On the unlikelihood of « Brixit »

There has been quite a bit of talk recently about a British exit from the EU. Playing on the reference to a Greek exit, “Grexit”, the Economist’s Bagehot column took up the theme. In the UK, Eurosceptic Conservatives have jumped on the recent Eurozone crisis deals to suggest that unless the UK leaves the EU, it will find itself tied down by all sorts of new measures and rules. This debate has become particularly acute given that banking supervision, and financial market supervision more generally, has become a key part of the reform agenda for Eurozone member states. The position of British Prime Minister, David Cameron, is that a referendum on membership is not ruled out but the government’s preferred option is to renegotiate the UK’s relationship to the EU.

In his column, Bagehot makes the interesting point that if the UK does leave the EU, it will be more in the manner of the way the Czech Republic and Slovakia split in the early 1990s. This was, as the late Tony Judt put it, in the manner of an accidental divorce. It had been neither the explicit goal of Klaus nor of Meciar to push for a split but in the end it happened nonetheless. As Judt put it: “not many people were overjoyed at the result, but nor was there lasting regret” (Judt, 2005, p659). There is always the possibility that something similar happens for the UK and if so, it will be a reflection more of impassivity over Europe than of strong sentiments in any particular direction.

It is much more likely that “Britxit” never comes to pass. The UK’s close place at the heart of the EU is often underestimated given the Eurosceptic froth of much of the UK press. Looking at how the EU works and the direction integration has taken over recent decades, the British contribution is difficult to ignore. A wider EU, that took in former Soviet block states, and one organized more loosely along the lines of continuous cooperation between national officials and national representatives, has become increasingly the norm. This reflects British preference more than it does the preference of other powerful states. In some areas, like cooperation in policing, the British have a formal opt-out yet are massively involved behind the scenes. And though the UK maintains its distance with the EU in terms of financial market integration, it is thoroughly integrated in other areas. Few aspects of policymaking in Whitehall today do not have as an inescapable part of day-to-day operations involvement in EU level policymaking.

When Tony Blair decided to abandon his promise for a referendum on membership of the Euro, he did so largely because he assumed he’s lose. That he would have lost is by no means certain and it is possible that the British population is far less Eurosceptic than its own political elite believes. Perhaps a referendum would be the best way to confound the prejudices of its elite as they are what fuels talk of “Brixit” more than anything else.

A victory for the regulators?

One view of what happened at last week’s European Council summit is that we saw a struggle between neoliberal Anglo-Saxon capitalism and Europe’s alternative of a more regulated and people-friendly capitalism. David Cameron’s defence of the City of London’s banksters was in line with long-standing attempts to block European efforts at expanding the regulation of financial markets. That he failed, and that Sarkozy and Merkel struck a deal without Britain, is welcomed in this view as one step closer towards tackling the scourge of casino capitalism that has brought the Eurozone, and much of the global economy, to its knees.

There is lots wrong with this view of last week’s acrimonious summit negotiations. For a start, Cameron’s motivations were as much about avoiding a national referendum – and thus keeping his own Conservative –Liberal Democrat coalition alive – as they were about the City of London. The City itself is deeply divided over the issue of financial regulation: some would prefer to keep clear of European harmonization efforts and to go it alone (for a list of all the financial market reforms in the EU pipeline, see here). Others in the City say very clearly that a common European regulatory regime of which the City of London is a part would be better than a split. We should also have no illusions about the motivations of European financial regulators: the political push behind this regulation, led by the European Commissioner for internal market and services, the Frenchman Michel Barnier, comes from the French and the Germans and is driven by competition between national capitals. The goal is to weaken the City of London as a financial center as much as it is to reform European finance. Why side with one over the other in this struggle if not out of German, French or Euro-chauvinism?

Another major problem is to paint Sarkozy, Merkel and others national leaders as great representatives of a more social Europe. Regulatory change is about social and class power. Regulators, especially powerful ones, have huge amounts of discretion. The ends to which that discretionary power is put depends upon the wider social context of the regulation. Where Sarkozy and Merkel stand in this regard should tell us something about the promise of progressive financial market regulation. The development of their own economies has so far been in a decidedly anti-social direction and the recently agreed deal in Brussels cements this trend. This agreement enshrines in law the mistaken idea that fiscal expansion is the cause of the Eurozone’s crisis. In doing so, it gives Europe´s leaders a legal basis with which to pursue their austerity measures. Most of those measures are directly aimed at dismantling social protection in Europe: inter alia, rising retirement ages, cutting pensions, cutting public sector jobs, raising the cost of travel on public transport. These measures ignore the real basis of the Eurozone crisis: the stark unevenness of the national economies which make up the Eurozone. As Martin Wolf recently argued, the best predictor of the crisis in Europe was not government spending but balance of payments accounts.

Sarkozy and Merkel launch vicious attacks on the social conditions of the populations of peripheral Eurozone states, and strong arm their own populations into a decade of austerity measures, all in the name of a starkly lop-sided reading of the current crisis. And at the same time they portray themselves as progressive regulators, seeking to contain the untrammeled power of financial markets. Judged by developments so far, there is little reason to celebrate last week’s agreement as a victory for regulators over markets.