19 May 2016

Project Syndicate: Brexit and New Europe

From the perspective of CEE countries, the central question of the British referendum in June is not whether or not the UK stays in the EU, but how the future of the union will be shaped by the decision.

A British exit (“Brexit”) would impose immense economic costs on the EU’s Central and Eastern European (CEE) member states. Migratory restrictions would become tighter, and trade opportunities and foreign direct investment would plummet. But a victory by those who want the UK to stay in the EU could be even more costly for CEE countries, where it could strengthen illiberal politicians, shore-up rent-seeking alliances, and strip citizens of much of their say in key EU-level decisions. [...]

During the negotiations with EU leaders ahead of the referendum, British Prime Minister David Cameron obtained an opt-out clause in the case of a decision to move toward ever-closer union. Should he prevail in the referendum and convince voters to stay, it will send a dangerous signal to illiberal politicians in Eastern Europe. They will conclude that they can have it both ways, keeping the benefits of economic integration without losing their ability to infringe on their citizens’ rights or use EU financial transfers to build patron-client relations and reinforce their hold over the state.

Illiberal CEE nationalists like Hungarian Prime Minister Victor Orbán like to claim they are defending national sovereignty from bureaucrats in Brussels. Cameron’s initiative plays right into their hands, allowing Orbán and his allies in neighboring countries to declare anathema any move toward ever-closer union and the strengthening of federal authority and legitimacy.

The truth, however, is that CEE countries do not have much to lose in the way of sovereignty. Most of their productive and financial assets are owned by foreign companies, just as most of the rules governing their economies have been determined by the EU. As a condition of EU membership, CEE countries had to create institutions defending the integrity of the European market from domestic interference. And EU institutions and policies limit their governments’ ability to set financial, monetary, and economic policies.

As a result, CEE countries would be among the biggest winners of deeper integration, as it would give their citizens a stronger voice in the EU’s political process. At the moment, the EU is run by politicians who are not accountable to the entire union. British, German, or French representatives negotiating EU policies in Brussels compete for reelection only at home, giving them little incentive to consider the interests of people in peripheral economies. Nor are they likely to be interested in EU-level programs that could have long-term, Europe-wide benefits at the cost of short-term increases in contributions to the common budget.

As a result, Brussels can often seem to be the capital of the “Divided States of Europe,” dominated by member states that want access to the continental free market at the minimum possible cost. The EU spends a tiny 0.3% of its GDP on addressing the continent’s developmental disparities, and it runs a common market of 500 million people with an administration that is roughly one-quarter the size of the United States Department of Agriculture.

Oddly, the EU might benefit from a setback. If the UK chooses to stay under the conditions Cameron has negotiated, the result will be the strengthening of the anti-EU alliance between conservative liberals and illiberal nationalists. As much as it would harm Europe in the short term, Brexit would have the benefit of preventing such a roadblock to integration from being erected.

Moving toward political unification would alter the incentives of policymakers in Brussels and provide the EU with increased legitimacy. 

Full article on Project Syndicate

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