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Tuesday, 6 December 2016

Brexit and the Future of European Integration: A Trans-Atlantic Perspective

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Russell Kincaid (former IMF director)
Chair: Charles Enoch (St Antony’s College, Oxford)

Since the June referendum a lot of ink has been spilled on the causes and consequences of Brexit for the UK and for the future of European integration. Given the rather inward focus of much of the discussions so far, experts with more distance from the immediate issues can sometimes shed more light. This is exactly what Dr. Russell Kincaid offered to participants in this PEFM seminar by presenting a transatlantic perspective on Brexit and the EU.

Dr. Kincaid argued that the key issue from the US perspective is what Brexit tells us about the future of European integration. Overall, US policymakers see a number of structural problems that plague the EU and believed that they have a better chance to be addressed with the UK inside rather than outside the Union. Indeed, Brexit will not provide solutions to any of the EU and euro problems and instead the resulting complex negotiations risk turning into a powerful distraction for EU policymakers.

More fundamentally, Kincaid identified the source of many of the EU problems as the lack of a clear vision about the ultimate ambition. He recognized that the incremental approach was fundamental to the process of European integration, but noted that it has mostly been an elite-led project suffering from a democratic deficit. Until now, a permissive consensus has allowed integration to proceed, but today these elites find themselves instead constrained by distrust among European publics.  This popular dissatisfaction prompts Kincaid to ask whether the EU has fallen prey to overreach. He recounts the increase in membership from 6 to 28 states, which has led to increasing heterogeneity in languages, ethnicities, and experiences, but also in levels of economic development. Moreover, he cites a Bundesbank study that found no empirical evidence for real convergence due to EU membership, including through the use of structural funds. This suggests the accession process might not have worked as hoped, leading to increasingly more difficult decision-making. Increasing disagreement in turn has led to more reliance on instruments such as qualified majority voting and intergovernmental arrangements, including in the euro area crisis.

Brexit thus raises questions about the future of European integration. The UK was out of the euro area and security is dealt with in the NATO framework, so Brexit is a lot easier to achieve than an exit from the monetary union. However, there is uncertainty about how the euro ‘outs’ will be treated in the future, and whether they won’t be seen as second-class citizens. Moreover, Brexit focuses attention on the unresolved issues of EU’s input legitimacy that stem from the elitist nature of the European project – indeed, according to the Eurobarometer survey Kincaid cites, 55% of EU citizens do not believe their voice counts in the EU.

Persistent worries about democratic deficit has been compounded with increasing problems with the EU’s output legitimacy as it seems to have delivered tangible benefits to the few rather than the many. Globalization and integration have reduced income inequality between core and periphery countries, but have also increased inequality within countries as low-skilled workers in high-skill societies were left worse off by increasing trade with low-wage countries. This has led to tensions within countries in the West due to regional disparities whilst redistribution and transfers from the winners to society at large have largely failed to occur, thus breaking the bargain between elites and everybody else. 

Such issues go beyond the economy and touch on questions of collective identity which is key for a sense of mutual obligation and solidarity. In the EU, however, the euro area crisis starkly revealed that while Germany was willing to transfer billions to Eastern Germany after unification, it was clearly not willing to do the same for Greece. The euro area crisis thus revealed not only the willingness to preserve the euro as leaving is seen as prohibitively expensive, but also the limits of this logic. 

In closing, Dr. Kincaid looked back at the US experience in order to suggest how the EU should proceed forward. He reminded the audience that American national identity, which made the political federal system possible, needed well over a century to overcome strong attachment to state identity. The EU, therefore, needs to be patient and recognize the current political constraints. It should begin by fixing the euro area, even if this is politically and economically difficult, while putting a pause on EU enlargement. Fundamentally, the EU needs a debate on the size and meaning of ‘ever closer union’ and the ultimate destination of the European journey so that democratic voters can have ownership of the outcome.

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