Daniel Gros: Building an EU-UK special relationship

The bloc should not use its larger economy to bully the UK in trade talks, but should value what the latter can contribute, in areas such as intelligence, writes Daniel Gros

Daniel Gros: Building an EU-UK special relationship

The bloc should not use its larger economy to bully the UK in trade talks, but should value what the latter can contribute, in areas such as intelligence, writes Daniel Gros

The European Union has lost one of its most important member states.

The United Kingdom accounted for one-sixth of the EU’s population and economy. Without it, the EU will still be one of the world’s premier economic powers, but it will be less dynamic. Still, there is hope for a fruitful, cooperative EU-UK relationship.

The first step is to negotiate a trade agreement. But it would be a mistake to concentrate too much on the details of those talks. Trade is important to both sides, but the minutiae of the UK’s trading relationship with Europe will not determine its economic fate.

The most likely outcome is a deal that eliminates tariffs for both sides, but even a return to standard World Trade Organisation rules would not be the end of the world.

While a better trade deal might prevent the loss of a few percentage points of GDP over the next decade, other variables, such as the quality of education, investment, and domestic regulation, are ultimately more important for growth.

In any case, the EU is much more than a market. It has its own currency and has abolished fiscal-policy frontiers across a massive geographic area. The UK did not participate in either of these key areas of integration and would not have done so anytime soon.

As such, the EU has actually lost only a ‘one-third’ member.

The relationship with the UK needs to be managed properly. But the fact is that European leaders and policymakers have much more pressing issues to address. Brexit is now a sideshow.

Chief among the EU’s priorities is the European Green Deal, in which the UK could continue to participate, given its shared concerns about climate change.

In the long run, however, the EU’s efforts to complete the eurozone and the Schengen area of passport-free travel will put it and the UK on diverging paths.

Economists will continue to debate whether the euro was ever a good idea, with Anglo-Saxons sticking to the line that: ‘It can’t happen; it is a bad idea; it won’t last.’

The euro crisis did seem to vindicate the UK’s scepticism. And yet opinion polls over the past few years show that the European population has moved beyond the academic debate.

By the latest count, close to 80% of Eurobarometer respondents think the euro is ‘good for the EU.’

For younger generations that have never known any other currency, the question of whether they would prefer some newly introduced national currency is nonsensical.

There is a reason why Eurosceptic parties and candidates have consistently lost elections in which they have explicitly advocated an exit from the eurozone. Even an arch-populist like Matteo Salvini, of the League party in Italy, has abandoned the ‘No Euro’ slogan on which he once ran.

Similar political dynamics apply to passport-free travel. The Schengen area is still a work in progress, but the direction of its evolution is clear: rather than retreating on the principle of freedom of movement, member states are gradually reinforcing the EU’s external border.

Over time, that will give voters confidence that they do not need permanent controls or fences between member states.

True, there are still some internal controls, left over from the 2016 refugee crisis, but these are exceptions that prove the rule. In most cases, however, Europeans enjoy passport-free travel on the continent.

In the UK, these advances have been dismissed as part of the much-derided quest for ‘ever-closer union,’ which the British electorate never embraced.

Nonetheless, EU integration will continue among the remaining 27 members, leading to further projects that the UK probably would not have supported anyway. The most conspicuous (and long-term) of these is European defence.

Ironically, while the UK was in the EU, it always opposed proposals for a joint defence force. But now that it is on its own, it supports the idea, because it will facilitate EU-UK defence cooperation.

The UK has already become accustomed to playing second fiddle in its ‘special relationship’ with the United States, so it is not unreasonable to think that it could accept a similar relationship with the EU.

In most cases, the UK would inevitably follow Europe’s lead, while maintaining its sense of cultural superiority at home.

British diplomats would be able to revive their pre-membership tradition of remaining aloof and mystified by European polyglots’ impractical schemes.

Of course, for such an arrangement to work, the EU will have to make a good-faith effort to consider the UK’s legitimate interests.

That will require overcoming some bad habits.

In its dealings with other neighbours, including the Balkan countries, Ukraine, and even Norway and Switzerland, the EU tends to behave like an acknowledged hegemon, often assuming a ‘take it or leave it’ position.

To be sure, in economic terms, the EU’s relative size speaks for itself. But it is the UK that will be stronger in many other areas, not least security and intelligence, where the EU has limited capacity, while most individual member states have almost none at all.

Given these broader considerations, the EU would be mistaken to exploit its economic advantage when the trade talks start at the beginning of March. Brexit could ultimately lead to a productive ‘special relationship’ in which the UK remains a close partner of the EU and makes a valuable contribution to Europe’s peace and prosperity.

- Daniel Gros is director of the centre for European Policy Studies.

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