Brexit and the Future of Europe

Europe’s future is uncertain. There are many decisions ahead for the European Union (EU) and its member states, and the EU is destined to change over the next few years. It has been in crisis mode since the 2008–2009 global financial crisis sparked sovereign debt crises for Greece and other fiscally weak eurozone members. Since then, crises have also erupted surrounding the European banking sector, migration policy, energy markets, and security issues. The unforeseen decision on June 23 by UK voters to support a Brexit is the latest and most dramatic in a series of negative shocks to the EU. While the most significant economic impacts will be confined to the United Kingdom, Brexit is a severe political crisis that will play out over the course of the next decade in the United Kingdom, the EU, and the world. How UK and EU leaders respond will determine the long-term effects of Brexit. Will they approach this latest crisis in their typical manner by hosting a summit and then kicking the can down the road? Or will they engage with citizens to renew and strengthen support for EU ideals and institutions? Some participants argued that if Brexit, the migration crisis, terrorism, and other challenges do not catalyze the EU to integrate further, it will be the beginning of a gradual decline. Read more

Impact on the United Kingdom

As we convened in the immediate aftermath of the Brexit vote, uncertainty prevailed. Would a new referendum be called? Would politicians abide by the initial vote? If so, when would Article 50—the two-year notice required to leave the union—be invoked? What relationship would the United Kingdom seek with the EU? What relationship would the EU be willing to have with the United Kingdom? The consensus among Retreat participants was that the United Kingdom was entering a period of profound uncertainty in all of these areas. Politically, participants agreed that there was bound to be a shake-up in power in both the Conservative and Liberal parties. And Brexit reopens the debate about Scottish sovereignty while also potentially sparking a new push for Northern Ireland’s reintegration into the Republic of Ireland. Economically, participants agreed this would damage the UK economy. Currently, more than half of all European headquarters of non-EU firms are in the United Kingdom, so leaving the EU is likely to cause a dramatic reduction in foreign direct investment to the United Kingdom. In addition, the United Kingdom’s account deficit has been growing in recent years, so its access to the European single market is crucial.

But in some ways, the more fundamental questions about events in the United Kingdom were backward-looking: What inspired the majority of UK voters to favor Brexit? And why did all of the political pollsters and prediction markets get it wrong? The debate leading up to the vote was dominated by Eurosceptics, who argued that the United Kingdom was being held back by regulations set in Brussels and threatened by the large flow of immigrants coming via Europe. On economic matters, Brexiteers argued that their country was losing direct control of its economy by staying in the EU and needed to recover power. This issue, Retreat participants decided, was at the heart of the matter. In a “runaway world” where people feel that faraway forces are shaping their lives and that their governments no longer have control of their own country, the “Take Back Control” slogan of the Brexiteers was deeply enticing.

Impact on the EU

Understanding what happened in the minds of UK voters is also crucial for understanding what comes next for the EU. Although Brexit is not expected to have a significant, enduring impact on the EU economy, Retreat participants wondered whether the vote might spark a wave of in-or-out referendums across EU member countries. The EU was built on the idea of solidarity among the peoples of Europe, but there has been what one participant termed a pernicious “de-solidarization” between member states as populism, nationalism, and anti-EU sentiment have been on the rise. These trends in political sentiment mean that any referendums could raise significant risks for the future of the EU.

As a result, the EU’s cohesion and longevity depend on its leaders presenting a purposeful, compelling vision of the European project that secures buy-in from the population at large—and in particular from the younger generations. One way to do that, according to one Retreat participant, is to revive the idea of a European constitution that sets out the principles and mandate of the EU so it is clear to all EU citizens what it is that they are a part of. Another option is to establish policies that uphold long-standing European ideals rather than those that address only short- term issues. For instance, one participant pointed to the EU’s policies toward the Middle East and North Africa, arguing that a focus only on stability is insufficient and that the EU must broaden its policy to also promote human rights, legal institutions, and civil society in those countries.

Another participant asserted the need for a forward-looking vision that is as compelling for younger generations as the 1950 Schuman Declaration was for the post-World War II generation: to make another world war “not merely unthinkable, but materially impossible.”

The future of the EU also depends on its leaders’ ability to ensure that the institutions they have created function properly. The EU is the result of 40 years of compromise among its member states, and as one participant pointed out, the EU is essentially a camel—that is, a horse designed by committee. Even though the EU represents the most dramatic economic and political integration of any group of countries in the world, integration is far from complete because EU member states have always been reluctant to give up sovereignty. For instance, the eurozone is in some ways an unviable currency union because its members have avoided creating a corresponding fiscal union. And while the Schengen Area has fostered freedom of movement, its members do not share a common border policy. Therefore, it too is an incomplete project.

One important example of this incomplete integration is the European energy market. As one participant noted, what is happening in the European energy sector speaks volumes about the problems of European integration in general. Each EU member state has its own regulations, environmental policies, and tax system for the energy sector—not to mention extremely fragmented public opinion on energy issues such as the use of nuclear power. But to ensure stable and sustainable energy supply while also moving toward a lower-carbon future as part of the COP 21 agreement, an integrated energy market in the EU—including cross-border energy transportation infrastructure, an integrated electricity market, harmonized energy subsidy policies, and coherent European carbon prices—is crucial. The European Commission has a large role to play in designing policies to foster cross-border energy projects and infrastructure, but member governments must also be willing to cede some of their regulatory power of the energy sector to EU institutions.

In fact, several Retreat participants argued that, in the wake of the Brexit, what the EU needs more broadly is further integration. They pointed out that the EU works best in areas where member states have given up sovereignty, with trade negotiations being the best example. Just as the early United States learned that a confederation of states was an unviable political system, so too is the EU discovering the same constraints of a confederation. A more federal system will be required for a strong and sustainable EU. Such integration could be easier to accomplish without the United Kingdom at the table, as the United Kingdom often wanted exemptions from such integration projects and pushed back against new ones. However, giving more sovereignty to the EU is politically difficult for many national governments right now given rising populism and nationalism throughout the continent.

Other security and economic implications

Somewhat surprisingly, one participant said NATO could be an initial winner from Brexit, which will likely motivate the UK government to demonstrate to the United States that it will remain a vital security and intelligence partner. And because the UK government will no longer need to divide its security resources between the EU and NATO, its contributions to NATO are likely to increase. At the same time, however, several participants pointed out that Brexit is a geostrategic win for Russian President Vladimir Putin, whom some participants felt could have surreptitiously supported the pro-Brexit movement. It was argued that he is keen to have a more divided Europe so he can play factions of one another.

And in terms of international trade, many said Brexit would signal the end of the Transatlantic Trade and Investment Partnership (T-TIP). Although the European Commission estimates this US–EU trade agreement would result in an additional €220 billion worth of exports of EU goods and services, it was already faltering as more politicians criticized the agreement. EU fears have centered on weakening regulatory standards, food safety, and protecting small businesses. Since the United Kingdom was one of the main T-TIP supporters within the EU, it now seems that these concerns—in addition to the overwhelming political and policy focus on dealing with the immediate aftermath of the Brexit vote—will render T-TIP dead in the water.

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