Argument

The Coming Crisis Between Britain and the EU

As David Cameron enters his second term, the Conservatives will have to soothe Euroskeptic voters and continental allies at the same time. It won't be easy.

British Prime Minister David Cameron talks to the media at the end of a European Union Summit held at the EU Council building in Brussels on March 20, 2015.  AFP PHOTO / THIERRY CHARLIER        (Photo credit should read THIERRY CHARLIER/AFP/Getty Images)
British Prime Minister David Cameron talks to the media at the end of a European Union Summit held at the EU Council building in Brussels on March 20, 2015. AFP PHOTO / THIERRY CHARLIER (Photo credit should read THIERRY CHARLIER/AFP/Getty Images)

Britain’s uneasy relationship with the European Union may finally be reaching its inevitable crisis point. On May 7, David Cameron scored an unexpected victory — at least to most pollsters, and to me — and secured a full majority for the increasingly Euroskeptic Conservative Party during his second term in office. Will he now deliver on his promise to renegotiate the terms of Britain’s EU membership and put these new terms to the voters in a referendum, without triggering Britain’s exit from the European Union?

Cameron’s plans for his time in office suggest that he still has a multitude of uses for the European Union. His government intends to engage its EU partners on a number of reforms, from reducing the red tape on many EU regulations and curbing benefits for immigrants from poorer EU-member states to restoring powers to national parliaments and avoiding the creation of a two-tier Europe of countries in and out the monetary union.

Britain is not alone in finding some of the EU regulations cumbersome and often inefficient; indeed, some of the requests have been positively received — for instance by Donald Tusk, the president of the European Council and a former prime minister of Poland. Cameron is likely to bag some concessions on reforms that deal with the implementation of the EU Services Directive, the swift conclusion of the free trade agreement with the United States, and even the restriction on some benefits, such as child benefit claims on non-resident children — i.e., benefits paid to foreign workers in Britain whose children do not live in the country.

These are low-hanging fruit, and they are especially popular in countries, like Britain, with a stronger tradition of economic liberalism, trade liberalization, and a preference for “small” governments. On the other hand, in countries where interest groups are more likely to oppose further cross-border service liberalization that would threaten professional monopolies — as it is the case, for example, of legal services in France and Italy — then Britain-led reforms can only succeed if they do not go deep enough to shake up the status quo. The “Polish plumber,” which in 2005 became the symbol of the EU Constitution referendum in France, remains a powerful reminder of the threat that the free movement of services (and people) within the EU poses to the monopolistic position of some professions and trades. In addition, reforms that do not require major treaty changes — which in some countries need to be put forward for vote in referendums — are much more likely to get traction.

Scoring significant concessions in other areas, such as controlling immigration from poorer EU countries, which is a high priority for many British voters, and Westminster’s veto over financial services laws, which is a high priority for London’s financial services sector, will be hard and very frustrating for Cameron. The free movement of people inside Europe underscores a significant divide between northern and southern Europe, or between countries that better weathered the 2008 financial crisis and the subsequent recession and those that suffered. For countries such as Spain, where the unemployment rate peaked at 27 percent (in the first quarter of 2013), outmigration provided a helpful safety valve. But in more prosperous countries — and Britain is one of them — there is increasing competition in the labor and in the welfare market between working immigrants and low-skilled, low-paid locals.

While Cameron may be able to find European allies in many of these points, Britain is in a particularly tough spot when it comes to relations between countries that are part of the Eurozone and those that aren’t. Having permanently opted out of Europe’s monetary union, Britain is not part of the decision-making process on many monetary and financial matters that have significant impact on the financial and banking sector and particularly on the City of London, the world’s leading financial center. The creation of the Euro-led Banking Union to stabilize the Eurozone financial system through common supervision and a common resolution fund is an example of Britain’s dilemma between contributing to the fund, even if this would not translate in significant gains in terms of financial stability, or opting out with the risk of reducing its influence on setting new EU-wide financial regulations.

Going forward, Cameron will need to balance domestic expectations of what he could reasonably achieve against the overall positive inclination of the EU partners, in particular Germany and France, to meet some of his demands in order to keep Britain in the EU. Britain is an important member of the EU, and other European countries have made clear on many occasions that they believe Britain’s place is in Europe. A great deal of goodwill is there to find some agreements on concessions that can satisfy the British public opinion.

The trick, therefore, will be to secure enough concessions to reforms, without burning too much political capital vis-à-vis other EU countries, and so to convince mildly Euroskeptic voters and the undecided that EU membership is aligned with Britain’s national interests. According to a recent YouGov poll, 22 percent of Britons are undecided about whether their country should stay in the EU, while 45 percent support continued membership and 33 percent want to leave the union completely.

Winning this game, therefore, is about bringing those 22 percent into the pro camp rather than persuading the Euroskeptics, for whom Britain’s participation in the EU was a mistake from the start. In other words, Cameron must persuade those who think that the EU has become overwhelmingly bureaucratic and inefficient, has curtailed national sovereignty too much, and has failed to control migration among member states, but, still dread the prospect of Britain going solo. It also means reducing uncertainty and the resulting risk that foreign companies move somewhere else.

And most importantly for Cameron’s legacy — after the referendum on Scottish independence in 2014 — it means avoiding deeper splits and, ultimately, trying to keep Britain together.

THIERRY CHARLIER/AFP/Getty Images

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