered de facto as something natural.

Two trends exist since the creation of the European Economic Community (ECC): first, the integration of countries and its societies went deeper and deeper. Second, the benefits of this integration extended to a larger number of countries. The end of the Berlin wall represented an enormous challenge: it was no longer an affair of occident countries but a need to integrate ex-soviet countries. The Yalta Europe having disappeared, the objective was to not come back to the Versailles Europe.

Already in that period, as Altiero Spinelli (author of the Ventotene Manifest) mentioned, the EU should offer a solution that did not ignore national feelings and identities but rather allow these feelings to express in freedom. This was noticeably true for the ex-URSS republics that found in Europe a way to grow as a society and a country after years of “identity neutralization”.

This positive trend remained as is until the XXI referendums. Unacceptable expressions such as “Polish plumber” used for 2004 French referendum, made deep roots in a society that started to see in the EU a menace instead than an opportunity. The Netherlands also refused the EU concept during their referendum. This EU identity crisis (partially saved with the Lisbon Treaty) was accented during the subprime financial crisis. We heard again about the “Polish plumbers” during the Brexit campaign which opened a paradox: the UK historically applied a strong pressure to extend the EU borders and was now using the European immigrants as scapegoats to leave the project.

On the eastern Europe side, contradictions also appear. Poland can be a good example: before its integration in the Union, its GDP was two times lower than the Ukrainian one (1990). In 2016, Poland GDP is close to be four times higher than the Ukrainian one. Poland also re-established economical and diplomatic links with Germany become for the first time a major actor of Europe with a growing economy. This context lead Poland, France and Germany to form the Wiemar triangle, a relevant group in the Euroatlantic geopolitics with a strong impact in NATO and many strategic decisions.

But beside all these clear benefits, the Polish government has used a vulnerable period for the EU to use a short term and obsolete receipt. Donald Trump made an official visit to Poland before joining the G20. Deepening the division feeling in the heart of the EU. In another disturbing contradiction, Poland has become a fertile land to hear anti-immigration speeches and dreams of an identitary retreat, putting in place an illiberal government in the center of the EU following the Viktor Orban’s Hungarian example.

The Brexit is, for the European Union, maybe the bigger challenge on going at this moment. But this challenge refers to a global trend of identity questioning across the continent. Trend that cristallizes in the populist wave, internal nationalisms…

My interpretation

The UK decided to leave the EU without a normal debate. Anthony Giddens considered this decision and the whole Brexit process as a the “sleepwalker scenario”. And I cannot be more agree with this definition.

A flagrant lack of a robust public and politic debate, an enormous calculation mistake by David Cameron who wanted to pressure the EU government with a referendum, the raise of Nigel Farage and its populism team, the retractations of the UKIP after the “Yes”, the low political level of Theresa May…

Recent history has already demonstrated that similar contexts are key enablers of stereotypes and populism leaders to win and achieve the government.

Considering the results of the referendum, the fact that many pro-Brexit leaders disappeared after the referendum and many others admitted false foundaments of their ideas and the fact that the young population of the UK voted against the Brexit, I wonder why any UK leader has not proposed the cancellation of the result (or at least a new referendum with a proper debate prior to decision). Theresa May is certainly not capable of such a strong decision as her leadership is not consistent and not supported internationally.

But besides the UK decision, the European Union has to take profit of the end of the financial crisis context to fight against the remaining populisms and reinforce its philosophy.

The Brexit negotiations will be arduous. The economic and political stakes are very important for both sides (even if the UK has more to lose than the EU) but the decision is taken and now the European Union has to strengthen its future and union. The moment of great leaders, able to deploy a positive vision of the future, has arrived.

The European Union is founded in a series of basic agreements that needs to be respected. These agreements were those who attired the occidental and ex-URSS republics into the EU project.

And even if each social progress has its counter-part, same can be said of the nationalisms and the populism around the world. If the European Union goes against this peak, it could catch the necessary impulse back again. But for this, the European Union will need to build a legitimating speech that answers to current social questions and priorities, which are (fortunately) different than those of the past 60 years.

References:

El País – Javier Solana. El Reverso de la Ampliación EuroAtlántica – Digital edition: follow lick by clicking

Alternatives Economiques – July-August 2017 – nº 370. “Un Brexit couteux”, p.94