Getting to Grips with Reform, Referendum and Brexit Part II
Whoever wins the next UK General Election, it is highly likely that the ruling party or coalition will seek to put some kind of a package of EU reform to Britain’s fellow Member States. Two of the contenders at the polls in May 2015 (the Conservatives and UKIP) have promised to follow the negotiations with an ‘in-or-out’ referendum. Yesterday’s blog set the scene for these negotiations. Today’s more substantial entry blog deals with the likely content of those negotiations. We will follow up with further posts on a UK referendum, negotiating Brexit and what the alternatives to EU membership imply.
The baseline scenario set out below deals with a possible sequence of events following a Conservative victory, but also has relevance to a Labour win, given that (a) the Labour party has promised EU reform; and (b) we gather that Labour’s ‘shopping list’ (a part of which was announced exclusively in the Daily Mail, no less) will look remarkably similar to that of the Conservative party.
Negotiating EU Reform
Knowns and Unknowns
There are both knowns and unknowns when it comes to understanding the sequencing of reform, referendum and Brexit. Two of the knowns are that Britain will put a package of EU reforms to its fellow Member States and that the outcome of that reform process will be put to a referendum to be held before the end of 2017, should the Conservative party form the next UK government. Under this scenario, it is believed that the Prime Minister has identified what he hopes to be a ‘sweet spot’ between the French Presidential election of late spring 2017 and the German Federal Election that must be held in late summer/early autumn of that year. This would imply a referendum date of June or July 2017. If the referendum is successful, then the UK would remain a member of the EU and whatever the proposed reforms that the UK has asked for will gradually come into effect. Under this scenario, the UK remains in the EU and the episode will be logged in the annals of European integration, probably next to the details of the 1975 Wilson renegotiation, Mrs Thatcher’s ‘I want my money back’ demands at the 1984 Fontainebleau summit, and John Major’s 1996 decision to veto every EU proposal until the other Member States changed their mind during the BSE crisis (if you’re interested, on the surface this spat was about tallow, bull’s semen and gelatine exports; yet the sub-text was about so very, very much more).
We will turn to the substance of the planned renegotiation below. Before doing so, it is necessary to accept that there are, of course, a great many more unknowns. We do not pretend to have included all of these in this blog, which in any case would be impossible. Yet two obvious unknowns are what exactly the British government will ask for when it comes to reform of the European Union and on what terms (i.e. Treaty change or amendments to directives, regulations combined with changes to British legislation). Given that we are talking about a negotiation, we must also consider what we judge the positions of the other players in this negotiation to be. Thus, we set out what we believe the attitude towards Britain’s tentative proposals of both the other 27 member states and the European institutions, especially the European Commission and European Parliament, to be.
What reforms might the British ask for?
We can surmise from the speeches given by the Prime Minister, the work of influential think tanks, informed media coverage and the Foreign Office’s Balance of Competences Review what some of the items that the British government might wish to negotiate could be. I would suggest that these fall under the following headings in approximate order of political importance for the UK (clearly the other Member States would rate the priorities for EU reform in a different order, but this is a blog about the UK and the EU):
(1) The right of access to the British welfare state for newly-arrived EU citizens exercising their right to freedom of movement. The Prime Minister suggested that there should be a three-year period before non-UK (and non-Irish, presumably, given the status of Irish citizens in the UK under British nationality law) EU citizens can claim support through, for example, housing benefit, the job seeker’s allowance (i.e. unemployment support) or child benefit. Expert opinions differ on whether this can be achieved or not without Treaty change. I believe that it can be achieved through a combination of changes to British rules on access to the welfare state (welfare policy is really a national competence of the Member States) and to one regulation (EC 883/2004, which includes unemployment benefits, special non-contributory benefits and so on) and to one directive, the Citizenship Directive (2004/58/EC, which includes transition periods, job seeker benefits and students). For reasons explained below, we judge that there will just about be enough support from the other Member States for Britain to achieve its aims in this area, provided that any deal does not undermine either of the basic principles of free movement and non-discrimination enshrined in Article 21 of the Charter of Fundamental Rights. Any changes to the above regulation or directive would be subject to possible contestation through the Court of Justice of the European Union, the outcome of which would settle the matter. From what we can judge from the Dano case ruling of November 2014, it would appear that the Court is of the view that Member States have the final word.
(2) A second, much thornier question relates to the constitutional balance between national parliaments and European institutions. It is believed that the Prime Minister would like to supplement the existing ‘yellow/orange card’ rules under the Treaty of Lisbon’s ‘Enhanced Subsidiarity and Proportionality Protocol’ that allow national parliaments to object to proposed EU legislation on the basis of a quarter of EU Member State parliaments objecting (criminal law matters) and on the basis of one-third of Member State parliaments (for all other matters). The Dutch would like to go even further by giving national parliaments a ‘green card’ to propose legislation. At the present time, following a yellow card, the European Commission is obliged to present a new proposal or explain why it plans to continue with its existing proposal, which either the European Parliament or the Council of the European Union may ultimately strike down. It is believed that the Prime Minister would like to extend this to the right to strike down legislation entirely. In theory, this is impossible to achieve since it would require Treaty change. In practice, however, an Inter-Institutional Agreement could be put in place where national parliaments are consulted before the European Commission formally makes a legislative proposal. Such an agreement could also lower the threshold of the number of national parliaments that is needed to block legislation, perhaps to one fifth or a quarter of all national parliaments. This would not contravene the Treaty since its provisions only come into effect after a legislative proposal has been made. That said, here again the Court of Justice of the European Union might well challenge such an arrangement as contravening the aims of the Treaty by undermining the exclusive right of the Commission to propose legislation. Such a decision would be highly political and, on balance, it seems unlikely to me that the Court of Justice in the 2010s would make such a ruling (in the 1960s or the 1980s the answer might have been very different – but to paraphrase the Commissioner in charge of “subsidiarity and proportionality”, that’s making sure that the EU does not overstep itself to you and me, the age of ever-closer union is over). On balance, I think that such an agreement should be possible to achieve. The other Member States have made it clear that they will consider seriously anything that does not undermine the fundamental principles of the EU, and presumably, that enhances democracy in the EU. There is nothing to undermine the fundamental principles here given that Commission proposals can only be rejected if national parliaments believe that the proposal oversteps the EU’s powers and responsibilities. In other words, no one is suggesting that national parliaments could just block EU legislation on the grounds that they don’t much like it.
(3) A third question relates to the relationship between the Eurozone and non-Eurozone countries. Here the UK is concerned that it may, at some point, find itself consistently wrong-footed and outvoted by a Eurozone block, acting in unison, that would outvote the British on, for instance, regulation of the Single Market. The root of this idea is the notion that the Eurozone will gradually enlarge to include all Member States, baring the UK, Denmark and, perhaps, Sweden. The fear of being always outvoted on most single market regulatory issues we would judge to be more of an imagined and merely theoretical proposition than a serious threat. When it comes to countering such a threat (real or otherwise), it is impossible to imagine that the other EU Member States would give the UK the right of veto. Yet two points need to be raised in mitigation. First of all, the Eurozone countries have very wide-ranging stances when it comes to the range of EU policies. The idea of their forming a single bloc that could outvote the UK is simply not consistent with the evidence of how policy-making has always run in the EU, including since the launch of the Euro. Secondly, it is well-known that the European Commission and other Member States respect the sensitivities of particular Member States on issues of national importance (for example, agriculture in France or the car industry in Germany). To this pre-existing guarantee could be added some sort of a reiterated declaration or protocol (there are already several such protocols) from a meeting of the European Council that recognized British interests must be protected even though it will remain outside the Eurozone. Where such a guarantee would be of particular importance is in the domain of financial services. Financial services form, as is well-known, a very significant and strategic sector of the UK economy. A potential concern for this industry relates to any moves on the part of the European Central Bank (ECB) to start either regulating banks and financial services across the whole EU (which would affect the City of London) or to any moves on the part of the ECB to insist that the provision of certain services is moved to a part of the EU where it is the main regulator (i.e. the Eurozone). For the moment, such ideas are just risks for Britain’s financial services industry. A Treaty change that provided explicit protection for non-Eurozone countries in this regard would, of course, remove all risk. Treaty will not happen, but as a best-case scenario, we could foresee the UK securing agreement that such an article providing guarantees for non-Eurozone countries would be inserted at the earliest opportunity in the next revising EU treaty.
(4) The fourth and final set of reforms is the most broad and by far the most ‘traditional’ from a British or EU perspective. Here the UK will seek to make progress on a number of areas of long-standing British interest and commitment, including further efforts to extend the Single Market in services, the regulation of the Digital Single Market, and the conclusion of the Transatlantic Trade and Investment Partnership (TTIP). The UK will find ready allies across the many of the EU’s Member States and within the European Commission, not least because so much of this agenda matches the Commission’s work plan for the coming years in any case. Importantly, none of these changes will require Treaty change. In normal circumstances, victories for Britain and its allies on these issues would be regarded as noteworthy achievements in themselves. Those victories should not be taken for granted. Time and time again the EU has tried to push through moves to complete the Single Market in services (remember the Bolkestein Directive anyone?). Yet maybe this time, it really will be different. My reasoning here is that two large traditional opponents of liberalisation of services provision, France and Italy, have recently begun to soften their positions. In 2014, protected notaries, pharmacists, bailiffs and even doctors came out on strike against a nationally-driven programme of liberalisation in France that was being proposed by a Socialist administration. And Prime Minister Renzi really does seem to be in earnest when he talks about liberalising service provision in Italy. I won’t hold my breath – and nor should you – but, just maybe, things are changing. That still leaves TTIP, which as a mixed agreement will need to pass through 28 national parliaments and the European Parliament. The chances of the agreement being derailed are clearly very high. But, on balance, I think that the British government and its allies will be able to achieve some solid progress on the liberalisation agenda.
Tomorrow’s blog will test these technical assumptions by looking at the politics of the negotiations and how likely Britain’s reform agenda is to succeed.
Professor Nathaniel Copsey
Dr Helena Farrand-Carrapico
Dr Anne-Claire Marangoni