Europe after Brexit: A proposal for a continental partnership
(This paperis the outcome of a dialogue among the five authors during the summer. It ispublished simultaneously in several European capitals under the soleresponsibility of the authors, who write in their personal capacities. JeanPisani-Ferry is Professor at Hertie School of Governance; Norbert Röttgen isChairman of the Foreign Affairs Committee of the German Bundestag; André Sapiris Professor at the Université libre de Bruxelles and Senior Fellow at Bruegel;Paul Tucker is Chair of the Systemic Risk Council and a Fellow at the HarvardKennedy School of Government; Guntram Wolff is Director of Bruegel. ©Authors.)
[Embargoeduntil August 29, 19:00 CET]
25August 2016
Abstract
After theBritish decision to leave the EU, Europe’s trajectory, even its destiny, hasagain become a matter of choice. In an increasingly volatile world, neither theEU nor the UK have an interest in a divorce that diminishes their influence asthe balance of economic power shifts away from the North-Atlantic world. Wepropose a new form of collaboration, a continental partnership. The UK willwant to have some control over labour mobility, as well as leaving behind theEU’s supranational decision-making. The proposed continental partnership wouldconsist in participating in goods, services, capital mobility and some temporarylabour mobility as well as in a new system of inter-governmental decisionmaking and enforcement of common rules to protect the homogeneity of the deeplyintegrated market. The UK would have a say on EU policies but ultimate formalauthority would remain with the EU. This results in a Europe with an innercircle, the EU, with deep and political integration, and an outer circle withless integration. Over the long-run this could also serve as a vision forstructuring relations with Turkey, Ukraine and other countries.
Introduction
For nearly sixtyyears, a seemingly irreversible momentum towards integration within theframework of the European Union has, for many, defined the future of thecontinent. On 23 June 2016, the electorate of the United Kingdom made asovereign choice to leave the EU. After the British decision to leave, Europe’strajectory, even its destiny, has again become a matter of choice. Brexit marksboth a major constitutional change for the UK and a significant rupture for theEU. If only for this reason, the negotiation of the terms of Brexit must take along-term view, beyond the possibly drawn-out negotiations that will begin inthe coming months.
Over the next15-20 years, the balance of economic and geopolitical power in the world islikely to alter significantly, with a new world Top Table of highly populatedcountries with 2 massive economies. Our part of the world should want to have aseat at this table, so that our particular version of civilisation continues tobe represented in the councils that seek to maintain peace, set rules andgenerate prosperity globally. Representation cannot be taken for granted. Ofthe EU’s three largest countries, Germany, France and Britain, none can beconfident of having a place at the new top table.
Moreimmediately, the constellation of security threats in Eurasia calls formanaging the Brexit divorce so that it does not weaken Europe further at a timeof major challenges to the security, freedom and wellbeing of its peoples. Thecurrent situation is a worrying reminder of the unavoidable interdependenciesof geographical neighbours: the UK can leave the EU but it cannot relocate awayfrom Europe.
The same can besaid of economic links. Nearly half a century after the first enlargement of theEU in the early 1970s, the economic circumstances of the EU and the UK are nowso interwoven that their prospects cannot be independent over any foreseeablehorizon. Perhaps the greatest economic uncertainty for the UK is the futurecourse and prosperity of the euro area, by far the largest economy in thisregion of the world. EU reform matters hugely for the whole continent with orwithout Brexit.
EU-UKcooperation will therefore remain profoundly important. Ways must be found toput it on a new and secure footing. Different approaches will no doubt beneeded to reflect the substantive differences between, for example, trade andsecurity issues. But any new framework will need to recognise that economicsand politics are not neatly segmented. For example, they are interwoven indecisions on economic sanctions designed to help maintain international order.The new arrangements will need to be able to cope with the fuzzy boundaries ofdifferent public policy spheres.
It is vital,therefore, that the EU and the UK enter exit negotiations not only with a clearview of their near-term goals but also of their long-run interests and likelyinterdependencies.
On the Britishside (and indeed, to policymakers all over the developed world), the referendumresult is a signal that urgent efforts are needed to ensure that the benefitsof future economic growth can be enjoyed by all. Beyond any costs from theunavoidable medium-term uncertainty surrounding Brexit, other risks need to benavigated, including undoing trade integration with the EU (Sampson et al,2016)(There will be costs in the way of replacing trade with the EU withtrade with other, more distant countries due to the gravity law ininternational trade).
On the EU side,there may be a temptation to apply punitive terms to the UK’s exit and the newrelationship. Certainly Britain cannot be rewarded and it will not be allowedto pick and choose at will policies that it wants to participate in or abstainfrom. The EU needs to avoid reaching a series of ad hoc agreements with partnercountries that are not based on clear principles. But an exceedinglyunfavourable deal would be liable to damage everyone and would not achievecohesiveness within the EU itself. For the EU, continued support should 3 reston reforms that can regenerate growth and jobs and, in particular, provide moresecure foundations for the euro area.
An outcome thatisolated the UK and blunted the incentives for EU reform would, in short, be inno-one’s longer-term interests. The issues of EU/euro-area reform and how todefine the relationship between the UK and the EU are therefore interlinked.With or without Brexit, the UK would have had to define its relationship with areformed euro area (Sapir and Wolff, 2016). Similarly, increasing policyintegration within the euro area, for example on banking, was already raisingquestions before 23 June 2016 about the relationship with the UK (Pisani-Ferry etal, 2012).
This paperleaves aside the issue of EU reform and focuses on the desirable EU-UKrelationship after Brexit. Our starting point is the proposition that none ofthe existing models of partnership with the EU would be suitable for the UK.Nor would the off-the-shelf models recognise the importance of themulti-dimensional EU-UK relationship in other fields such as security anddefence. The '“Norway”' option would not allow limits on freedom of movementfor workers, which is likely to be a priority for the UK government. It wouldalso turn the UK into a pure rule-taker, a role that would be inadequate giventhe size and significance of the UK. Similarly, under the '“Swiss”' model, theUK would become a pure follower of EU regulation in the sectors in which it wouldparticipate. Moreover, from an EU point of view this approach would be open tothe justified criticism of the UK cherry-picking its participation in a sharedpublic good.
There is alsothe option of a free-trade agreement. This would be technically feasible andcould be based on a close agreement that also incorporated bilateraldispute-settlement mechanisms if political agreement could be reached. Such astructure would not, however, provide an adequate basis for the kind of deepeconomic integration that some kind of continued participation in the singlemarket would constitute. The UK’s comparative advantage is largely in regulatedservices, which require an agreed regulatory framework in order to be providedacross borders. For example in banking, the ability of banks and otherintermediaries based in the UK to operate across the EU is based not only on asingle set of rules but also on elements of supranational supervision(Schoenmaker, 2016). A trade agreement would not include such 'passporting' rightsand so would constrain not only the City of London but also service companiesoperating outside the capital.
We thereforemake a new proposal for the EU-UK relationship that is considerably less deepthan EU membership but rather closer than a simple free-trade agreement.Policymakers in the UK and the EU will ultimately face the political choicebetween either pursuing something along the lines of our proposal orestablishing a distant free-trade arrangement.
Our proposalmight also have broader significance for Europe over the long-run as a basisfor relationships with other neighbours. Beyond the immediate priorities of theUK situation, Brexit challenges the EU to reconsider and reorganise itsrelationships with other countries 4 in the region, such as the EEA countries (Iceland,Liechtenstein, Norway), Switzerland and, less pressingly, Turkey andUkraine.
In the long run,our proposal could lead to a Europe of two circles, with the supranational EUand the euro area at its core, and an outer circle of countries involved in astructured intergovernmental partnership(In 2002, Romano Prodi, when he waspresident of the European Commission, wanted “to see a 'ring of friends'surrounding the Union and its closest European neighbours, from Morocco to Russiaand the Black Sea”, who would be ”sharing everything with the Union butinstitutions” (Prodi, 2002)).
We believe thatdeparting from the standard templates is essential for the success of the UKexit negotiations. Without a common vision of their shared future over thelonger term, the UK and the EU risk being dragged into unprincipled bargainingand, albeit in slow motion, weakening their positions in the wider world.
Thefuture of EU-UK relations
At its core, theEU has been a political project. It is not just a group of states thatcooperate, but a group of states which have created supranational institutionsthat have executive and judicial authority over EU member states and that canpass laws that are directly applicable throughout the EU. This is perhaps mostvisible in the form of the European Court of Justice, which can overrulenational jurisdictions, or the European Parliament, which can, with theCouncil, pass laws that effectively replace national laws. The supranationalauthority of the EU is also manifest in the European Commission’s regulatoryremit in, for example, competition policy and state aid.
A majority ofthe participating British electorate have in effect rejected this visionof the supranational exercise of voluntarily pooled sovereignty. It wasespecially significant that the UK electorate rejected one of the constitutingelements of the single market: the free movement of workers. As of 2014, therewere 5.3 million non-UK nationals resident in the UK, of whom EU nationalsaccounted for 2.9 million. Of those, 2.2 million currently work in the UK (As of Q1 2016 (Office for National Statistics, 2016). That number has increasedfrom 752,000 in 2003 (before EU enlargement). Immigrants to the UK have beenshown to be significant net contributors to public finances and to economicgrowth (Dustman and Frattini, 2013; Wadsworth et al, 2016)). While thereappears to be little conclusive evidence that the number of foreigners in anelectoral district was a determining factor in the likelihood of that districtvoting to leave (Darvas, 2016), there can be no doubt that the Leave campaigntapped into seams of genuine concern about the scale and speed of immigration.
In our proposal,we take those two political constraints as given. The relationship between theUK and the EU that we propose would therefore be based on an intergovernmentalform of collaboration, with no legal right to free movement for workers but aregime of some controlled labour mobility and a contribution to the EU budget.The goal of the proposal is to create a framework for continued closecooperation, even integration, on matters of common interest.
For some, themost controversial question is likely to be whether it is possible to haveclose economic integration comparable to the single market while partlylimiting labour mobility. There are two ways of characterising the deeplyintegrated market. One is functional, and the other constitutional.
l Thefunctional definition of a deeply integrated market consists of itscentral functional elements: (i) the absence of tariffs; (ii) a single set ofrules or minimum standards; (iii) enforcement of those rules and standardsunder shared, supra-national jurisdiction; (iv) a single competition policy andstate-aid control; and (v) the contribution to shared public goods, includingthrough EU budget.
l Butthe EU’s market is also often defined in terms of the dimensions of an economic-politicalconstitution. Essentially those dimensions are the so-called ‘fourfreedoms’ in goods, services, capital and people of the single market (egBalassa, 1961). In that conception, free movement of workers is an essentialelement of the single market established with the Treaty of Rome.
We endorse thefirst view of a deeply integrated market. It is inconceivable that firms shouldoperate freely in an economic area without ensuring a single set of rules orminimum standards that provide a level playing field across all theparticipating countries. State-aid control, competition policy and common rulesor minimum standards are therefore indispensable parts of the single market, asis participation in an essential core of social rights, consumer protection andhealth and safety regulations. Future rules, standards and other policy areasthat affect the integrated market may give rise to political controversy, as inany region seeking cooperative agreement.
As a politicalproject the single market consists of all four freedoms. Arguably, freedom ofmovement of workers, whereby EU citizens are entitled to look for a job inanother EU country and to work there without needing a work permit, constitutesthe element that makes the single-market part of the EU into a politicalproject (Labour mobility is economically desirable because workers can moveto the places where their productivity is highest. It is also sociallydesirable because it constitutes a fundamental personal freedom to go and workwhere one wishes). Granting access to the domestic labour market to some510 million citizens is a significant political choice and a powerful symbol ofintegration amongst EU countries. It is this political project that the UKelectorate has effectively rejected.
From a purelyeconomic viewpoint, however, goods, services and capital can be freelyexchanged in a deeply integrated market without free movement of workers,though not entirely without some labour mobility. It is also possible forcapital to move freely and for banking services to be provided across borderswithout free movement. Free movement of workers is, thus, not indispensable forthe smooth functioning of economic integration in goods, services andcapital. On the other hand, some degree of labour mobility is an essentialcounterpart of the free flow of goods, services and capital. Firms that operatein foreign countries need to be able to transfer workers abroad, at least fortemporary periods, in order to produce efficiently The four freedoms of theEuropean single market are therefore closely economically connected, but notinalienable for deep economic integration(We therefore contradict thecurrent view of the European Commission President (Juncker, 2016)). Freemovement of workers can be separated from the rest, but some 6 temporary labourmobility is needed. Our proposal is, accordingly, about how to manage thegovernance of the single market in this functional sense without everyone beinga full member of the EU.
The same logicapplies to other areas of EU competence. As indicated, some of the chapters ofthe acquis communautaire are essential to the proper functioning of anintegrated market for goods, services and capital. They should be retained in anew framework for the EU-UK relationship. Other chapters, such as energy orresearch, are however not essential and should be regarded as optional.
Aproposal for structuring EU-UK relations
Our proposal isabout how a less-political definition of economic cooperation-cum-integrationcan be framed and organised. We propose the creation of a ContinentalPartnership (CP). The aim of this CP is to sustain deep economic integration,fully participating in goods, services, capital mobility and some temporarylabour mobility, but excluding freedom of movement of workers and politicalintegration. The CP should involve:
l Participationin a series of selected common policies consistent with access to the SingleMarket;
l Participationin a new CP system of inter-governmental decision making and enforcement;
l Contributionto the EU budget;
l Closecooperation on foreign policy, security and, possibly, defence matters;
The CP wouldbuild a wider circle around the EU without sharing the EU’s supranationalcharacter, except where common enforcement mechanisms were needed to protectthe homogeneity of the single market. Members of the CP would be the EU, allEU-countries, the UK together with any other countries that participated.
The obviouschallenge for EU-CP cooperation will be to preserve the processes andstructures of the EU as a supranational entity and at the same time to ensurethat CP members that are not part of the EU have a say in common matters. Twobasic cases must be distinguished. The first concerns matters for which the EUalready has an intergovernmental decision-making process. Here, the issue ofcooperation can be relatively easily solved as the CP by its very nature isintergovernmental. Politically, this area of intergovernmental cooperation isimportant. In particular, the activity of the CP in the fields of foreign,security and defence policy – the areas in which Europe has to face a range ofcomplex, persistent and existential threats – would be included.
The second, andarguably more difficult case, concerns areas in which the EU acts as asupranational body with (partial) sovereignty, including in particular allsingle market matters. Cooperation in this area means that although a CP memberis not a member of the EU, it would get full access to the respective parts ofthe single market with all rights, opportunities and obligations other thanfreedom of movement for workers. In the following, we discuss how thiscooperation could be organised.
One issueconcerns the law making itself: We propose that CP countries would meet in a CPcouncil, in which EU institutions would participate. At the level of the CPcouncil, the UK would thus continue to participate in the numerous differentformations where the details of single market regulation and other policies inwhich it would continue participating are discussed and negotiated. Obviously,the CP council could not pass EU legislation but CP partners would be involvedin CP council readings of draft EU legislation and they would have a right topropose amendments.
EU law on thesingle market would, however, continue to be adopted through the normal EUlegislative process. In practice, in the areas that concern the CP, the CPcouncil would deliberate the legislative proposals before they areformally passed in the council of the European Union and the EuropeanParliament, so that positions expressed by non-EU members could be taken intoaccount throughout the legislative process and in the final decision.
Formally, itwould be a political – not legal – commitment by EU member states totake into account the positions and deliberations in the CP council. Our CPcouncil would therefore deal with this major political task. If the EU and itspartners disagree within the CP council, the final say would formally remainwith the EU. The non-EU CP members would then still have to implement thesingle market legislation in their national legislation or face restrictions onparticipation in the single market. The CP partners therefore would not haveveto rights over the EU decisions but they would be closely involved inlaw-making at the intergovernmental level of the CP council.8 ( Our proposaltherefore goes well beyond the participation of EEA countries such as Norwaythat meet in the EEA Joint Committee at the level of ambassadors some 6 timesper year with little influence on the council of the EU. 9 For a detaileddiscussion, see Allen and Overy, (2016)).
Conversely, CPmembers would have to accept the enforcement measures and jurisprudence thatsafeguards the relevant freedoms of the single market. Otherwise the integrityand coherence of the single market would erode. The key challenge will be tobalance fairness with the necessity of homogeneity in application. In the caseof EEA countries, an EFTA court is responsible. It consists of judges from thethree EEA countries. However, rules ensure that the court follows the relevantcase law of the ECJ (Allen and Overy, 2016; Wikipedia, 2016). Whether such amechanism would be sufficiently strong in the case of the CP with a majorcountry as the UK is for political and legal debate. We think that it may benecessary to contemplate instead an extended ECJ court composition involvingjudges from all CP countries. However this court would still be bound by ECJcase law.
Anotherimportant question is competition policy enforcement and state aid control(Petropoulos, 2016). In the case of EEA EFTA countries, the European Commissionis largely in charge for any cases that have repercussions beyond borders.Whether this is a feasible model for the CP should be for political debate.
Participation inthe EU budget would also be vital. While many spending items of the EU budgetmight look outdated, the budget still constitutes an essential element of theintegrated economic space. It is indispensable in the area of agriculturalpolicy but, with its 8 aim of structural convergence, is also important foropening up economic opportunities for less-developed parts of the EU. The EUbudget also provides support for ‘catch-up’ countries. While the effectivenessof Structural Funds is a matter for debate, they serve as a quid pro quo forthe adoption by cohesion countries of demanding single market legislation thatmight exceed what would be appropriate at their development level.Participation in the budget is therefore the necessary counterpart toparticipation in the single market. The UK would need to make a budgetarycontribution.
From a politicalpoint of view, our proposal would constitute a significant concession by the EUto the UK on the free movement of workers. Politically, there may be a tendencyin continental Europe to demand limits in other areas of the single market suchas financial services. We would note, however, that under our proposal there isalready a political 'price' to be paid by the UK, as CP membership entails significantlyless political influence compared to EU membership. Whether that price isappropriate is a matter for political judgement.
OtherCP policy areas
We see threeareas in which the CP would operate. The first, as we have outlined, consistsof accepting the acquis in all single market areas except those relating to thefree movement of workers. Here, we would see the emergence of a system underwhich the UK would impose a quota-system of some kind on the EU as a whole,while the EU would impose a quota on the UK (We assume that the EU willdefine a joint migration policy. We would reject a quota system by which the UKwould impose quotas on individual EU countries).
Second, the CPwould deal with shared external economic policies, in particular in trade andfinancial regulatory matters. The CP should aim for global influence in trade,financial regulation and climate and energy policies. Its creation would ensurethat Brexit does not result in a long-term weakening of Europe’s voice inglobal negotiations, bearing in mind the growing dispersion of internationalpower.
Trade policy isan exclusive competence of the EU. We could see an interest of non-EU CPcountries participating in EU trade policy through the CP council, therebychoosing to give up their ability to negotiate individually new free tradeagreements. Again, ultimate decision making would, however, remain with the EU,which legally would retain formal competence. But there are also substantialobstacles and it will therefore be a matter of intensive political discussions(Sapir, 2016).
Financialregulatory matters are often negotiated and agreed on in global institutionsuch as the Basel committees. In these fora, Europe is represented by acombination of EU institutions and the authorities of some of its memberstates. In the medium to long term, we would expect an increasing concentrationof the external representation of the EU through EU institutions such as theEuropean Central Bank. It would make sense to coordinate the positions of the Bankof England, other CP central banks and the ECB. Whether or not CP countrieswill ever want to cede their representation to common institutions would be amatter for future discussions.
Finally, energyand climate policies are also areas for the CP. This could involveparticipation in the EU emissions trading system (ETS), coordination of CPpositions in international climate negotiations and participation in an energyunion if it progressed.
The third areaof CP policy should consist of an active role in foreign, security and defencematters. Russia’s annexation of Crimea and military incursion into EasternUkraine are not bilateral issues, but threaten Europe's peaceful order as awhole. This new status quo is not just a challenge for EU countries.
The same holdsfor the turmoil in the Middle East and North Africa. The spill-over effectsfrom the conflicts in this region to Europe are unprecedented in recent times.
No Europeannation state will be able to manage these and other future threats single-handedly.The CP should emerge as a forum and even an active participant in foreignsecurity and defence policy.( Theresa May (2016) in her speech on April 25as home secretary said that in the EU the UK would benefit from issues such asthe European arrest warrant, which has allowed the UK to bring 675 suspected orconvicted criminals to face justice in UK. It has also been used to get terrorsuspects. Arguably, the CP should find a way to continue that usefulcooperation, in line with EU laws.) Justice and security affairs are ashared EU competence, which means that it is not a purely intergovernmentalset-up and EU institutions have formal roles. This raises difficult, buthopefully surmountable, legal questions of how the CP-EU collaboration shouldbe structured.(Justice and security affairs are formally a shared competencein the EU: EU Member States cannot exercise competence in areas where the Unionhas done so. It is conceivable that the EU may want to move significantlyfurther in this area in the next 10 years. This would raise political and legalquestions for the cooperation via the CP.) The UK, one of the two permanentEuropean members of the UN Security Council and one of the current EU membersable to project forces overseas, will remain a crucial partner on thesematters. The Europeans cannot and must not solely rely on the US as theguarantor of European security. The Cold War is over, the Pacific sphere is ofgrowing significance, new threats in forms of cyber-conflict and terrorism havematerialized, and US politics is likely to face its own domestic challenges forsome time to come. For this reason we believe that closer cooperation in thisarea is important and will be even indispensable over the medium-term if Europeis to be able to adequately to react to threats.
Geographicalscope
One advantage ofthe proposed Continental Partnership is the flexibility of its governancemodel. At its core it consists of participation through the CP Council in theEU law-making process while simultaneously accepting the ultimate authority ofthe EU and the enforcement of commonly agreed rules or minimum standards. Itsnature is thus essentially intergovernmental. The Continental Partnership couldthus be open to other European countries that might want to join.
It will beimportant not to overstretch the flexibility of the CP in the economic area.The central issue here is the move away from free movement of workers. But theCP should be flexible in relation to the security and defence policy area andpotentially also external economic relations. Since security and defence policyare at the core of national sovereignty, 10 we could see some CP membersparticipating in the joint security partnership while others would not.
One importantquestion is about the members of the European Economic Area (EEA) that are notpart of the EU (Iceland, Liechtenstein and Norway). These three countries fullyparticipate in the single market but do not have any significant say in thelaw-making process of the single market. We could imagine that these three EEAcountries could have the right to join the CP if they wished(Specificgrandfathering provisions might be needed to allow them to continue to be fullmember of all elements of the single market thereby continuing to participatein the freedom of workers). We could also see the CP as an attractive modelfor Switzerland since it wishes to limit free movement – but, as a counterpartto joining CP, it would have to adopt the full set of single market regulationin other areas.
The creation ofa Continental Partnership might also provide a basis for coming to honest termsin the negotiations with Turkey(For an earlier proposal to include Turkey inthe wider circle, see Sapir and Wolff, (2014)). Arguably, one of the reasonswhy some EU member states would never accept Turkey joining the EU is freemovement and, more broadly, the political nature of the EU. Framing therelationship with Turkey in terms of EU accession was, therefore, always liableto be awkward. But provided there is a shared will to strengthen thepartnership and provided that essential political conditions are met, we see itas possible and perhaps even desirable to move towards including Turkey in theContinental Partnership in the medium- to long-term. Offering Turkey theprospect of a structured partnership with the EU in which it would have a voicecould contribute to deterring a drift away from democracy and associatedvalues.
In the longerterm, the CP might also provide a framework for a strengthened relationshipwith EU neighbours in the east (Ukraine). It is an open question whether asimilar template might be used for relationships with neighbours to the south(Morocco, Tunisia). Again, the intergovernmental character of the partnershipand the exclusion of free movement of workers could contribute towardsaddressing existing stumbling blocks.
Becoming amember of the CP would require compliance with criteria, assessed via clearprocedures. For the UK, the negotiations over its participation in the CPshould be held in parallel with the EU exit negotiations to avoid unnecessaryand mutually damaging disruption. EEA members could also qualify for CP. Othercountries would have to comply with the necessary legislative acquis beforebeing admitted to the CP. There should also be a definition of shared values ofthe CP, including issues such as the rule of law and democracy.
Conclusions
The British voteto withdraw from the EU marks a major constitutional change for the UK and asignificant rupture for the EU. Our proposal is to turn the rupture into anopportunity to reorganise Europe in two circles. The inner circle constitutesthe EU with political aims and supranational constitutional structures. Theouter circle, of European cooperation, adding countries not in the EU wouldhave more flexibility and be based on an intergovernmental structure, theContinental Partnership. Most important, CP countries would not participate inthe freedom of movement of workers, would not share the political 11 commitmentto ever closer union, and would have less political influence over decisions ofcommon interest.
Our proposalrequires the UK and the EU to make tough choices. The UK will have to answerthe question of whether it wants to continue to maintain close economiccooperation with the EU and whether it wants to maintain and potentially evenstrengthen its engagement in security and, conceivably, defence matters. Thisis ultimately a political choice that must be spelled out unambiguously.
The EU will haveto agree among its members to put aside punitive motives and reach an economicsettlement that grants control over labour mobility to the UK while allowingcontinued access to and participation in important parts of the single market.This is a political choice on which clarity is needed. The EU countries willalso need to reflect on whether this model would be adequate for otherneighbouring countries15. 15 In our discussion, we leave aside the alreadyvariable geometry within the EU, in particular the differentiation between theeuro area and the EU. Arguably, the management of that differentiation willincrease in importance after Brexit as non-euro area countries will constituteonly 15 percent of EU GDP. Its importance will also grow with further integrationin the euro area.
Finally, ourproposal should be combined with a strengthened EU and a strengthened euroarea. As a start, it involves concrete progress using the community method.Rendering the EU’s own construction more effective and increasing politicallegitimacy is not only desirable for its own sake but also essential for thepolitical stability of Europe with different levels of cooperation. We see thedeepening of the euro area and the building of a continental partnership, inwhat would amount to concentric circles, as close complements that are in theinterest of both the UK and the EU.
Our proposal isdriven by the firm belief that neither the EU and its member states nor the UKhave an interest in an escalation of tensions or costly disengagement followingBrexit. Neither the UK nor the continuing members of the EU can escape theirgeographical interdependencies. Both have a stake in economic and politicalstability in Europe. Today’s volatile and dangerous world requires its nationsto collaborate to confront new and multiple challenges. The longer-run prospectof a future world in which Europe is only one amongst many powerful regionsdemands the same.
Brexit is now areality. It carries risks. It can be turned into an opportunity. We hope thatour proposal can provide a benchmark, even a vision, for the undoubtedlydifficult negotiation that lies ahead.
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