January 31, 2020
After Brexit EU urgently needs to address core vs non-core separation
It’s been our policy to ignore anniversaries, the commemoration when something started, when it ended, and sometimes the bits in between. Nor do we mark the moment - as they say in the newspaper business.
We would like to make an exception today and devote the entire issue to Brexit, looking forward and focusing on the EU itself.
The upcoming discussion on the future of the union offers an opportunity to confront demons and do some deep thinking on why Brexit happened. Our first concrete set of questions is whether the division of the EU into a eurozone and non-eurozone played a role; also whether it can be sustained and, if not, whether to organise a new relationship between the two parts.
The non-sustainability of the eurozone as a core within the EU has been one of our central themes since we started in 2006. The eurozone is not a club within a club, as a British colleague of ours once put it. The eurozone is either the kernel of a future federal union, or the seed of the EU's destruction. We see Brexit as a reminder that the latter is possible. It is the consequence of continuously kicking the can down the road. The Merkel mentality, which turns non-resolution of problems into an art form, has its superficial attractions. But it is poisonous for the EU in the long run. The eurozone/non-eurozone divide needs fixing. So does the eurozone itself. Both fixes need to happen in parallel. Only when this is fixed will the EU be able to do all the other urgent things it needs to do, like defending its interests against those of the US, China or Russia.
The reason we prioritise the ending of the eurozone/non-eurozone divide is that members of the eurozone, as a group, have different strategic interests. These in turn will inform their policy choices in areas beyond monetary policy. The divide is one of the reasons the EU cannot leverage the euro as an instrument of choice in foreign policy, for example. So, this is the issue that needs fixing first.
Our own view is that the EU should set a deadline by which member states choose to join the eurozone or become associated members. They would retain the customs union and the single market, and some financial support, but would enjoy full national sovereignty in areas such as monetary and fiscal policy, foreign and security policy, and immigration.
Unfortunately, the EU continues to prioritise its cohesion and its enlargement with new members that have no hope to join an inner circle. This would be our reason to reject the enlargement to Macedonia and Albania for now.
As Brexit has demonstrated, the unsustainable ends eventually. But, when that happens, it still shocks. The EU may take comfort from the observation that no other countries have followed the UK. But be careful. We believe that Brexit will be relatively hard, and relatively successful economically because it will allow the UK to dump its unsustainable trickle-down economic model in favour of something better. The contours of that shift are already appearing. The EU may thus want to prepare itself for what will happen if some people suddenly come to regard Brexit as a success. For example, what if the UK were to extricate itself from the data-protection and state-aid regimes and actively subsidise artificial intelligence business? Would that not generate discussions at least in some member states about the viability of alternatives to EU membership?
We detect no signs in Brussels yet of any strategic gaming of the kind we have just outlined. The upcoming conference on the future of the EU will offer an opportunity to start this process. As of now, clarity of thinking is overshadowed by the shock that Brexit is actually happening, that it wasn’t reverted as so many in Brussels had secretly - and some not so secretly - hoped for. There is a danger that the complacency of the last three years simply continues, and turns into a complacency about the future relationship. Complacency remains the EU’s biggest enemy, and it is what distinguishes today’s EU from the early generation of European integrationists.