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24/09/2016

EU solves one problem and creates another

Euro & Finance

EU solves one problem and creates another

Quick to blame refugees: AfD chief Frauke Petry.

[Metropolico.org/Flickr]

The deal that was necessary to keep the United Kingdom in the EU has also opened the door for other members to use referendums — or more likely, the threat of referendums — as a negotiating tactic, writes Stratfor.

Stratfor is a global intelligence company that provides strategic analysis and forecasting.

For policymakers, solving an existing problem often means creating a new one. The same can be said for the latest agreement between the United Kingdom and the European Union on the terms of Britain’s EU membership.

On one hand, the deal will give British Prime Minister David Cameron the tools he needs to campaign at home to remain in the Continental bloc. But on the other, it will encourage other countries to either emulate London’s policies or make demands of their own. And so, the deal that was necessary to keep the United Kingdom in the European Union has also opened the door for other members to use referendums — or more likely, the threat of referendums — as a negotiating tactic. Of course, some EU members have less leverage to make that threat than others, but that will not stop them from trying.

In the short term, the deal will undoubtedly elicit attempts from other EU states to piggyback off Britain’s success by copying some of its terms for membership. On 20 February, German Chancellor Angela Merkel said some of the agreement’s provisions on limiting the access of EU citizens residing in Britain to social security are applicable in Germany as well. In the past, Berlin has repeatedly criticised the existence of “welfare tourism” in the Continental bloc, and now London has found a way to legally restrict access to those benefits, particularly for workers with children abroad.

The refugee crisis is creating friction between Merkel’s Christian Democratic Union and its Bavarian sister, the Christian Social Union, the latter of which has demanded Berlin take a tougher stance on migrants arriving in Germany. If Merkel were able to mimic Cameron by limiting EU citizens’ access to German benefits, she may be able to de-escalate tension within the ruling coalition and help German conservatives regain some of their popularity in the process. She could also better contain Alternative for Germany, an anti-immigration party whose support has grown alongside the number of migrants in Germany.

The Austrian government could pursue a similar path. Like Germany, Austria has received a massive amount of asylum seekers over the past year, which has hurt the government’s standing among the Austrian people and has undermined the cohesion of the ruling coalition. Though Britain’s negotiations with the European Union are not directly linked to the refugee crisis, nor are welfare cuts explicitly targeted toward asylum seekers, German and Austrian politicians could easily use progress on the welfare front to compensate for their failures in addressing the refugee crisis.

But the ramifications of Britain’s deal will not end there. In the future, the European Union could undergo an even more dramatic transformation as its members demand to renegotiate their own membership terms. The issues up for discussion could be many and varied, whether particular deficit targets, restrictions on the movement of workers, protections for certain economic sectors or other areas entirely.

At the head of this effort will likely be strong Eurosceptic parties within the Continent’s core. For instance, France’s National Front has promised to approve a referendum on France’s EU membership if it enters the government. Meanwhile, the Dutch Freedom Party has said Britain’s exit would make it easier for the Netherlands to leave the bloc too. Both France and the Netherlands will hold general elections next year, and the polls suggest the nationalist parties will make a strong showing.

Italy will also be important to watch in this regard since the anti-establishment Five Star Movement — currently the country’s second-most popular party — has promised to hold a vote on Italy’s participation in the eurozone. Though Italy is a founding member of the European Union, opinion polls show that Italians are disappointed with the Continent’s common currency.

Politicians often present referendums as the most formidable tool of democracy. Promising voters that they can control their destinies by deciding the crucial issues is a powerful campaign strategy, especially when the populations of most EU member states were not consulted before they joined the bloc or the currency area. For nationalist parties, vowing to hold a referendum instead of advocating drastic unilateral action is a clever way of attracting moderate voters.

While an electoral victory by a nationalist party would make a referendum on EU or eurozone membership more likely, the possibility of such a vote cannot be ruled out when a moderate party is in power either. Since the European crisis began, the Continent’s moderate parties have been adopting elements of the nationalists’ agendas to better compete with them. In fact, Cameron’s decision to hold the British referendum was at least partially influenced by the rise of the anti-immigration UKIP and by pressure from some Conservative Party segments that feared losing support to UKIP. That said, moderate governments would not necessarily have to hold a referendum; the mere threat of one could be enough to exact concessions from Brussels and fellow member states.

In this way, Cameron’s negotiations with the European Union have created two important precedents. First, they have revealed that the bloc is willing to compromise to preserve its territorial unity. Second, the deal has put an end to the idea that all EU members will perpetually seek to integrate into a European superstate.

The “multi-speed Europe” has existed for a long time, but now it is legally sanctioned. From this point on, countries will be allowed not only to refuse to give up more of their sovereignty to the European Union but also to reclaim some of the powers they ceded.

Organising a referendum is no easy task, and not every EU member is in a position to make threats. Smaller economies do not pose an existential threat to the bloc should they leave it, meaning they have little leverage with which to exact concessions. For these states, their only real chance of making meaningful gains in their position in the bloc is to join forces with like-minded countries to make a collective threat. Therefore, the progressive political alignment of states such as Hungary and Poland will be crucial to the European Union’s future.

Even for the bloc’s larger economies, the threat of leaving the European Union or eurozone will have its dangers. Countries such as France, where economic recovery is only modest, or Italy, where doubts about the banking sector’s stability linger, cannot afford the prolonged period of uncertainty that would inevitably come with a referendum on bloc membership.

But ironically, the larger an economy is, the more its government will believe in its ability to gain concessions from Europe, and the more tempted it will be to try.