COLUMN-Will Britain really leave the European Union?

by Reuters
Thursday, 16 January 2014 16:14 GMT

By Anatole Kaletsky

Jan 16 (Reuters) - Is it conceivable that Britain will leave the European Union? A few years ago this question would hardly have been worth asking. In the past 12 months, however, the issue of EU withdrawal has shot into the British political headlines.

The latest, and apparently most authoritative, such headlines appeared this week, after a pugnacious speech by George Osborne, the Chancellor of the Exchequer and second most powerful figure in the British government. Reuters headlined the Chancellor's comments like this: "Reform or lose us as a member, Osborne tells the EU." The Daily Telegraph highlighted the same message: "Osborne warns Britain may leave EU over reform failure." The BBC headline concurred: "Osborne - Don't force UK choice between euro and EU exit."

While the idea of a British EU exit has now become so mainstream that "Brexit" is a universally recognized acronym among diplomats and financiers, no British politician of Osborne's seniority has previously threatened so explicitly to pull out. But does this really mean that Brexit is becoming more likely?

Osborne's rhetoric may sound strident, but actually it suggests the opposite conclusion when British politics and European economics are taken into account.

Starting with British politics, David Cameron, the British Prime Minister, leads a fractious coalition between his mostly "Euro-skeptical" Conservative Party and the fervently "Europhile" Liberal Democrats. The Cameron coalition faces a general election in May 2015. And the biggest threat to the government's survival comes not from the opposition Labour Party, but from a hemorrhage of right-wing votes to the UK Independence Party, an upstart populist movement whose main objective is British withdrawal from the EU.

UKIP gets only 10 per cent support in most opinion polls and has little chance of winning parliamentary seats in 2015, but it could easily draw away sufficient Conservative support to swing dozens of seats to Labour, denying Cameron the chance to stay in power. Moreover, UKIP's anti-EU zealotry appeals to many Tory politicians, especially right-wingers who have always disliked Cameron.

Cameron has been understandably perturbed by his backbenchers' habit of "banging on about Europe," as he describes it, because it conveys the impression that Conservatives are out of touch with the concerns of ordinary voters. While a majority of Britons say they would vote to leave the EU, polls show that these views are held with very little conviction and most people do not seem to care much about Europe one way or the other. In monthly surveys conducted by Ipsos-MORI for The Economist, voters are asked to name the "most important issues facing Britain." Only 7 percent cite relations with Europe and this issue does not even rank among the top ten. Only in one demographic, voters over 65, does concern about Europe rise above the 10 per cent mark. Among those under 45, only 4 percent consider Europe important. Even the nationalist UKIP supporters do not seem very interested in their party's main priority. Only 20 percent of UKIP supporters express concern about Europe, ranking it fifth as an issue, after immigration, economics, unemployment and healthcare.

Looking at such poll numbers, Cameron thought that he could thwart UKIP and simultaneously silence his own party's dissenters with a neat political ploy that would defer any further debate about Europe until after the 2015 general election. He promised that, if re-elected, he would conduct a "fundamental renegotiation" of Britain's relationship with the EU and then hold a referendum in 2017, when he could campaign for continued EU membership because Britain's main concerns were met. Unfortunately for Cameron, this promise was greeted with derision when EU leaders retorted that no changes to the European treaties would be possible by 2017, or, indeed, at any other time. As a result, the Conservative Party's internecine battle over Europe quickly resumed.

Wednesday's Osborne speech, far from signaling the start of Brexit, was a serious attempt to restore credibility to Cameron's EU policy by explaining why renegotiation of the European treaties will be inevitable, not just for sake of Britain but for the EU as a whole.

By shifting the main emphasis of Britain's proposed renegotiation from emotive and symbolic issues, such as immigration and agriculture, to more important technical issues connected mostly with financial markets, Osborne has laid out an agenda for negotiation that is both realistic and likely to be acceptable, and even welcome, to much of Europe anyway.

This is where British politics meets European economics. EU leaders who insist that the European treaties are now set in stone and that no renegotiations will happen in the foreseeable future must also believe that the euro crisis has been permanently resolved, and that Europe's economic prosperity and financial stability are assured forever. Everybody else understands, as Osborne noted on Wednesday, that the single currency can only survive in the long-term if there are major changes in the political, budgetary and financial governance of the euro zone.

These reforms will, over time, involve large transfers of sovereignty from the national governments in the euro zone to the federal level. If such reforms do not happen, the euro zone will have to be broken up. In either eventuality, major changes will be inevitable in the EU treaties. And even if these changes take years to implement fully, negotiations about them will have to start soon. Either EU leaders will take the initiative to advance the single currency towards full-scale economic and political union, or they will fail to do this, in which case financial crises and political upheavals will force a different type of negotiation - to dismantle the euro. Either way, Britain will be deeply involved in these negotiations, and the upshot will be significantly altered EU treaties, on which British voters could quite reasonably cast a referendum judgment.

The British voters' judgment will almost certainly be positive. The technical issues that need to be resolved between Britain and the rest of Europe are infinitely less complex and troublesome than the profound differences over national sovereignty that have to be settled between Germany and Italy or France. If new structures can be designed to keep the euro zone together, it will be trivial to bolt on a few concessions to keep Britain in the EU.

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