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Britain’s Moment of Truth

BRUSSELS – Britain’s vote to leave the European Union has put the country’s role in Europe in limbo. Every day that passes deepens the impasse between the United Kingdom and the EU and makes the future more uncertain.

The EU leadership would like to move the process along and has called on the UK to immediately take steps to do so, as outlined in Article 50, the member-withdrawal provision of the Treaty of Lisbon. The UK side is in disarray and first must choose a new leader now that Prime Minister David Cameron has announced his resignation. But most British politicians have come to accept the outcome of the “Brexit” referendum, and that the will of the voters must now be carried out in a manner that best upholds Britain’s national interests.

Because the EU’s internal market has always been a key priority for the UK, one widely discussed option, which has cross-party support, is the so-called the “Norway model”: membership in the European Economic Area (EEA).

Under the EEA arrangement, Norway (along with Iceland) has full, unfettered access to the EU’s single market, including for financial services. But access to the internal market also requires EEA members to accept full freedom of movement not only for goods, services, and capital, but also for workers.

Would the Norway option be better for Britain than full EU membership? A simple thought experiment might help: go back four decades and assume that France had vetoed UK membership in the EU, and that the UK had joined the EEA instead. Under this scenario, the Brexit referendum would have been on whether the UK should remain in the EEA. Would the arguments offered by this hypothetical “Leave” campaign have been any different?

The real Leave campaign’s arguments focused on three issues: the UK’s contributions to the EU budget, free movement for workers, and national sovereignty. Let’s consider them in turn. The Leave campaign argued that the money the UK contributes to the EU budget as a member state could be better spent at home. This same argument would apply against EEA membership. In fact, the UK’s financial contribution to the EU is actually smaller, relative to its national income, than Norway’s under the EEA.

The Leave campaign also claimed that free movement of labor heightens the supposed dangers of terrorism and higher unemployment for British workers. But the provisions governing labor mobility in the EU apply to Norway and all EEA countries as well. To the extent that freedom of movement was the key reason for leaving the EU, the Norway model would be equally unacceptable.

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This brings us to the Leave campaign’s third argument and central theme: “getting back control” of the rules and regulations governing Britain’s economy. This objective would be an even stronger argument against EEA membership than it was against EU membership. Under the EEA, the UK would still have to abide by the rules and regulations set in Brussels, but it would have far less say in their creation than it does as an EU member. In fact, within the EU, Britain had considerable influence over financial services, the most important industry in its economy.

“Getting back control” was also directed against the EU Court of Justice in Luxembourg, whose judgments, by convention, have precedence over judgments by national courts. But the EEA also has its own court, whose judgments are binding on EEA member states. In short, all the arguments against EU membership also apply, often with even more force, against EEA membership.

Still, some countries do choose this option. The Norwegians have consistently preferred to remain in the EEA, and have voted more than once, by large majorities, against joining the EU. Denmark has been a similar case since 1992, when Danish voters rejected eurozone membership under the Maastricht Treaty. Now, the Danish krone is so tightly linked to the euro that Denmark’s central bank has effectively lost its independence. By joining the euro, Denmark would at least have gained a seat at the table.

The Swiss rejected even EEA membership in a referendum; however, to do business with the EU on the level it wanted, the Swiss government later had to accept most of the EEA rules anyway, including the free movement of people and contributions to the EU budget.

As these real-world examples show, no country that wants to benefit from the European project has been able to have its cake and eat it. Open borders and economic integration require common rules. A “spaghetti bowl” of different à la carte arrangements would not work for a continent of more than 30 small and medium-size countries and more than 500 million people. The EU provides this set of common rules, buttressed by common institutions that give every country, even the smallest, a say.

This is the balancing act of sovereignty in Europe: Each state remains formally sovereign, but if it wants to prosper economically, it must accept the common norms and regulations that enable Europe’s intensive cross-border division of labor. Of course, Europe is more than just a free-trade area; it is also a hub of shared social and cultural life. This is why freedom of movement is so appealing, not only from an economic point of view.

Some smaller countries have abdicated their role in influencing Europe’s future. But it is surprising to see a country with such a long history of global leadership as Britain suddenly withdrawing into itself. Having abandoned its historical role in shaping Europe’s future, will the UK really be content to remain on the sidelines?

Daniel Gros is Director of the Center for European Policy Studies.

By Daniel Gros

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