26 January 2016

Nothing comes easy for the UK in Europe

By Raoul Ruparel

As I previewed on CapX, Open Europe yesterday hosted a simulated negotiation of the UK’s reform demands and of the discussion the UK could have with the EU post-Brexit vote. You can see the full video of the ‘war game’ along with highlights here. Both sessions proved to be informative if not conclusive.

If I’m honest the reform session turned out to be more combative and more difficult than I had expected given how far along the negotiations are in real life. While it is often reported that the UK will get basically everything it wants and the only difficult negotiation is around EU migrants’ access to welfare the simulation suggested something different. All areas presented difficulties from serious concerns around a UK veto on future Eurozone integration (economic governance) to fears that removing or changing ‘ever closer union’ would erode the “emotional cement” of the EU, as former Irish Taoiseach John Bruton put it.

Of course, the migration issue was still as difficult as expected. Many of the players found a useful shield in the form of the European Commission player, who flat out rejected the proposals as illegal. This is eerily similar to real life where bureaucrats have thrown up roadblocks in a negotiation which is ultimately about political will and the desire to change laws.

Taken as a whole, if the real negotiations prove this difficult and there is this much resistance at the EU level, then I suspect it would prove to be a great encouragement for the Leave side. Watching it, it was hard not to conclude that, despite a valiant and compelling effort by the UK player Sir Malcolm Rifkind, the UK thinks about these issues in a fundamentally different way from the rest of the EU. There was also an element of frustration that, even at this stage, so much seems to be lost in translation with states talking past each other. Furthermore, the reality is that, if Prime Minister David Cameron does not receive a fairly substantial deal on all points, he will struggle to win a referendum. Thankfully, as Rifkind himself noted, this may well have just been people getting initial frustrations off their chest and, given more time, things might have coalesced around a reasonable deal.

But if the first sessions seemed acrimonious, the Brexit session took things to another level. There was a huge amount of anger and resentment from the European players towards the UK player, now Lord Norman Lamont. He laid out a constructive position outlining the type of deal which the UK might seek outside the EU – a comprehensive free trade agreement using the Canada-EU deal as a basis since it eliminates almost all tariffs on goods and agriculture but also extending it to include cross-border services (including finance). Within this, as a show of goodwill, he suggested the UK could still pay into the EU budget (at a reduced level) and find some preferential agreement on the movement of workers, albeit not quite as free as now.

The response was swift and dismissive. The UK was accused of “cherry-picking” while there were countless mentions of a painful divorce. In fact, the five stages of grief were quite apparent in some of the responses. Denial came through strongly with the Swedish player continuously questioning the merits of Brexit and struggling to see how the UK could ever prosper. Anger was equally present as a number of players warned the UK that this would not be a simple negotiation and that they were keen to take advantage of the situation – for example by using the opportunity to boost one of their cities into the position of the EU’s financial centre. This was driven home by the Polish player warning that the UK should not be given too good a deal, lest it encourages populists elsewhere to push for exit. We began to see signs of bargaining with some countries offering the UK a path back into the EU and through Ireland requesting solidarity or even a special deal to help deal with the economic and political impacts which would undoubtedly be significant. Depression also came over the group with countless players lamenting the decision but also voicing serious concerns about whether this would undermine the stability of the EU as a whole especially given the other crises it faces. Sadly, there was little time left amongst all of this for acceptance, but that itself highlights that it will be a hard road before a deal can be struck on Brexit and there are no guarantees. It is clear that the pain from a major state such as the UK walking away from the European project into which many of these countries have invested half a century would take some time to dissipate.

The biggest takeaway from all of this was that nothing is easy in Europe, particularly for the UK. But also that the two pictures presented in terms of reform and Brexit seem a bit incompatible. As the Dutch player himself questioned, I wonder if the reform session might have been more amicable and constructive had it come after the Brexit session. I strongly suspect it would have been. The most interesting takeaway then is that EU states would do well to ponder in a bit more detail what Brexit might mean for them and whether it would change their approach to the current negotiations.

Raoul Ruparel is Co-Director of Open Europe, a contributing author for Forbes and a member of the British Chambers of Commerce Economic Advisory Group.