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27/07/2016

The UK’s EU referendum: On the path to Brexit?

UK & Europe

The UK’s EU referendum: On the path to Brexit?

Following the Conservative Party’s victory in the 2015 general election, the UK is set to hold an in/out referendum on its membership of the European Union before the end of 2017.

Background

Prime Minster David Cameron will seek reform of the EU, and a renegotiation of Britain’s relationship with the Union, ahead of the vote.

If he achieves the reforms, Cameron will campaign to stay in. Otherwise, the Conservatives might campaign to leave the EU.

Some other European countries are ready to listen to Cameron's concerns on issues such as immigration, and may be prepared to make limited concessions to keep Britain in the bloc.

But EU leaders also have their red lines, and have ruled out changing fundamental EU principles, such as the free movement of workers, and a ban on discriminating between workers from different EU states.

A messy compromise looks like a distinct possibility. Will that be enough to convince Britons their future is a European one?

Issues

  • Reform and renegotiation

In January 2013, David Cameron gave his famous Bloomberg speech, in which he addressed the state of the union, and for the first time, promised an in/out referendum on the UK's EU membership.

Repeatedly, Cameron has said the referendum would follow a period of renegotiation with other EU member countries on both the internal working of the EU and Britain's relationship to it.

Specifics of what Cameron is hoping to achieve have remained deliberatly vague. But the broad themes, pieced together from public statements can be summed up in four points:

  • An opt out from the ambition of “ever closer union”.
  • Greater powers for national parliaments to block EU legislation.
  • Safeguards to ensure the single market cannot be rigged to favour eurozone members.
  • Reducing access to social benefits to EU nationals, which is tied to concerns about immigration.

The Conservative party also want to “liberate” UK law from the interference of the European Court of Human Rights. They have already submitted a bill in parliament to rescind the Human Rights Act which brings EU law in this area into UK domestic law.

Although the European Court of Human Rights is not an EU institution (it belongs to the Council of Europe), the Tories' resolve to withdraw from it illustrates the government's rejection of any form of foreign oversight in UK affairs.

>> Read: Opposition mounting to UK Human Rights Act suspension

  • Clawing back power from Brussels

Cameron says that while “ever closer union” may remain a goal for other EU countries, the UK no longer wants to be tied to the ambition.

The phrase originally appeared in the Treaty of Rome (to which the UK is not a signatory) and is contained in the non-legally binding preamble of the Treaty of Lisbon.

The Conservatives want to break the model of more and more powers transferring to Brussels. Instead they want to give national parliaments the ability to block EU legislation.

This is known as the red card principle. Proposals for such a practice would require an as yet unspecified number of countries to club together and stop Commission proposals becoming law.

  • Safeguards for Euro 'outs'

As eurozone countries deepen their political and economic integration, Cameron is keen to ensure the interests of non-eurozone participants are safeguarded.

Of crucial importance to Britain is the continued ability to trade in the EU single market. Making sure that both the "ins" and "outs" feel their interests are safeguarded will certainly prove tricky.

Cameron's fear is that eurozone countries start to act and vote as a ‘caucus’ in areas which do not directly relate to eurozone governance. "This could leave Britain consistently outvoted on measures with a profound impact on its economy, potentially including single market legislation and social policy," said Open Europe, a euro-critical think-tank.

The "out" group has attempted to coordinate their own views ahead of key EU meetings. For Cameron, the chief concern is to safeguard London's position as a financial services hub within the European Single Market, which he said was "under constant attack through Brussels directives."

But the interests within the "out" group diverge widely as joining the euro is a legal obligation for the 13 countries that joined the EU since 2004. And even the countries that are legally bound to join the euro are not monolithic. Countries like Poland, for instance, are keen to adopt the euro one day, while others, like the Czech Republic, have taken an openly Eurosceptic stance. (Though the Czechs are slowly warming to the currency.)

Seeking to reassure Britain and other non-eurozone members, the former President of the European Council, Herman Van Rompuy, vowed to defend the single market. "Let us be clear: we will not 'prune' the eurozone to a more selective club," he said in comments made back in 2010.

>> Read: EU comes to terms with 'two-speed Europe'

  • Immigration cap

Perhaps the most politically sensitive aspect of all reform proposals surround the free movement of people. The Conservatives promised in 2010 to reduce net migration to the tens of thousands a year. It currently stands at close to 300,000. Lack of controls of internal EU migration are regularly cited as a prime reason for the missed target.

Previous proposals to impose a cap on EU migration into the UK were dismissed by Brussels. Instead Cameron has proposed restrictions on benefits as a way of reducing the pull factors to the UK. Such proposals could be achieved through domestic law, and have the political advantage of not requiring treaty change at the EU level.

>> Read: Timmermans backs UK push against 'welfare tourism'

Those drafting any such law will have be to be careful not to discriminate against the rights of EU nationals from other member states. If a court case is brought against proposed law, changes it could be politically damaging for the in campaign.

  • Treaty Change

In an ideal world, all of Cameron's demands could be met by changing the EU treaties. This would enable him to declare victory in the renegotiation, significantly boosting the "yes" campaign.

?But the time frame he has set for himself - a referendum before the end of 2017 - would make treaty change extremely hard to negotiate before the vote.

Above all, there is a distinct lack of appitite in Brussels and other European capitals for opening up the Lisbon Treaty for renegotiation. This is especially the case in France where the trauma from the 2005 rejection of the proposed constitution is still fresh in the memories of politicians. A treaty change would also disrupt the 2017 national elections in France and Germany, which effecitvely rules out such a timing.

Moreover, the UK would not be the only member state to want its voice heard. It could also potentially trigger referenda in Ireland, France, Denmark and others at a time when the EU is still trying to find a solution to the Greek debt crisis.

A pact between between France and Germany to deepen integration in the eurozone without treaty change appears to put an end to Cameron's hopes of radical EU transformation. It also moves the bloc in the opposite direction to where Cameron would like to see it go.

>> Read: Franco-German eurozone blueprint rattles Cameron

But the deal is not entirely bad news for Cameron. It shows that much can be achieved without treaty change and that France and Germany see opportunities for pushing their own reform agenda using the momentum offered by the British referendum.

  • Timing

The Conservatives have committed to holding a referendum on membership before the end of 2017.

But the Conservatives would like to hold the referendum earlier than 2017 if possible, partly because of the national elections in France and Germany taking place that year.

There are pertinent reasons for the move. An earlier referendum would enable David Cameron to use the momentum from his election victory to campaign for Britain to stay in the EU. The later the vote comes in parliament, the greater the risk of the public voting against the government rather than on the issue on the ballot.

Britain will also hold the rotating presidency of the EU in the second half of 2017. Although there are no practical reasons why this should be an impediment, it would be politically awkward.

All of this could complicate matters if further negotiations were still required.

A vote in May 2016 could prove appealing for all concerned. It would reduce uncertainty for British and European businesses and avoid two years of “banging on about Europe” which could threaten to overshadow the entire parliament.

  • 'No' camp short of alternatives

The biggest problem facing those campaigning for Britain to leave the EU is a lack of credible alternative to membership which would allow the UK to thrive.

Signing a trade deal with the EU would require fees to be paid for access to the single market and the acceptance of the rules which govern it, like Norway currently does.

As part of its membership of the European Economic Area (EEA) and the European Free Trade Area (EFTA), Norway has had to integrate over 10,000 EU legal acts in Norwegian law. But crucially, Oslo had no say over these laws, which are adopted by the European Parliament and the Council of Ministers as part of the normal EU decision-making process.

In terms of lack of democratic legitimacy and accountability - an argument often put forward by "No" compaigners - this would pose an even bigger problem than staying in the EU.

EEA/EFTA membership also comes at a price, as membership opens the door to the EU single market, which is of key importance to Britain. Norway was recently asked to increase its payment for being part of the single market. A development Norway says costs almost as much as full EU membership.

>> Read: Alternatives worse than EU membership, says new report

If that were the case, there would be no point in Britain leaving the EU. With budget costs and “red tape” often cited by Eurosceptics as reasons to leave, the alternative to EU membership would therefore worse than membership, on all counts.

In February a leading Eurosceptic conference called for the UK to rely on its membership of the WTO, and dismiss EEA membership. This, they claimed, would offer the chance of a “clean break” with the EU. But it remains unclear how this would affect sectors with relatively high tariffs such at the automotive industry, chemicals, and financial services.

>> Read: WTO preferable to EU, say UK Eurosceptics

Access to the single market for financial services will be a key priority for the UK should it leave. The UK operates a huge trade surplus with the EU in this sector, meaning it will be less of a priority for the rest of the EU. Once a member state activates Article 50 of the Lisbon Treaty (the one about leaving), the operation takes two years.

The UK will have no one at the table to negotiate with. Trade between the UK and EU would not cease, but no one is a in a position to be able to guarantee the terms of that trade post Brexit.

Positions

  • Business groups

The Confederation of British Industry (CBI) has called on government to “push for the EU to do more of the big things and boost jobs and growth".

At their 50th anniversary dinner, Sir Mike Rake, President of the CBI, called on business to “turn up the volume” and speak out on the issue “in language people can understand”.

The CBI wants the EU to show more focus and leave employment and “life-style” matters to member states. In his speech, Rake called for the completion of the Transatlantic Trade and Investment Partnership negotiations and commitment to an EU Digital Single Market.

>> Read: Business lobby tells British CEOs to 'come out for the EU'

The European aerospace giant Airbus has also warned that Brexit would raise doubts about the company's future investments in the country. Airbus employs 16,000 people in the UK.

>> Read: Airbus says Brexit would pose ‘huge’ risk

If the UK does leave the European Union there is concern among international banks that the UK would lose its passport to the single market. This enables banks with headquarters in London to access the single market. HSBC and Deutsche Bank have already made headlines after it become known they are preparing continency plans to leave the UK in the eventuality of Brexit.

The British Banking Association has warned, “a prolonged period of uncertainty over the UK’s membership of the EU and its access to the single market could undermine international banks.”

The London-based insurance sector also warned about the losing their ability to sell policies in Europe in the event of Brexit. Through a system of EU "passports", companies in one EU country can carry out business in all the others while opening only branches and reporting to their home regulator. "This arrangement is much more favourable than that for insurers based outside the EU," the International Underwriting Association (IUA) said.

>> Read: Brexit could hit London insurance market

The view is shared by OpenEurope, which argues that the financial sector is likely to suffer the most in the event of a British exit. In a report, Open Europe found that all sectors of the economy would initially suffer uncertainty and disruption. But while some exporting sectors may recover, the report concluded there was a “low chance” of financial services gaining access to the European single market similar to the close relationship they currently enjoy.

  • On referendum uncertainties

Sara Hobolt, Sutherland Chair in European Institutions at the London School of Economics has studied referendums. Holbolt thinks input from the business community could be critical in deciding how people vote.

“The economic case should favour the ‘in’ campaign. There isn’t a strong emotional attachment to the EU in the UK. There isn’t the feeling that 'we are part of Europe' that you get in other European countries. Ultimately it will be won on a rational cost benefit analysis.”

But she also warned not to underestimate the protest element. "People will vote based on other factors, not just the question on the ballot," Hobolt said.

The UK had two referendums in the previous parliament - the first on changing the voting system, the second on Scottish independence. Both were rejected, which is not uncommon for referendums, Hobolt pointed out, saying voters have a marked tendency for the status quo.

There is a status quo bias with referendums. People don’t like uncertainty. Voters are risk adverse, and most just want to get on with their lives” - Hobolt.

And although the ‘in’ campaign starts ahead in the polls, Hobolt cautions against complacency. The EU rarely features among voters top concerns of voters, many will not have properly engaged with the question yet.

“You can’t rely on opinion polls for these sorts of question. They are highly malleable. Most people won’t have an opinion on it. They will be formed during the campaign,” she argues.

Polling company YouGov recently said support for remaining in a reformed EU stood at 45%, with those wanting to leave at 35% and the rest undecided. Given how wrong the polls were for the general election this support should not be taken for granted.

When asked how probably Brexit was, Richard Corbett, a Labour MEP (Socialists and Democrats Group) told EurActiv: "Not that likely. But there is plenty that can go wrong."

"The 'No' side (to leave the EU) have been waiting for this moment for years. They are prepared," warned Corbett.

  • Domestic politics

The Conservative Party first proposed the idea of the referendum back in 2013. There is widespread support for the proposal among the party, but a strict dividing line when it comes to how individual Tories will vote.

Prominent members of the Cabinet have gone on the record to say they would vote to leave the EU if reforms were not adequate.

I got into politics because of the Lisbon treaty" - Steve Baker

Steve Baker is the Conservative MP for Wycombe. He says that while he respects the aims of the EU, the mechanisms and apparatus have sapped his support for the project.

“I got into politics because of the Lisbon treaty,” says Baker. “I was extremely angry that the treaty emerged because the constitution was rejected.”

“I’ve always been in favour of the classical liberal Europe. But you’ve got to have democracy, it simply must exist,” says Baker.

In his blog, Baker set out three areas he says must form the basis of renegotiation. The return of sovereignty for parliament, freedom to trade and power over borders.

“I do not think it is likely at all that David Cameron will be able to negotiate a deal with Brussels that will be acceptable to the British people,” says Baker.

"I know leaving is dangerous, but so is progress towards a superstate,” says Baker. “One of the great betrayals of Europe is the surrendering and trampling of our democracy, and I won’t have it.”

Baker is not the only Conservative who expects to campaign for the UK to leave the EU.

Will the referendum finally put to bed the question of Britain’s reluctant membership of the European Union?

Sara Hobolt is sceptical, but has a note of optimism from a fellow member state. She says the internal politics within the Conservative party that led to the vote mean this will not be a once in a generation debate. “As the EU continues to evolve there will be future opportunities for people who want to leave the EU to push the case.”

We know referendums tend to lead to more referendums" - Sara Hobolt

“Denmark used to have a very Eurosceptic population,” she says. “Now it is pro-european. I think the referendums and the opt-outs have generated a sense of empowerment. A sense that ‘we are in the EU but only to the extent we want to be’”

“There are those saying it will split the Conservative party. But with the British electoral system it makes very little sense to form your won boutique,” says Holbolt. In the last general election, the UK Independence Party got nearly 4 million votes nationally, but ended up with just one seat in the House of Commons.

The Labour Party have withdrawn their opposition to the EU referendum since the election. Acting leader Harriet Harman said, "There just does not seem to be the public appetite for us to man the barricades against a referendum." The party will campaign to stay in the European Union, which they believe to be in the UK's "national interest".

The most prominently pro-European party, the Liberal Democrats lost all but 8 of their 56 MPs in the last election and so will not be much of a galvanising force in support of the EU. The UK Independence Party, still led by Nigel Farage, won near 4 million votes but only have one MP. They remain committed to seeing the UK leave the EU, but it remains to be seen if the party can reach out beyond its base.

Perhaps the most vocal party for the 'in' campaign will be the Scottish National Party. Support for remaining a member in the EU is strongest outside England.

The SNP has called for any referendum on leaving the EU to require the consent of each of the nations of the UK. Meaning a majority would be required in Scotland, Wales, Northern Ireland and England rather a majority from the UK population as a whole.

>> Read: Cameron rejects giving Scotland veto in EU referendum

The government has dismissed this insisting the vote will require a simple national majority.

The SNP have said the UK leaving the European Union could be enough for Scotland to hold another referendum on independence and seek to remain in the European Union as an independent country.

>> Read: Brexit could force new referendum on Scottish independence

  • EU member states

Their motivation and patience differ greatly but there remains a desire among the other member states to keep Britain in the EU.

In Germany, Chancellor Angela Merkel wants to keep the Brits in the EU and is probably Cameron's best ally among the big EU nations. “We must constantly renew Europe’s political shape so that it keeps up with the times," said Angela Merkel.

After the UK elections, Germany's Finance Minister Wolfgang Schäuble offered the new government his cooperation in improving the rules in the European Union. "We agree and have talked about doing our part to advance this process," he said.

However, it is still unclear how far the different political parties in the coalition are willing to go in offering concessions to Cameron. Foreign Minister Frank-Walter Steinmeier, a Social Semocrat, said he hoped that the UK will not ask too much. In particular, Britain’s push to curb employment benefits for other EU citizens will be a red line for Germany, a position also shared by Merkel's Conservatives.

“Free movement does not only include the right to travel but it includes being treated in same way under the validity of social rights, to be treated in the same way national workers are,” said Norbert Roettgen, head of the foreign affairs committee in the German Bundestag and a member of Merkel’s Christian Democratic Union (CDU).

German Vice Chancellor Sigmar Gabriel, for his part, said Europe should accept moving at different speeds in the future. "Some - especially France and Germany - need to lead the way, for example in energy policy or in the co-operation of economic and finance policy. Others can follow when they are ready," he wrote.

Berlin is, however, aware that this is not going to be achieved quickly.

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France has adopted a tougher line. French President François Hollande said France wanted Britain to stay in the EU, something he said was in the best interests of the bloc and of London. He indicated he was ready to listen to Cameron's reform proposals.

But Hollande and his ministers also made clear Paris will not accept a modification to the EU treaty. And some do not hide their frustration with the UK, which they say undermines the European project by preventing further integration among eurozone countries.

“One country alone cannot call into question the desire of others to continue advancing together," said Harlem Désir, France’s secretary of state for European affairs.

Others are accusing Britian of deliberatly obstructing policies in some key areas, like financial and banking regulation. “If we fail to move make progress on so many EU policies - be it fiscal issues or bank regulation -, it is the UK’s fault," said a government source. "And in the end, it comes at a cost: Citizens are falling out of love with the EU.”

Michel Rocard, a former Socialist premier, may have summed up the exasperation in parts of the French political elite by saying Britain should think of leaving before doing further damage to Europe.

>> Read: ‘Get out of EU,’ ex-French PM Rocard tells Britain

  • EU institutions

Jean-Claude Juncker, the President of the European Commission, is not a natural ally for Cameron, who bitterly opposed his appointment in Brussels.

But he has offered olive branches to the British leader, saying that the EU was ready to work with Britain to ensure that provisions of the treaty by which EU citizens are free to work in any member state are not abused.

"I'm in favour of a fair deal for Britain," Juncker told a conference in answer to a question about the risk of Britain leaving the 28-nation EU. "I can't believe in a European Union without Britain," he added, saying that he valued the UK's "down to earth attitude" towards public administration.

But the Commission President also made clear his opposition to treaty change or any moves to place limits on the free movement of people, adding that Britain was not in a position to impose its will against others.

I will do everything," he told the conference organised by the Friends of Europe and Jacques Delors Institute. "But there are red lines. I'm not ready to give up freedom of movement for workers ... You can't change the treaty."

“Britain is not in a situation to impose its exclusive agenda (on) all the other member states of Europe,” he said before the UK general election.

Donald Tusk, the European Council President, also warned that amending the EU treaties to secure a new deal for Britain was virtually impossible. "We need unanimity between 28 member states, in the European parliament, in 28 national parliaments in the process of ratification. To say that it is a Pandora's Box is an understatement." The former Polish prime minister, however, said he was ready to assist Cameron in pushing through changes that do not require changing the treay.

>> Read: Tusk calls Cameron’s EU reform plans ‘mission impossible’

In fact, changing the treaty is not considered necessary as long as Britain does not ask for deep formal changes. Herman Van Rompuy, the former President of the European Council, said the door is open for a two-speed Europe. While the sovereign debt crisis in the eurozone calls for further integration among the countries sharing the single currency, Van Rompuy said “this doesn’t and shouldn’t upset the original agreement at the heart of the EU, in particular for those member states which have not and will not join the currency union”.

  • Renegotiation and reform

The substantial opposition to treaty change may convince Cameron to seek an alternative path. But changes to directives rather than treaties poses its own problems.

"If there are changes to directives, such as changes to entitlement of benefits for EU migrants, these would need to go through the usual legislative procedure which is a co-decision between the European Parliament and European Council," says Richard Corbett, a Labour MEP.

A charm offensive of 751 MEPs may not be how Cameron was hoping to spend his second term in office.

The renegotiation holds great significance, not just for the UK, but for all member states. Pieter Cleppe from the think tank Open Europe thinks there is a good chance of success for the negotiations, but there are areas where both sides will have to compromise.

“There is a good chance for him to succeed. The leverage a referendum offers can move the EU materially in the right direction, without necessarily solving all its problems,” says Cleppe.

"The functioning of the European Union can be improved, but we cannot go back on its founding principles," said France’s secretary of state for European affairs, Harlem Désir.

Access to benefits for migrants, a new drive for service liberalisation and safeguards for non-eurozone members are all gettable reforms. “Much harder for Cameron to achieve will be a check on the powerful driver of ever more centralization,” says Cleppe, who expects the European Court of Justice, the second seat of the European Parliament and the Committee of the Regions all to remain in place.

Accoring to Corbett, Cameron has backed himself into a corner over the issue of immigration.

"There are an equal number of Brits living in the EU as EU citizens in the UK," says Corbett. "But perception is political reality. Cameron has contributed to making people thing it is an issue. He now has to get something. This is going to be tricky."

"The EU is in an nonstop process of reform," says Corbett. "If Cameron has got any sense he will take these on board and say “look what we’ve achieved” even though its got bugger all to do with him."

Whether Cameron acheives the reforms he is after, and if they are enough to satisfy the British public, remains to be seen. According to Cleppe, this debate provides the perfect opportunity for the EU to answer growing eurosceptism in its member states. “Whether criticism comes from the left or the right, a common theme is the fear of losing control over one’s own fate. The British agenda and demands address these concerns.”

“In the case a reformed EU succeeds, every member state’s relationship with the EU will improved,” concludes Cleppe.

Timeline

  • Jan. 2013: David Cameron's Bloomberg speech
  • 7 May 2015: UK general election returns a majority Conservative government
  • 25-26 June 2015: EU Council meeting in Brussels
  • Spring 2017: Elections in France and Germany
  • 2016 or 2017: Potential dates for Britain's EU referendum