Editor’s note: This piece was co-written by Max Kuhelj Bugaric and Richard Yarrow. We display the name of only one author due to technical limitations.
On June 23, Britain will vote on whether to “remain” in or “leave” the European Union. Portrayed as a decision about British sovereignty, the vote could see Britain more separated and isolated from the rest of Europe than it has been for decades. Since 1973, when Britain joined the European Economic Community, the EU’s predecessor, Britain’s European ties have strengthened tremendously. Much of British trade occurs across the Channel; British financial services in the City of London grew thanks to easy access to the continent. Britain has likewise maintained strong diplomatic clout, with the ability to shape EU laws and institutions.
Much has changed since Winston Churchill wrote The Commonwealth Alone. In the book, Churchill described a Britain in a lonely struggle both to survive and to help lead Europe toward a brighter, freer future. Today’s Britain, as one of the world’s richest and most powerful countries, has no doubts about its survival. However, a referendum vote for “Brexit”—leaving the EU—risks seeing Britain voluntarily back away from its leading role in Europe, pushing a core country toward a lonelier periphery.
The Economic Case and Consequences of Brexit
Leaders of the “leave” movement note that Britain contributes heftily to the EU’s budget, money which could instead be saved or spent within Britain. In 2015, Britain contributed 12.9 billion pounds to the EU budget; excluding funds sent back to Britain by the EU or spent on foreign aid, this amounted to a 6.5 billion pound net contribution. The EU Structural and Investment Fund, aimed at reducing regional wealth disparities, allocated 8.4 billion pounds to Britain for 2014 to 2020—the fifth-lowest allocation among EU Member States on a per capita basis. EU regulations cost Britain billions: Open Europe estimates 4.2 billion pounds in recurring costs for the Working Time Regulations alone. EU membership also limits Britain’s potential for trade beyond Europe, requiring Britain to abide by EU tariffs and trade restrictions and to avoid trade agreements outside of EU mechanisms.
Yet many of these “negative” effects of EU membership are neither negative nor avoidable. According to Open Europe, most of the costliest EU-related regulations relate to environmental standards, including the UK Renewable Energy Strategy and the Motor Fuel Greenhouse Gas Emissions Reporting Regulations, which have positive long-term consequences. Roughly 1 billion pounds of Britain’s contribution to the EU budget goes to foreign aid, helping to meet Britain’s own foreign aid spending goals. Moreover, if Britain left the EU but tried to stay within the European Economic Area, with access to the EU’s single market, then many of the same perceived problems with EU membership would continue. Open Europe predicts that Britain would have to keep 93 of the 100 costliest EU regulations, despite little say over how regulations are developed and implemented. As former Norwegian defense and foreign minister Espen Barth Eide noted, Britain would have to “loyally abide by Brussels’ decisions” while “retaining all the EU’s product standards, financial regulations, [and] employment regulations”—and still contribute to the EU’s budget.
A Britain outside the EU would need to respond to a Brexit’s disparate geographical impacts. Though Britain overall receives relatively little funding from the EU Structural and Investment Fund, Britain’s western coast receives much of the benefits; West Wales, for instance, was set to receive 1,000 euros per person from 2014 to 2020, comparable to investment levels for Romania and Bulgaria. Thanks to the EU’s Common Agricultural Policy (CAP), a majority of British farmers’ earnings come from EU-related subsidies. Many of the farms most dependent on EU benefits are far from London and England’s wealthy southeast: per capita CAP subsidies are four times greater in Northern Ireland than in England.
Although spending by Westminster could replace CAP subsidies, other effects of Brexit will be harder to cushion. Euro zone countries are overwhelmingly Britain’s most important trade partners. In 2013, Britain’s imports from Belgium were worth almost as much as Britain’s imports from the United States, while the total value of Britain’s trade with China was 30 percent smaller than the value of Britain’s trade with the Netherlands. Other EU countries are the source of roughly half of Britain’s imports, and the destination for roughly half its exports. Arguments that the EU will be forced to accommodate trade with Britain—for instance, because “the UK is the German motor manufacturers’ third biggest market”—ignore the broader economic picture. While the EU would represent a crucial trading partner for a post-Brexit Britain, Britain is one of many trading partners for the rest of the EU, the destination for a mere 6 percent of EU countries’ exports in 2013. While some EU countries—Ireland in particular—could suffer hugely from a Brexit, the EU as a whole is relatively better insulated.
When countries negotiate on trade, the size of the EU matters. Even if one excludes Britain, EU countries take in 12.1 percent of all Chinese exports, far more than China exports to all of Africa and the Middle East combined. Although British trade with the United States is immense, it only makes up little more than a seventh of all US-EU trade. Even Canada, Britain’s longtime colony and ally, conducts four times more trade with the EU overall than with Britain. The EU’s importance to economies around the globe give it strength both in attracting investors and trading partners and in negotiating with them. Trade agreements are hard to make, but the EU already has agreements with 60 countries, from Switzerland and Iceland to Israel, Mexico, and South Korea. After seven years of negotiations, the EU may soon approve a free trade agreement with Canada, and agreements with the United States, Brazil, and Japan may follow. Outside the EU, Britain may struggle to make new trade agreements or even keep the ones it once enjoyed: Japanese Prime Minister Shinzo Abe has warned that Brexit makes Britain “less attractive,” while US President Barack Obama indicated that Brexit would put Britain “at the back of the queue.”
Without the trade benefits of EU membership, Britain could find itself economically hard hit. Though Britain boasts some of the world’s biggest food processing companies, a majority of British food exports could suddenly face EU tariffs ranging from 18 percent for cereals to 48 percent for dairy products. British service firms could encounter enormous administrative difficulties in conducting business on the continent. British finance could be especially hurt. The IMF notes that “most of UK banks’ investments” reside in other EU countries. Without the ease of access to markets across EU borders, many financial firms would have to form subsidiaries elsewhere; Chinese businessman Wang Jianlin warned that “many Chinese companies would consider moving their European headquarters” out of Britain altogether.
Brexit Beyond Britain: Political Consequences in the European Union
However, much more than just free trade and economic relations is at stake. The recent populist surge has brought the EU to the brink, and Brexit could prove to be the final push that sends the institutional framework tumbling down. If Britain leaves, Member States with Euroskeptic parties in power could very well become emboldened to follow suit. It is not difficult to imagine Euroskeptics swaying voters by pointing to the UK’s leaving the EU as proof of not only the latter’s lack of legitimacy but also of the general feasibility of jumping ship.
Not that voters would need much encouragement. As a recent Ipsos poll shows, the percentage of voters that would favor leaving the EU is alarmingly high in other countries as well. They amount to 48 and 41 percent in Italy and France, respectively, 39 percent in Sweden, and 34 percent in Germany.
Although it is difficult to speculate about the specifics of a post-Brexit situation, especially the rate at which events would unfold, there is at least a possibility that rapidly escalating fears of EU collapse would make it a reality. Seeing the Euroskeptic countries leave could prompt even Member States with more pro-EU governments to leave in order to avoid the consequences of what they would perceive as an imminent collapse for the EU, and with it, the common currency.
The above-described scenario is truly worst-case, but if the EU managed to prevent further disintegration, its legitimacy would nonetheless suffer, due to two principal reasons. First, having one of the major architects of the European post-war order abandon the EU makes the notion of a united Europe ring hollow. Second, regardless of whether it wanted to or not, Germany would inevitably settle into an even stronger leading role, which would cast into doubt the entire premise of a democratic Europe. In the current arrangement, the UK shares a leadership role with France and Germany, but greater German power over the EU would attract accusations—perhaps justifiably—of hegemonic aspirations.
Furthermore, the failure to consider the geopolitical consequences of EU expansion in the 2000s has led to a rather precarious situation. Post-Cold War EU and NATO expansion did not coincide perfectly, but a resurgent Russia has nonetheless come to perceive them as indissolubly linked, especially in what it perceives as “encroachment” upon formerly Soviet-dominated areas. For Russia, the EU is not much more than an economic appendix of a threatening and increasingly powerful collective security arrangement. This is a problematic notion tightly linked with the failure of many European leaders to comprehend the nature of the post-Cold War world.
Some optimistic statesmen are to blame primarily because they assumed that the end of the Cold War also altered fundamental mechanisms behind European security. However, the security dilemma—where whatever one actor does to increase his security will make the other feel threatened and vice-versa, regardless of the communicated intent—continues to underlie the international order. Of course, it is not just weapons that make one secure and the other insecure—aligning with other states can have the same effect. EU expansion itself might not have made Russia feel insecure, but Russian notions about the connections between the EU and NATO make a growing EU seem just as threatening as a growing NATO. A Brexit and subsequent deterioration of the EU framework would likely make NATO appear more vulnerable too, thus at the very least opening the door for potentially catastrophic miscalculations.
Finally, the consequences are not only practical. If on June 23 British voters decide to leave the EU, they will have also chosen to abandon the founding idea of the EU, the idea of a more tightly linked democratic Europe and thus—hopefully—a more peaceful Europe. Unfortunately, it would appear that the aspirations of the founders of the EU have been forgotten and that for many Europeans, the only thing that matters is the cold, not to mention misguided, calculus of cost versus direct benefit. The need for what the EU promised was great in the post-war period and early Cold War, but with nationalist and nativist movements threatening everything that has been achieved both domestically and in intra-European relations since then, that need is no less great today.
The “Commonwealth alone” of the 1940s served as a shining light to lead Europe, not to escape from it. Shortly after the war, Churchill declared that “we must aim at nothing less than the Union of Europe as a whole,” in which Britain might “have the courage to think ahead and be able to project and shape change.” Rather than leave the EU, Britain today should strive to keep up the legacy of leadership that Churchill envisioned—both for its own sake and for the sake of Europe’s future.
Max Kuhelj Bugaric is a student at Harvard University focusing on the study of international relations theory, US-Russia relations, strategic thought, and civil-military relations. Richard Yarrow is a senior staff member in the Harvard International Review and is an Associate Editor in the Soliciting Board.