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October 29, 2018

Why the EEA is no longer a Brexit option

Brexit almost entirely disappeared from the news agenda in the UK over the last few days, which would have been a relief if Brexit had not been superseded by other awful news. There was one Brexit story that caught our eye, not so much for what it says, but as an example of how uninformed the debate still is. This story concerns a Brexit plan B to introduce a temporary EEA membership in lieu of the transition period. Various senior Tory politicians are quoted as finding the idea brilliant. 

Unfortunately, the proposal is technically and legally not feasible. We have also advocated the EEA as a potential Brexit option in the past. But the EEA is no instant panacea. As Jean-Claude Piris pointed out in a series of tweets, full EEA membership requires a series of treaties, including the UK joining Efta. These treaties are not off-the-shelf, they require technical negotiations and ratification by all members. This cannot be done by March 29, 2019. Piris doubts that EEA members would accept the principle of a temporary membership. That assertion would need to be tested, though. We find it hard to see why EEA members should want to block this, but we agree with him that their assent cannot be taken for granted either. Thus a Brexit transition period is necessary. And Piris also points out that the EEA is not a customs union. Worse, it is incompatible with a customs union as Art 56(3) of the Efta Convention binds members to accept FTAs concluded by Efta members. This means that the cliff edge would still occur, and that the EEA does not solve the Irish border issue. 

This is the reason why the UK government and the EU are negotiating along the lines of a virtual customs union, with minimal regulatory checks. The agreement on the Irish backstop in December has dramatically reduced the political room for manoeuvre on Brexit. It’s either that, no deal, or a last minute reversal. Such is the universe of available options.

We see the debate about a second referendum to be equally based on a lot of misinformation, such as the idea of an amendment to the withdrawal treaty that makes it subject to a referendum. The EU would invariably interpret this as a rejection of the entire treaty. There are circumstances in which the EU might extend the Article 50 period. The likelier of the scenarios is for this to buy a little more time - a few weeks at most - to allow for ratification. The less likely, but still possible, scenario would involve the UK government informing the EU that the UK wants to reconsider Brexit and hold a second referendum - even if the EU would be less than impressed by such a legally and politically uncertain parliamentary manoeuvre.

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October 29, 2018

Behold the rising superpower: post-catholic Ireland’s European miracle

President Michael Higgins, a left-wing poet, was re-elected for another seven years. The crime of blasphemy was expunged from the constitution by a powerful majority of the electorate. Yesterday, a seemingly serene Ireland has voted overwhelmingly for stability and further liberation from past catholic Christian strictures, its politics apparently unaffected by the looming shock of Brexit or the populist rage that is stalking much of the continent. On the face of it, such stability is pretty astonishing. Even a benign Brexit will hit Ireland harder than any other of the 27, and a hard Brexit with all its dire consequences for Ireland, and for Northern Ireland in particular, is widely seen as an entirely possible scenario.

There can be little doubt that the booming economy helps. Ireland has engineered a spectacular recovery from the depths of debt and misery incurred at the beginning of the Eurozone crisis, its GDP expanding at 5.8% this year and 4% next one according to the latest European Commission forecast. But electoral results such as yesterday in Hesse show that hard nationalistic populism can currently grow its share of the vote even where the economy is doing well. Something else is at play in Ireland, and this something is the EU.

Speaking in Washington last week, Ireland’s former Europe minister Lucinda Creighton explained how, much to the disappointment of europhobes in London, the EU 27 have remained rock-solid in their support of Ireland during the Brexit negotiations; and how Dublin is by now confident that this support will continue right through to the end. After centuries of brutal British domination, 45 years of EU membership have given the Irish republic confidence – a novel feeling which the experience of full-on European solidarity in the face of grave potential crisis is now transforming into elation occasionally verging on giddiness, if Leo Varadkar's exuberant tweeting these days is any indication.

Add to that another Brexit-related development which Irish diplomats have been witnessing with initial surprise before the Brexit vote even occurred. Within months of David Cameron’s announcing a Brexit referendum. Commonwealth countries like New Zealand that had habitually turned to London for discreet advocacy or mediation with Brussels suddenly started knocking on Dublin’s door. It is not just post-Brexit London which is likely to turn to the government in Dublin as its first port of call in case of trouble with the continent, it is potentially virtually all of the English-speaking world, a process aided by the fact that most Irish diplomats are highly competent, pragmatic and pleasant to deal with. Far from marginalising it politically, Brexit will in all likelihood turn Dublin into something of a diplomatic superpower, especially given the traditionally close Irish ties with Democrats and to a slightly lesser extent Republicans in the US. 

Beyond the general caution that pride always comes before the fall, will there be a price to pay? Of course there will. Ireland’s economic success rests in no small part on a policy of taxing internationally active businesses very little or not at all - a policy  which Dublin defends as its sovereign right and which other EU member states see essentially as a form of modern fiscal piracy.

Not only will Brexit mean that Dublin will lose its most powerful ally in the fight against a more common EU corporate tax policy. Dublin had better prepare itself for France, Germany and others arguing after Brexit that it now falls on Dublin to drop its resistance and show some solidarity in return. Expect a big EU push on corporate taxation from the new European Commission taking office after the European elections next year. As John Downing writes in the Irish Independent, tax is likely to be Ireland’s biggest EU battle after Brexit - a battle, we would add, where Dublin will hardly have a leg to stand on.

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