The European Union after Brexit 9781526133663

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The European Union after Brexit

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The European Union after Brexit

Edited by Scott L. Greer and Janet Laible

Manchester University Press

Copyright © Manchester University Press 2020 While copyright in the volume as a whole is vested in Manchester University Press, copyright in individual chapters belongs to their respective authors, and no chapter may be reproduced wholly or in part without the express permission in writing of both author and publisher.

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Published by Manchester University Press Altrincham Street, Manchester M1 7JA www.manchesteruniversitypress.co.uk British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

ISBN 978 1 5261 3365 6 hardback First published 2020 The publisher has no responsibility for the persistence or accuracy of URLs for any external or third-party internet websites referred to in this book, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

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Contents



List of figures and tables  List of contributors 



Introduction  Janet Laible and Scott L. Greer

vii viii 1

  1 A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism  Mark I. Vail

18

  2 Subtraction by subtraction? Brexit and its impact on the common European financial space  Gregory W. Fuller

38

  3 Brexit and the Single Market  Michelle Egan 

57

  4 Social Europe after Brexit  Scott L. Greer

80

  5 European citizenship and free movement after Brexit Willem Maas

95

  6 The EU legal order without the UK: a pity to lose the contribution? 113 Jessica Guth   7 The East–West divide: obstacles to European integration Kristin Makszin

128



vi

Contents   8 Networks after Brexit  Scott L. Greer and Olga Löblová

146

  9 European Union trade policy in the wake of the Brexit vote Holly Jarman

162

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10 A stronger European Union? The unexpected security consequences of Brexit  177 Federiga Bindi

Conclusion – the EU after Brexit: hard or soft?  Vivien Schmidt

Index

194

213

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Figures and tables

Figures 2.1 Schoenmaker’s financial trilemma 39 2.2 Positions of the Commission, the UK, and Germany on the trilemma49 2.3 Possible solutions to the trilemma after Brexit 52 7.1 Public survey responses to hypothetical referendum on EU membership, 2018 131 7.2 Average GDP per capita for EU-15 and Eastern member states with standard errors, 1995–2017 133 7.3 Share of respondents stating country’s position relative to the EU average, 2013 135 7.4 Average share of population stating that country’s position is worse than the EU average by region within the EU with standard errors, 2004–13136 Tables 9.1 UK merchandise trade, 2017 9.2 UK trade in services, 2017

165 166

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Contributors

Federiga Bindi is Jean Monnet Chair at the University of Rome Tor Vergata, a nonresident scholar at Carnegie Endowment, and Director of the Foreign Policy Initiative at IWPR. Previously, she held positions at SAIS Johns Hopkins University, the Brookings Institution, Sciences Po, NUPI, the University of Lisbon, ULB the National School of Administration, and the Italian Cultural Institute in Brussels. Bindi’s latest book is Europe and America: The End of Transatlantic Relations? (2019). Michelle Egan is Professor and Jean Monnet Chair ad personam at the School of International Service, American University. She focuses on comparative politics and political economy. She works on Europe and the United States, with a focus on issues of federalism, trade, governance and law, and is a former Chair of the European Union Studies Association. Gregory W. Fuller is Assistant Professor of International Political Economy in the Department of International Relations and International Organization at the University of Groningen. He specializes in the political economy of capital flows and housing policy. Scott L. Greer is Professor of Health Management and Policy, Global Public Health and Political Science at the University of Michigan, and Senior Expert Advisor on Health Governance to the European Observatory on Health Systems and Policies. His most recent books include Federalism and Social Policy and Everything You Ever Wanted to Know about European Union Health Policy but Were Afraid to Ask, both 2019.

Contributors ix Jessica Guth is a Reader in Law at Leeds Law School, Leeds Beckett University. Her research interests include EU law and policy, the EU institutions as political and legal actors, and feminist and gendered perspectives on law and society.

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Holly Jarman is the John G. Searle Assistant Professor within the Department of Health Management and Policy at the University of Michigan School of Public Health. A political scientist, she researches the impact of trade agreements and economic regulations on domestic health and social policies. Janet Laible is Associate Professor of Political Science at Lehigh University and Executive Director of the British Politics Group, a related group of APSA. Her research focuses on UK and EU politics, nationalism, and space and science policy. Olga Löblová is a postdoctoral researcher at the University of Cambridge. She works on health policy, specifically on the politics of healthcare reimbursement. Her PhD in public policy from Central European University (2016) analyzed the diffusion of health technology assessment agencies in Central and Eastern Europe. Willem Maas is Professor and Jean Monnet Chair at York University where he chairs the Glendon Political Science Department. His edited works include Creating European Citizens: Democratic Citizenship and the Free Movement of People (2013), Multilevel Citizenship (2017), and several journal special issues. Kristin Makszin is an Assistant Professor of Political Economy at Leiden University College The Hague and a Research Fellow at the Hungarian Academy of Sciences Centre for Social Sciences. She completed her PhD in Political Science at Central European University in Budapest, Hungary. Vivien Schmidt is Jean Monnet Professor of European Integration and Professor of International Relations and Political Science in the Pardee School at Boston University. She is the author or editor of 12 books, including the forthcoming Europe’s Crisis of Legitimacy: Governing by Rules and Ruling by Numbers in the Eurozone and Democracy in Europe (2006). Mark I. Vail is a Professor in the Department of Political Science and a Faculty Fellow at the Murphy Institute of Political Economy at Tulane University. His research centers on the comparative political economy of advanced industrial countries, with a particular focus on social and economic policy in Western Europe. His most recent book is Liberalism in Illiberal States: Ideas and Economic Adjustment in Contemporary Europe (2018).

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Introduction Janet Laible and Scott L. Greer

Did you ever see a slightly drunk man trying that trick with the tablecloth? He thinks he can whip the cloth off the table with a fast, clean snap, but leave all the crockery perfectly intact. He gives a sharp tug and stands back with a triumphant flourish as the plates and glasses come flying to the ground and shatter all around him. That’s what Brexit is like. Those who have driven it have successfully pulled the cloth off the table – the underlying fabric of modern Britain has been whipped away with a shocking suddenness. They stand in triumph, sure that they have pulled off the trick of removing a whole layer of political reality without disturbing all the family tableware. They have yet to notice that so much that was on the table is now at their feet, broken, perhaps irreparably. Fintan O’Toole, ‘Brexit fantasy is about to come crashing down’, Irish Times, 25 June 2016

Brexit can often appear to be an Anglo-English preoccupation. Debates about Brexit fascinate people in Britain, far more than they do inhabitants of other European Union (EU) countries. It stands to reason that people in the UK would find Brexit interesting and important, but Brexit, a major change in EU politics and a diminution of its population, economic weight, and prestige, will also change Europe. The EU after Brexit will not be the same EU, as this book makes clear. Part of the reason for a lack of European interest in Brexit has been that talking of the importance of the UK to the EU can seem like giving ammunition to Brexit partisans who like to imagine the UK can negotiate with the far larger EU on equal terms. However, other reasons are less conjunctural and more permanent. The impact of Brexit on British politics – campaign, referendum, negotiations, and fact – has already been profoundly disruptive for many domains of public policy, for British political institutions, for the economy,

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The European Union after Brexit for its political parties, and potentially for the constitution of the state itself. In contrast, while managing the departure of the UK has clearly loomed large on the agenda of the EU since the referendum, it carries far less urgency for the other twenty-seven member states, many of which are also contending with overlapping challenges of economic recovery, surging populism or democratic backsliding, immigration and refugee flows and anxiety over the stirrings of Russian expansionism. Nor has Brexit been the top problem for the EU itself, which continues to face profound questioning of its legitimacy more than a decade after the 2008 financial crisis. The EU-27 and EU institutions not only have bigger problems than Britain; they also have few negotiating options. The EU’s options for responding to Brexit fall within narrow parameters around a clear focal point upon which the EU positioned itself as a unified actor at the outset of negotiations with the UK. In April 2017, the European Council articulated the consensus about its negotiating stance in guidelines adopted in the wake of the UK government triggering Article 50 Treaty on European Union (TEU), emphasizing the importance of the integrity of the Single Market over ‘participation based on a sector-by-sector approach’, noting the indivisibility of the four freedoms of the Single Market and rejecting ‘cherry picking’ by the UK (European Council 2017, 3). Since this time, while the UK has endured turmoil in its major political parties, contentious regional politics, the reawakening of border politics with Ireland, and mass political activism around the possibility of a second referendum, the European Union has maintained a coherent negotiating position on the eventual terms of Brexit. While the EU has presented itself as a unified actor in the Brexit process and has acted as such in negotiations, this coherence disguises considerable uncertainties and unknowns about how the departure of the UK will resonate in EU politics after Brexit formally occurs. Imagining the possible impact of Brexit on the EU requires a mental map with multiple dimensions. The consequences of Brexit might take on negative or positive values depending on one’s preferences or be undefined over certain values but not others; they might have a differential impact on the twenty-seven remaining member states; some aspects might be within the domain of the EU to manage but others might be largely determined by external actors such as the US or global markets; and they might be highly consequential in the short term but fade in relevance over time. Another reason why Brexit has not loomed as large in the concerns of the rest of the EU is effectively constructivist. The EU is a community of states – both a community of long-term reciprocity and repeated interactions – and also a set of elites with a sense of themselves as a collective (Van Middelaar 2013). This was evident in the course of UK interactions with other capitals after the Brexit vote. The UK tried to forge bilateral connections with different member states in order to circumvent EU negotiations and change EU preferences. That approach worked well enough when the UK was a member state, but it foundered after the Article 50 notification. That notification changed the stakes

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Introduction 3 for the EU member states, making clear the importance of a tough and unified stance, and diminishing the importance of accumulating future favors from the UK. These rational reasons were backed up by the extent to which, over time, EU governments have formed an ingroup, with a sense of group solidarity and shared fate. The UK noisily and dramatically left the ingroup, with predictable effects on its status. In addition, the EU has longstanding structures and habits of negotiation and preference formation. The EU process is well suited to this interplay between mandates from heads of government and delegation of negotiations to the Commission. Carefully negotiated mandates from heads of governments are implemented by the Commission in a way that protects the time commitments and agreements of those heads of governments. That was, notably, the approach it used on Greece, Ireland, Cyprus and Portugal, and only slightly less visibly on Spain and Italy during the debt crisis. The ex-finance minister of Greece Yanis Varoufakis fustigated the EU’s approach in a book that reveals its strength in dealing with a recalcitrant country (Varoufakis 2017). Its strength also involves the use of delegation, to the Commission typically, which can allow issues to drop off the EU agenda for long periods of time. As Ivan Rogers noted in a 2018 speech at the University of Liverpool, the ‘EU, while strategically myopic, is formidably good at process against negotiating opponents’ (Rogers 2018). Finally, Brexit ratifies a process that has already been happening for some time, as some of the chapters of this book make clear. The longstanding ‘awkwardness’ of the UK as a European partner is a mainstay of EU policy discussions. Yet more recently the absence of the UK as a constructive player in the EU, from conversations in policy networks to discussions of grand strategy, has also been notable. It is a matter of debate when the UK’s divergence from the EU first became starkly apparent, and whether it is reversible, but we can date the clear trend to the Iraq War, when the last UK government with pro-­European (and even pro-Euro) instincts broke with its European partners in pursuit of a global, putatively Anglospheric, strategy. Under Prime Ministers Gordon Brown and David Cameron, the UK government withdrew from constructive participation in many EU forums. Existing UK political capital, from the competence of its civil service to the high profile of its academics, disguised this loss of political engagement, even as British policies in areas such as civil service reform and higher education also eroded that capital stock. Thus it should not be a surprise that the other EU member states are quite good at making policy without the UK. They have had time to practice. Brexit, as Greer and Löblová note in Chapters 4 and 8, seems to be a bit like bankruptcy. As a Hemingway character puts it, it happens ‘gradually and then suddenly’.1 Even in the case of a harder Brexit, there may be limits to the disruption caused to the UK and European economies and societies, but there will still be dramatic changes in the politics of the EU. The result will be a radically changed scope for political discord in Europe (Schattschneider 1960), one in which the

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The European Union after Brexit liberal member states’ coalition is weakened in such a way as to undermine the basic coalitions of EU politics in the Council and Commission. Without the UK, the northern liberal bloc that stretches from Ireland to the Baltic states is severely weakened: it cannot command enough votes against France and its likely allies. Reorganization as a new ‘Hanseatic League’ might strengthen such countries, but they will hardly sustain an alliance that could only focus on liberalization with the support of the large, powerful liberal ally, the UK. Realistically, the optimal strategies for Denmark, Estonia, and Ireland need not coincide. Without the UK as an anchor in the Council and Parliament, it is far from clear that they will choose to cooperate for long. Talking about Brexit This volume seeks to fill the gap between the UK-focused literature on Brexit and the EU-focused literature on Brexit. Understandably, the minds of many UK scholars have been focused by the combination of the political earthquake caused by the result of the June 2016 referendum, the subsequent misadventures of Westminster political leaders, and the enormous policy implications of Brexit. The focus of publication has been on explanations of the vote (e.g., Hobolt 2016, 2018; Clarke, Goodwin and Whiteley 2017; Fabbrini 2017; Evans and Menon 2017; Diamond, Nedergaard and Rosamond 2018). In other words, such works ask: how could British voters have done this? Furthermore, a large volume of literature explores different policy areas in Britain (Fahy et al. 2017; Costa-Font 2017) and the implications for nationality and territorial politics (e.g., de Mars et al. 2018). Even from a strictly British point of view, this emphasis on the vote and the voters has left some surprising areas to the side. Few British accounts delve into the institutional preconditions of Brexit – the ‘constitutional casualism’ (Weale 2018) and partisan opportunism that led David Cameron to call the vote, and the potential malfunctions this reveals. Put better, how could British elites have done this? A number of observers call for post-Brexit policies to address territorial inequalities in Britain, but few agree with Weale that the mere fact of the Brexit vote, let alone its consequences, bespeaks a serious constitutional problem. This lack of interest in the UK constitution comes with a distinct Anglo-centricity in the analysis of Brexit that matches the English focus of the referendum debate and vote. There is less discussion of the politics of the UK’s different nations, and the specific problems of the Irish border in light of Brexit than of the tensions revealed by the vote might warrant (although see Fabbrini 2017; Birrell and Gray 2017; de Mars et al. 2018). This literature is flanked by broader and more international explorations of populism, nationalism, age divides, late capitalism, the state of democracy, the politics of new media and other topics for which Brexit seems like a promising research case (Jones 2016; Weale 2016; Rose 2017; Hopkin 2017).

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Introduction 5 Literature on the impact of Brexit on the EU is much thinner. One prominent edited collection (Fabbrini 2017) has a single empirical chapter dedicated to the impact of Brexit on the EU, and much of that is about the EU’s handling of the negotiation process (Puetter 2017). It is accompanied by chapters on electoral behavior and treaty reform in the rest of the EU. A collection based on a special issue of Globalizations explores Brexit from a critical international political economy perspective but is limited to discussing the EU in terms of its place in the broader global political economy (Morgan and Patomäki 2017). While this makes it an important counterweight to the legal discussions that make up much of the literature, institutional specificities and the internal politics of the EU are not its focus. Two other collections that focus on the EU after Brexit share a pair of preoccupations: the roots of the type of electoral behavior seen in the Brexit vote, and the possible future options for the EU (da Costa Cabral, Gonçalves, and Rodrigues 2017; Martill and Staiger 2018). In the same way that much British literature on policy and politics post-Brexit has been about scenarios, this approach focuses on imagining and advocating different ‘future European Unions’ rather than trying to grasp existing problems and processes. In a sense, Martill and Staiger capture the thinking of much current scholarship with a volume that focuses on rethinking European futures (the book’s subtitle) and understanding Brexit, albeit from outside the UK (the title of the editorial conclusion) (Martill and Staiger 2018; Staiger and Martill 2018). Da Costa Cabral and collaborators address the future of the EU after Brexit in much the same way, with more emphasis on subjecting the practical areas of the EU to mid-level theory (da Costa Cabral, Gonçalves, and Rodrigues 2017). In other words, while the impact of Brexit is not indeterminate, it is nonetheless highly contingent with complex reverberations. The domestic complications of Brexit have been sarcastically described as a ‘fractal farce’ (Ball 2018) and we can imagine the impact of Brexit on the EU as an extremely complex set of consequences to a seemingly simple initial condition: the departure of the UK. Many scholars are addressing the fractal farce in Britain. We explore the ramifications of Brexit for the EU. The comparative politics of Brexit Our volume complements and extends, and sometimes argues with, these approaches by foregrounding the EU with mid-level theories rooted in comparative politics, political economy, and institutionalist approaches to politics and economics. It brings this mid-level theory to a literature that is often either narrowly focused on British voters or legal and policy scenarios, or broadly situated for examining Brexit as a case in the service of big theories of democracy or capitalism (Merton 1968). The promise of theory of the middle range is that practical research findings can be tested, aggregated and extended: it can make

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The European Union after Brexit the EU after Brexit a case for comparative politics, and a case that comparative politics can explain. Efforts to explain the impact of Brexit on the EU must confront the extreme uncertainty of both the process and the outcome of the project. As summer 2019 arrived, the terms of Brexit negotiated by Theresa May had not been accepted by Parliament and May had resigned her premiership. Furthermore, the possibility of a second referendum in the UK had risen and sunk on the political horizon more than once, and an extended Brexit deadline of 31 October 2019 had been agreed by the European Union. A potential ‘no deal’ scenario, greeted with either anxiety or eagerness depending on one’s political preferences, had provoked the British government to engage in contingency planning with measures ranging from preparations for stockpiling food and critical medical supplies to provisions for the deployment of the military in the event of the collapse of order. Contributors to this volume, then, have attempted to assess the consequences of Brexit for the Single Market and economic governance in the EU, on the legal order and social construction of the European Union, and on the future external orientation and institutional forms of the EU without knowledge of what the final stages of the Brexit process will resemble. Their subjects involve variables from these unknown choices about the path of Brexit, including the final decisions by the UK, as well as the uncertain consequences of Brexit for the UK itself, the EU-27, and external actors such as the US. The chapters in this volume explore some implications of Brexit for the EU that are highly likely regardless of the ultimate form that Brexit takes: these include probable consequences of Brexit for specific policy domains and institutions, and broader changes in the ideological climate of the EU that will result from the departure of the UK. As a member state, the United Kingdom has made unique contributions to a range of policy areas and has played a distinctive role in policymaking and institutional dynamics, and its absence is likely to leave the EU without equivalent alternatives. The loss of British markets in varying forms will be an unavoidable challenge for the EU. The UK labor market, characterized by flexibility, openness, and light regulation, as well as by its size, will be a noticeable loss for citizens of Eastern and Central Europe and other labor-exporting member states, for whom free movement to the UK has helped to offset labor market mismatches in their domestic economies (Chapters 4 and 7). British capital markets are similarly irreplaceable or very costly to replace, and while the future of integrating capital markets in the EU is unclear, the absence of the UK will certainly alter its trajectory (Chapter 2). In other areas, Brexit will deprive the EU of British resources that have been central to the accomplishment of key European objectives. Professional and academic expertise and the prestige of British research communities and agencies have lent the UK considerable influence in policy networks in areas such as public health. While the UK may continue to exert influence through academic influence and participation in European-wide professional bodies, Brexit will still have

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Introduction 7 c­ onsequences for the ability of the EU-27 to take advantage of British resources in policymaking (Chapters 4 and 7). In an international context, the absence of the UK from EU decision-making on defense and security will fundamentally alter the relationship between the EU and its international partners, especially the United States: without the UK, the EU may succeed in building structures that are independent of NATO but the loss of UK resources and leadership may be difficult to overcome (Chapter 10). The importance of the UK as an economic, political and military force will continue to undergird its influence in some policy areas after Brexit, but the UK itself will no longer be able to ‘upload’ its preferences, standards, or practices into EU policymaking as a member state. Yet it is not the case, as some pro-Brexit members of the UK Parliament have asserted, that Brexit will be uniformly, or universally, more damaging to the EU than it will to the UK itself. The EU is a far larger share of UK trade than the UK is of EU trade, as Jarman notes, so the UK has both the higher stakes and the weaker hand. But what about other areas where the UK and its people have been prominent? Despite the distinctiveness of the UK, its exit might be surprisingly little noticed and possibly irrelevant for the EU-27 in some areas. For example, British contributions to the EU legal order have been consider­ able, both in specific fields of case law and through the impact of common law traditions on the procedures and modes of thinking about law by the Court of Justice of the European Union, but Guth (Chapter 6) hints that the impact of the UK may already be institutionalized. If so, the UK has already left a legacy for the EU legal order and its absence may not much matter. The UK may also be a replaceable, not an essential, partner among those member states that seek to slow integration, with Central and Eastern European (CEE) members building their own alliances to pursue their visions of the future of the EU (Chapter 7). Finally, some EU member states may actively welcome the departure of the UK, as the ‘awkward partner’ will no longer create obstacles to integrating more deeply in some domains. Maas (Chapter 5) notes that free movement and EU citizenship will be disrupted by Brexit but that historically the UK has been an obstacle to further integration in the area of citizenship. In other policy areas where the UK has been obstructionist or cautious, discussions that had been sidelined or that remained unspoken may return to the fore as new momentum arises for deeper integration, for example in labor law and social policy (Chapters  3, 4, and 5). Brexit will not resolve tensions among the remaining member states on these issues. In fact it will eliminate the possibility of blaming the UK for a lack of progress in integration, but it will also remove a brake to integration and may reanimate policy discussions that have lain dormant under the shadow of a British veto. Examining the impact of Brexit on policy and institutions speaks to the more fundamental disruption in the ideological climate of the EU that will occur with the departure of the UK. Egan in Chapter 3 argues that Brexit is a ‘series of material and ideational processes’ that are ‘reshaping the discourse in Europe

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The European Union after Brexit that has depended heavily on the market liberalization approach pushed by the British polity’. The loss of a large member state that has been the EU’s most reliable ‘liberal champion’ with deep commitments to trade liberalization in the EU and globally, allows the EU to reset its vision for market governance as well as to shift its orientation as an international trade partner. Drawing on Börzel (2001), contributors to this volume emphasize the success that the UK has had as a ‘pace-setter’ in promoting liberal market reforms in the EU across a variety of sectors, ‘uploading’ a model of economic governance that was derived from domestic politics in the UK to shape aspects of the policy, fiscal, and regulatory environment of the EU to its preferences (Chapters 1, 2, and 3). The success of the British liberal – and neoliberal – agenda extended beyond economic governance to the foundations of public policy in the EU, turning it into a ‘force for supply-side economics and minimal political authority’ (Conclusion, this volume). Neoliberal reforms – embraced by other member states along with the UK – extended into regional policy, social policy, fiscal policy and other areas, refocusing some programmatic goals in terms of competitiveness and promoting the liberalization of services, the linkage of social policy to macroeconomic oversight, and greater scrutiny of regulatory proposals (Chapters 3 and 4). The projection of the EU into global markets and trade has also reflected British liberal instincts, but without the UK as an ally for global trade liberalization, EU trade priorities may shift. Furthermore, the unpopularity of trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) among EU publics suggests that domestic pressure post-Brexit may further incentivize EU negotiators to recast their vision of global trade away from the longstanding preferences of the UK (Chapter 9). The durability of decades of UK efforts to upload liberal preferences to EU policymaking is therefore likely to be tested. Yet in areas such as tax and logistics, EU-27 interests in the potential economic gains from challenging existing barriers may result in greater liberalization (Chapter 3). The loss of the EU’s ‘liberal champion’ may be certain, but the repercussions are only beginning to take shape. Far greater uncertainty emerges in considerations of the impact of Brexit on relations among the remaining member states of the EU and on the trajectory of European integration without the UK. Contributors to this volume underline the re-centering of Germany and France at the heart of EU policymaking, but their willingness to work in partnership, even with their commitment to the Single Market, can neither be assumed nor extended to predict the likely future contours of integration. In some respects, Brexit will offer the possibility for the Franco-German partnership to reemerge as the engine of integration, for example in strengthening EU citizenship (Chapter 5). Yet while both countries may be similarly cautious about market liberalization, they differ in their views on economic governance. Furthermore, their caution – and their domestic ­preferences – create a variegated policy space in which Brexit will favor Germany’s interests in some areas (e.g., in banking union, in which

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Introduction 9 Germany has sought exceptions from integration to protect domestic financial actors) and France will have the political advantage, with fewer options for Germany to assert itself, in others (e.g., in social policy, in which France is likely to reemerge as a veto player in debates about the linkage between social policy and labor markets) (see, respectively, Chapters 2 and 4). In other areas, external factors such as the policies of the United States leave open the question of what leadership within the EU will look like. Partnership between the UK and France has been central to EU security policy, with Bindi arguing in her contribution that future EU success in security and defense will thus depend on French decisions. Yet she also notes that conflicting tendencies make predicting the path of French leadership, or coherent security policy more generally, highly problematic: the unpredictability of the US seems likely to motivate greater integration, but member states have a range of interests and concerns about state sovereignty, NATO, and the role of human rights in security policy that may muddle efforts to create coherent policy (Chapter 10). These post-Brexit reorientations of power within the EU point to the potential for tectonic shifts in the nature of European integration, raising questions about the speed of future integration, the likelihood of more variable integration to match the preferences of Germany and France, and whether market liberalization is in fact going to remain the heart of the European project. Even if Brexit does not undermine market integration, it may slow or transform it in novel ways. In particular, the empowerment of France and exit of the ‘liberal champion’ suggest potentially long-ranging consequences in the aftermath of Brexit, including the possible rise of ‘social Europe’ as an alternative to market liberalization, and as a new foundation for future integration (Spain, which is taking the EU more seriously than usual and being rewarded with a central position in it, is another winner) (Greer and de Almagro 2016). As Egan discusses in Chapter 3, the progress of market integration depended on the possibility of domestic social solidarity as a buffer against the impact of liberalization and a European social compact that promised elements of a social safety net, transfers to poorer countries, and other ‘flanking policies’ to offset the downsides of market competition. Yet as many of our contributors note, domestic social welfare systems have failed to protect EU citizens from market downturns, from the shocks emanating from the 2008 financial crisis, or from widening inequality and social exclusion (Chapters 1, 3, 7, 9, and the Conclusion). Thus deeper integration in social policy may itself prove valuable for responding to public concerns about the economy. Furthermore, social policy could become the newly salient commitment of the EU, a marked shift away from neoliberal imperatives that recognizes the need for re-engagement with the public to keep the Single Market moving forward. On the other hand, liberalization may continue in a highly differentiated form, enabling some member states to avoid imposing unpopular domestic costs. Egan points out that integration has de facto taken this path: some member

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The European Union after Brexit states proclaim their commitment to the market but have pushed ‘selective liberalization’ to protect domestic constituencies. With the departure of the UK, Germany and France will be well positioned to manage the market on their terms. ‘Winsets’ to liberalize or harmonize are thus less likely to involve broad political packages and seem more likely only for specific issues (Chapters 2, 3, 4, and 5). With little prospect of resolving tensions between integration and domestic policy diversity, and little agreement on what deeper integration should resemble, Brexit may signal the first step in a ‘retreat’ from supranational Europe (Chapter 5). In contrast, Schmidt concludes the volume with another interpretation of the EU’s differentiated past and future structures. Recognizing that integration itself has become politicized and that there will be little common ground for pursuing it through market liberalization in an increasingly heterogeneous EU, she instead looks at the legacy of the UK in shaping integration to suggest that it offers a way forward for the EU-27. Schmidt argues that by securing opt-outs, the UK effectively shaped the EU as a more flexible, differentiated Europe and that in particular British resistance served to constitutionalize differentiated integration in the Eurozone. While the EU will still be deeply divided after the departure of the UK, reconceptualizing the EU as having a ‘soft core’ with overlapping clusters of member states participating in different policy areas under a single EU administration could enable greater consensus in some areas and more democratic responsiveness. Furthermore, reimagining European integration this way allows for the possibility of continued engagement with the UK after Brexit. Instead of assuming the future of integration to be a series of likely stalemates and incremental moves forward, this approach suggests that differentiated integration offers the virtue of flexibility for member state governments, EU institutions, and citizens (Conclusion). Themes In the book, a number of themes emerge. A stronger Europe? Some of the chapters highlight the potential integrative effects of the UK’s departure on European policy. In each case, they emphasize the simple subtraction of the UK, with its weight and specific interests, and think through the effects on Europe. In most cases, the question is simple enough to state: what will Europe look like now that, mathematically, the Franco-German partnership is again crucial? This kind of analysis needs recourse to classic political science thinking about agenda-setting. Agendas in the EU are set with an eye to political practicality, and in an EU where consensus dominated and the UK was a powerful player,

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Introduction 11 proposals that the UK and its allies would oppose were simply not made most of the time. Analysis must thus attend not only to the tiny number of proposals that the UK vocally opposed, but to the far larger number of proposals that never saw the light because others could anticipate the likely negative UK reaction and its effects. Brexit could thus usher in an era of creativity in European public policy involving the release and proper presentation of ideas European policy entrepreneurs had previously imagined to be impractical, and an end to the energy of the EU in areas that were particular UK priorities. Furthermore, we need to pay particular attention to the ideas that were buried in Paris during the long years when Berlin most often inclined to London: France, promoted back to the key German partner, may unleash a lot of intellectual and political entrepreneurship. The more aggressive stance on health technology assessment discussed in Chapters 4 and 8 might be a harbinger of these developments. Health technology assessment is hardly the center of the European political agenda, but that might be why it is interesting. Bindi argues in Chapter 10 that a Franco-German EU might well be more focused on integration and strength than one with the vigorously pro-­American UK involved. Just as the UK’s entry into the then European Economic Community (EEC) was a victory for the US, entrenching NATO by having the UK oppose deep defense integration from within, Brexit is a defeat for the US and the UK since it increases the odds that the EU will start to develop an independent identity and grand strategy. Greer, in Chapter 4 on social policy, also frames the question in terms of the UK’s influence within the EU and the implications of its departure. As with security, it is easy to see what the UK promoted and achieved, but harder to imagine the alternatives. Even an agenda such as that surrounding trade in services had supporters among the twenty-seven, even if their priorities (deregulating their own labor markets) might not have fit perfectly with the priorities of the UK (high-end services exports). Tracing the development of agendas in a post-UK EU will be an opportunity to explore the domestic politics of ideas in the twenty-seven, since in many cases key actors will find that the EU is now more open to their views than previously. The EU will remain a regulatory state, in all probability, but without the key political driver for further liberalism it is not clear what else it might become. Egan, meanwhile, deals with economics and the future of the Single Market after Brexit. Again, the empirical starting point is to assess the effect of the British presence and British preferences. That enables the mapping of the politics of the internal market after the UK as a product of political changes in the Council and Parliament and of the economic changes that Brexit will cause. The complexity of this game is staggering, and it is impossible to predict, industry by industry, what will happen to locational and supply chain decisions, and what governments, finance, and firms will make of the resulting problems and opportunities. Nonetheless, the case points to the EU continuing to exert its



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The European Union after Brexit still-ample economic power over the UK and the world with a simpler internal decision-making structure due to the UK’s absence.

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British intellectual influence Under almost any circumstance soft power will have to become an important part of the UK’s role in Europe. There are many reasons to expect British thinking and perspectives to continue to have influence in Europe and globally. Notably, the authorship of this book shows the extent to which intellectual debates, including debates about the EU, are international (i.e., extra-EU). Key UK assets will dissipate, but slowly. The south-east’s huge concentrations of professional labor, and networks of experts, researchers, rent-seekers, and others will continue to attract global employers, although the EU will have an interest in competing to become a home for its deep specialist labor markets. For example, it is just not possible to operate a global bank without a London office or a pharmaceutical company without a presence near Cambridge. In other areas, a surprising revelation of this book is the extent to which British intellectual influence might not matter as much as we assume, simply because it is overestimated. One reason for this is that EU institutions have developed entrenched norms and practices, with less space for ideological entrepreneurship in many areas than in the past. Guth, for example, argues that the UK’s contribution to EU law was big (though every member state, even tiny Malta, has contributed to EU law), but that EU law is largely set and its blend of UK and other legal traditions is unlikely to change in any direction. Another reason is that the UK was not always as important as it seemed. There is a disjunction between intellectual influence – leadership in the Republic of Letters, so to speak – and influence in policy. The latter requires a host of connections and technical skills, and languages, that do not map perfectly onto eminence in the English-language international literature. British-based scholars, and others from English-language countries, might be disproportionately visible on the plenaries of international conferences but that does not indicate their influence on policy agendas, policies, or implementation. It is possible, as in the case of communicable disease control, to shape much of the basic science but to have little apparent influence on the related policies. Policies, unlike basic science, must grow out of politics and bureaucratic facts on the ground. Shaping science and professional networks is a kind of soft power, but not one of immediate use to the UK. Needless to say, there are many other ways in which UK soft power could be reduced, whether through its immigration policies or through its higher education funding. In many cases the soft power of the UK in Europe has been exercised through Europeans based in UK institutions. Dysfunctions in EU labor markets led to migration of elites to the UK, where they accumulated capital suitable for use in influencing their home and other countries. The same

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Introduction 13 antidiscrimination legislation that might have irritated some people born in England gave the UK considerable power because it hired, rewarded, and to some extent shaped influential people from across the continent. Even if the UK manages to come up with an immigration system that effectively recruits and rewards elites – an apparent priority for most UK leaders – the ‘hostile environment’ created by Theresa May and the Brexit vote, and the loss of European opportunities, will almost certainly reduce the UK’s ability to recruit and then benefit from international elites.2 In short, British intellectual influence might be less than we expect – ­concentrated in critical junctures of the past, as Guth suggests in the case of law, or always overrated and disguised by British-based academics’ skills, or diminishing with the UK’s decreased seriousness about the EU. Polanyi’s pendulum So far, as with most analyses of Brexit, the implication is that Brexit is a form of British self-harm. But there are also arguments throughout the book suggesting that the EU itself has lessons to learn. They are lessons about the viability of austerity and fiscal governance as practiced since 2010, and also about the general EU approach to politics: a market-making regulatory state with a very limited remit or budget for market compensation. In general, if Karl Polanyi is right, the EU is asking for a backlash (Polanyi 1944). Its rigorous and powerful legal system, and legislation that the UK helped shape, expose people to more of the rigors of the market. But even the ‘double movement’ of Polanyi is a comforting fiction since it implies constant adaptations to markets. As Polanyi himself shows, while sometimes the double movement is a pragmatic adaptation to the pressures of advanced capitalism, it sometimes works more like a pendulum, moving very far one way with policies such as the gold standard and then moving very far the other way – as with the catastrophes of the early twentieth century. The EU, imitating the gold standard, risks the fate of the gold standard: not a gentle compensating balance, but rather victory right up to the moment of a vastly destructive backlash. Imaginable futures for the EU depend on, for example, the willingness of Italian voters to reward a political economic regime that has delivered them almost no benefits in this century, or Spanish voters, including those who do not wish to be Spanish, to accept ongoing austerity. The discourses used about the European Union by member state political elites led to Brexit, as Vail and Schmidt point out in Chapter 1 and in the Conclusion, and could be storing up further trouble. While British Euroscepticism is a striking and distinct formation of its own, it has equivalents around Europe in both discourses and in populations that show limited enthusiasm for the EU. Some Eastern and Central European populations have very low support for the EU, referenda on treaties in various countries have repeatedly shown what could be hostility to European integration, and many countries



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The European Union after Brexit

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have political discourses about the EU that are fairly hostile or merely weakly supportive (e.g., the common southern European argument that European governance is less bad than domestic politics). It is tempting to point to the EU’s unity in the Brexit negotiations (a unity facilitated by a focus on other issues such as migration) and the solid public opinion support for the EU in most member states, but discussions of discourse in this book point to the potential damage that a habitually Eurosceptic elite or public discourse can create. And the UK? Brexit affects the UK population most, and for the worse. It also offers the possibility of lessons. At the most basic level, no other EU member state has offered its citizens a referendum on departure, although there have been multiple referendums on different EU treaties that failed to show an explicit consensus on deepening integration. It also suggests that where limited respect and gratitude for the EU – as a benefactor or guarantor of achievements such as independence or democracy – overlap with a sense that strong nationalism is an attractive national future, EU membership and even the legitimacy of the EU may be called into question. As with everything else in British politics, the interlocking relationship of territory and class will define the interpretation, and therefore impact, of results in England. The fact that London and the better-educated areas of the Southeast will suffer less from Brexit than will Brexit-supporting places like Sunderland and Birmingham will probably be cold comfort to Brexit supporters. Disappointment likely awaits those who might have hoped that a blow to the political order of the last 50 years might undermine the dominance by London that has lasted about a thousand years. It is also naïve to imagine that a Brexit vote that reflects discontent with class and territorial inequality will lead British elites to try and reduce these inequalities. It is more likely that the global sectors of London will lose interest in subsidizing the Leave areas and the kinds of people who live in them. If the Brexit vote is seen as another iteration of class politics, a folly that can be blamed on one class or another, then the territorial dispensation of England might survive intact. If Brexit is seen as territorial – if the Northeast or West Midlands is coded as a declining region rather than a working-class region, and blamed – then we might finally see the rise of territorial politics in England. Viewed through a territorial lens, Brexit amounts to the failing parts of the country ganging up to stab the breadwinner, London. Londoners might be less inclined to be generous with the paycheck after that. Brexit is also deeply implicated in energizing – or re-animating – potential dangers to the Union. In Scotland, the problem for observers is that the politics of nationalism substantially replaced the politics of class as a way to express discontent with the performance of the UK (Brand 1978). Economically, Wales

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Introduction 15 is a peripheral piece of England, and the complex politics of the Welsh electorate produced both a vote to leave and a party-political complexion opposed to it. Northern Ireland, ultimately, is as ever the most dangerous single factor in UK territorial politics. The failure to understand Ireland has been demonstrated in abundance in the Brexit debates. If devolution in Northern Ireland, and the Good Friday Agreement in general, was about quarantine, it was about quarantining England from Irish politics. Brexit has reopened it, not only with questions about the response of republicans, nationalists, unionists, and loyalists to border changes, but also with the serious issues surrounding the difficulties of leaving the EU’s trade area without creating a hard border. Conclusion: after the drunkard’s flourish This book is largely positive about the future of the EU after Brexit, but with a note of warning. Brexit means that the process of European integration has gone into reverse, for at least a time, and it comes amid other developments that disrupt the happy story of European integration. The Eurozone’s performance has given the lie to the idea that European monetary and political integration would lead to reduced territorial inequalities or steadily growing prosperity. For much of Europe it has meant economic stagnation and diminished democratic citizenship (Greer and Jarman 2016). The refusal of EU governments and politicians to take serious action against democratic backsliding in Hungary undermines the promise that European Union membership was a real safeguard of democracy. If the promise of the EU is of an economically successful, democratic, and increasingly united continent, then the fates of Greece, Hungary, and the UK in different ways challenge that promise. The long-term consequences of seeing this promise broken might weaken the EU even if in the short term the departure of the UK, like the victory of creditor countries over Greece, appears to strengthen it. Brexit, as Vail and Schmidt argue, provides a cautionary tale for the many elites of Europe who continue to support economically unsuccessful austerity and fiscal governance strategies and use discourses that cast the blame for their policies on the EU. The details of these discourses vary substantially from country to country, but there is a real risk in setting up the EU as the agent of liberalism and austerity in countries where more than a decade of liberalism and austerity has brought little improvement in people’s lives. Short-term political incentives to promote austerity in the name of Europe (Matthijs and Blyth 2018) might create long-term problems for that European project. In fact, we might already be seeing the consequences of this combination of stagnation and diminished democracy in the various populist surges around the continent (Hopkin forthcoming). Polanyi’s pendulum, swinging back and forth, might prove to be a wrecking ball, with Brexit only one of its effects.



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The European Union after Brexit

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Notes 1 From The Sun Also Rises, 1926. 2 The ‘hostile environment’ was an explicit policy goal of May as Home Secretary under Cameron and referred to a suite of measures designed to deter undocumented migrants but which had clear chilling effects on all migrants. Given that the policies were not reversed, and the rhetoric remained just as hostile after her ascendancy as Prime Minister, the phrase became a catchword for all the ways, rhetorical and practical, that the government signaled disdain for migrants and made their lives as unattractive as their legal status would permit.

References* Ball, James. 2018. ‘Brexit is a Mess, and Neither Theresa May nor Anyone Else Has Any Way to Fix It’. NBC News: Think, 11 December, https://www.nbcnews.com/think/ opinion/brexit-mess-neither-theresa-may-nor-anyone-else-has-any-ncna946506. Birrell, Derek, and Ann Marie Gray. 2017. ‘Devolution: The Social, Political and Policy Implications of Brexit for Scotland, Wales and Northern Ireland’. Journal of Social Policy, 46, 765–782. Börzel, Tanja A. 2001. ‘Pace-Setting, Foot-Dragging, and Fence-Sitting: Member State Responses to Europeanization’. Journal of Common Market Studies, 40, 193–214. Brand, Jack. 1978. The National Movement in Scotland. London: Routledge Kegan Paul. Clarke, H. D., M. Goodwin, and P. Whiteley. 2017. Brexit: Why Britain Voted to Leave the European Union. Cambridge: Cambridge University Press. Costa-Font, Joan. 2017. ‘The National Health Service at a Critical Moment: When Brexit Means Hectic’. Journal of Social Policy, 46, 783–795. da Costa Cabral, Nazaré, José Renato Gonçalves, and Nuno Cunha Rodrigues. 2017. After Brexit: Consequences for the European Union. Basingstoke: Palgrave Macmillan. de Mars, Sylvia, Colin Murray, Aoife O’Donoghue, and Ben Warwick. 2018. Bordering Two Unions: Northern Ireland and Brexit. Bristol: Policy Press. Diamond, Patrick, Peter Nedergaard, and Ben Rosamond. 2018. Routledge Handbook of the Politics of Brexit. Abingdon: Routledge. European Council. 2017. Guidelines Following the United Kingdom’s Notification under Article 50 TEU, EUCO XT 20004/17, 29 April, https://www.consilium.europa.eu/ media/21763/29-euco-art50-guidelinesen.pdf. Evans, Geoffrey, and Anand Menon. 2017. Brexit and British Politics. Cambridge: Polity Press. Fabbrini, Federico. 2017. The Law & Politics of Brexit. Oxford: Oxford University Press. Fahy, Nick, Tamara Hervey, Scott L. Greer, Holly Jarman, David Stuckler, Mike Galsworthy, and Martin McKee. 2017. ‘How Will Brexit Affect Health and Health Services in the UK? Evaluating Three Possible Scenarios’. The Lancet, 390, 2110–2118. * All URLs in this book were accessed on or before 1 November 2019, and were active as of that date.

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Introduction 17 Greer, Scott L., and Maria M. de Almagro. 2012. ‘Being Spain in Brussels: Policy Bureaucracy, Agenda Setting and Negotiation in the EU Policy Process’. International Journal of Iberian Studies, 24:2, 71–89. Greer, Scott L., and Holly Jarman. 2016. ‘European Citizenship Rights and European Fiscal Politics after the Crisis’. Government and Opposition, 1–28. Hobolt, Sara B. 2016. ‘The Brexit Vote: A Divided Nation, a Divided Continent’. Journal of European Public Policy, 23, 1259–1277. Hobolt, Sara B. 2018. ‘Brexit and the 2017 UK General Election’. JCMS: Journal of Common Market Studies, 56, S1, 39–50. Hopkin, Jonathan. (Forthcoming). Anti-System Politics: The Crisis of Market Liberalism in Rich Democracies. Oxford: Oxford University Press. Hopkin, Jonathan. 2017. ‘When Polanyi Met Farage: Market Fundamentalism, Economic Nationalism, and Britain’s Exit from the European Union’. British Journal of Politics and International Relations, 19, 465–478. Jones, Erik. 2016. ‘The Meaning of Britain’s Departure’. Survival, 58, 211–224. Martill, Benjamin, and Uta Staiger. 2018. Brexit and Beyond: Rethinking the Futures of Europe. London: UCL Press. Matthijs, Matthias, and Mark Blyth. 2018. ‘When is it Rational to Learn the Wrong Lessons? Technocratic Authority, Social Learning, and Euro Fragility’. Perspectives on Politics, 16, 110–126. Merton, Robert K. 1968. Social Theory and Social Structure. New York: The Free Press. Morgan, Jamie, and Heikki Patomäki. 2017. Brexit and the Political Economy of Fragmentation: Things Fall Apart. Abingdon: Routledge. Polanyi, Karl. 1944. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon. Puetter, Uwe. 2017. ‘Brexit and EU Institutional Balance: How Member States and Institutions Adapt Decision-Making’. In The Law & Politics of Brexit, edited by Federico Fabbrini, 247–265. Oxford: Oxford University Press. Rogers, Ivan. 2018. ‘Speech to the University of Liverpool’s Heseltine Institute for Public Policy, Practice, and Place’, 13 December, https://news.liverpool. ac.uk/2018/12/13/full-speech-sir-ivan-rogers-on-brexit/. Rose, Jonathan. 2017. ‘Brexit, Trump, and Post-Truth Politics’. Public Integrity, 19:6, 555–558. Schattschneider, E. E. 1960. The Semisovereign People: A Realist’s View of Democracy in America. New York: Holt, Rinehart and Winston. Staiger, Uta, and Benjamin Martill. 2018. ‘Rethinking the Futures of Europe’. In Brexit and Beyond: Rethinking the Futures of Europe, edited by Benjamin Martill and Uta Staiger, 260–265. London: University College London. Van Middelaar, Luuk. 2013. The Passage to Europe: How a Continent Became a Union. New Haven, CT: Yale University Press. Varoufakis, Yanis. 2017. Adults in the Room: My Battle with Europe’s Deep Establishment. New York: Farrar, Straus and Giroux. Weale, Albert. 2016. ‘Nostalgic Democracy Triumphs over Democratic Internationalism’. The Political Quarterly, 87, 352–354. Weale, Albert. 2018. ‘Review: Brexit and British Politics’. Politics, Religion & Ideology, 1–3.

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism Mark I. Vail Since the 1980s, neoliberalism’s status as a quasi-hegemonic economic paradigm in many advanced industrial economies has contributed to processes of political and social disintegration whose scope and scale researchers and policymakers are only now beginning to understand. Arguably the point of origin of politicized neoliberalism under Prime Minister Margaret Thatcher in the late 1970s, Britain, like the United States, has come to represent the elite consensus that generalizing economic prosperity would lift all boats, thereby both legitimizing the expansive view of markets as the central organizing principle of advanced capitalism and creating the social cohesion and political stability necessary to that legitimation. In the process, many brushed aside distributional concerns or questions about workers’ declining real incomes and economic inequality as the necessary, if unfortunate, side-effect of the expansion of market forces that would ultimately make everyone better off. Few acknowledged the possibility that the economic dislocation that neoliberal policies had left in their wake could threaten the ostensibly broad and deep consensus underlying market liberalism. As Britain’s June 2016 decision to leave the European Union (EU) showed, however, the social and economic dislocations wrought by market liberalism could indeed fracture society and undermine political stability. British voters, particularly among the working class and in the country’s erstwhile industrial heartland, grew increasingly disillusioned with a messianic vision resting on the twin pillars of neoliberalism and fiscal austerity, which they increasingly associated with both the Conservative Party and, in somewhat more diffuse fashion, Brussels and EU institutions. In the process, the economic dislocation generated by the policies of Conservative governments (as well as, in a somewhat softer and more attenuated sense, those of New Labour) undermined economic security and social cohesion while creating pressures for an alternative strategy of political integration for the Tories, which featured a neo-Thatcherite Euroscepticism increasingly focused

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 19 on Britain’s EU membership. As I discuss in this chapter, Brexit thus represents a cautionary tale, not only for British officials, but more broadly for continental authorities who have yet fully to reckon with the potential political price to be paid for adherence to a denuded conception of state economic power and (often sotto voce), the embrace of fiscal austerity and the economic stagnation that it underpins, and the erosion of the social contract that these stances bring in their wake.1 The Brexit vote paradoxically represented both the predictable culmination of decades of British Euroscepticism and a seismic shock that few had predicted. Beginning with Margaret Thatcher’s famous declamation that ‘We want our money back’ (resting on a rather simplistic conception of British-EU economic relations), though stemming in part from the much older sense of British separateness from the continent, British public discourse gave powerful voice to the conviction that EU membership conferred more political and economic burdens than benefits. Though by no means limited to it, this perspective was particularly concentrated among the Eurosceptic wing of the Conservative Party. That said, much in the fashion of a German reunification that most assumed to be inevitable but not imminent, the negative result of the referendum stunned British and foreign observers alike, not least because both polling and oddsmakers had suggested that support for the ‘Remain’ side was solid up until the vote itself. These ultimately misleading snapshots of public opinion were reinforced by a longstanding, almost Whiggish view among many British voters of inevitable historical progress towards a liberal, cosmopolitan consensus, reinforced by more than a decade of Labour governments for whom such a worldview was a central part of their credo, with Eurosceptic Tories assumed to be an (admittedly vocal) minority. This led to a widespread sense among David Cameron’s governing Conservatives that ‘the centre was secure’ and that the referendum, called after long hesitation in an effort to neutralize the Eurosceptic wing of the party, would ‘be about jobs and the economy and it won’t even be close’ (Behr 2016). Shocked as political elites were at the outcome, more astute voters might have seen it coming. Though there were a number of proximate causes for what turned out to be a revolt of many British working-class voters against the ostensible Europhilic, cosmopolitan consensus, including Labour leader Jeremy Corbyn’s lacklustre and half-hearted support for membership of a Union that he had long perceived as a business-dominated cabal, the referendum’s outcome actually grew from much deeper roots. These included growing alienation among many traditional Labour voters from the socially liberal and cosmopolitan worldview increasingly embraced by their party and represented by London and the financial services sector, whose dominance developed against a backdrop of deindustrialization and economic stagnation that had plagued the industrial North, Midlands, and Wales since the late 1970s. The hollowing out of the industrial economy, combined with the perceived smug self-­ satisfaction of London bankers who seemed just as callous and out of touch as

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The European Union after Brexit EU ­bureaucrats, in turn created fertile ground for growing alienation of Labour’s core w ­ orking-class constituency, leading to ‘lower turnout, falling identification with Labour, and growing disaffection with the political system’ (Ford and Goodwin 2017, 18). If the groundwork for Brexit was thus lain by a combination of Tory Euroscepticism and the liberal cosmopolitanism embodied by New Labour and the Europhilic Liberal Democrats, this alloy had deeper social and economic causes. These included structural shifts in the British economy, exacerbated by a neoliberal economic philosophy embraced particularly by the Tories that viewed public investment in and support for the British social contract with suspicion. Even as global trends and public policy decisions were hastening the erosion of the postwar social and economic community and the Keynesian interparty consensus and Beveridgean welfare states that had supported it, both the Tories and Labour (the former more by design and the latter through neglect) failed to foster the development of a new social, economic, and political community to take its place. If Labour’s strategy had been one of whistling past the proverbial graveyard, the Tories’ had been a variant of what German historian Hans-Ulrich Wehler (1970) had labeled ‘negative integration’, meant to denote nineteenth-century German Chancellor Otto von Bismarck’s gambit of solidifying political support for a hollow democracy through a politics of enemies, both internal and external, not to be confused with the question of European integration.2 If Bismarck’s targets had been Catholics, Austria, and Socialists, since Thatcher a growing number of Tories had demonized the EU, portrayed at best as an opaque and remote (and ultimately French) bureaucracy with little concern for British welfare, and at worst a hostile external force bent on undermining British sovereignty. Having spent the better part of three decades defining the British political-economic community against the EU, even as the neoliberal commitment to austerity hastened its demise, Tory politicians were hard-pressed to offer a substantive alternative, other than pabulum about a shared prosperity increasingly at odds with many workers’ lived experience. In so doing, they accelerated the erosion of the social and economic community that had long provided the basis for political stability at home, while increasing the likelihood of a rebellion against the European institutions. In the process, British voters came to tar both Europe and the British political establishment with the same anti-elitist brush, repudiating both in favor of an alluring, though ill-defined, domestic idyll informed by equal parts nostalgia and animus. In this chapter, I argue that the result of the Brexit referendum is best understood as a failure of social and economic community exacerbated by a neoliberal creed that justified both neglect of and attacks on the British social contract. I suggest that the combination of the Tories’ anti-EU campaign of ‘negative integration’ (relating in no way to European integration but rather to the process of building domestic political coalitions through the politics of enemies), long-term trends of budgetary austerity and cuts to social programs, which ­disproportionately affected

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 21 areas suffering from deindustrialization and the aftermath of the Great Recession, and growing anxiety over immigration among relatively ethnically homogeneous working-class communities, led both to hostility to the EU and a quest to regain a sense of economic community defined along increasingly ethnonationalistic lines, in the absence of an affirmative vision offered by the Tories of less parochial alternatives. I suggest that Brexit can best be understood as the product of a search for a social and economic community to replace that undermined by long-term economic trends exacerbated by neoliberal policies that failed to provide workers with needed support and avenues for adjustment. In this context, that hostility towards the EU and fears of the social and economic effects of immigration that led to Brexit were products of both social and economic anxieties and workers’ search for a renewed sense of belonging and community. I suggest further that the British case offers a cautionary tale for both other European states and the EU, offering lessons about the political risks of economic austerity and neoliberal policies, embraced by both the European Central Bank (ECB) and prosperous creditor countries in the European core, that undermine the economic bases of political consent. Given the EU’s failure to build a meaningful supranational political community, the continuation of such approaches to European economic governance seem particularly hazardous. In the conclusion, I argue that Brexit, seen from this analytical lens, also offers important lessons for those seeking to understand populist movements, particularly on the far Right, that seek to create new (and often exclusionary) forms of community to replace those that have eroded or collapsed. The origins of the present crisis: neoliberalism and the anti-European strategy of the Conservative Party Though the origins of the Conservative Party’s dilemma over EU membership lie in Thatcher’s simultaneous embrace of neoliberalism and elevation of Euroscepticism to official Tory policy, it was Cameron’s government that was forced to reckon with the political costs of these stances. Contrary to initial expectations that the then coalition government would be moderated by the influence of the less neoliberal and more Europhilic Liberal Democrats, Cameron and his Chancellor of the Exchequer George Osborne quickly reverted to an aggressive strategy of budgetary austerity and cuts in public spending, all in the teeth of the deepest recession Britain had known since World War II. Although Cameron and Osborne seemed committed to an economic strategy of austerity and budgetary orthodoxy, their posture vis-à-vis Europe was more ambivalent, as neither had embraced the hardcore Euroscepticism of the anti-EU wing of the party. Hearkening back to the first British referendum on EU membership of the 1970s under the government of Labour Prime Minister Harold Wilson, Tory divisions over EU membership had never been bridged, and Thatcher’s adoption of an almost reflexive anti-EU stance merely deepened them. The

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The European Union after Brexit vocal opposition to the EU of many Tory backbenchers evolved from a perennial irritant to the driver of a potential crisis for the party with the rise in the 2000s and early 2010s of the United Kingdom Independence Party (UKIP), whose central platform was Britain’s withdrawal from the EU and which threatened to peel off many traditionally Tory voters. As Cameron began to perceive the rise of UKIP and the hardening of anti-EU sentiment in a growing wing of his party as an existential political threat, his rhetoric became more stridently anti-EU, as he hoped to soften divisions within his party and maintain support among the working-class voters that had abandoned New Labour but which were drawn to UKIP’s facile yet alluring formula of British nationalism and Euroscepticism, packaged in the blunt, even crass language of Nigel Farage, the UKIP leader. Cameron’s move to the right on Europe represented a second-best, defensive turn to a strategy of ‘negative integration’ in the face of economic dislocation and political disaffection stemming from British deindustrialization but much exacerbated by his government’s embrace of neoliberalism, which had helped to accelerate the erosion of working-class jobs. These so-called ‘left behind’ voters grew increasingly alienated from mainstream parties during the 2000s, and many of them shifted their support, first from Labour to the Tories and thence to UKIP. Between 2006 and 2012, the share of working-class voters saying that ‘people like me have no say in government’ grew from about 20 percent to more than 30 percent, even as the share of working-class UKIP supporters grew by 7.6 percent and the share who had left school by the age of 16 grew by 10.3 percent (Ford and Goodwin 2014, 127, 164). Perhaps even more worrying for Cameron, the share of UKIP voters stating that they had voted for the Conservatives in previous elections grew from 29 percent in 2010–11 to 45 percent in 2012–13 (Ford and Goodwin 2014, 166). In view of such trends, Cameron understandably felt pressure to sharpen his anti-EU rhetoric, though doing so did little to bridge, still less to heal, the underlying divisions in his party about Britain’s relationship with the EU. Nor did it address the underlying trends showing that working-class voters beset by the corrosion of their economic communities and rising economic precariousness felt increasingly alienated from mainstream politics. Cameron’s strategy for dealing with this set of political dilemmas increasingly focused on the referendum on EU membership. The tensions between the competing wings of the party came to a head following the election of 2010 and within the context of the Conservative-Liberal Democratic coalition to which it gave rise. The rhetoric surrounding negotiations over the coalition suggested moderation with respect both to Britain’s posture towards the EU and to plans for economic liberalization and reform, an unsurprising fact given the Liberal Democrats’ support for Europe and for preserving the British safety net. In relatively short order, however, it became clear that the Tories would make policy with little regard for their coalition partner’s preferences, which stood in opposition to the government’s unwavering commitment to austerity and

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 23 their increasingly hard-line posture towards Europe in reaction to UKIP and deepening party fractures. With respect to the EU, Cameron faced mounting pressure to take a hard line and to fulfill his commitment to call a referendum on the Lisbon Treaty, which in 2009 he had claimed was a ‘cast-iron guarantee’ (Lynch 2011, 219), while reiterating the Tories’ opposition to the euro and plans to shift the distribution of power from Brussels back to London. As promised in his party’s election manifesto, Cameron pledged a so-called ‘referendum lock’ whereby any future treaty that ceded additional ‘significant’ powers to the EU would be subject to a national referendum. Throughout 2010, Tory Eurosceptics proposed a number of stand-alone bills that would have introduced additional limitations on Britain’s commitments to Europe, including a motion to reject the European Parliament’s request for an increase in the EU budget, a failed move to reduce Britain’s budgetary contributions, and a vote by 30 MPs to reject the EU’s bailout of Portugal. Such positions had become common in the Conservative Party, with most MPs (outside of a shrinking pro-European minority) reflecting ‘differing degrees of Euroscepticism’, rather than inhabiting a party with a ‘clear fault-line’ between Euroscepticism and pro-European stances (Lynch 2012, 85–86). Faced with the increasing dominance of Euroscepticism within the party and fearing the mounting threat posed by UKIP, Cameron sought to use the promised referendum on EU membership to shore up his position as party leader and to quell the increasingly vocal demands to leave the EU. In June 2013, James Wharton, a hard-line Tory Eurosceptic MP, introduced a private bill that would guarantee a vote on Britain’s EU membership. Rather than working to bury the bill or mollify its supporters, Cameron came out and publicly challenged Liberal Democratic leader Nick Clegg to honor a promise in his party’s election manifesto to allow a referendum, and sent forth the party’s whips in an effort to corral votes (Watt 2013). Given the public popularity of the referendum (with one 2011 poll showing 70 percent in favor of holding one and 49 percent saying that they would vote against Britain’s membership) (Clark 2011), Cameron perhaps felt that he had little choice, though some speculated that his real goal was the renegotiation of the terms of Britain’s membership (The Economist 2013). Whatever the case, Cameron adopted an increasingly populist, even pandering strategy. Prior to an initial vote on calling the referendum on 5 July, Cameron confidently endorsed the measure: ‘I’ll do everything I can to support this Bill and get it through the House of Commons so that we can renegotiate in Europe and then put a real choice to people before the end of 2017’ (Mason 2013). The political significance of Cameron’s commitment to the referendum must be understood within the wider context of the government’s economic policies. Just as he had adopted an increasingly hard line vis-à-vis the EU, he also moved towards an increasingly Thatcherite, neoliberal orientation on economic matters. In so doing, Cameron and his Chancellor of the Exchequer George Osborne effectively abandoned earlier promises, dating back to Cameron’s assumption

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The European Union after Brexit of party leadership in 2005, to advance a form of ‘liberal conservatism’ that was more Burkean than Thatcherite in orientation. This conception aimed to foster social cohesion and solidarity along the lines of nineteenth-century Conservative Prime Minister Benjamin Disraeli’s ‘One-Nation Toryism’, even as Cameron promoted traditional Tory conceptions of personal responsibility.3 He hoped thereby to distance the Tories from their post-Thatcherite image as the ‘economics party’ that was ‘out of touch, had failed to learn from its mistakes, cared more about the well-off than the have-nots, and did not stand for opportunity for all’ (Lee 2011, 9–10).4 Once elected, however, the government, over the feeble protests of the Liberal Democrats, abandoned this effort to balance between Disraeli and Thatcher, and quickly embraced unambiguous austerity and an aggressive public defense of its ostensible virtues. Announced soon after the election, in June 2010, the new government’s emergency budget proposed a £112 billion cut in public-sector borrowing (from £149 billion to £37 billion) (75 percent of which was to be realized through spending cuts rather than tax increases), a 25 percent cut in discretionary spending outside of health care and anti-poverty benefits, a 60 percent cut in public capital spending outlays, and increase in the VAT from 17.5 percent to 20 percent. In March 2011, portraying it as part of a larger effort to ‘refor[m] the nation’s economy so we have enduring growth and jobs for the future’, Osborne unveiled his first full-fiscal-year budget, a ‘Budget for Growth’, which hewed tightly to the austerity course. In this light, the sudden reversal of policy orientation suggested the abandonment of pretence rather than a change in convictions, reflecting a deeply held, ‘radical’ ‘Thatcherite’ ‘fear, held by a significant portion of the party, that the state has got too strong’ and a belief, revealed only after the government was installed, that ‘the country’s over-centralisation’ must be confronted (The Economist 2010). Despite continued poor economic performance, with real GDP growth at 0.3 percent (thus narrowly avoiding a double-dip recession), unemployment at 7.8 percent, and a budget deficit of 6.5 percent of GDP at the end of 2012, the government stuck to its strategy, as Osborne released a 2013 budget that promised more of the same, prioritizing corporate tax cuts (reducing the main rate from 28 percent to 20 percent by 2015) and maintaining the basic contours of the spending levels established in his 2010 and 2011 budgets (O’Connor and Giles 2013; Packard 2013). Such moves were difficult to reconcile with Cameron’s earlier rhetoric about ‘opportunity for all’ and taking care of the ‘have nots’, as the cuts in public spending precluded the kinds of investments in public services that might have helped support the ‘left behinds’ in Britain’s hollowed-out industrial heartland. During Cameron’s coalition government with the Liberal Democrats between 2010 and 2015, austere fiscal policies cut about £20 billion per year from social security spending on active workers, while subjecting remaining benefits to increasingly strict means testing. Striking as they are, such aggregate figures mask the effect of these measures on the economically

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 25 vulnerable, who were confronted with caps on combined weekly entitlements to benefits, including housing and child benefits that disproportionately support low-income workers (Hood and Oakley 2014, 3, 8, 24–26).5 In place of policies that stood to help this ‘pessimistariat’, or ‘mainly male working class voters who are extremely pessimistic about the future and place little or no faith in mainstream parties and institutions’,6 such voters received the superficially appealing but ultimately thin gruel of anti-EU rhetoric, as the government’s strategy of what Wehler has dubbed ‘negative integration’ increasingly served as the mobilizational impetus. Cameron’s government thus found itself backed into a corner on the referendum, even as it adopted policies that further eroded the economic security of working-class British voters and exacerbated growing resentment among the ‘left behinds’. Ironically, given subsequent (and wholly unfounded) promises that Brexit would free up millions of pounds for the National Health Service (NHS), Osborne’s budgets exacerbated the perennial underfunding of the NHS since the 1990s. It also laid fertile ground for the politically toxic interaction between voters’ feelings of economic insecurity and their resentment of immigration, which, as I discuss in the next section, constituted core drivers of the anti-EU attitudes of ‘Leave’ supporters. The Tories’ longstanding approach of combining anti-EU animus with neoliberal and deflationary policies that hastened the erosion of economic security among British workers, implied an abandonment of a longstanding economic community without a substantive vision of what the government hoped to create in its place. This stance created a political and cultural vacuum that many British voters would seek to fill in ways that threatened to worsen the economic problems that they confronted. Although the Tories’ strategy allowed them to capture the more Eurosceptical segment of the electorate, it did little to address the longstanding and worsening sense of political alienation and disillusionment among many voters and the related sense of distrust of established political elites exacerbated by the economic aftermath of the post-2008 economic crisis (Whiteley et al. 2016). Well in advance of the referendum, this sour public discourse had already led to worrying political outcomes, such as the unprecedented success of UKIP in the 2014 European election (Kaufman 2014). Deindustrialization, the effects of the Great Recession, three decades of cuts to social programs and broader budgetary cuts that precluded investment in public goods and programs to help displaced workers adjust, and a longstanding strategy of anti-EU animus thus set the stage for voters to express their anger with unprecedented force. Brexit and the failure of the politics of enemies As several of the authors in this volume describe, the outcome of the Brexit referendum was generally unexpected by experts on British politics and the public at large, despite noisy support for it by UKIP and its supporters. Almost up until

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The European Union after Brexit the vote itself, oddsmakers and pollsters had the ‘Remain’ side comfortably in the lead, even if the margin narrowed somewhat as the referendum approached. The passivity, even fecklessness, of the Remain campaign, ostensibly led by Cameron and his government, was both a symptom and a reinforcing cause of a complacent, even smug ‘pro-Europeanism [that] became a proxy for the fusion of economic and social liberalism that had been a dominant philosophy of the political mainstream for a generation’ (Behr 2016). Much as Marx had derided the peasantry as a ‘sack of potatoes’ – a hopelessly backward and disengaged social class destined for decline – this perspective tended to relegate Britain’s more parochial, anti-European working-class voters to the margins of political discourse. It was enough, it was assumed, to proclaim the ostensibly self-evident superiority of the pro-European perspective, which was viewed as the harbinger of a more globalized future, focusing narrowly on the projected economic costs of Brexit, and ‘the risks of the unknown’ (Behr 2016). What Cameron and his advisors perhaps failed to realize, however, was that these costs had long since been borne by working-class voters in Britain’s industrial heartland, who therefore had little to lose economically, at least in the short term, from adopting a stance of opposition to a set of opaque, pan-European institutions that had never offered them (or, arguably European citizens more generally) meaningful economic benefits and that represented a convenient scapegoat for feelings of economic insecurity and social dislocation. Ironically, Cameron’s Tories (and, to a lesser extent, New Labour as well) had long favored the same sorts of deflationary policies, focused on ‘structural adjustment’, fiscal rectitude, and deregulation, championed by the EU, albeit with more of a Thatcherite bent focused on trickle-down economics and the ostensible economic benefits of a scaled-down state. What the two perspectives had in common, however, was a failure to propose a substantive vision of economic renewal to replace the Keynesian, quasi-social-democratic social contracts that each had increasingly displaced. Despite its traditional nomenclature, the EU was neither a ‘community’ in the social and economic sense, nor a ‘union’ in the political sense, much as Thatcher and her Tory successors proclaimed the importance of the British nation without working to provide it with the social and economic cohesion that political and social stability require.7 Much as the EU had defined itself more in terms of what it was not (i.e., nationalistic, militaristic, and parochial) than what it was, therefore, the Tories had defined Britain in largely negative, anti-EU terms in ways that distracted attention from the economic disintegration taking place beneath. In such a context, it is hardly surprising that opposition to immigration and immigrants would take center stage in the ‘Leave’ campaign, whose militants posited the recreation of a national (and, it was implied, more racially homogeneous) community in place of the liberal internationalist one represented by the EU. The EU was thus both the symbolic enemy of the ‘Leave’ vision and the culprit to be blamed for the influx of immigrants who ostensibly posed a threat to British workers’ economic ­security.

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 27 This complex matrix of political values, insecurity, and resentment would lead to absurd promises during the referendum campaign, including Foreign Minister Boris Johnson’s claim that Brexit would free up £350 million per week for the NHS (Johnson 2017).8 Not unrelatedly, it would also produce attempts to exploit the economic bases of voters’ fears of the twin ‘others’ of immigrants and the EU, perhaps most infamously in Nigel Farage’s referendum-campaign billboard showing the UKIP leader against a backdrop of hundreds of streaming, vaguely non-white people, with the superimposed phrases ‘Breaking point: the EU has failed us all’ and ‘We must break free of the EU and take control of our borders’ (Guardian 2017). The concomitance between hostility to immigration and promises to invest in domestic social policies unwittingly reflected the importance of economic security to political consent and community and the threats the Tory neoliberalism had long posed to it. The confluence of anti-immigration stances, anti-EU animus, and generalizing senses of economic precariousness was thus a product of longstanding connections in British public discourse and the economic realities faced by many working-class voters. As Dustmann, Frattini, and Preston (2013) demonstrate, immigrants to the UK place a disproportionate burden on lower-skilled workers in competition for employment. Beginning in the 1990s, UKIP and Eurosceptical Tories were able to capitalize on such dynamics, particularly after the early 2000s when the rate of immigration from other EU countries began to rise.9 As many scholars have pointed out, nearly all far-Right populist parties focus on immigration, and Ivarsflaten (2008) has argued that no farRight party has achieved success without mobilizing grievances over the issue. Though there remains significant disagreement in the scholarly literature about the respective importance of economic grievances and cultural ones focused on immigration, many argue that both factors are important, with cultural grievances more strongly linked to the intensity of support, and economic ones more closely related to their scope and extent.10 The interaction between these sets of grievances offers far-Right or anti-systemic populist parties and movements promising political terrain. Regional and local patterns of support for Brexit in the 2016 referendum provide suggestive evidence for the power of this interaction effect, reflecting both the appeal of Brexit to economically stressed, deindustrialized communities and the positive relationship between historical ethnic homogeneity and anti-immigration stances, often strongly connected to prevailing economic anxiety driven as much by occupational and class position as by individuals’ negative economic experiences. Though imperfect and subject to significant regional variation, regional indicators of economic distress – unemployment rates and median earnings, for example – are modestly but consistently related to support for Brexit. In the West Midlands, for example, where support for Brexit was 59.3  percent, in 2016 median gross weekly earnings were £511 (compared to £671 in London and £566 in the Southeast outside of London),

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The European Union after Brexit and u ­ nemployment was 6.2 percent, compared to 3.5 percent in the Southeast and a national average of 4.9 percent (UK Office for National Statistics 2016; The Economist 2016). In the East Midlands, where 59.3 percent voted for ‘Leave’, the unemployment rate, at 4.3 percent, was actually below the national average, but median weekly wages were £483, the lowest in the country outside of Northern Ireland (UK Office for National Statistics 2016). In Scotland, where support for ‘Remain’, at 62 percent, was the highest in the country (just ahead of London’s 59.9 percent), unemployment in mid-2016 was 4.7 percent, while median weekly wages, at £535, were the highest in the country outside of London and the Southeast. Obviously, these figures are somewhat overdetermined, with factors such as education undoubtedly mediating these relationships; at a minimum, however, we can say that higher rates of economic insecurity are loosely connected to support for Brexit, while support for Remain tended to be highest in the country’s most prosperous areas. When we examine such data alongside data on immigration, however, the relationships become stronger, even at the regional level. In areas with the fewest non-native residents and relatively high levels of economic insecurity, often with rates of in-migration higher than historical norms, voters were disproportionately likely to support Brexit. Long-term migration to the UK remained relatively constant from 2007 to 2017, but certain regions experienced significant increases in migrant flows between 2011 and 2016, including the East (1.4 percent), Southeast (1.5 percent), the East Midlands (1.3 percent), and West Midlands (1.2 percent) (London, by far the richest and most globally connected part of the country, experienced a 5.4 percent increase, though its distinctive and highly cosmopolitan character makes it sui generis) (UK Office for National Statistics 2016). Though support for reduced migration has historically tended to be slightly higher than the national average in these regions (Migration Observatory 2016), this relationship is weak and tells us relatively little on its own. Considering such data alongside figures on the regional concentration of non-native residents, however, is quite revealing. Broadly speaking, support for Brexit tended to be highest in areas that both experienced higher-than-average increases in migration and initially had lower-than-average shares of non-native residents. Of the 270 electoral districts in the UK that had a lower-than-average share of residents born outside of the UK, 229 (85 percent of the total) voted for ‘Leave’. Of the 78 districts with higher-than-average shares of non-native residents, only 44 percent voted for ‘Leave’. In this context, that data suggest that a key driver of support for ‘Leave’ was the degree of ethnic homogeneity in a district, such that even minimal increases in immigration had a disproportionately significant impact on fears about the erosion of ethnically homogeneous communities and, as a result, support for leaving the EU. Several districts with the highest support for ‘Leave’ and the lowest share of non-native residents, such as Mansfield (70.9 percent and 5.6 percent, respectively), moreover, were in the West or East Midlands (The Conversation Blog 2016). Here again, voters’ p­ erception of

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 29 immigrants’ threat to a fragile and precarious economic community comes clearly into view, as do the political risks of ignoring such warning signs. An analysis focused on local and regional patterns of support for or opposition to Brexit broadly supports these conclusions, even if the evidence is not always entirely straightforward. In the area of Newcastle-upon-Tyne, a northern city in a region traditionally known for industrial prowess and more recently suffering from economic decline, for example, the barest majority of 51 percent voted Remain, due in part to the presence of a major university and a relatively educated population, in line with a series of recent studies suggesting a correlation of Remain support with higher educational and socio-economic levels.11 Breaking this aggregate result down by locality, however, is more revealing. In Newcastle-upon-Tyne East, which is 12 percent wealthier, 9 percent younger, and 18 percent more educated than the region as a whole, 57 percent voted Remain. In the relatively less wealthy and educated Newcastle-upon-Tyne Central and Newcastle-upon-Tyne North, by contrast, clear majorities voted Leave. In nearby Sunderland, which has considerably lower levels of income and education, as well as a higher reliance on exports due to its Nissan factory, the Leave campaign won by 22 percent, significantly exceeding expectations. Like most of the Northeast, Sunderland suffers from high unemployment and low wage growth. In mid-2016 the unemployment rate in the Northeast was 7.5 percent, the highest in the country, although international in-migration actually declined between 2011 and 2016 in a region in which the share of the population born outside of the UK is quite small (UK Office for National Statistics 2016). Analyzing the referendum results in the context of this regional socio-economic profile provides suggestive evidence linking support for Brexit to relatively high levels of economic precariousness and industrial decline, and higher-than-average levels of ethnic homogeneity and native-born residents. An analysis of referendum outcomes in portions of suburban London reveals a similar pattern, with relatively skilled and homogeneous populations in industrial areas providing robust support for Leave. Whereas London and many of its suburbs voted Remain, suburbs with relatively dominant industries reliant upon skilled labor (and therefore generally less touched by immigration) tended to vote Leave. In three areas dependent on the highly skilled aviation industry, for example, Leave support far outpaced levels found in surrounding, less industrial areas. In Spelthorne, a relatively ethnically homogenous suburban district east of London and south of Heathrow Airport, voters supported Leave by a margin of 20 points, in a region where the other five districts voted Remain. Likewise, Rushmoor, a suburban district southeast of London in which the aviation industry employs nearly 20 percent of the electorate – as it hosts Farnborough Airport and is home to the Air Accidents Investigation Branch – voted Leave by a 16-point margin. Finally, in Crawley, a district just south of London, residents voted for Leave by a margin of 16 percent, while most of the region voted Remain or very narrowly for Leave. Interestingly, in a study estimating

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The European Union after Brexit the effects of both a soft and hard Brexit outcome, Crawley was predicted to be the least affected in the region, sheltered (rather ironically, given its cosmopolitan and international orientation) by the aviation industry, which is actually forecast to benefit from Brexit (Dhingra, Machin, and Overman 2017, table 2). Although such regions have not suffered as much from industrial decline as erstwhile centers of heavy industry such as Newcastle, they share with their northern counterparts traditional reliance upon industrial employment, a high percentage of working-class voters, and relatively high degrees of ethnic homogeneity. These patterns also show that it is not workers’ skill levels per se that inform support for Brexit, but rather skill levels coupled with regionally concentrated ethnic homogeneity. These patterns add weight to the conclusion that support for Brexit reflects an embrace of past or existing social and economic communities, rejection of cosmopolitanism, the anxieties of skilled labor but without elevated rates of higher education, and broad fears about patterns of national industrial decline and a related defense of existing industrial jobs.12 More recent studies on the relationship between changes over time in in-migration patterns, particularly in declining industrial areas with relatively high rates of native-born populations such as the East and West Midlands and the North-west, provide further support for this argument, showing that in such areas with recent increases in numbers of migrants, support for Brexit tended to be higher than average and higher than it otherwise would have been.13 More generally, such patterns provide evidence that the anti-cosmopolitan and ethnonationalist parochialism that the Brexit vote embodied stemmed from dynamic interactions between objective economic circumstances and subjective factors relating to their social and cultural meaning and significance. Conclusion: the erosion of Britain’s economic community and the implications of Brexit for Europe This chapter has analyzed the Brexit referendum outcome in the context of longer-term political and policy strategies of the Conservative Party. It has argued that Brexit can best be understood as the result of a combination of factors, both structural and conjunctural. Structurally, the process of deindustrialization since the 1980s has undermined the economic security and prospects of large segments of Britain’s industrial working class, concentrated in the erstwhile industrial heartland. This process, in combination with New Labour’s shift to the political center in the 1990s and 2000s and its embrace of cosmopolitanism and internationalism, undermined many traditional Labour voters’ allegiances and made them available for and potentially receptive to other kinds of appeals. In a more conjunctural vein, the Tories’ embrace of neoliberal economic policies and budgetary austerity left them unable to enact policies that might have helped displaced workers adjust to an increasingly inhospitable economic environment

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 31 and drove additional cuts in social policies on which many of them increasingly relied. In place of such policies, a growing wing of Eurosceptical party members embraced a strategy of what Wehler has termed ‘negative integration’, shoring up political support by demonizing the EU, which became the primary external ‘other’, thereby replacing economic appeals with cultural and identity-based ones in ways that had been familiar to American political observers since Nixon’s ‘Southern Strategy’ in the late 1960s and, more recently, with the election of Donald Trump as American president and his appeals to white supremacy. Such ‘bait-and-switch’ strategies, which embraced economic policies that undermined the economic security of working-class voters while shifting the basis of political appeals to culture and identity, worked for a while, just as they had worked for Bismarck in late nineteenth-century Imperial Germany. In the process, however, David Cameron backed himself into a political corner, promising to hold a referendum on EU membership in the vain hope of neutralizing a revolt by the party’s Eurosceptics, while advancing economic policies that made support for the referendum more likely for many working-class voters. Though most observers were shocked at the referendum’s outcome, in hindsight it seems that the ingredients for it had been in place for some time. The lessons of this episode are multiple and complex, but one clear implication relates to the limits of ‘negative-integration’ strategies in a climate of growing economic insecurity, and the political costs of an unquestioning embrace of neoliberalism.14 This chapter’s analysis of the political, economic, and social determinants of Brexit suggests important lessons for other EU member states and for the future of the Union more generally. While one should be cautious about applying lessons from one national story to another, it is clear that the economic dislocation suffered by many of Britain’s working-class voters, combined with neoliberal policies that both directly cut social benefits and precluded investment in the kinds of supportive economic policies that stand to help workers adjust, steadily undermined workers’ faith in and support for established political parties and institutions.15 Ironically, the economic policies embraced by the Tories reflect the same commitment to fiscal austerity and ‘structural adjustment strategies’ that shift the costs of adjustment from capital and finance to labor that have been embraced by the EU and more particularly by the countries of the Eurozone since the 1990s, but with renewed vigour and ideological commitment since the Eurozone crisis of 2010–11.16 The British experience suggests that political elites that persist in promulgating such policies, whether domestically or at the European level, do so at significant political peril. Even as they vilified the EU as an opaque, unresponsive, and semi-­authoritarian threat to British sovereignty, the Tories embraced a similar orthodoxy that abetted and hastened the hollowing out of the British social contract. Though Cameron himself called for Britain to remain in the EU, his tepid and detached campaign for Remain, beset by vocal opposition from growing swathes of his party, both reflected and helped to solidify a deep ambivalence about Britain’s

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The European Union after Brexit place in Europe. Even as the Conservatives helped to undermine Britain’s sense of economic community, then, they quite deliberately encouraged British voters to look elsewhere to replace it, though failing to perceive the long-term risks of doing so. In voting for Brexit, working-class voters thus went where the Tories had led them, opting for an insular, parochial national community defined (more or less explicitly) along ethnopolitical lines, seemingly in the vain hope that doing so would free up resources that could help to reconstruct and reinvigorate a social contract that had long been left to decay. While it may have been absurd, Johnson’s promise of £350 million per week for the NHS was thus actually quite revealing – not only of the intellectual dishonesty and cynicism of many Brexit advocates but also of the attractiveness of the appeal to many of Britain’s ‘left behinds’. It turned out that the erosion of the economic bases of the social contract had real political consequences, a fact which the ‘negative-integration’ strategy could delay but ultimately not obviate. Cameron’s resignation in the referendum’s aftermath thus had the flavour of karmic justice: in Hamlet’s formulation, he and his party had been hoist by their own petard. The Brexit strategy thus offers a cautionary tale to other European leaders, many of whom have embraced, or at least accepted, neoliberalism as a governing philosophy and austerity as a policy orthodoxy, even as support for mainstream parties of the center-left and center-right has continued to erode. At the EU level, the embrace of deflationary policies within a set of institutions that, in Peter Mair’s words, were ‘constructed as a protected sphere, safe from the demands of voters and their representatives’ (Mair 2013, 109), seems particularly short-sighted, given that these institutions lack the channels of political accountability that can both inform policies that enjoy popular support and legitimate those policies as the products of democratic political processes. In this context, the consequences of the Tories’ economic and political strategies suggest important consequences for Europe in other, perhaps even more fateful ways. At a time when ethnonationalism is on the rise and significant numbers of European voters are succumbing to the authoritarian temptation, conventional wisdoms about the inexorability of European integration and, more broadly, the concomitance between capitalism and democracy, are increasingly being called into question. Such concerns are not merely theoretical, as far-Right parties on the continent make electoral inroads that would have been unthinkable a decade ago. In Germany, the Alternative für Deutschland (AfD), which grew out of the aftermath of the 2010–2011 Eurozone crisis as a party focused mostly on withdrawing Germany from the euro, has developed into a more generally anti-immigrant, Europhobic, and nationalistic party that won 12.6 percent of the vote and 94 parliamentary seats in the September 2017 general election, the first time since the 1950s that an avowedly far-Right party has enjoyed parliamentary ­representation (Financial Times 2017). As in the case of UKIP and the Brexit referendum, many of the AfD’s supporters’ anti-EU stance is informed by fears of declining socio-economic status, anxieties which are exacerbated by and

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 33 c­ hanneled within fears related to immigration (Kiess et al. 2017, 249; Ward 2018, ch. 4). In France, the more venerable Front National (FN), born as a neo-fascist party in the 1970s but which has steadily moderated the tenor of its appeal and capitalized on anti-EU and anti-immigrant sentiment, achieved its best-ever result in the 2017 Presidential elections, in which party leader Marine Le Pen amassed 33.6 percent of the vote in a second-round runoff against the centrist Emmanuel Macron. The FN’s growing support reflects a belief among its voters, many of them previously supporters of the far Left, that the party represents the only electoral force willing to stand up for the ‘left behinds’ in the wake of post-1970s deindustrialization. FN supporters also tend to value the party’s ethnonationalistic conception of France’s political-economic community.17 In both cases, evidence suggest that voters’ support stems from ‘sociotropic’ considerations, whereby a sense of economic decline and instability, not necessarily on the part of individuals but of the region or country more broadly, interacts with cultural insecurities and fears of marginalization to foster support for parties aiming to redefine economic and political communities in new, more exclusive ways (Colantone and Stanig 2017, cited in Ward 2018). Though France and Germany have so far held the line, the rise to power of more explicitly neofascist parties in Hungary, Poland, and elsewhere suggest that fears about the erosion of democratic legitimacy on the European continent are well founded. This chapter has argued that decades of Tory-led neoliberal policies in Britain helped set the stage for Brexit by both allowing for the continuation of economic decline in the British industrial heartland and undermining the social safety net on which a growing number of British workers have had to rely. This economic context did not make Brexit inevitable or even likely on its own, however. Rather, it created a context in which fateful political strategies and decisions – notably the Tories’ strategy focused on hostility to the EU and the deepening cleavage within the Conservative Party over Britain’s place in (or outside of) Europe – could become politically operative. At a time in which the legitimacy of the EU is fragile at best, the project of European integration has stalled (and is arguably being reversed), and far-Right parties are making direct challenges to the EU’s authority mainstays of their electoral appeal. The economic ­insecurity experienced by large swathes of Europe’s citizens, particularly in countries subject to the Eurozone’s restrictions on public expenditure, provides anti-democratic and authoritarian parties with ample opportunity to attract supporters whose fears about immigration, the EU’s threat to national sovereignty, and declining social and economic status are inextricably linked.18 As Noam Gidron and Peter Hall have argued, support for far-Right parties in Europe often stems from real and perceived economic anxieties in combination with (related) fears of declining social and cultural status (Gidron and Hall 2017). If economic insecurity, in both its objective and subjective components, is not a sufficient cause of growing support for the far Right, in other words, for an increasing number of voters, it is a necessary one. Although the lessons of



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Brexit for Europe and the EU are multiple, one important one is that political ­legitimacy – for a party, for a state, or for international institutions – cannot be built and sustained in the absence of a sense of a meaningful and nurturing economic community. The stakes are not merely about membership of the EU, but rather about the relationship between capitalism and democracy and the long-term survival of both. In this sense, as well as in others, Brexit offers a cautionary tale for European elites on both the national and EU levels, one which the evidence to date suggests they are reluctant to hear.

Notes   1 Continental European elites have generally rejected neoliberalism as a blueprint for domestic social and economic policies, even as many of them (particularly in the creditor nations of the Eurozone’s Northern core) have not hesitated to impose them on the debtor nations of the European periphery. For a discussion of continental European countries’ embrace of alternatives to neoliberalism, see Vail (2018).   2 Wehler’s use of the term is quite different from the much later usage adopted by Fritz Scharpf. Whereas Wehler’s discussion of Bismarck focuses on the dynamics of domestic political integration and consent, Scharpf focuses on the EU and in particular competition among regulatory regimes by EU member states. For a widely cited instance of Scharpf’s usage of the term, see Scharpf (1999).   3 For a detailed discussion of the dilemmas of ‘One-Nation Toryism’ and its relationship to neoliberalism under Cameron, see Vail (2015).   4 In a speech at Bath in 2007 that would find echoes in his promises to lead a government that ‘shared the proceeds of growth’, Cameron took a stylistic page from Disraeli, proclaiming that ‘I believe that we’re all in this together – that there is a historic understanding between past, present, and future generations, and that we have a social responsibility to play an active part in the community we live in.’   5 Such cuts largely shielded pensioners, an important constituency that disproportionately votes Conservative.   6 The term is Roger Eatwell’s (2010), cited in Ford and Goodwin (2014, 190).   7 In some respects, my argument here shares elements with the separately developed analysis of Hopkin (2017).  8 Johnson’s language here is redolent of the implicit conflict between national and international economic communities: ‘It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS, provided we use that cash injection to modernise and make the most of new technology. The NHS is one of the great unifying institutions of our country. It is the top political priority of the British people and, under the leadership of Jeremy Hunt, it is indeed the top priority of the Conservative Party. Coming out of the EU will give us an opportunity to drive that message home.’   9 For a discussion of UKIP’s strategy, see Goodwin and Dennison (2015). 10 See, e.g., Halikiopoulou and Vlandas (2017). 11 See, e.g., Zhang (2018). For more focused study of the effects of education, see Becker, Fetzer, and Novy (2017).

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 35 12 Voting patterns elsewhere reinforce the impression that education and affluence, markers and bearers of cosmopolitanism in equal measure, were important drivers of support for Remain. In Nottinghamshire, for example, Rushcliffe was the only district to vote Remain and it did so by a 15-point margin. Rushcliffe is more affluent than its surrounding districts like the working-class communities of Mansfield (71 percent Leave) and Ashfield (70 percent Leave) (Pritchard 2018). 13 See, e.g., Goodwin and Milazzo (2017). 14 In this context, it is worth remembering that Bismarck did not develop his ‘negative-­ integration’ strategy in isolation; rather, he did so while embarking on the most comprehensive and ambitious welfare state expansion ever to have taken place in Europe. 15 Labour Prime Minister Gordon Brown’s relatively robust stimulus package in the aftermath of the post-2007 financial crisis was a singular exception. 16 One of the long-term consequences of the Tories’ embrace of austerity was an abiding stagnation of real wages, which have been forecast to grow more slowly in the 2010s than at any time since the Napoleonic wars (Chakrabortty 2017). 17 For systematic data on these motivations, including extensive interviews with FN supporters, see Perrineau (2017). 18 For an excellent elaboration of the connections between the policies of the Eurozone and the rise of the far Right, see O’Brien (2018).

References Becker, Sascha, Thiemo Fetzer, and Dennis Novy. 2017. ‘Who Voted for Brexit? A Comprehensive District Level Analysis’. Economic Policy, 32, 601–650. Behr, Rafael. 2016. ‘How Remain Failed: The Inside Story of a Doomed Campaign’. Guardian, 5 July, https://www.theguardian.com/politics/2016/jul/05/how-remainfailed-inside-story-doomed-campaign. Chakrabortty, Aditya. 2017. ‘Austerity, Not Brexit, Has Doomed the Tory Party’. Guardian, 14 November, https://www.theguardian.com/commentisfree/2017/ nov/14/austerity-brexit-doomed-tory-party-economy-budget-may-hammond. Clark, Tom. 2011. ‘EU Referendum: Poll Shows 49 Percent would Vote for UK Withdrawal’. Guardian, 24 October, http://www.theguardian.com/world/2011/ oct/24/eu-referendum-poll-uk-withdrawal. Colantone, Italo, and Piero Stanig. 2017. ‘The Trade Origins of Economic Nationalism: Import Competition and Voting Behavior in Western Europe’, BAFFI CAREFIN Centre Research Paper #2017–2049. The Conversation Blog. 2016. ‘Hard Evidence: How Areas with Low Immigration Voted Mainly for Brexit’. http://theconversation.com/hard-evidence-how-areas-withlow-immigration-voted-mainly-for-brexit-62138. Dhingra, Swati, Stephen Machin, and Henry Overman. 2017. ‘Local Economic Effects of Brexit’. National Institute Economic Review (November), R34–R36. Dustmann, Christian, Tommaso Frattini, and Ian P. Preston. 2013. ‘The Effect of Immigration along the Distribution of Wages’. Review of Economic Studies, 80, 145–173. Eatwell, Roger. 2010. ‘Responses to the Extreme Right in Britain’. In The New Extremism in Twenty-First Century Britain, edited by Roger Eatwell and Matthew J. Goodwin, 211–230. Abingdon: Routledge.

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The European Union after Brexit The Economist. 2010. ‘Radical Britain’, 14 August. The Economist. 2013. ‘From Referendum to Renegotiation’, 5 July, http://www.econo mist.com/blogs/blighty/2013/07/david-cameron-and-europe. The Economist. 2016. ‘Economic and Financial Indicators’, 17–23 September. Financial Times. 2017. ‘Germany’s Election Results in Charts and Maps’, 25 September, https://www.ft.com/content/e7c7d918-a17e-11e7-b797-b61809486fe2. Ford, Robert, and Matthew J. Goodwin. 2014. Revolt on the Right: Explaining Support for the Radical Right in Britain. Abingdon: Routledge. Ford, Robert, and Matthew J. Goodwin. 2017. ‘Britain after Brexit: A Nation Divided’. Journal of Democracy, 28:1, 17–30. Gidron, Noam, and Peter A. Hall. 2017. ‘The Politics of Social Status: Economic and  Cultural Roots of the Populist Right’. British Journal of Sociology, 68:S1, S57–84. Goodwin, Matthew J., and James Dennison. 2015. ‘Immigration, Issue Ownership and the Rise of UKIP’. Parliamentary Affairs, 68:1, 168–187. Goodwin, Matthew J., and Caitlin Milazzo. 2017. ‘Taking Back Control? Investigating the Role of Immigration in the 2016 Vote for Brexit’. British Journal of Politics and International Relations, 19:3, 450–464. Guardian. 2017. ‘Media Painted Bleak Picture of Immigration before Brexit Vote, Study Finds’, 10 May, https://www.theguardian.com/politics/2017/may/10/brexit-eureferendum-campaign-media-coverage-immigration. Halikiopoulou, Daphne, and Tim Vlandas. 2017. ‘The Winning Anti-Immigration Coalition: Concerns over the Economic and Cultural Impact of Immigration and Far Right Party Success in Western Europe’. Paper presented at the American Political Science Association’s annual meeting, San Francisco, 30 August–3 September. Hood, Andrew, and Laura Oakley. 2014. ‘The Social Security System: Long-Term Trends and Recent Changes’. Economic and Social Research Council, IFS Briefing Note BN 156, November. Hopkin, Jonathan. 2017. ‘When Polanyi Met Farage: Market Fundamentalism, Economic Nationalism, and Britain’s Exit from the European Union’. British Journal of Politics and International Relations, 19:3, 465–478. Ivarsflaten, Elisabeth. 2008. ‘What Unites Right-Wing Populists in Western Europe? Re-Examining Grievance Mobilization Models in Seven Successful Cases’. Comparative Political Studies, 41, 3–23. Johnson, Boris. 2017. ‘My Vision for a Bold, Thriving Britain Enabled by Brexit’. Telegraph, 15 September, https://www.telegraph.co.uk/politics/2017/09/15/borisjohnson-vision-bold-thriving-britain-enabled-brexit/. Kaufman, Eric. 2014. ‘The Politics of Immigration: UKIP and Beyond’. Political Quarterly, 85:3, 247–250. Kiess, Johannes, Elmar Brähler, Gabriele Schmutzer, and Oliver Decker. 2017. ‘Euroscepticism and Right-Wing Extremist Attitudes in Germany: A Result of the “Dialectic Nature of Progress?”’ German Politics, 26:2, 235–254. Lee, Simon. 2011. ‘“We Are All in This Together”: The Coalition Agenda for British Modernization’. In The Cameron-Clegg Government: Coalition Politics in an Age of Austerity, edited by Simon Lee and Matt Beech, 3–23 (Basingstoke: Palgrave Macmillan).

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A cautionary tale: ‘Brexit’, economic citizenship, and the political perils of neoliberalism 37 Lynch, Philip. 2011. ‘The Con-Lib Agenda for Europe’. In The Cameron-Clegg Government: Coalition Politics in an Age of Austerity, edited by Simon Lee and Matt Beech, 218–237. Basingstoke: Palgrave Macmillan. Lynch, Philip. 2012. ‘European Policy’. In Cameron and the Conservatives: The Transition to Coalition Government, edited by Timothy Heppel and David Seawright, 7–88. Basingstoke: Palgrave Macmillan. Mair, Peter. 2013. Ruling the Void: The Hollowing of Western Democracies. London: Verso. Mason, Rowena. 2013. ‘David Cameron: EU Referendum Law “Will Succeed”’. Telegraph, 5 July, http://www.telegraph.co.uk/news/newstopics/eureferendum/ 10161589/David-Cameron-EU-referendum-law-will-succeed.html. Migration Observatory. 2016. ‘UK Public Opinion toward Migration: Determinants of Attitudes’, https://migrationobservatory.ox.ac.uk/resources/briefings/uk-publicopinion-toward-migration-determinants-of-attitudes/. O’Brien, Matt. 2018. ‘How the Euro is Helping Europe’s Far-Right’. Washington Post, 12 March, https://www.washingtonpost.com/news/wonk/wp/2018/03/12/howthe-euro-is-helping-europes-far-right-fascists/. O’Connor, Sarah, and Chris Giles. 2013. ‘Budget 2013: Osborne Looks to Corporate Tax Cuts to Drive Recovery’. Financial Times, 20 March, https://www.ft.com/ content/394d7f3c-9157-11e2-b4c9-00144feabdc0. Packard, Jim. 2013. ‘The Budget—In Numbers’. Financial Times, 23 March, http://blogs. ft.com/westminster/2011/03/the-budget-in-numbers. Perrineau, Pascal. 2017. Cette France de gauche qui vote FN. Paris: Seuil. Pritchard, Jon. 2018. ‘Huge Fall in Number of EU Citizens Moving to Nottinghamshire since Brexit’. Nottingham Post, 5 March, https://www.nottinghampost.com/news/ local-news/huge-fall-numbers-eu-citizens-1292847. Scharpf, Fritz. 1999. Governing in Europe: Effective and Democratic? Oxford: Oxford University Press. UK Office for National Statistics. 2016. Annual Survey Reports. Vail, Mark I. 2015. ‘Between One-Nation Toryism and Neoliberalism: The Dilemmas of British Conservatism and Britain’s Evolving Place in Europe’. In ‘Interpreting British European Policy’. Journal of Common Market Studies, 53:1 (January) (special issue), 106–122. Vail, Mark I. 2018. Liberalism in Illiberal States: Ideas and Economic Adjustment in Contemporary Europe. New York: Oxford University Press. Ward, Jake. 2018. ‘Legitimate Radicals: The United Kingdom Independence Party and the Alternative für Deutschland’ (BA thesis, Tulane University). Watt, Nicholas. 2013. ‘David Cameron Challenges Nick Clegg over EU Referendum’. Guardian, 30 June, http://www.theguardian.com/politics/2013/jun/30/davidcameron-nick-clegg-eu-referendum. Wehler, Hans-Ulrich. 1970. ‘Bismarck’s Imperialism, 1862–1890’. Past & Present, 48, 119–155. Whiteley, Paul, Harold D. Clarke, David Sanders, and Marianne Stewart. 2016. ‘Why Do Voters Lose Trust in Governments? Public Perceptions of Government Honesty and Trustworthiness in Britain, 2000–2013’. British Journal of Politics and International Relations, 18:1, 234–254. Zhang, Aihua. 2018. ‘New Findings on Key Factors Influencing the UK’s Referendum on Leaving the EU’. World Development, 102, 304–314.

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Subtraction by subtraction? Brexit and its impact on the common European financial space Gregory W. Fuller On 23 June 2016, 52 percent of voters in the United Kingdom’s ‘Brexit’ referendum opted for a leap into the dark – with ramifications that are still being discovered some years later. While issues such as immigration, borders, and the role of the European Court of Justice have animated the debate in the UK, many of the most substantial consequences of Brexit – especially for the European Union (EU) itself – have been obscured by the EU’s technical (and technocratic) mode of operation. This chapter assesses the impact of Brexit on the common European financial space, asking: ‘How is Brexit likely to affect efforts to complete the European Single Market for capital and financial services?’ The question is a natural one, owing to the UK’s historic role as the EU’s primary financial center. Brexit will shrink European capital markets by roughly 25 percent, with even larger declines in equity markets and pension funds. Approximately half of all euro transactions into foreign exchange take place in Britain, as do more than 75 percent of derivatives trading and hedge fund activity. A full 87 percent of the European employees of American investment banks are located in the UK. In short, no other member of the EU-28 comes close to the UK’s domination of EU financial markets – particularly where non-bank actors are concerned (Wright and Bax 2016). Losing such a large and influential member of the EU may complicate post-2008 financial reform efforts, particularly the goal of constructing a European Capital Markets Union (CMU). Borrowing Lucia Quaglia’s (2017) framework  – itself borrowed from Tanja Börzel (2002) – Britain had been a ‘pace-setter’ in this area of European integration, driving the project forward. But, as Quaglia also notes, Britain was more likely to act as a ‘fence-sitter’ or even ‘foot-dragger’ in other areas of financial integration, such as the completion of a European banking union and the harmonization of financial regulations

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Subtraction by subtraction? Brexit and its impact on the common European financial space 39 in general. In other words, there is a real uncertainty here as to whether the removal of Britain from the EU will make it easier or harder to move forward with European financial integration. Is this a case of addition by subtraction or plain old subtraction by subtraction? This poses a second, related question: does the removal of Britain from the EU promise to change the nature of European financial integration? In answering these questions, I will make extensive use of a concept developed by Dirk Schoenmaker (2011): the financial trilemma. As Schoenmaker puts it (see Figure 2.1), ‘the financial trilemma states that (1) financial stability (2) financial integration, and (3) national financial policies are incompatible. Any two of the three objectives can be combined but not all three.’ This is particularly helpful in comparing political-economic imperatives in the European case because the EU’s financial powerhouse (the UK), its economic engine (Germany), and its primary supranational entity (the European Commission) have tended to favor different solutions to the trilemma – as well as different conceptions of how national financial policy should work. Schoenmaker’s trilemma offers a tool for both answering the question at the heart of this chapter (i.e., what impact does Brexit have on European financial integration?) and for gaining traction on key theoretical questions within comparative politics: why do different national (and supranational) actors opt for different answers to the same problem? Of course, few policymakers would willingly choose instability – so some clarification is required. First, stability here refers to the whole of an integrated financial space: for instance, the Eurozone has arguably been quite unstable Figure 2.1 Schoenmaker’s financial trilemma during its short existence, with large capital outflows to the periphery driving a

Financial Integration

Financial Stability Figure 2.1 Schoenmaker’s financial trilemma

National Financial Policies

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The European Union after Brexit period of superheated growth, followed by a sudden stop and the flight of capital from certain parts of the zone (Fuller and Jones 2015a). Despite this broader instability, individual financial systems within the Eurozone have remained largely stable. Indeed, Schoenmaker’s logic allows that pursuing national economic goals can generate externalities which destabilize wider currency areas. Second, certain national systems are better suited to coping with financial instability. In theory, there should be a greater tolerance for volatility where there are fewer limits on risk-management mechanisms and greater confidence in national regulations (e.g., the UK) – and less tolerance of relatively quiescent bank-based systems which impose stricter limits on financial activities (e.g., Germany and France) or where banks are known to be particularly fragile (e.g., Italy and Germany). The chapter proceeds from here in three straightforward parts. The next two sections examine the political economy of the European Banking and Capital Markets Unions in turn. For each, it assesses the impetus behind reform – as well as the British, German, and Commission positions and how they have evolved post-referendum. The third section then analyzes the findings, ultimately concluding by arguing that Brexit may compromise the EU’s capacity to balance against ascendant German economic ideas and interests. The political economy of banking union Banking union comprises several linked initiatives: a single ‘rulebook’ for European banks, together with a Single Supervisory Mechanism (SSM) for banking oversight, housed at the European Central Bank (ECB); a Single Resolution Mechanism (SRM) for resolving the dismantling of a failed European bank; and a European Deposit Insurance Scheme (EDIS) to ensure the safety of most ordinary banking deposits. Of these, the SSM is in place and functioning, the SRM is largely in place but will take several years to be fully operational, and the EDIS remains under discussion. The biggest obstacle to fully implementing the SRM and EDIS concerns burden-sharing: both require some degree of ­mutualized European liabilities – which are viewed from Germany with particularly deep suspicion. This section first explains the origins of banking union and the theoretical case for each of its major components; the second part then delves into the divergent positions on banking union staked out by the UK, Germany and the Commission. Impetus for banking union After the upheaval of 2007–2008 and the onset of the Greek crisis in late 2009, much of the European policy response was focused on taming fiscal problems. The 2011 ‘six-pack’ of EU legislation largely aimed to revive deficit control measures that had lost their potency after being disregarded by Germany and France in the early years of the Economic and Monetary Union (EMU). Its

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Subtraction by subtraction? Brexit and its impact on the common European financial space 41 deficit controls were further buttressed by the new intergovernmental fiscal compact treaty, signed in 2012. The 2013 ‘two-pack’ then envisioned further European surveillance of countries, including more intrusive corrective oversight of economies that receive European bailout funds (Fuller and Jones 2015b). These measures, however, did little to address the financial sector sources of European risk. Banking union, which was meant to address those private sector financial issues, took longer to put in place. Ceaselessly championed by actors such as the European economic think tank Bruegel, particularly by Nicolas Véron (2012, 2013), banking union was a belated response to the incoherent oversight of European banks. Many of the largest European banks operated across borders but ultimately remained the responsibility of national regulators. In addition to creating opportunities for regulatory arbitrage (i.e., doing things in one jurisdiction that wouldn’t be permitted in another), this meant that banks tended to be ‘global in life and national in death’.1 This proved highly problematic for small countries with internationalized banking sectors. In Ireland, for instance, bailing out the banking system cost between 25 and 40 percent of the country’s annual output, depending on the measure used (Maurer and Grussenmeyer 2015). Despite previously healthy government accounts, this unexpected bill pushed the entire economy into effective default in 2010, leading to an austerity-based structural adjustment program. This dynamic is sometimes known as the ‘doom loop’ between banks and their sovereign governments (and between financial and fiscal problems): the cost of bailing out insolvent banks can easily bankrupt a government – while insolvent governments can also bankrupt banks when they don’t pay interest on sovereign bonds. This is especially true when the lion’s share of national sovereign debt is held within the issuing country. Ideally, banks should be ­diversified – leaving themselves hedged against a default by one national government. In reality, banks and their national governments largely sink or swim together. Banking union was partly meant to break this interdependence while also acknowledging the reality that European banks needed EU oversight to truly operate on the same playing field (Gros and Schoenmaker 2014). The proposed solution to these problems was threefold. The SSM ostensibly solved some of the national-supranational regulatory mismatch by shifting the supervision of some European banks to the European level. This was meant to ensure that banks with large cross-border operations would be subject to European supervision while preserving local regulation for smaller banks (though not without difficulty, to be discussed in the section ‘Positions on banking union’). The SRM laid out a process for handling bank failures, underpinned by a single resolution fund. The idea is that the fund can guarantee the assets and liabilities of a failing bank, provide loans and bridging finance during restructuring, and compensate for abnormal losses to the bank’s creditors. In theory, the SRM helps sever the doom loop by cushioning a national government from



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large bailout expenditures. However, this resolution fund is not expected to be fully capable of cushioning against a major crisis until 2024. In the interim, it is backed by a line of credit offered by each of the banking union member states. Finally, banking union envisions a common deposit insurance scheme across Europe (EDIS). This would allow account-holders to claim back any lost deposits resulting from a bank failure (subject to some limits). Like the SRM, the goal of EDIS is to disconnect banks from national governments, preventing bank failures from causing a fiscal crisis due to deposit insurance claims. Positions on banking union Key elements in Britain and Germany viewed the prospect of banking union with some wariness. While Britain was ostensibly supportive of European banking reform on its merits, the government and financial sector demonstrated no enthusiasm for joining themselves (though non-EMU members are permitted to sign up of their own accord). For its part, Germany has successfully carved out exceptions for politically sensitive domestic banks while opposing efforts to create mutualized European liabilities that might encourage others to misbehave at the Germans’ expense. The Commission seems to have adopted the technical argument that banking union is essential, consistently trying to cajole member states into accepting further common liability for banking problems in the bloc – with limited success. While it is generally true that much of Britain’s ambivalence toward European initiatives has been driven by an unwillingness to cede decision-­making power to Brussels, the British response to banking union is not simply a story of sovereigntist politics for domestic consumption. The British financial system substantially differs from most other EU member states: not only is it less reliant on banks to begin with, but its banks also do far more substantial non-EU business than those of other member states (Davies 2016). British financial regulations are arguably also stricter (in some ways) than European ones: for instance, in 2015 the UK began the process of forcing banks to separate their investment and retail activities. This is a non-starter with Germany and France, due to fears that this would make it difficult for their large universal banks to retain access to funds (Hardie and Macartney 2016). The British government was also concerned about being isolated from the European Banking Authority (EBA) – the entity created in 2011 to promulgate a single set of European financial rules. The David Cameron government worried that a Eurozone voting block within the EBA could effectively allow banking union members to dictate the whole of European financial regulation. This led to a compromise in which EBA decisions were subject to a double-majority system (of both EMU ‘ins’ and ‘outs’) – until the number of non-EMU members of the EU shrank to three or fewer. Germany had two different – but also nationally oriented – priorities. The first was to exempt its politically sensitive public banking system from EU

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Subtraction by subtraction? Brexit and its impact on the common European financial space 43 supervision; the second was to oppose building burden-sharing mechanisms into banking union (Howarth and Quaglia 2014). German savings banks, known as Sparkassen, are small community-oriented banks that engage in what might be called ‘boring banking’: they primarily take customer deposits and lend them to small local businesses. While each individual bank is quite small, they also act as a sort of collective: they employ a joint liability scheme (Haftungsverbund) which allows the Sparkassen to collectively assist an ailing member bank – and can also treat loans to each other as risk-free. Less officially, they also enjoy close ties to all levels of German government (Fuller 2016). Arguing that this ­arrangement was unique (as well as uniquely safe), Sparkassen directors strenuously opposed transferring regulatory oversight to the European level – ultimately resulting in the exemption of both the Sparkassen and small cooperative banks from ECB supervision. As one bank director put it to the Financial Times, ‘you don’t impose the safety rules you’d need for a 2,000-passenger cruise ship on a yacht taking five people up the coast’ (Wilson, Wiesmann, and Barker 2012). The other, somewhat related, German priority was to avoid measures that called for cross-border burden-sharing. Partly because it was so successful in keeping its domestic banks out of banking union altogether – and partly because Germany has a wealthy government and a relatively small financial sector – the country is almost certain to be a net contributor to any common resolution or deposit insurance scheme. Paralleling its position in sovereign bailout talks, Germany (and particularly its longtime Finance Minister, Wolfgang Schäuble) consistently argued that providing a European backstop for failed banks would encourage banks and national regulators to take reckless risks, creating moral hazard that would ultimately create costs for Germany (Brunsden 2015). While this argument is more politically than economically sound (cf. Véron 2016), progress toward EDIS has stalled as a result. The European Commission’s response to these political considerations has been both technically driven and consensus-oriented. The Commission papers on the subject tend to echo the arguments of people like Véron and industry insiders much more than national politicians. At the same time, there is a clear understanding of the difficulties in translating technically sound policy into politically acceptable policy. Quoting Commission President Jean-Claude Juncker in an unsubtle epigraph to a 2017 update on the completion of banking union, the Commission reiterates that ‘democracy cannot function without compromise. Europe cannot function without compromise’ (European Commission 2017b). The text of the report reflects the somewhat impotent cajoling approach taken by the Commission throughout negotiations, arguing that ‘the ambition of the Commission remains strong’, and that ‘the time has definitively come to move ahead’ on burden-sharing issues such as EDIS. However, nodding to the ‘divergent positions’ of member-state representatives, the report also signals a willingness to move as slowly as is necessary to avoid exacerbating national concerns.

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The European Union after Brexit Looking at the totality of banking union, we see a story of Germany wielding substantial (though not unlimited) veto power over the shape of final outcomes. Britain, by contrast, did not intervene much. Banking union was only mandatory for EMU members (and it saw its own rules as broadly superior), so the UK largely opted out of the discussion. As such, the Brexit referendum has changed little for the banking union agenda. The Commission, balancing the technical shortcomings of an incomplete banking union against the need for buy-in from member states (especially Germany), has simply tried to keep the entire original plan on the table. We will assess these positions with respect to Schoenmaker’s trilemma in the concluding section of the chapter. First, however, we must deal with another financial reform in which Britain was far more involved: European capital markets union. The political economy of Capital Markets Union CMU as an initiative is far less developed than banking union, representing a sort of umbrella concept for a number of reforms intended to improve access to capital within the EU. Following the announcement of the project in fall 2014, the Commission issued an ‘Action Plan’ consisting of 33 discrete measures meant to move the EU closer to a genuine Single Market for capital (European Commission 2015). As of August 2017, twenty of these measures had been completed. At the same time, the Brexit referendum has almost certainly altered the trajectory of the project as a whole. This section parallels the last, establishing the theoretical case for CMU before examining the positions of key actors before and after the June 2016 vote. Impetus for Capital Markets Union European CMU has been presented as a solution to two different problems, one short-term and one long-term. The long-term problem was tied to a preexisting failing of the European Single Market: Despite the progress that has been made over the past 50 years, Europe’s capital markets are still relatively underdeveloped and fragmented. The European economy is as big as the American one, but Europe’s equity markets are less than half the size, its debt markets less than a third. The gap between Member States is even bigger than that between Europe and the US. More integrated capital markets will lead to efficiency gains and support Europe’s ability to fund growth. (European Commission 2015)

As presented by the Commission, this fragmentation of Europe’s capital markets has made it relatively difficult for firms – especially small- and medium-sized enterprises (SMEs) – to raise capital in a member state other than their own. The  rules governing insolvency, stock and bond issuance, as well as more

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Subtraction by subtraction? Brexit and its impact on the common European financial space 45 esoteric forms of financing like venture capital, tended to differ across national borders. Unlike larger multinational corporations (MNCs) that possess the reach and resources to cope with these differences, continental SMEs – p­ articularly in Germany and Italy – continued to rely on their traditional sources of financing. Overall, this limits firms’ access to capital, constraining their capacity to borrow and invest. This leads us to the short-term problem. In the early to mid-2010s, there was a great deal of concern over Europe’s anemic post-crisis recovery – and an excessive reliance on banks was seen as part of the problem. Traditionally, ­investment in economies like Germany or Italy is largely carried out by SMEs who, in turn, borrow from banks. If banks are distressed and unable (or ­unwilling) to lend, this can cause a decline in investment and overall economic activity. CMU was therefore presented as a sort of regulatory stimulus – ­something that could boost European growth without actually costing governments anything. The CMU portfolio – initially described by Véron (2014) as ‘a largely undefined policy object’ and by Quaglia (2017) as a ‘long shopping list’ – was given to the UK’s nominee to the European Commission, Jonathan Hill, the first European Commissioner for Financial Stability, Financial Services, and Capital Markets Union. Working backwards from the two identified problems mentioned, Hill and the Commission populated its list of thirty-three reforms. Each of the reforms was intended to make it easier to translate savings into productive investment, the most substantial of which include: (1) efforts to improve access to venture capital and entrepreneurial capital in general, (2) a modernized and harmonized set of rules specifying what companies must disclose in a prospectus when they are looking to raise funds from capital markets, and (3) a single set of rules establishing ‘simple, transparent, and standardized (STS) securitization’ products (European Commission 2017a). In each of these reforms, the emphasis was on harmonization, standardization, and improving the quality of cross-border information. Theoretically, CMU proponents argued, a Dutch saver should be able to buy a corporate bond from an Italian SME just as easily as a Dutch one. Conversely, a small Maltese startup should be able to borrow from Polish venture capital firms rather than being forced to rely on limited domestic funding sources. This necessarily means getting member states to issue transparent and largely interchangeable financial products, governed by a shared rulebook. In such a world, banks would theoretically present less of a capital-flow bottleneck: borrowers and savers could be matched across the whole of the EU through arm’s-length financial market transactions. In the language of comparative political economy, CMU arguably represented an effort to supplant or supplement what remains of Europe’s diminishing ‘patient capital’ financial systems following the conversion to market-based banking (cf. Hardie and Howarth 2013).



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The European Union after Brexit

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Positions on Capital Markets Union Some financial actors, particularly the banks in bank-centric economies like Germany, saw this as a direct threat to their businesses (and not without cause). In contrast, Britain stood to benefit enormously from CMU – even to the extent that some EU members saw the entire project as a sop to Cameron and the UK in the run-up to the Brexit vote (Wright 2016). The Commission, as was the case with banking union, remains committed to the idea as part and parcel of the Single Market for capital. At the same time, it appears willing to see it evolve in a number of directions. For Britain, CMU represented a chance to profit from its comparative advantage in deep, liquid, and innovative financial markets. Indeed, any European economy with a relatively well-developed financial sector stood to benefit: the proponents of the CMU initiative include other financially sophisticated economies, including Ireland, the Netherlands, Sweden, and Luxembourg. Britain, together with the Commission, was the clear ‘pace-setter’ on the issue (Quaglia 2017): during the public consultation period concerning CMU, British firms accounted for most of the responses (Ständer 2016) – and Hill was named to lead the project after Cameron had demanded a high-profile Commission slot in the run-up to the June 2016 referendum (Herman 2014; Traynor and Mason 2014). Between Britain’s high profile during the consultation period and Hill’s presence, CMU tended to reflect British preferences, enhancing market liberalization without allowing any centralization of authority in Brussels (Véron 2015; Quaglia 2017). Attitudes toward CMU were positive even in many countries that lacked sophisticated domestic financial sectors – they were, after all, meant to benefit from increased access to capital (Ständer 2016). However, from the German perspective (and to a lesser extent the French), CMU presented a potential problem. Schäuble and Michel Sapin, then the finance ministers of Germany and France, drafted a letter in response, cautiously embracing CMU while also noting that ‘we will have to find a specifically European solution and should refrain from bluntly reproducing the US financial system’ – pushing back against the notion that capital markets could fully replace traditional bank-firm dynamics (Ständer 2016). This is not terribly surprising: one of the primary intentions of the CMU agenda was to weaken continental banks’ stranglehold over European investment; it was therefore likely to face skepticism from the banks themselves. Again, the Sparkassen spoke with a loud voice, implicitly demanding protection of their historically unique position. Georg Fahrenschon, the head of the German Savings Banks Association (DSGV) who had largely succeeded in keeping his member banks out of banking union, was adamant that CMU could not come ‘at the cost of traditional bank financing’. He went on to assert that, ‘in many cases, traditional bank financing is ideal’ due to the establishment of longterm relationships between banks and German SMEs (Shotter 2015). While

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Subtraction by subtraction? Brexit and its impact on the common European financial space 47 critical of this mindset, the managing director of a German group lobbying for alternative financing noted that many Germans believe there is simply no need for stronger capital markets – the view is, ‘there are banks to do that’ (Mooney 2016). Members of Angela Merkel’s Christian Democratic Union (CDU) have also voiced concern over the possibility of creating a ‘bureaucratic monstrosity’ by giving a European institution regulatory authority over securities trading – preferring to keep German financial regulation with its own national authority (Handelsblatt 2017). The Commission, as was the case in banking union, was an early convert to the theoretical argument behind CMU. Earlier in the 2000s, two reports under the aegis of the so-called Giovannini Group of financial exports had identified 15 barriers to true completion of the Single Market for capital. These became known as the Giovannini Barriers, which various Commission initiatives have attempted to reduce or eliminate; CMU can be seen as the endgame of these efforts (Xafa 2017). In 2014, with the election of Jean-Claude Juncker as Commission President, the effort gained a leader who had been the Finance Minister of financially sophisticated Luxembourg for 20 years. Juncker himself announced the project, signaling his seriousness about the initiative by creating a new Directorate-General and Commissioner with titles explicitly including the phrase ‘Capital Markets Union’. Moreover, the CMU initiative dovetailed nicely with the Commission’s intention to safeguard the ‘four freedoms’ – as Hill went out of his way to note that ‘more than fifty years after the Treaty of Rome made the free movement of capital one of the EU’s four fundamental freedoms, that market in capital is not yet complete. So for me, the Capital Markets Union is a classic Single Market project’ (Hill 2015). Prior to the Brexit referendum, then, CMU seemed like a project that was largely on track, if still somewhat ill-defined. The notion commanded the support of the Commission and Britain, while even the most skeptical EU member states at least acknowledged the potential benefits of a more unified European financial system. Then 23 June happened – and, unlike banking union, the impact on CMU was substantial. The swiftest and most visible post-referendum change was Hill’s resignation just two days after the vote. This led many to ask, ‘is the CMU project dead in the water?’ (Cosgrave 2017). While Valdis Dombrovskis, Hill’s successor, claimed that the project would move forward to ‘show European value-added’ (Brunsden 2016), there has been little doubt that Brexit would fundamentally alter the CMU trajectory. The question is how. On one hand, the elimination of Britain and Hill from the equation has removed some of the political impetus behind the proposal altogether. Juncker himself noted that he had ‘wanted the British commissioner to be in charge of financial services, as a sign of my confidence in the United Kingdom’s membership of the European Union’ (Cienski 2016). With the status of the UK resolved and Hill gone, part of the political rationale for supporting CMU simply disappeared. At the same time, Brexit itself may have created a new rationale for

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The European Union after Brexit CMU: shorn of Britain, the EU’s lack of strong capital markets is now all the more striking. A leaked Commission memo declared a ‘need and urgency’ to move ahead with the project in order to better develop lending capacity among the remaining EU-27 (Maxwell 2018). This is further complicated by uncertainty over the end-state of relations between the EU and UK. It seems highly unlikely that European markets could completely sever their links with British finance; at the same time, it is impossible to integrate British actors into the new CMU (what some in the press have called ‘CMU 2.0’) without knowing how much Single Market access British financial firms will retain post-Brexit. This poses a dilemma for European negotiators as well: retaining relatively frictionless British access to EU markets would reduce the impact of Brexit on continental finance – but would also represent a major concession to the UK’s negotiating position. Amid certainty over the UK’s future relationship with the EU, CMU risks becoming stuck in limbo (Mooney 2016; Maxwell 2017). The removal of the UK also raises the prospect of a radically different form of CMU. If the EU anticipates a relatively distant final status with Britain, it may take a more protectionist tack. That is, there will be pressure to use CMU as a way of deepening European financial integration while limiting British involvement, with the goal of promoting more home-grown competition. As one panel of financial experts noted, ‘it is clear that Europe’s other financial centers are keen to take the opportunity to acquire greater market share from London’ (Cosgrave 2017). The prospect of such a protectionist CMU has spooked a number of industry observers, who fear that excluding Britain will lead to ‘regulatory splintering … with adverse implications for consistency and efficiency’ (Moghadam 2017). Taking CMU as a whole, the pre-referendum story was one of cooperative UK-Commission policy entrepreneurship. The project initially moved forward despite some wariness from heavily bank-based continental economies that stood to gain relatively little from the new arrangements – especially Germany. In the aftermath of the Brexit vote, CMU lost its greatest advocate but gained a new rationale: the need to fill the giant hole Britain had left in European financial markets. The biggest unresolved question is whether CMU will ultimately serve as a mechanism for keeping the UK and EU closely tied or a tool for raising the profile of continental European financial markets. Assessing the consequences This brings us back to the question asked at the outset of this chapter: how is Brexit likely to affect the evolution of European financial markets? What lessons can we extract from the preceding discussions of banking and capital markets union? Schoenmaker’s trilemma provides a helpful set of heuristic tools here. First, it gives us a systematic means of identifying the policy positions of the

Subtraction by subtraction? Brexit and its impact on the common European financial space 49 Commission, UK, and Germany. Second, it gives us a way of looking ahead, conceptualizing how future European financial integration is likely to unfold in the absence of a once-powerful member.

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Where we’ve been Mapping the positions of the Commission, UK, and Germany onto the trilemma  – for both banking union and capital markets union – results in a diagram like the one depicted in Figure 2.2. Recall that the trilemma represents the incompatibility of national financial policies, financial stability, and financial integration. The Commission, not surprisingly, would solve the trilemma by opting for both financial integration and stability while surrendering national financial policies. This has been reflected in the stories of both banking union and CMU, with the Commission generally trying to shift supervisory and regulatory tasks to the supranational level. Its stance is consistent with the conclusion, shared by European technocrats and outside experts, that Europe’s transnational capital markets can only be adequately supervised by transnational authorities. Both Germany and the UK, on the other hand, have demonstrated an unwillingness to entirely surrender control over their domestic financial institutions. This means that either stability or integration must be de-prioritized instead. Germany, with its relatively conservative – even old-fashioned  – financial system, has tended to favor stability over integration. Given the choice, authorities consistently to preserve the‘Trilemma’ unique nature of Figure 2.2 German Positions of the Commission, the UK, opt and Germany on the its public and cooperative banking systems – as well as the special role of banks in providing finance to the country’s Mittelstand (i.e. SMEs). This reflects a

Financial Integration

European Commission

Financial Stability

United Kingdom

Germany

National Financial Policies

Figure 2.2 Positions of the Commission, the UK, and Germany on the trilemma

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The European Union after Brexit broader truth about the German approach to finance: it doesn’t fully embrace the notion of competition. The Sparkassen, in particular, are organs that are seen as performing a local social function rather than purely seeking profit (Fuller 2016). At the same time, this also means that German financial firms perform poorly by most measures of competitiveness (Kock et al. 2016). Consequently, exposing them to European rules and fully internationalized competition could be highly destabilizing. Britain’s perspective on the trilemma is quite different. As banking union showed, the government generally tries to preserve its own regulatory powers while still embracing integration. The UK’s financial firms were some of the earliest to switch to a highly liberalized mode of operation after deregulation of mortgage lending and the ‘Big Bang’ liberalization of the London Stock Exchange in 1986. Building on this role as a financial center, Britain’s financial firms became more intertwined with other EU member states than most, particularly where asset management is concerned. Forty-one percent of all EU-domiciled funds under management (such as pension and insurance funds) are managed from London – even if the funds themselves remain in other member states (Wright and Bax 2016; Mooney 2017). Indeed, looking at CMU, Britain’s competitiveness in integrated markets was a primary reason they were motivated to support the initiative in the first place. So what drives the different positions depicted in Figure 2.2? While both Germany and the UK opt for national control over financial policy, their national policy tools are used to different ends. Germany’s approach can fairly be characterized as defensive and risk-averse, particularly where the Sparkassen and cooperative banks are concerned. This reflects a calculation of national self-interest grounded in both history and culture. Germany’s status as a late industrializer meant that it needed banks to help firms catch up with foreign firms that had already been retaining earnings for years (Gerschenkron 1962) – helping foster the strong connection between banks and non-financial ­businesses that persists to this day. At the same time, this reliance on banks – as well as the memory of concentrated banking power under National Socialism – has also contributed to lingering fears over too much concentration of banking power (Deeg 1999). Germany also has some of the lowest levels of household debt in Western Europe, one of the most restrictive mortgage markets in the developed world, and a word for ‘debt’ (Schuld) that translates to ‘guilt’. In other words, Germany’s institutional history, together with entrenched notions concerning appropriate financial behavior, has endowed the country with a sense of skepticism toward highly liberalized finance and excessive debt (Fuller 2015). While Britain has also opted to prioritize national control over financial markets, it has done so for different reasons. The UK’s role as a global financial center has evolved over the centuries, from colonial capital, to troubled ­postwar economy, to a revitalized outpost of freewheeling finance after 1986.

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Subtraction by subtraction? Brexit and its impact on the common European financial space 51 In recent decades, the economy benefitted from its position as a bastion of relative liberalism within a somewhat less market-friendly European Union, attracting a host of (particularly American) firms looking for a toehold in the Single Market (Fuller 2016). Indeed, the loss of this unique position is one of the more serious risks associated with Brexit – and a leading reason why the City’s financiers overwhelmingly support remaining in the EU or at least the  Single Market (Wright 2016). In other words, where German national financial priorities are defensively defined, Britain’s are more offensive: they should be seen through  the lens of ensuring an internationally competitive position for the City of London. For the UK, this means pushing back against supranational oversight – especially coming from ideologically less market-friendly c­ ontinental powers – while ensuring as much access to foreign markets as possible. The theoretical upshot here is not novel: Britain, Germany, and the European Commission each possess a different set of ‘rational’ preferences with regard to how Schoenmaker’s trilemma should be solved. These preferences are in turn defined by history, by the institutional advantages possessed by each player, and by different ideas about the proper role of finance in the world. The trilemma nevertheless gives us a straightforward way of connecting a specific policy choice to this mélange of interests, institutions and ideational drivers of national variation. Looking ahead, that means we can examine the currently predominant ‘solution’ to the trilemma and use that to assess the likely consequences of removing the United Kingdom from the game. Where we’re going One important thing to note is that the extant ‘solution’ to the trilemma is not a stable one: as both banking union and CMU demonstrate, the integration of European financial markets is incomplete. Moreover, as the financial crisis and ensuing recession demonstrated, European financial markets also lack stability. The one rule that held prior to the crisis was that member states retained a great deal of their national control over financial policy – though both banking union and CMU represent a shift toward the Commission position. In sum, the currently prevailing solution to the trilemma looks something like point A in Figure 2.3. After Brexit, the UK’s power to advocate for a more integrated European financial space will certainly wane – though it seems unlikely to disappear altogether. Even on the outside, Britain’s status as a nearby financial center with deep legacy connections to the EU would likely give it some influence over European financial policy. The problem for the remaining EU member states is their suddenly shrunken capital markets. In other words, constructing a ­homegrown EU-27 replacement for British financial markets is almost certain to be more costly than finding a solution that largely permits the continuation

Figure 2.3 Possible solutions to the trilemma after Brexit

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The European Union after Brexit



Financial Integration



European Commission



C

A

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United Kingdom





B



Financial Stability

Germany

National Financial Policies National Financial Policies



Figure 2.3

Possible solutions to the trilemma after Brexit

of the status quo. At the same time, continuing the status quo could represent a major coup for Britain, sending what the Commission might see as a toopositive signal about the prospects of exiting the EU. Britain, moreover, is not alone in its preferences: highly financialized economies like the Netherlands, Luxembourg, Sweden, and Ireland all tend to support continued financial integration (though some would be more open to a stronger supranational role than the UK). The removal of Britain from the EU robs this bloc of its most powerful advocate. However, it would be a mistake to overlook the remaining member states who, while they may not entirely support the supranationalization of financial policy, are broadly more interested in completing the Single Market for capital. More than counterbalancing these forces, there is Germany. Banking union, like much of the debate over sovereign bailouts, demonstrated that postcrisis European reform is effectively subject to a German veto. And German policymakers have repeatedly proven willing to use the veto to elevate domestic preferences (such as the extensive focus on moral hazard) over the technocratic consensus on what is best for EMU as a whole (Fuller 2018). The removal of Britain from the equation – especially on issues like CMU, where it was allied with the Commission – can only strengthen the German position. Looking back to Figure 2.3, this means the European financial policy is probably more likely to shift toward point B than point C. One other country warrants some specific discussion here: Germany’s traditional partner in the European engine room, France. France’s position in these discussions has been relatively ambiguous: in July 2018, it opted against joining Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands, and

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Subtraction by subtraction? Brexit and its impact on the common European financial space 53 Sweden when it urged the Commission to move ahead with CMU (Brunsden 2018). Nor has France opposed the program to the extent that Germany has. Part of this reflects the reality of the mixed French financial system, which is neither as bank-dependent as Germany’s nor as freewheeling as Britain’s. Arguably, this to some extent reflects President Emmanuel Macron’s priorities: since being elected in 2017, he has argued for even deeper reforms than CMU has envisioned – including more economically significant supranational fiscal power. At the same time, Macron’s apparent preference for supranational solutions suggests more willingness to adopt the Commission’s stance – at least when compared to Germany. To answer this chapter’s core question, Brexit means that European financial markets will evolve more in line with German than British preferences. But what does this look like in practice? It means that banks will continue to play a leading role in European finance, with protective niches carved out for nationally sensitive financial actors. It means that the concern over moral hazard stemming from mutualized liabilities is likely to outweigh concerns over the lack of European economic solidarity. And it means the continuation of Otmar Issing’s (2008) vision of European economic coordination: that states remain chiefly responsible for their own economic stability – even if their actions result in negative externalities. Key uncertainties remain. We still do not know (as of September 2019) what any final Brexit agreement will look like. If the UK were to remain in the Single Market, it would retain more influence over European policy and the prospect of a protectionist European financial space would become more distant. If, instead, the UK tried to develop in the direction of a low-regulation offshore financial center, it might prompt the EU to begin erecting barriers between itself and British finance. The future of European finance, in many substantial ways, will remain in the balance until an agreement is reached. One thing seems certain, though: the UK’s loss – and perhaps Europe’s loss as a whole – is almost certain to be Germany’s gain. Note 1 The attribution of this quote is uncertain, though it is usually ascribed to either Mervyn King or Charles Goodhart.

References Börzel, Tanja A. 2002. ‘Member State Responses to Europeanization’. JCMS: Journal of Common Market Studies, 40:2, 193–214, https://doi.org/10.1111/1468-5965.00351. Brunsden, Jim. 2015. ‘Berlin Fights Brussels Push for Deeper Financial Integration’. Financial Times, 10 September, https://www.ft.com/content/df1cf84a-57be-11e5a28b-50226830d644.

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The European Union after Brexit Brunsden, Jim. 2016. ‘Brexit Makes EU Capital Markets More Urgent, Says Commissioner’. Financial Times, 14 September, https://www.ft.com/content/ 54944cf2-7a4d-11e6-ae24-f193b105145e. Brunsden, Jim. 2018. ‘EU Urged to “Redouble” Capital Markets Union Push as Brexit Looms’. Financial Times, 18 July, https://www.ft.com/content/ae81f6e88a5d-11e8-b18d-0181731a0340. Cienski, Jan. 2016. ‘Commissioner Jonathan Hill Steps Down’. Politico, 25 June, https:// www.politico.eu/article/commissioner-jonathan-hill-steps-down/. Cosgrave, Barry. 2017. ‘The Future of Capital Markets Union after Brexit’. K&L Gates Legal Insight, 14 June, http://www.klgates.com/the-future-of-the-capital-marketsunion-after-brexit-06–14–2017/. Davies, Howard. 2016. ‘Why the UK Wants to Stay Out of Banking Union’. Project Syndicate/World Economic Forum, 29 February, https://www.weforum.org/agenda/​ 2016/02/why-the-uk-wants-to-stay-out-of-the-eu-banking-union. Deeg, Richard. 1999. Finance Capitalism Unveiled: Banks and the German Political Economy. Ann Arbor: University of Michigan Press. European Commission. 2015. ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Action Plan on Building a Capital Markets Union’. COM(2015) 468, http://eur-lex.europa.eu/legal-content/EN/TXT/? uri=CELEX%3A52015DC0468. European Commission. 2017a. ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, and the Committee of the Regions on the Mid-Term Review of the Capital Markets Union Action Plan’. COM(2017) 292, https://ec.europa.eu/info/sites/info/files/ communication-cmu-mid-term-review-june2017_en.pdf. European Commission. 2017b. ‘Communication to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, and the Committee of the Regions on Completing the Banking Union’. COM(2017) 592, http:// ec.europa.eu/finance/docs/law/171011-communication-banking-union_en.pdf. Fuller, Gregory W. 2015. ‘Who’s Borrowing? Credit Encouragement vs. Credit Mitigation in National Financial Systems’. Politics & Society, February, https://doi. org/10.1177/0032329215571288. Fuller, Gregory W. 2016. The Great Debt Transformation: Households, Financialization, and Policy Responses. New York: Palgrave Macmillan. Fuller, Gregory W. 2018. ‘Exporting Assets: EMU and the Financial Drivers of European Macroeconomic Imbalances’. New Political Economy, 23:2, 174–191, https://doi.org/ 10.1080/13563467.2017.1370444. Fuller, Gregory W., and Erik Jones. 2015a. ‘Europe and the Global Economic Crisis’. In Europe Today: A Twenty-First Century Introduction, edited by Ronald Tiersky and Erik Jones, 5th ed., 343–367. Lanham, MD: Rowman & Littlefield. Fuller, Gregory W., and Erik Jones. 2015b. ‘European Macroeconomic Governance’. In European Union: Power and Policymaking, edited by Jeremy Richardson, 4th ed., 327–349. London: Routledge. Gerschenkron, Alexander. 1962. Economic Backwardness in Historical Perspective. Cambridge, MA: Belknap Press.

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Subtraction by subtraction? Brexit and its impact on the common European financial space 55 Gros, Daniel, and Dirk Schoenmaker. 2014. ‘European Deposit Insurance and Resolution in the Banking Union: European Deposit Insurance and Resolution’. JCMS: Journal of Common Market Studies, 52:3, 529–546, https://doi.org/10.1111/jcms.12124. Handelsblatt. 2017. ‘Opposition Grows to New Powers for EU Markets Watchdog’. Handelsblatt Global, 18 December, https://global.handelsblatt.com/finance/oppo sition-grows-to-new-powers-for-eu-markets-watchdog-866560. Hardie, Iain, and David J. Howarth, eds. 2013. Market-Based Banking and the International Financial Crisis, 1st ed. Oxford: Oxford University Press. Hardie, Iain, and Huw Macartney. 2016. ‘EU Ring-Fencing and the Defence of TooBig-to-Fail Banks’. West European Politics, 39:3, 503–525, https://doi.org/10.1080/ 01402382.2016.1143240. Herman, Yves. 2014. ‘Key Economic Posts in Commission Given to France and Britain’. Reuters, 9 October, http://www.newsweek.com/key-economic-posts-france-andbritain-new-eu-commission-269475. Hill, Jonathan. 2015. ‘Building a Stronger Single Market in Capital’. TheCityUK Annual Conference, 30 June, https://ec.europa.eu/commission/presscorner/detail/en/ SPEECH_15_5290. Howarth, David, and Lucia Quaglia. 2014. ‘The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism’. JCMS: Journal of Common Market Studies, 52:S1, 125–140, https://doi.org/10.1111/jcms.12178. Issing, Otmar. 2008. The Birth of the Euro. New York: Cambridge University Press. Kock, Philipp, Max Flötotto, Ursula Weigl, and Gerhard Schröck. 2016. The Road Ahead: Perspectives on German Banking. McKinsey & Company, https://www.mc kinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/ The%20road%20ahead%20Perspectives%20on%20German%20banking/The-roadahead-Perspectives-on-German-banking.ashx. Maurer, Henri, and Patrick Grussenmeyer. 2015. ‘Financial Assistance Measures in the Euro Area from 2008 to 2013: Statistical Framework and Fiscal Impact’. Statistics Paper Series 7, European Central Bank, https://www.ecb.europa.eu/pub/pdf/ scpsps/ecbsp7.en.pdf. Maxwell, Fiona. 2017. ‘EU’s Capital Markets Union 2.0, Explained’. Politico, 8 June, https://www.politico.eu/article/eus-capital-markets-union-2-0-explained/. Maxwell, Fiona. 2018. ‘Brexit Cracks Europe’s Capital Markets Vision’. Politico, 8 February, https://www.politico.eu/article/brexit-cracks-europes-capital-markets-vision/. Moghadam, Reza. 2017. ‘How a Post-Brexit Redesign Can Save the Capital Markets Union’. Financial Times, 13 February, https://www.ft.com/content/6682da18-efb011e6-ba01-119a44939bb6. Mooney, Attracta. 2016. ‘Fears Grow Brexit Will Slow Capital Markets Union’. Financial Times, 17 July, https://www.ft.com/content/bf7c5b5a-4833-11e6-8d6872e9211e86ab. Mooney, Attracta. 2017. ‘The Five Big Questions Brexit Poses for Fund Managers’. Financial Times, 26 March, https://www.ft.com/content/46d3d6bc-0f14-11e7-a88c50ba212dce4d. Quaglia, Lucia. 2017. ‘European Union Financial Regulation, Banking Union, Capital Markets Union, and the UK’. Sheffield Political Economy Research Institute Paper No. 38.

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The European Union after Brexit Schoenmaker, Dirk. 2011. ‘The Financial Trilemma’. Economics Letters, 111:1, 57–59, https://doi.org/10.1016/j.econlet.2011.01.010. Shotter, James. 2015. ‘EU Warned Not to Let Capital Markets Union Hurt Role of Banks’. Financial Times, 23 August, https://www.ft.com/content/75a8cf06-39f511e5-bbd1-b37bc06f590c. Ständer, Philipp. 2016. ‘What Will Happen with the Capital Markets Union after Brexit’. Jacques Delors Institut Policy Paper No. 181, http://www.institutdelors.eu/ wp-content/uploads/2018/01/capitalmarketunionbrexit-staender-jdib-dec16.pdf. Traynor, Ian, and Rowena Mason. 2014. ‘Britain Handed Financial Services Portfolio in European Commission’. Guardian, 10 September, https://www.theguardian.com/ world/2014/sep/10/european-commission-tory-peer-economic-post. Véron, Nicolas. 2012. ‘Europe’s Single Supervisory Mechanism and the Long Journey towards Banking Union’. Bruegel Policy Contribution No. 16, https:// bruegel.org/wp-content/uploads/imported/publications/pc_2012_03.pdf. Véron, Nicolas. 2013. ‘A Realistic Bridge towards European Banking Union’. Bruegel Policy  Contribution, http://www.bruegel.org/publications/publication-detail/ publication/783-a-realistic-bridge-towards-european-banking-union/. Véron, Nicolas. 2014. ‘Defining Europe’s Capital Markets Union’. Bruegel Policy Contribution. No. 2014/12, https://bruegel.org/wp-content/uploads/imported/ publications/pc_2014_12_cmu.pdf. Véron, Nicolas. 2015. ‘Europe’s Capital Markets Union and the New Single Market Challenge’. Blog Post, 30 September, http://bruegel.org/2015/09/europes-capitalmarkets-union-and-the-new-single-market-challenge/. Véron, Nicolas. 2016. ‘European Deposit Insurance: A Response to Ludger Schuknecht’. Blog Post, 16 February, http://bruegel.org/2016/02/european-deposit-insurancea-response-to-ludger-schuknecht/. Wilson, James, Gerrit Wiesmann, and Alex Barker. 2012. ‘Germany’s Small Banks Fight Union Plans’. Financial Times, 2 December, https://www.ft.com/content/ efc129b0-3b00-11e2-b3f0-00144feabdc0. Wright, William. 2016. ‘The Potential Impact of Brexit on European Capital Markets: A Qualitative Survey of Market Participants’. New Financial, http://newfinancial. eu/wp-content/uploads/2016/04/The-potential-impact-of-Brexit-on-Europeancapital-markets-New-Financial-Apr-2016.pdf. Wright, William, and Laurence Bax. 2016. ‘What Do EU Capital Markets Look Like Post-Brexit?’ New Financial, https://newfinancial.org/wp-content/uploads/2016/ 09/2016.09-What-do-EU-capital-markets-look-like-post-Brexit-a-report-by-NewFinancial.pdf. Xafa, Miranda. 2017. ‘European Capital Markets Union Post-Brexit’. CIGI Papers No. 140, Centre for International Governance Innovation, https://www.cigionline. org/sites/default/files/documents/Paper%20No.140web.pdf.

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Brexit and the Single Market Michelle Egan1

Introduction The outcome of the ‘Brexit’ referendum of 23 June 2016 generated shockwaves across Europe. Much of the initial attention focused on analyzing factors that explained the outcome of the referendum. Although the request for withdrawal from the European Union was submitted under Article 50 of the Lisbon Treaty, the nature and type of Brexit continues to remain contentious in domestic political debates. As questions of borders, budgets and barriers are still seemingly unresolved and intractable, the economic and political effects of Brexit will be far-reaching for both the UK and the EU. Ironically, Brexit has demonstrated how crucial the Single Market is as source of, or at least an important prospect for, sustained economic growth in Europe. Though the appetite for ‘more market’ may have dwindled in the aftermath of the financial crisis, there are concerns that the European Union will lose momentum in deepening the Single Market due to the withdrawal of one of the most fervent supporters and advocates of trade liberalization. While many economic assessments of British withdrawal have pointed to the potential effects within Britain across regions and industries, few studies have focused on the consequences for the Single Market itself (e.g., Baldwin 2016; Ries et al. 2017).2 This chapter focuses on the Single Market, one of the key factors in transforming the economic relationship between Britain and its European neighbors for the past 45 years. Losing such a key proponent of the Single Market will undoubtedly have a significant impact on doing business in Britain. Equally important will be the EU’s ability to weather the pressure of departure of a major pro-market, liberal economy, particularly given concerns that protectionism has been gaining traction within the EU in the wake of the global financial crisis. What has made economic assessments of Brexit difficult is that some of the concerns expressed by the Treasury and Bank of England were not fully borne

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The European Union after Brexit out in the initial aftermath of the referendum (HM Treasury 2016; Exiting the EU Committee 2018; OECD 2016). The gloomy scenario that many had predicted following Brexit did not immediately materialize, as there has been moderate GDP growth coupled with lowering of interest rates. However, the surge in import prices has sustained and occasionally widened the UK trade deficit, triggering a growth in inflation as the pound fell dramatically, trading around 15 percent lower to the US dollar and 12 percent lower to the euro than it was before the referendum, thus impacting business confidence (Bowler 2017). Moreover, the financial crisis ushered in a contraction of the economy and fiscal retrenchment through austerity policies that amplified the economic disparities within Britain. In this context, Brexit  has not only thrown up a lot of uncertainties for many industries and sectors, but also reflects growing resentment against the liberal market policies that have been the foundation for British engagement and acceptance of European integration (Hobolt 2016; Elliott and Kanagasooriam 2017). Britain joined the European Community ‘common market’ at a time when the country was deeply divided, in the throes of low productivity, dysfunctional industrial relations, and growth rates that lagged behind those of both Germany and France (Crafts 2016a, 2016b). Though membership reduced protectionism, encouraged foreign direct investment, and increased trade, the improvement in Britain’s growth performance after accession has not stopped debates about the ‘costs’ of membership, whether in terms of budget contributions, agricultural prices or excessive regulations. Despite Britain’s ability to maintain a regulatory ‘style’ that is much lighter than many advanced industrial economies, there remains criticism about the burden of European regulation on business (OECD 2015). This is in spite of the overriding rationale which is to generate economic gains beyond those of trading in a World Trade Organization (WTO)-type group of countries. While Brexit is the culmination of Britain’s often fraught membership of the EU, the long-term domestic changes that will accompany the withdrawal from the Single Market have garnered considerable attention. Much of this has focused on several interrelated issues. First, the type of future economic relationship between the UK and EU, based on existing trade arrangements that have included the Norwegian, Swiss, Turkish and Canadian models as possible options (Grant 2018; Emmerson, Johnson and Mitchell 2016). These range from the most intrusive, namely regulatory alignment through acceptance of Single Market rules, to a bilateral customs union agreement, and finally a looser free trade agreement (FTA) that covers goods and limited services, with separate tariffs and designated rules of origin. The second issue concerns the impact on capital and financial markets given the role of a single passport in financial services and the central role played by financial services in the British economy (Chapter 2). The UK is unusual in that services play a significant role in creating a trade surplus, with the EU serving as the largest market for British service exports. The third issue is related to the efforts made to minimize

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market disruption between Northern Ireland and the Irish Republic to ensure continued cross-border trade through either specific customs arrangements or full regulatory alignment with European rules to provide a solution to the border question (European Commission 2018). The need to enforce rules of origin and product regulations is mandatory for Ireland to protect the integrity of the Single Market, so any solution will require the British to prove that their goods meet the necessary requirements to access the European market. Taking these issues as a whole, it is clear that uncertainty over the final agreement is having an effect, as many firms are putting their investment plans on hold, others are stockpiling components to avoid potential customs delays, and some have sent strong signals about moving their business operations out of Britain due to the potentially significant loss of Single Market access (Japanese Foreign Ministry, n.d.; Frost and Guillaume 2018; Treanor 2017). While the Single Market has allowed foreign investors to use the United Kingdom as an export platform for serving EU markets, companies have expressed concern that they cannot invest in a climate of uncertainty, so contingency plans are underway, including relocating their existing operations to within the European Union. Britain’s exit is a series of material and ideational processes, as it will involve trade-offs between increased economic gains and reduced sovereignty, as exit will generate a major domestic reorientation affecting different sectors and economies, as well as reshaping the discourse in Europe that has depended heavily on the market liberalization approach pushed by the British polity. For Europeans, the process of extracting a member state has been likened to ‘taking the eggs out of an omelet’ as Britain is deeply embedded in the internal market (Lamy 2018). In fact, Brexit is the realization of the constitutional asymmetry posited by Scharpf (2010). Europe was designed to blend the dynamics of market integration while allowing member states to mitigate the effects of the market through redistributive welfare policies (Scharpf 2010). Yet Britain has touted all the market-access advantages while downplaying the European regulatory and protective regimes in its economic discourse. As a liberal market economy, Britain has championed the Single Market (Jabko 2006; Egan 2001; Egan and Guimareas 2017) in which the interests of capital are predominant (Blyth 2013; van Apeldoorn 2000). The British political economy reflects a distinctive variety of capitalism, emphasizing flexible labor markets, light touch regulation, privatization, open capital flows, and a competitive low-tax regime that has been promoted as a model for EU-induced liberalization, in an often contested environment of diverse socio-economic models (Menz 2003; Pettifor 2017). Yet even before Brexit, successive decades of market liberalization had generated growing income inequality, uneven regional economic growth, a more precarious employment pattern and weak labor market protections, low productivity and stagnant wages, and cheap consumer credit that has fueled high levels of debt (Hopkin 2017, 468–470). Austerity and financial crisis have widened

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The European Union after Brexit regional inequality in Britain, highlighting the unbalanced nature of the British economy. The Northeast, West Midlands, Northern Ireland and Northwest are projected to be the hardest hit by Brexit; the share of local economic activity that is dependent on trade with the EU is considerable in these areas that are already being left behind. With eroding social protection and stagnant wages, Brexit generated a counter­movement against this neoliberal mode of European integration. While the British government remained one of the strongest proponents of liberalization of service, labor, goods and capital markets, the market-oriented approach of successive governments that centered on the four freedoms of the Single Market has not gone unchallenged; populist parties on the right have brought to the fore issues such as open borders and immigration flows, and populist parties on the Left have railed against austerity measures that are intrinsically tied to the European project (Hopkin 2017). Yet general dissatisfaction with the EU’s handling of the economic crisis can also be traced back to the unintended consequences of the Single Market. First, the impact of the global financial crisis on labor markets varied widely across Europe. There was anxiety that Britain has become the employer of last resort for many in the periphery, serving as a primary location for massive labor inflows. Second, capital flows decreased rapidly during the financial crisis, as assets were repatriated and governments sought to mitigate the effects of the financial crisis. The resulting Eurozone crisis with its fiscal stimulus and large bailouts further heightened Britain’s sense of uncertainty about the euro, becoming a powerful stimulus for the country to reassert its sovereignty. The way that these issues played out politically in Britain is best understood by Hirschman’s insight that members who are unsatisfied with an organization they are part of can either ‘exit’ or change its course by ‘voicing’ their reservations (Hirschman 1957). This chapter raises several questions about the EU after Brexit: What is the effect of British withdrawal on the Single Market? How are other member states impacted by Brexit, given the realities of an integrated European economy with cross-border supply chains and substantial trade and investment flows? Rather than seeing the Single Market solely in terms of the opportunity costs or benefits for Britain, it is worth considering the impact on the remaining member states, as the costs of exit may impact both current and future business strategies and investment. The chapter is structured as follows: The first section focuses on the political economy of the Single Market. The second section focuses on the differential impact of Brexit, both for Britain as a third country through examining the automotive and financial sectors, and then the impact on those states that are highly integrated across different sectors and economies, and that depend on the market liberalization approach pushed by the British polity, illustrated by the opportunity costs imposed on Ireland and Netherlands. The third section



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focuses on British influence on the Single Market, before turning to the effect of Brexit on the future of European governance given Britain’s role as a strong supporter of many key Single Market initiatives. The final section concludes with an assessment of the effects across states and markets.

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The political economy of the Single Market The Single Market is viewed as one of the major achievements of European integration, promoting economic openness and extending the benefits of market access beyond the EU itself. The process of market-making was intended to address economic protectionism, opening up capital and labor to competitive market forces to reduce transaction costs and promote efficiency. While initial efforts were aimed at removing tariff and customs barriers, this gave way to more focus on the free movement of goods, followed by abolition of controls on capital and payments transfers between member states and then liberalization of financial services across the EU. Legislation to allow recognition of a range of professional qualifications, followed by efforts to address service barriers, indicated how much the legal framework has evolved to reflect the increasing level of integration of the Single Market. The expectation was that countries would implement common rules and recognize their respective standards to ease market access for products and services to circulate throughout the EU. The 1992 program and its aftermath sought to address border controls, government subsidies to national industries and closed national systems of procurement in military and other key public sectors, and to coordinate national regulation of industrial standards, copyright, transportation, banking and insurance barriers. As efforts to address non-tariff barriers accelerated, liberal economic policies extended into new areas, as the creation of a Single Currency was viewed as an essential complement to the Single Market. Single Market measures sought to balance often competing objectives by promoting economic welfare and removing restrictions on competition or replacing divergent social regulations – dealing with environmental, consumer, and public  health protection – with common rules to ensure that those with higher standards were not at a competitive advantage by ‘trading up’ (Vogel 1997). Development of the Single Market induced a range of measures to meet specific policy goals. The European Commission readily advanced into key areas of public services, extending its regulatory activity into transport, telecommunications, and utilities, by building active coalitions of member states including Britain that supported further liberalization. It also created pressure for re-regulation to enable government to enforce regulatory norms in a liberalized environment. Yet EU-induced liberalization has, in some cases, become mired in different, often conflicting objectives, especially regarding services and capital (see also Chapter 2). The modest efforts to reform domestic laws – without a treaty obligation – has proven to be a serious hindrance so far in fostering a

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The European Union after Brexit capital markets union (CMU). Popular consent for liberalization was tied to solidarity in the form of welfare safety nets along with flows of financial aid from rich to poor European countries. The push to promote cross-border temporary services created a potential shock to the wage structure and the labor market among European countries with relatively high wages (Menz 2003). Fears of social dumping from low-wage Central and East European labor generated substantial opposition amid fears that this would undercut existing industrial relations and labor market regulations. The European Parliament, under pressure from France, Belgium, and Germany, removed the option that would allow mutual recognition for firms that were temporarily selling services abroad, with the result that most national barriers to market entry remained on the books (Chang, Hanf, and Pelkmans 2010; Nicolaïdis and Schmidt 2007). Even where governments favor liberalization, they have often sought to promote selective liberalization. For example, France has been reluctant to abandon gas and electricity monopolies while Germany is protective of its state banks, and Croatia and Luxembourg are the most restrictive in regulating professional services (Smith 2005). Germany is not following its own advice regarding the need for domestic structural reform, as its own services markets are still heavily regulated. As such, member states have found ways to minimize the costs of domestic adjustment in accepting Single Market rules. More recently, agreement on establishing a legal identity for firms or approval of genetically modified foods highlights how agreement has eluded member states, given entrenched national preferences. Consequently, the risk that uniform Single Market rules would undermine national norms led to provisions allowing for greater national autonomy. States can restrict trade in genetically modified crops, even if they have been approved at European level, so that fifteen member states have requested exclusions, with Spain and England pushing for their approval, while Northern Ireland and Wales seek to be excluded from the legislation. Similarly, companies can form transnational entities, while excluding worker participation in such entities, if this follows existing national domestic practices. This partial liberalization has weakened Single Market commitments and increased regulatory burdens (Egan and Guimareas 2017). Successive enlargement has also created a more complex market where regulatory heterogeneity has made collective agreement more difficult. For many the Single Market is no longer a harbinger of growth and prosperity. Governments have increasingly opted for bailing out financial institutions and resorted to blocking takeovers by foreign firms. While remaining rhetorically committed to the Single Market, states undermine it by their actions. As the Financial Times reported, the Single Market was under stress even before the global financial crisis, as there was sustained opposition by France and Germany to more liberal rules for cross-border takeovers and services (Toplensky and Barker 2018). All of this exposes the weakness in the functioning of the Single Market in labor, capital and service markets (Stráský 2016; Erixson 2016). The result is that

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there remains a strong and persistent ‘home bias’ in consumption and investment patterns (Delgado 2006). Consequently, the European Commission has pushed for greater convergence of regulations as well as stronger implementation and enforcement of Single Market legislation (Egan and Guimareas 2017). The Commission has continuously tried to revive integration efforts through various piecemeal strategies to promote further liberalization, often putting forward actions plans that encompass a wide variety of objectives. Nonetheless, specific measures often fail to be adopted, or else only open up markets on a piecemeal basis (Erixson 2016). In response, Mario Monti was tasked to set out a new strategic vision to provide new political impetus to the Single Market as a means of promoting economic growth. Monti viewed the Single Market as a means to address economic nationalism, tackle the tensions between market freedoms and social objectives, and ensure effective implementation and enforcement of Single Market measures to realize its full potential (Monti 2010). However, in many areas, the Single Market exists on the books but, in practice, multiple barriers and regulatory obstacles fragment intra-EU trade and hamper economic initiative and innovation. The differential impact of Brexit The Single Market has allowed foreign investors to use the United Kingdom as an export platform for serving EU markets. Access to the EU’s Single Market is a high priority for almost every British manufacturing and services business, but how exactly Britain would keep that access remains unclear at this point. Theresa May indicated that the goal is to have ‘the greatest possible access to [the Single Market] through a new, comprehensive, bold, and ambitious free trade agreement’ (May 2017). Yet the macroeconomic data indicates that the share of UK exports to the EU has fallen over the past decade while trade deficits with EU member states have increased. This has bolstered the British perspective that they would benefit from pursuing their own independent trade policy. In 2015, UK services exports to the EU totaled £88.9 billion, accounting for 40 percent of UK services exports (ONS Pink Book 2016). In 2016, UK exports to the EU were £236 billion, which amounted to 43 percent of all UK exports. UK imports from the EU were £318 billion, amounting to 54 percent of all UK imports. However, the changing nature of trade and production means that the impact of leaving the Single Market on other member states will be more difficult to gauge, as the fragmentation of supply chains, together with the increasing role of services in the economy, has altered the economic relationship between states. Goods and services are often traded within integrated networks and supply chains, which means that trade barriers do not impede the flow of trade operations from production to delivery within the Single Market. In a major survey of businesses involved in supply chain management, 63 percent of EU businesses expect to move their supply chain out of Britain, while 40 percent

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The European Union after Brexit of UK businesses expect that they will replace their EU partners with domestic suppliers as a result of Brexit (CIPS 2017). The uncertainty has already disrupted suppliers and customers, who have seen costs rise due to currency fluctuations as well as cancellation of contracts. This has led some industries to assess how their sector will be able to cushion the fallout from the UK’s withdrawal from the EU. Using the cases of the auto sector and financial services allows us to highlight the complexities of trade in terms of large-scale shifts in production, given the integration of value chains with cross-border and intra-industry trade in auto parts, and the integration of regulatory frameworks and financial passports for banking, insurance and investment management. Both sectors depend heavily on technological innovation in terms of products and processes. In the automotive sector, companies have expressed concerns about the impact of tariffs and rules of origin on the automotive industry’s supply chain, which is highly international, with parts crossing between the UK and the rest of the EU several times. For example, the BMW Mini crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line (Ruddick and Altermann 2017). The automotive sector has exploited the advantages of the Single Market more than any other sector, as it has benefitted from just-in-time production which allows component parts to be shipped quickly without extensive customs controls. They fear several immediate problems post-Brexit. First, many automobile manufacturers fear that there may be a lack of equivalence in inspections and approvals for vehicles that will cause delays (ACEA 2017). Second, car companies avoid rule-of-origin requirements by using components from all European member states without penalties, regardless of where the component is manufactured or shipped. This will change when Britain enters a trade agreement with the EU, as British car manufacturers entrenched in pan-European supply chains are going to face significant regulatory hurdles. Rule-of-origin compliance can be costly, as British companies may not have sufficient local content as they depend on foreign inputs, many of which come from other European member states (Lowe 2018). In response, British manufacturers may invest in local parts procurement and production to offset increased import costs and expand domestic manufacturing capacity. Third, any change in tariffs and regulations may affect the investment decisions of foreign companies, which may relocate their operations into the EU. For Japanese companies, Brexit means a fundamental change in their business strategy, as the Single Market became intimately tied to external trade when Japanese companies invested in Britain to take advantage of market liberalization, beginning in the 1980s. They have now sent strong signals with a stark warning from Japanese Ambassador Tsuruoka that companies such as Honda, Nissan and Toyota would not continue their operations if there is no profitability in Britain (Tovey 2018). Two major Japanese business federations have called for a future close regulatory relationship between the EU and UK, with the EU–Japan FTA to apply to the UK during the transition, and the UK-Japanese FTA to follow the transition

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period (Keidanren 2017; Harding and Lewis 2018). Key German automakers predict potential reductions in exports to Britain, their largest European market, as well as lower returns on their investment costs, as they have a significant number of production facilities across the UK. Not only does Britain represents a fifth of German auto exports, but the employment issue is also significant as German corporate subsidiaries employ 400,000 workers in Britain, while British companies employ 250,000 workers in Germany (Langenbacher 2017). Similarly, the financial service industry is lobbying hard to preserve the City as a global financial center after Brexit. While the service industry constitutes about 80 percent of the British economy, around 8 percent of the workforce are tied to the financial services sector, which employs around two million people. London accounts for more than 50 percent of the gross valued added of the total financial and insurance sector in Britain, resulting in a trade surplus with the EU of GBP 19.8 billion (House of Commons 2019; PWC n.d.). The financial sector has several concerns about the impact of Brexit, with a number of companies already indicating that they may expand operations or relocate services within the EU. First, Britain has benefitted from the single passport where established banks have set up London headquarters for selling services across the Single Market without further authorization. If the banking passport is no longer available, there will be substantial interest from other member states in attracting financial services, as Frankfurt, Paris, Amsterdam, and Dublin are all significant financial centers, albeit far smaller than London. The Financial Conduct Authority indicated that more than 5,500 firms have passport rights, including many foreign firms that have based their European operations in Britain (Arnold 2016). While Britain wants to preserve ‘passporting rights’ through regulatory equivalence, the EU has thus far been reluctant to allow such an arrangement. A number of prominent banks, brokers and insurance companies have confirmed that they will open hubs or relocate to obtain a banking license, including US investment banks Morgan Stanley and Goldman Sachs, and Japanese bank Sumitomo Mitsui, although there is some suggestion that Britain’s lighter financial regulations may continue to attract financial services. Many companies may set up branches in Europe, while still keeping most of their operations in London, in effect creating ‘shell companies’, something which has drawn criticism from the European Central Bank (ECB) (Deutsche Welle 2017). Second, the financial sector has benefitted from serving as the main clearing house for euro- and dollar-denominated transactions. London emerged as an offshore center for euro trading, which meant that the UK suffered no reprisals for not being part of the European monetary union. However, this will change, since the need for oversight of this lucrative clearing business has led both the European Commission and the European Central Bank to push for a new supervisory authority over clearing houses. The global dominance of London in the derivatives market, and the relocation of systemic clearing facilities, has been contentious within member states, as concerns about the



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The European Union after Brexit

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volume of business disruption and financial ­oversight have now emerged from a variety of financial market institutions (Lanoo 2018). There is increasing anxiety that exercising strong European oversight of London post-Brexit without doing the same inside the bloc could undermine an integrated European solution due to competition regarding regulatory and supervisory practices between member states. This would create uncertainty for the many European and American companies that rely on a single supervisory approach that British regulators have in the past provided due to their dominant position in the market (Lanoo 2018). Conflicting aims As negotiations continue, member states have been resistant to British efforts to have a ‘bespoke deal’ or differentiated access that differs from existing free trade agreements. Part of the problem is that any commitment on services that the EU makes to the UK will also have to be extended to other states with FTA – via the so-called Most Favored Nation Clause. Though the Single Market was strongly influenced by British domestic efforts at liberalization, there is little support for providing preferential access to the Single Market after Brexit. For the negotiations, the member states have drawn on the expertise of the Council Secretariat and Commission, remaining united in their view about the integrity of the Single Market, despite the fact that there will be different economic impacts as a result of Brexit. The overall discussions about possible concessions outlined in the draft negotiating guidelines, as well as the mandate for a future relationship, suggest that member states view the process as one of finding a legal and technical solution to British withdrawal. Germany is keenly aware of the negative economic consequences for the German economy. Chancellor Merkel has indicated that the integrity of the Single Market requires acceptance of all four freedoms so that Brexit cannot undermine European unity (Merkel 2017). As much as reduced market access might depress exports, Germany’s financial industry may benefit, especially if Britain loses its Single Market ‘passporting’ rights (Langenbacher 2017). President Macron has warned that Britain’s financial services industry will not have the same relationship in terms of market access post-Brexit, given the centrality of the Single Market (including the customs union) to EU membership, which requires specific legal and budgetary commitments. French concerns revolve around fears that Britain will seek a competitive advantage post-Brexit through lowering taxation and cutting labor standards. Both France and Germany see themselves as custodians of the European project. Though they have different views about economic governance going forward, they understand the historical role of the Single Market as the underlying foundation for the process of unifying Europe. Given the Franco-German stance on Brexit, European officials have followed suit in rejecting Britain’s push for privileged access to the Single Market in select sectors. As chief negotiator, Michel Barnier has stressed that barriers to

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trade will be unavoidable for Britain as it leaves the customs union and Single Market. He has rejected British calls for bilateral agreements to mitigate a no deal Brexit. For the European Union, the Withdrawal Agreement is perceived as the best solution, as it provides a transition phase in which Britain would be required to comply with all the legal obligations of membership by following the rules of the Single Market across all four freedoms. During the transition period, British exporters will lose their preferential access to third countries while foreign exporters from those states will be able to export to Britain under existing European preferential conditions (van der Loo 2018). While France and Germany have large diversified economies, smaller member states face different exposure to the impact of Brexit depending on their existing trade relationships with Britain (Institute of Government 2019). For the Netherlands, Belgium, Austria, and Ireland, the economic impact will be the most significant as they are all very exposed given that their exports to Britain amount to around 10 percent of their GDP. These member states will want to maintain their trade surpluses with Britain, primarily in goods. Luxembourg is concerned about the effects on its financial markets given that 25 percent of its GDP is dependent on access to Britain’s financial sector. Luxembourg-based companies are usually subsidiaries or branches of UK-based firms and will likely ‘branch back’ to the UK where the bulk of activities will remain. For Central and Eastern European (CEE) states, the issues of residency and employment rights are of considerable concern, while Austria, Denmark, Sweden, and the Netherlands do not want to cover the budgetary shortfall created by Brexit (Durrant, Stojanovic, and Lloyd 2018). Attesting to the significance of the impact on domestic economies, there has been some analysis about the aggregate effects on the EU. While the EU as a whole has a larger manufacturing base and stronger export performance than the UK, it is expected that there will be a material negative impact on the Netherlands and Ireland in particular due to their close trade and investment relationship with Britain (The Economist 2019). For the Netherlands, Brexit is both a threat and opportunity. The Dutch are keen to continue their strong trading relationship with Britain. Prime Minister Rutte has expressed his view that the Dutch will now become the champions of the European Single Market in the absence of British ‘voice’. However, the potential GDP losses for the Netherlands are sector specific, with chemicals, plastics, electronic equipment, motor vehicle component parts and food processing most affected. These production losses may be partially mitigated by a new free trade agreement (Bollen, Meijerink, and Rojas-Romagosa 2016). The macro-economic think-tank CPB has estimated that for the Netherlands Brexit will result in a drop of 1.2  percent of GDP over fifteen years, with income loss amounting to one billion euros by 2030 (Johannes, Meijerink, and Rojas-Romagosa 2016). The Dutch may benefit, however, from their business climate in attracting companies wishing to retain a presence in the EU. While Frankfurt is rapidly becoming the location of choice for banks, the Netherlands

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The European Union after Brexit has so far gained from the relocation of the European Medicines Agency (EMA) to Amsterdam. However, the country will face rising costs stemming from non-tariff barriers in big tradable sectors as export declarations, customs formalities and inspections involving sanitary and veterinary standards raise the costs of doing business. KPMG estimates indicate that non-tariff barriers will cost 28 million euros for meat products and 19 million euros for communication equipment per year. Brexit will have an even more adverse effect on the Irish economy. While Ireland has significantly diversified its economic relationships away from Britain over the last 40 years, the UK is still one of its most important individual trading partners (see Barrett et al. 2015; Bergin et al. 2017). Ireland is closely linked to the UK through financial, trade and migration flows and integrated supply chains, as well as cross-border entrepreneurship, and research and development partnerships. As such, Britain accounts for 16 to 17 percent of total Irish exports, while 30 percent of Irish imports and 30 percent of all Irish employment are in sectors that are integrated into the British economy. Prime Minister Varadkar has thus been more conciliatory in wanting a specific relationship that goes beyond existing free trade agreements, as Britain is a primary destination for Irish goods and services. This is not surprising as most analysts suggests that there will be substantial sector-specific losses in food, chemicals, pharmaceuticals, electrical machinery and wholesale and retail industries (Copenhagen Economics, 2018). The Copenhagen Economics study estimates that there would be a 2.8 to 3.4 percent drop in Irish GDP, while the ESRI report indicates a 30 percent drop in exports with total sales in goods and services falling by 4 percent of GDP as a result of Brexit. Some of the costs will be mitigated by sourcing intermediate goods from other member states or from larger inflows of investments when Britain is no longer the location of choice for access to the Single Market. Yet due to Ireland’s integration into global supply chains, much of its value added to exports is shipped through Britain. Withdrawal from the Single Market would further depress cross-border trade in goods, as these would potentially be subject to tariffs as well as customs checks and inspections to determine adherence to European standards and rules-of-­origin requirements. This has prompted shipping companies to seek to displace some of the busy freight traffic between Ireland and Britain to direct continental routes in anticipation of Brexit (Beesley 2018). The British are under pressure to find an acceptable solution, because the fallback option outlined by the European Commission would be to maintain full regulatory alignment with internal market and customs union rules for Northern Ireland, which would de facto undermine the territorial sovereignty and constitutional authority of the British government. The backstop option would require a ‘special status’ for Northern Ireland, which would remain inside the EU’s customs union and continue to sign up to EU rules covering agriculture, goods and excise value-added tax, to avoid a hard border.



Brexit and the Single Market 69

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Brexit and voice: influence in the Single Market To appreciate the impact of British withdrawal on the nature of the Single Market, it is useful to think about how British governments have shaped European policy outcomes that conform to their own interests and approaches (Héritier 1996). The balance of competence review conducted in 2012 concluded that the UK has been broadly successful in enshrining its more liberal economic model into at least some of the DNA of the Single Market (Department of Business, Innovation and Skills 2012). While Brexit can be framed in terms of ‘exit’, membership has allowed Britain to exercise ‘voice’ in different ways. As Börzel notes, ‘member states have an incentive to “upload” their policies to the European level to minimize the costs in “downloading” them at the domestic level’ (Börzel 2002, 196). In her view, member states can be pace-setters through actively pushing policies at the European level, foot-draggers by blocking or delaying policies, or fence-sitters by neither pushing policies nor blocking them at the European level. As a pace-setter, Britain has promoted its vision of the Single Market, repeatedly pushing for liberalization of services, building on its own domestic liberalization efforts across a range of industries, from telecommunications to airlines. Britain has been at the forefront of shaping the business and regulatory environment in Europe. While arguments over excessive regulation are often a central issue in Britain’s attitude towards Europe, Britain has been at the forefront of efforts to cut ‘red tape’. Britain has played a significant role in shaping the European regulatory framework, advocating for regulatory reform and greater scrutiny of regulatory proposals ‘to ensure that the EU regulatory framework is, and remains competitive in global marketplace’ (Department of Business, Innovation and Skills 2014). Britain garnered support from eighteen member states to slash burdens on business. The European Commission responded by cutting pending legislative proposals, creating an independent Regulatory Scrutiny Board, and embracing regulatory simplification. The Germans backed David Cameron’s calls to boost competitiveness, encourage open trade relations, and cut red tape in the Single Market as part of their negotiations ahead of the referendum. Britain’s role in shaping the Single Market extends to other areas. Britain has exercised its voice in promoting the services directive, even though it fell short of its initial ambitions (Barnard 2018; Chang, Hanf, and Pelkmans 2010). In fact, Britain was used as a testing ground for the implementation of the Services Directive (Barnard 2018). For UK service exports, the smooth functioning of the services market is critical, as services trade has grown significantly in recent years, with service exports rising from 31 percent of all exports in 1999 to 44 percent in 2015. Despite the structural change in the economy towards services, the lack of productivity growth in this sector was largely due to strict regulation and related high entry barriers. However, Britain has faced tremendous foot-dragging from Belgium, France and Germany, as the issue of services

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The European Union after Brexit is directly related to workers’ rights since it implies not only border-crossing by products but also labor mobility. The  anti-liberal discourse framed by the French  politicized reform efforts, prompted the European Commission to be responsive to such contestation by subsequently watering down its proposal for services liberalization, despite the support it received from new member states and Britain, which favored a more neoliberal directive (Crespy 2010). Similarly, the British have been highly influential in promoting a more open market in audio-visual media services,  and pushing for a digital Single Market,  which reflects their specific strengths in these areas (Barnard 2018, 214). While Britain has been a strong advocate of a single financial services market, its ‘pace-setting’ role in financial services has been tempered by concerns over the implications of further Eurozone cooperation through tighter fiscal and regulatory cooperation to accompany monetary union (Howarth and Quaglia 2016). While Britain has pushed for capital markets union, it has been a ‘fence-sitter’ on banking union due to concerns that such a union would disrupt the Single Market in financial services. It has been a ‘foot-dragger’ on specific elements of financial services that it views as hostile to the position of London as the premier European financial center (Howarth and Quaglia 2016; Quaglia 2017). While the onset of the euro crisis increased fragmentation of financial markets and emphasized the division between those inside and outside the Eurozone, Britain questioned how the banking union and Single Market would operate together. Britain was one of only two member states not to sign the new ‘fiscal compact’, and sought to ensure that the closer economic and fiscal coordination among the Eurozone would not negatively impact its influence, particularly in relation to the Single Market. Yet there is a sense that Britain has lost influence in some areas, as it has been reluctant to accept the financial transaction tax and the working time directive. The British government in both instances filed legal complaints to nullify these European legislative efforts. In the case of the financial transaction tax, Britain vetoed the proposal, losing its legal appeal that initiatives within the Eurozone can be blocked if they are detrimental to British interests. The Court did rule that the British could subsequently challenge the agreement once adopted (Barker 2014). Britain gained concessions in the working time legislation through exemptions of certain workers from the provisions of a 48-hour maximum week (Martinsen 2015, 104). Despite efforts to accommodate Britain, the government subsequently sought an annulment, seeking to block the legislation through a challenge to its legal basis that was subsequently dismissed. Britain has repeatedly sought to challenge the working time provisions, forcing a second judgment that travel time constituted working time under the law. Britain’s repeated ‘foot-dragging’ on this European labor law means that these European employment rights that have been viewed as impeding the flexibility of labor markets will be a priority for repeal post-Brexit.



Brexit and the Single Market 71

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Impact on European economic governance Britain has been a strong champion of the Single Market, so its departure could impact the future direction of European economic governance, as a lot of product markets and service markets are still overly protected in Europe. While the emphasis in much of the current literature has been on the negotiating dynamics, there has been less attention to the effects of Brexit on the future of the Single Market itself. While Brexit has generated a lot of uncertainties for many industries and sectors, a great deal depends on the final agreement. There are several possible options, including a bilateral trade agreement with the EU along the lines of the Swiss- or Canadian-style trade agreements, where trade in services is not liberalized, or the UK exercising its rights under the most favored nation (MFN) clause of the WTO. The latter may prevail due to the emphasis on the unity of the Single Market in terms of concurrent application and indivisibility across the four freedoms, which could become a roadblock to a possible solution between the UK and EU (Barnard 2018, 203). Other free trade agreements do not depend on the four freedoms operating concurrently, so Britain is seeking to promote a more differentiated model, driven by the realities that there are derogations in the treaty framework, as well as areas where the Single Market has allowed for national treatment or discretion. More realistically, Brexit will create problems of regulatory alignment in the future. The goal of the Single Market is to ensure that trade barriers no longer impede the whole process from production to delivery. This will be especially pertinent for the customs border arrangements between Northern Ireland and the Irish Republic as they will likely face restrictions on trade and labor flows. The degree of regulatory alignment will also have implications for many areas of banking operations, and will inevitably impact investment decisions as capital may shift towards Frankfurt, or elsewhere in Europe, as the attraction of the Single Market may entice financial firms to shift their base from London. So far, Brussels has conceded to zero tariffs and quotas on the flow of goods, but that does not differ much from the type of access given in other recent free trade agreements to third countries. Yet the impact on the future direction of the Single Market may be significant, because Britain was a key player in promoting domestic competition and liberalization. The choice to ‘exit’ is viewed domestically as a viable solution as there are outside trading options available through the ideational repertoire of ‘Global Britain’. Britain wants to forge its own trade strategy through negotiating trade deals with a variety of partners. It has used this narrative to express the perceived economic opportunities beyond Europe, which discourse has been important in framing domestic debates. However, the European Union wants to reduce the prospect that this is an attractive option by stressing that Brexit endangers past and future gains derived from access to the Single Market. While Britain has never expressed sustained ‘loyalty’ in terms of attachment to its

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The European Union after Brexit membership of this international organization, it has exercised ‘voice’ in relation to Single Market initiatives, exercising selective ‘exit’ in specific areas (e.g., monetary union, Schengen, transaction tax) (Hirschman 1957). While Britain enjoyed support from the Netherlands and Sweden in pushing a neoliberal market agenda, France and Germany have been more resistant, leading to concerns that the EU may become more protectionist in specific areas of economic governance in the long term. This is especially salient as the Single Market remains uneven in terms of its scope and uniformity of application. While the European member states tout the centrality of the four freedoms, in reality the degree of labor mobility is much smaller than in the US, and the services market remains highly protected and incomplete. Britain was a ‘pace-setter’ in many of these areas, ironically leaving now that the EU is pushing many of its favored issues, such as the digital Single Market, public procurement, and services liberalization. Britain has also been a ‘foot-dragger’ in terms of labor rights, from its initial opt-out of the social charter to its sustained opposition and legal challenge to the working time directive. Britain has rarely been a ‘fence-sitter’ but it has done so most notably in setting out its ‘wait and see’ approach for joining monetary union, while letting others go ahead with the euro. The case for Britain staying inside the EU had come to rest almost solely on Britain’s membership of the single European market. Despite British leadership in many Single Market issues, the Leave narrative that British interests had been diminished through its membership of the EU prevailed. Yet, at the time, it was unclear that this would mean leaving the customs union and Single Market, as some thought that the economic arguments about the damage to the economy might push Britain into staying in the Single Market. Britain has long felt that its institutional preferences have diverged from those of other member states, particularly France and Germany, due to its non-membership of the Eurozone. What is important is that the Leave discourse stressed the ability to promote a distinctive national regulatory regime which will provide the institutional foundations for comparative advantage after Brexit. This narrative depended on an emotive framing of Britain’s international economic policy initiatives through a highly nationalized lens. For the EU, the absence of Britain will mean that Eurozone members will have more power to drive economic and financial policy in the bloc, although there will continue to be a push for liberal economic policies from specific member states. The salience of specific issues will vary depending on internal coalitions of support. Ironically, the British departure has generated renewed interest in the Single Market, highlighting the impact on competition and trade between member states, while underscoring the potential economic gains by addressing barriers in areas as diverse as tax, private law, electronic commerce, and logistics. Closer integration requires buy-in from member states. While EU summits always acclaim the virtues of the Single Market, opinion polls suggest that no other member state shows a majority in favor of following the British exit. To dismiss British concerns, however, needs

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more careful nuance about the British economy and its model of capitalism. In fact, European companies face real constraints if they want to leverage the Single Market to compete globally. While German and French firms have expanded both within and outside of Europe, British firms differ in that they have not only focused more intensively on global expansion, but have also reduced their relative presence in Europe. The core of the British economy, which is the services trade, is less affected by tariffs and customs checks, so the British pursuit of selective regulatory equivalence (or to use the much referenced phrase ‘cherry-­ picking’), makes sense, as these non-tariff barriers are especially important for British economic performance. Conclusion Brexit is a specific national symptom of the broader global economic crisis in which the perceived economic and institutional failings of the European Union have led to a historical vote in Britain to leave the regional bloc. Yet the literature has overwhelmingly focused on the perceived policy debates and institutional divisions within Britain over the ‘exit’ options. There is no historical precedent for exiting such a large market that has sought to remove internal barriers through a combination of liberalization, mutual recognition, and harmonization. Yet even as Europe sought to create a Single Market, there were wide ideological differences about the proper economic policies to determine the appropriate balance between the state and the market (Jabko 2006; Egan 2015; Menz 2003). While Britain pressed for selective market access in industrial goods, third-party equivalence in financial services, a common rulebook on state aid and provisions to avoid discrimination in the provision of cross-border services and investment, that ‘selective liberalization’ model is now being used against it as the European Union touts the ‘indivisibility’ of the four freedoms of the Single Market. While Single Market integration has proceeded at different speeds – with ‘selective market liberalization’ in services and labor and deeper integration in goods – the integrity of the Single Market is viewed as fundamental to the European project. There is strong consensus among member states that the absence of Britain will not undermine decades of economic integration. German industries have argued for the integrity of the Single Market, effectively undercutting hopes for a preferential settlement, by arguing that it is the responsibility of the British government to avert negative effects on British business. Dutch industries have argued for more flexibility across the Single Market for goods, while Luxembourg has pushed for pragmatism in financial services. Irish firms have focused on their market exposure as they are keen to avoid disruptions to supply chains and losing access to their main market. Brexit presents both a challenge and an opportunity for member states. Member states are preparing for a ‘no deal’ as ‘there is no certainty that an agreement can be reached’ (Barker 2018; European Commission 2018). While

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The European Union after Brexit Frankfurt, Dublin, and Paris are keen to grab a larger share of the lucrative ­markets for financial services, France and Germany are currently engaged in a battle for the profitable euro clearing market. Luxembourg is concerned about more stringent financial regulations; despite support from Belgium, the Netherlands and Ireland, the loss of Britain to this coalition is significant. American banks might simply repatriate jobs to New York once London no longer offers the advantage of Single Market access. In fact, the presence of Britain has been important for countries outside the Eurozone, as Denmark and Sweden have relied on the largest non-euro member of the bloc to protect their position on banking union, while Sweden and the Netherlands stand to lose a powerful pro-business ally as Europe may tilt towards issues of social and labor rights. The coalition of liberal market economies is expected to become weaker, while post-socialist member states will be further marginalized, as they depend heavily on access to the British labor market. There are concerns that the absence of British ‘voice’ will revive old ‘statist’ ambitions, where vital strategic interests are touted as a means of undercutting cross-border takeovers. Such protectionist elements have emerged most notably in France, but have also gained traction in Italy, Germany and even the Netherlands (Bolkestein 2017). And in the labor field, the European Union has recently passed legislation aimed at addressing the undercutting of local wages and working conditions due to free movement of labor. While Britain has been ‘foot-dragging’ on this issue, it highlights the continued splits between East and West over the Single Market that will persist post-Brexit. Yet it has been successive British governments that have consistently pushed for differentiation and flexibility in key policy areas outside of the Single Market. While Brexit may act as an incentive for some other countries such as France and Germany to advance the integration project more vigorously, further action on the Single Market may be more modest given the absence of a strong neoliberal ‘voice’. Despite its perceived success, the Single Market has been muted by remaining barriers, as the continuing fragmentation of digital, energy, and capital markets harms the flow of goods as well as constrains the growth of services. Without a doubt, European integration balances different economic preferences and orientations. While Britain advocated a Single Market model of flexible labor markets, continued services liberalization, heavy reliance on financial markets and openness to foreign direct investment, Germany prioritized export growth for manufacturing, high tech firms and tradeable services, budgetary surpluses and coordinated labor markets. The Single Market advantaged those countries such as Germany with an export growth strategy around rules-based fiscal governance and cost-based competitiveness. Britain experienced unbalanced growth, with a dynamic financial sector but depressed wage rates in low skilled sectors, which was exacerbated by free movement of people in the enlarged Single Market. As Britain tries to repatriate decision-making authority to the domestic level, there are concerns about the negative fallout of Brexit. This raises deeper

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questions about the future trajectory of the Single Market, which was built on a model of political economy that has been radically amended over the past three decades. The Single Market, viewed as a response to globalization, was built on the goals of market efficiency and increased competitiveness. This, of course, is still important but the extent to which British regulatory policy will align with, or diverge from, that of its main trade partners, after decades of embeddedness within European norms, will have a significant impact on future trade relations. Member states will need the infrastructure in place to verify and accept that British products and services meet European Single Market rules and standards, as well as determine rules of origin to assess levies and tariffs. There is a strong case for greater flexibility on the European side as the emphasis on process ignores the heterogeneity that exists across the four freedoms as well as the varied template of political and legal arrangements that the EU has constructed with its existing trade partners. Notes 1 I wish to thank the Wilson Center and the Council of Foreign Relations for their support of this project, as well as the editors for their helpful comments. 2 There are methodological disagreements as well as different assumptions underpinning the projections on the macroeconomic consequences of Brexit among economists.

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The European Union after Brexit Institute of Government. 2019. ‘Other EU Countries’ Preparations for No Deal’, 12 June, https://www.instituteforgovernment.org.uk/explainers/other-eu-countriespreparations-no-deal. Jabko, Nicolas. 2006. Playing the Market: A Political Strategy for Uniting Europe. Ithaca, NY: Cornell University Press. Japanese Foreign Ministry. N.d. ‘Japanese Message to Britain and the European Union’, http://www.mofa.go.jp/files/000185466.pdf. Keidanren, Japanese Business Association. 2017. ‘Keidanren’s View on Brexit’, http:// www.keidanren.or.jp/en/policy/2017/027.html. Lamy, Pascal. 2018. Testimony before the House of Commons Exiting the EU Committee, 27 February, https://www.parliament.uk/business/committees/com​ mittees-a-z/commons-select/exiting-the-european-union-committee/news-parlia​ ment-2017/director-general-world-trade-organisation-evidence-17-19/. Langenbacher, Eric. 2017. ‘Tschüss, Perfidious Albion: German Reactions to Brexit’. German Politics and Society, 36:3, 69–85. Lanoo, Karel. 2018. ‘The EU’s Plan to Shift Clearing Out of London Risks Disaster’. Financial Times, 14 March. Lowe, Samuel. 2018. ‘Brexit and Rules of Origin’. Centre for European Reform, https://www.cer.eu/insights/brexit-and-rules-origin-why-free-trade-agreements%E2%89%A0-free-trade. Martinsen, Dorte. 2015. An Ever More Powerful Court? The Political Constraints of Legal Integration in the European Union. Oxford: Oxford University Press. May, Theresa. 2017. Lancaster House Speech, January, https://www.gov.uk/government/ speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech. Menz, Georg. 2003. ‘Re-regulating the Single Market: National Varieties of Capitalism and their Responses to Europeanization’. Journal of European Public Policy, 10:4, 532–555. Merkel, Angela. 2017. Speech at Deutscher Beamtenbund, Cologne, January, https:// www.dbb.de/teaserdetail/artikel/merkel-unsere-lebensqualitaet-haengt-vom-oeffen tlichen-dienst-ab.html. Monti, Mario. 2010. ‘A New Strategy for the Single Market at the Service of Europe’s Economy and Society, Report to the President of the European Commission’. Brussels, 9 May, https://www.irpa.eu/en/a-new-strategy-for-the-single-market/. Nicolaïdis, Kalypso, and Susanne Schmidt. 2007. ‘Mutual Recognition “On Trial”: The Long Road to Services Liberalization’. Journal of European Public Policy, 14:5, 717–734. OECD (Organisation for Economic Co-operation and Development). 2015. ‘Economics Department Working Papers Update on Product Market Regulation’, http://dx.doi. org/10.1787/5js3f5d3n2vl-en. OECD (Organisation for Economic Co-operation and Development). 2016. ‘The Economic Consequences of Brexit: A Taxing Decision Policy’, http://www.oecd. org/eco/the-economic-consequences-of-brexit-a-taxing-decision.htm. ONS (Office of National Statistics). 2016. Pink Book, https://www.ons.gov.uk/ economy/nationalaccounts/balanceofpayments/datasets/1summaryofbalanceof paymentsthepinkbook2016. Pettifor, Andrew. 2017. ‘Brexit and its Consequences’. Globalizations, 14:1, 127–132. PWC Brexit Monitor. N.d. Impact of Brexit on (Global Trade).

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Quaglia, Lucia. 2017. ‘European Union Financial Regulation, Banking Union, Capital Markets Union and the UK’. SPERI Working Paper, University of Sheffield, January. Ries, Charles P., Marco Hafner, Troy D. Smith, Frances G. Burwell, Daniel Egel, Eugeniu Han, Martin Stepanek, and Howard J. Shatz. 2017. ‘After Brexit: Alternate Forms of Brexit and their Implications for the United Kingdom, the European Union and the United States’. RAND Corporation, Santa Monica, CA, https://www.rand. org/pubs/research_reports/RR2200.html. Ruddick, Graeme, and Philip Altermann. 2017. ‘A Mini Part’s Incredible Journey Shows How Brexit Will Hit the UK Car Industry’. Guardian, 3 March, https://www. theguardian.com/business/2017/mar/03/brexit-uk-car-industry-mini-britain-eu. Scharpf, Fritz. 2010. ‘The Asymmetry of European Integration, or Why the EU Cannot be a “Social Market Economy”’. Socio-Economic Review, 8:2, 211–250. Smith, Mitchell. 2005. States of Liberalization. New York: SUNY Press. Stráský, Jan. 2016. ‘Priorities for Completing the European Single Market’. OECD Economic Department Working Papers, Paris, July, https://doi.org/10.1787/ 5jlv2jhfnt48-en. Toplensky, R., and A. Barker. 2018. ‘The Franco-German Deal that Could Derail Europe’s Competition Police’. Financial Times, 14 June. Tovey, Alan. 2018. ‘Japan Issues Stark Warning on Trade Deal after No 10 Meeting’, The Telegraph, 8 February. Treanor, Jill. 2017. ‘It’s Frankfurt … and Paris: Goldman Sachs Names Post-Brexit Hubs’. Guardian, 20 November. Van Apeldoorn, Bastiaan. 2000. ‘Transnational Class Agency and European Governance: The Case of the European Round Table of Industrialists’. New Political Economy, 5:2, 157–181. van der Loo, Guillaume. 2018. ‘Impact of Brexit on EU International Trade Agreements’, Testimony to House of Commons International Trade Committee, 24 January, http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocu ment/international-trade-committee/continuing-application-of-eu-trade-agreem ents/oral/77638.html. Vogel, David. 1997. ‘Trading Up and Governing Across: Transnational Governance and Environmental Protection’. Journal of European Public Policy, 4:4, 556–571.

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Social Europe after Brexit Scott L. Greer

‘Social Europe’ has always been hard to pin down.1 Born as a putative counter­ weight to the market-making focus of the Single Europe Act, it was always diminished by the difficulty of refashioning a largely market-focused EU into an agent of social protection, and by the impossibility of genuinely pooling risks and resources between people of different countries (Greer and Sokol 2012). The result was that it was often misunderstood, with genuine accomplishments in areas from gender equality to working hours to infrastructure in peripheral Europe underrated amid frustration. Neither was it as politically popular and powerful as its advocates often suggested. Even before the 2008 financial crisis, EU member states, predominantly of the right, pressed the EU to focus on ‘competitiveness’ and economic growth, with social policy often viewed just as costs, and only occasionally as contributors to growth. The aftermath of the financial crisis weakened the social Europe agenda even further, as member states and European institutions focused on austere fiscal and social policies, and on market deregulation. The idea nonetheless lives on – and it might be strengthened, becoming more precise and more effective, in an EU without the UK. This chapter first discusses relevant underlying social dynamics within the EU, principally to do with labor mobility, and how Brexit will change them. The UK has been the labor market of last resort for the continent for some years, and that has shaped careers, life chances, and policy options for all EU member states. Without the UK labor market as part of Europe, options for Europeans, and for British policymakers, will change. In general, it will be negative-sum. The chapter then turns to politics, working through the consequences for the EU social policy of subtracting the UK. The loss of the UK is a blow to the northern/eastern liberal bloc in the EU, and will empower France. The consequences for social policy over time might be dramatic. Agenda-setting will



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change to reflect the new veto players, and what might have been non-decisions might become decisions. Blame-avoidance techniques will change without the UK around to attract blame for liberalization. This should shape the content of policy, not just to reflect any shared Franco-German preferences but also to reflect an agenda in which the presence of the UK does not quash alternatives or enable liberal projects.

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Social dynamics The UK has long been the labor market of last resort for Europe. It has a relatively flexible and open labor market with relatively effective antidiscrimination and merit-based hiring procedures in many organizations (Favell and Barbulescu 2018). This lightly (often too lightly) regulated labor market means that jobs are relatively accessible compared to those in many EU member states, even if they are by continental standards often precarious jobs. Britain’s lack of a strong and systematic training regime, which is by many standards a problem, at least means that it can easily integrate immigrants and their skills, as compared to the problems that the ‘German skills machine’ has in making best use of immigrants who were not tracked into the system during their school years. The UK’s liberal labor market also means that workers in sectors with high marginal revenue, such as finance and law, are paid very well. Finally, it is a large country. It can absorb a large number of immigrants into its population. The effect is that the UK labor market took a large share of European Union migration before the 2004 enlargement, and even more pronouncedly since then. Further, it has taken immigrants at all skill levels, from unskilled labor to highly skilled professionals. Migration often works through networks, and so once there are a group of migrants from a given country in a particular place, they will facilitate more migration. The result is that migration flows are substantially path-dependent and often point to the UK. This has been in many ways a boon both for the UK and for individual migrants. For the UK, being a source of relatively desirable and accessible jobs with unusually low migration costs has allowed it to underpay for many positions relative to the international average. Coase’s ‘make versus buy’ decision applies to population as well as the firms studied by Coase, and the UK has been able to avoid the cost of producing enough of its own skilled labor by buying in Europeans (Coase 1937). In highly skilled professions such as health care and science, the UK has been able to buy itself globally high-quality services at a lower price than it would pay if it were competing with the United States. For individual migrants, the exit option was often a rational response to the problems of their home country and the options available elsewhere. Take the example of the healthcare workforce (Glinos 2012). In some European countries there was simple overproduction: the education of more nurses, for example, than the health system could employ. This led to emigration by

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The European Union after Brexit skilled healthcare workers. In others, the pay was simply better abroad. In many further cases, the work is more interesting in richer countries and bigger, more diverse populations – while a London teaching hospital is a stressful work environment, it also affords a rare level of exposure to cutting-edge medicine and interesting patients. The contrast with conditions at home could be dramatic. Soviet medicine, which was imposed on the Baltic states and to some extent exported to other Central and East European (CEE) countries, converted medicine into a relatively low-status, heavily managed, and largely feminized profession. Compared to that sort of workplace, almost any Western European country offers more attractive options. In all of these cases, the UK’s size, relatively interesting workplaces, bureaucratized meritocratic hiring with a strong antidiscrimination norm and relatively good pay made it attractive – and the EU substantially reduced the transaction costs to employer and employee of contracting a person from another member state (Favell and Barbulescu 2018). The likely losers under this arrangement were those who did not benefit from this very competitive UK labor market: countries of emigration and less competitive UK citizens. Countries that experienced significant labor loss, mostly those in the south and east of the EU, faced a series of problems: loss of prime working age, and often well-educated, citizens led to difficulties staffing and building enterprises and providing public services, and created longer-term worries about how to finance pension and social welfare in countries that have low birthrates and high emigration. It is very unclear how most CEE and southern European countries can finance their pension liabilities with their current demographics. British citizens who could not compete with the wages or skills of immigrants might not have felt that they were being sufficiently compensated by lower prices and general economic growth. Third-country nationals (e.g., citizens of India) might also be considered losers if we assume that the UK, without EU immigration, would recruit their citizens instead. That motivated the votes of some in Britain who feel more kinship with people outside the EU, but it misread the politics of immigration, which was about ethnicity, race and national identity, more than specific resentment of EU citizens (Favell and Barbulescu 2018). Brexit, in the hands of British politicians who read polls suggesting a very high level of concern about immigration, has taken on the attributes of an anti-immigration policy. After decades during which those who endorsed and benefitted from immigration dominated UK politics, the situation reversed over the last decade. Theresa May’s flagship policy of creating a ‘hostile environment’ for undocumented immigrants has been successful in creating a hostile environment for almost all immigrants. As a result, Brexit is likely to mean a slow end to the UK’s role as the labor market of last resort. That will raise the price of labor for the UK – if UK employers want to recruit doctors or professors internationally, they will have to compete with the United States on salary and Australia on lifestyle. This might induce the UK to invest more seriously in

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training its own workforce, though that seems unlikely given the track record of the UK in training and its political elites’ tendency to view education as a private investment for private gain (e.g., in its tuition fees policy). These changes will all be slow and will work on the margins – in the economics sense of the marginal case. There is tremendous stickiness in social relations, and we will not know the speed of the changes due to Brexit for some time. But change happens on the margins, and changing the probabilities of EU member state citizens coming to or staying in the UK changes the constraints and opportunities for the UK, member states, and people. What will the end of the UK labor market option mean for Europe? In a perfect world, this would be an opportunity for EU member states that have exported migrants to address the push factors that led their citizens to leave. In practice it is hard to see how the loss of the UK exit option will induce Italy to reform higher education hiring or compel Bulgaria to make working in the state health system more attractive. Neither resources nor domestic politics point to that. The individual migrants who would have been able to take advantage of migrating to the UK will not only lose that option, but are also unlikely to find better options at home. Returning home in order to suffer from a skills mismatch is a waste of human capital, and wasting human capital does not make it easier to pay for future pensions. It is possible, and possibly desirable, of course, that returning migrants themselves will address this problem by bringing and exercising skills even in jobs for which they are over-skilled, thereby improving the skill profile and performance of the organizations which hire them. One option is that migrants who want to leave the UK, or who would have gone there were it not for Brexit, enter the labor markets of other EU member states. A few medium-sized countries such as the Netherlands, Ireland, and Sweden run relatively meritocratic labor markets, but their populations, added together, are half that of England alone. Even highly skilled migrants find it very hard to surmount the obstacles to establishing a stable life in the Netherlands, and tend to leave after a fairly short stay (Favell 2014). France and Germany are the countries with the size to potentially absorb large numbers of migrants, and Germany in particular does already have large numbers of working citizens from other member states. The problem with both these countries is that large numbers of their jobs are inaccessible due to training, regulatory, and hiring issues, or can only be accessed at the price of precarity (e.g., through temporary workers’ contracts). Nor are their politics necessarily going to lead to a welcome for new migrants from other EU member states. One of the few consistencies of French politics in the twenty-first century is all parties’ reluctance to accept new immigrants. In short, Brexit is likely to be negative-sum from the perspective of the welfare state. In terms of staffing the welfare state, the UK has been able to draw on the mobile workers of a continent, at relatively low wages, because it could outcompete domestic employers in meritocratic hiring, pay, and often the quality

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The European Union after Brexit of the workplace. The UK in aggregate also benefitted from the immigration of Europeans who did not happen to be professionals in health or education, since a large population of working-age and often skilled people could lower wages and increase competition. The losers under this arrangement were UK citizens exposed to unwanted competition, arguably third-country nationals, and EU member states facing a brain drain that could undermine their ability to finance and staff their own welfare states. Now, the UK, which immigration allowed to underinvest in education and training, will need to educate and train more, or pay better in order to recruit staff on the open market while drawing on an economy undermined by Brexit. The alternative is to just see itself decline in both services such as health care and some of the key high-end services exports where it has done well in recent decades, such as higher education. Other rich EU member states have an opportunity to gain immigrants who could staff or work to finance their welfare states, but labor markets, housing markets, training systems and the rise of xenophobic politics could make this difficult. The demographic problems of the EU exacerbate the challenge. The first EU problem is that many of its member states are in headlong demographic decline, and some of the member states with the steepest demographic declines are among the most reluctant to accept immigrants (e.g., the Visegrád states). Broadly, ageing societies have specific though sometimes overstated sustainability challenges. In the context of the EU, migration can make it worse: many peripheral southern and eastern states have seen the exit of many of their skilled young (11 percent of the population of Romania has emigrated during EU membership). Given that the EU has no mechanism for sharing the costs of welfare states, who is supposed to support older citizens in states that are losing population? Many CEE states look relatively good in terms of international statistics about the sustainability of their pensions because their pensions are so minimal, but that only masks and privatizes the scale of the challenge of ageing societies with low birthrates, poor public health, and serious out-migration. So far we have spoken of just numbers, but once again, skills profiles matter. Demographers and policymakers customarily speak of welfare state sustainability in terms of simple ratios of working-age to non-working-age populations. This of course ignores productivity. More productive working-age people can sustain more non-working-age people. Thus, if a country in steep demographic decline such as Austria can maintain high and growing productivity per worker, it can maintain an extensive welfare state. Forgetting productivity also, however, means that migration is misinterpreted. The ‘German skills machine’ depends on long-term employment for many workers who were tracked into training and education and apprenticeship early in their lives. It is not set up to make the  best use of a newly arrived 30-year-old pharmacist from Syria or even a Spaniard with a new master’s degree. Many of the European countries with the highest productivity per worker have such high productivity precisely because of their deliberately rigid skills systems. Their ability to integrate migrants at high



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levels of productivity is unclear. Research on integration and political economy is not well integrated either (Afonso and Devitt 2016), which limits our ability to predict the impact of Brexit on EU labor markets, but Brexit will at least be an opportunity to study the interaction of welfare states and migratory flows in a crucial case.

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Policy The European social model is already gone Mario Draghi (cited in Greer and Jarman 2016b)

What, then, of policy and politics? This section discusses the ways EU social policy can be expected to change in light of Brexit, including the ways that the agenda and non-decisions change.2 What is EU social policy? EU social policy does not look or work like the social policies of the member states. The problem of comparability that shapes EU studies is particularly important here (Dehousse 1994). The EU cannot be simply compared to its member states because it does fundamentally different and generally more limited things (if there is a source of comparisons, it is in comparative federalism). Thus, its social policy reflects three major attributes of the EU. First, the EU is a regulatory polity (Majone 1996). Regulation, rather than expenditure or direct action by its own staff, is the basic EU policy tool (Page 2001). Second, the EU has a structural bias towards market-making rather than market-correcting or market-­compensating activities. This is its basic constitutional asymmetry (Scharpf  2010; Streeck 1996) – indeed, the mobility of goods, services, capital and people has often been put forward as a sort of constitutional principle in EU law. The asymmetry was visible in the constitutive treaties of the EU but has developed and been reinforced by decades of politics from the Single Europe Act to the Maastricht Treaty to the Treaty on Stability, Coordination, and Growth. The tendency of these treaties has been towards broadening and deepening the internal market and restraining member state policy autonomy in economic matters. Third, European integration and EU public policy are heavily judicialized. Without the actions of its courts, in alliance with member state courts, the evolution of the EU and the specific contents of its social policies would be very different (Stone Sweet 2004; Alter 2001; Vauchez 2013; Hervey, Young, and Bishop 2017; Kelemen 2011; Jarman 2018). The result is that most EU social policy is subject to regulation of some sort, often fleshed out and expanded by the courts, and with nondiscrimination and the internal market as key goals. Resulting legislation ranges from minimum standards on workplace health and safety, for example, the Working Time Directive, to equalities legislation covering topics such as age and gender discrimination,

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The European Union after Brexit to a variety of cases and laws promoting and easing the cross-border mobility of goods, services, capital and people. Some of these laws, such as the Working Time Directive, establish an effective floor on working conditions. Others, such as the application of nondiscrimination law to welfare states, have expanded the rights of EU citizens to access other member states’ welfare systems, a provision that is important for European integration but hardly the re-embedding of markets in welfare systems that some authors have imagined (e.g., Caporaso and Tarrow 2009; for a response, see Höpner and Schäfer 2010). It is, rather, part of a system in which the EU sets broad ‘rules for rights’, defining outer limits for an acceptable welfare state derived from nondiscrimination (Greer and Sokol 2012). The Court’s contributions, subject of a giant literature in their own right, have often had their biggest effects on social policy via its application of nondiscrimination, whether helpful (in application of gender equality law), harmful (in the undermining of collective bargaining, e.g., the Viking and Laval decisions) or costly and inconvenient but essentially meaningless to social welfare (as with health-care patient mobility). As a result of these first three attributes, member states’ social policy is signally lacking in the key characteristic of a modern welfare state: expenditure. Pensions, health, education, income security, family policy and everything else welfare states do involve spending a lot of money. That is why social expenditure as a percentage of gross national income (GNI) for the Organisation for Economic Co-operation and Development (OECD) countries in 2015 was 21.2 percent, with EU member states mostly clustered between 25 percent and 30 percent of GNI spent on social welfare, accordingly to the OECD’s Social Expenditure (SOCX) database. Contrast the EU. The EU budget has for some years been capped at 1 percent of the GNI of the EU. In 2018 Politico wrote of the Commission’s budget proposal that it ‘smashes through the previous budget cap of 1 percent’ (Herszenhorn and Bayer 2018). The proposed new percentage of GNI that called for such comic-book language was … 1.114 percent of GNI. In fact, 1.114 percent of the EU GNI is a large absolute number, but phrased in the more useful language of percentages, it is a tiny fraction of social policy expenditure in any member state. It goes without saying that the 1 percent cap was a signal demand of the UK in previous negotiations, but also that other member states were willing to support or accept it with the option of blaming the UK for any perceived inadequate expenditures. Further, when the EU moves beyond regulation in social policy, it acts through subsidies such as structural and cohesion funds (its large agriculture budget is only very distantly any kind of a social policy). These funds, ostensibly to encourage convergence among member states and territories while cushioning specific shocks of market integration, are also useful as side payments for member states. They essentially go towards infrastructure, which is somewhat beside the point in a social policy sector dominated by wage bills (e.g., in health

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and education) and transfers (e.g., in pensions and unemployment insurance). At the time of writing, discussions of the EU multi-year financial framework (MFF) include the idea of introducing conditionality into structural funds. This would be a way to punish democratic backsliding among aid-dependent CEE countries whose budgets benefit greatly from EU funds, especially Poland and Hungary, by linking their aid to some minimal standards of democratic behavior. The scale of EU funds as a percent of GDP varies widely across the EU. It can be very large in states of more recent accession and is a major political resource in the hands of one of those governments. The regulatory state and structural funds together paint a picture of the EU in social policy until about 2010, when the Eurozone debt crisis was an opportunity for a major increase in regulatory ambition over member states combined with a strong distrust of social expenditure entrenched in policy. Since 2010 the member states of the EU have opted to increase the breadth and ambition of its role in social policy through fiscal governance mechanisms – a great expansion of the EU’s fiscal regulatory state (Schelkle 2009; Greer and Jarman 2016a). The Eurozone crisis, and the response of a coalition of center-right governments aligned with Germany, led to a renewed focus on avoiding ‘moral hazard’ in the currency union by pairing limited bailouts of debtor countries with a strengthened legal framework intended to prevent profligacy and imbalances in the future (the fact that this approach was underpinned by a farrago of national stereotypes and moral fables is not, for current purposes, relevant) (Brunnermeier, James, and Landau 2016; Dyson 2014). The result was an effort to make the existing, and demonstrably ineffective, framework of the Stability and Growth Pact more effective by increasing the automaticity of its punishments and the breadth of its surveillance of member states, including a new Macroeconomic Imbalance Procedure (MIP) whose purpose is to prevent the kinds of bubbles that afflicted Spain and Ireland before the crisis. Tellingly, the German current account surplus, noted in Commission reports on the MIP, is not leading to any disciplinary action against Germany. That is unsurprising for political reasons, though the German surplus is arguably both the largest macroeconomic imbalance in today’s Eurozone, and would be the most pleasurable problem to solve since all it requires is greater German domestic consumption. Fiscal governance expands the EU regulatory state into all dimensions of fiscal policy. Between the Stability and Growth Pact, the Macroeconomic Imbalance Procedure, and the Europe 2020 goals, there is a solid treaty basis for oversight of almost any member state’s social policy decisions or expenditure, and a quick review of the European Semester documents for any member state shows that the EU is indeed conducting surveillance of, and making significant recommendations about, welfare states. In health care, for example, the Lisbon Treaty is very clear that ‘Union action shall respect the responsibilities of the member states for the definition of their health policy and for the organization and delivery of health services and

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The European Union after Brexit medical care. The responsibilities of the member states shall include the management of health services and medical care and the allocation of the resources assigned to them’ (TFEU Art. 168.7). That language, in an article which carefully restricts EU action to coordinating and complementing member state action, might seem like a clear declaration that there will be only a small and meliorist EU health policy. But the sheer scale of health expenditure means that EU oversight of member state health systems re-enters through fiscal governance (Greer, Jarman, and Baeten 2016; Stamati and Baeten 2015). Thus, we have remarkable policy suggestions made in the framework of the European Semester, with perhaps the most striking being the 2015 Semester recommendation that France review its admissions criteria for health-care professional education. In theory if not in any imaginable practice French noncompliance with this suggestion, grounded in the Stability and Growth Pact, could have led to punishment for France on the grounds that it was endangering the Eurozone by maintaining a numerus clausus for medical schools (Greer, Jarman, and Baeten 2016). Put aside the absurdity of the notion that French medical school admissions endanger the Eurozone, or the bad health economics implied (it is well known that supply-generated demand is rife in health care, so recommending the education of more doctors as a way to contain costs only reveals that the authors of the recommendation were not knowledgeable about the areas they oversee). This is the European Union regulatory state extended to every dimension of its member states’ social policies, and with the goal of austerity rather than any kind of social Europe. Optimists point to the rearguard action being fought in the member states and EU bureaucracies to reintroduce some social objectives in the European Semester (Zeitlin and Vanhercke 2018), but one should not confuse a bureaucratic rearguard action with a high-profile political and legal commitment backed up with tremendous intellectual, economic, and political force (Schmidt 2016; Greer and Brooks 2018). European Union social policy without the United Kingdom The key, undeniable, arithmetical fact of Brexit is that it removes one of the EU’s three big countries. The UK can no longer be part of the coalitional calculations of other member states or in the European Parliament. This has a number of automatic further effects. Both France and Germany are thereby veto players, whereas previously it was imaginable that one big member state of the three would be obliged to cede in a dispute. The Franco-German partnership in European integration is a stock topic, but its actual importance has been variable over time. With the departure of the UK, it is for practical purposes the necessary condition for EU legislation. Beyond the arithmetic stands a larger coalitional politics. European Union member states tend to fall into groups. In terms of social policy legislation on issues such as work, there have been broadly three blocs: that of the northern

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liberal states, an arc anchored by the UK and stretching from Ireland to the Baltic states; those economies tightly tied to Germany; and the southern bloc, anchored by France, which share a larger historical commitment to a strong state. Countries sometimes shift their positions within these blocs, with countries as different as Romania and Italy periodically supporting the liberal coalition. But the three basic perspectives are nonetheless evident. The departure of the UK seriously undermines the northern liberal bloc, which is explicitly redefining itself and trying to strengthen its ties as a new ‘Hanseatic League’ with its own Twitter account (@hansaintheeu) (Khan 2018a, 2018b). The problem for these states is that even collectively they do not constitute a majority, and they will now lack a big country that can promote their views and in fact coordinate them. The problem for Germany, meanwhile, is that it loses strategic flexibility. German governments could choose whether to align with France or the UK from issue to issue. Now, the UK option is unavailable. The German–French partnership imposes itself by sheer arithmetic, which gives France opportunities, the putative new Hanseatic league major strategic challenges, and Germany a newly restricted set of strategic options. These scenarios are not just speculative; they are visible in the politics of the Eurozone. The politics of the Eurozone are a reasonable preview of the future of the EU more generally. In the Eurozone, the size, economies, and geopolitical importance of France and Germany dwarf the other member states. The history of the Eurozone has been a history of Franco-German dominance over the other member states, and, in a test of wills, German dominance over France (Brunnermeier, James, and Landau 2016). A politics centered on France and Germany is effectively unavoidable. A Franco–German relationship in which Germany is dominant is more contingent and will become more so as France grows, economically and demographically, relative to Germany. In the case of the Eurozone, for example, France was remarkably feckless under President François Hollande, and it received little support from a set of southern European countries whose governments were committed to austerity and uninterested in a statist rebellion. The fact that the EU member states with organized labor markets such as Germany – which does not match the list of states who qualify as ‘creditors’ – are the ones which have had a ‘good’ crisis while other member states have been unable to unify adds to the heft of Germany relative to France or any imaginable alternative coalition (Hancké 2013; Johnston 2016). The extent to which France can thrive within the hard-currency liberalism of the EU today remains unclear (Vail 2018). This gives French governments an incentive to constantly explore their freedom of action in Eurozone politics, but at the moment it also limits their power. There are some mitigating factors at work which reduce the shock of this transition. One is the ebb of European social policy in general. The volume and ambition of legislation on social issues has dropped off considerably over recent decades as parties of the right advanced and member states increasingly

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The European Union after Brexit came to view the EU as a vehicle for promoting macroeconomic growth and supply-side competitiveness measures. The UK’s liberalizing pressure was not the only cause of this withdrawal, which was loudly signaled by Commission Presidents Barroso and Juncker as reflecting the will of their member states. Another is the fact the UK has been marginalizing itself in Brussels politics for some time. This self-marginalization arguably started with the Iraq war and abandonment of Labour’s ideas of joining the euro, but it became policy under David Cameron, whose priority was internal Conservative Party politics. This meant placating Conservative Eurosceptics at the price of maintaining networks, alliances, and intelligence across the continent, and involved seemingly symbolic actions that marginalized the UK such as dropping out of the European People’s Party. As a result, the whole EU knows more about working without the UK’s participation than is necessarily appreciated. There are also some limitations to this analysis. Above all, it is structural. There is no reason to expect that France and Germany will agree on any particular item in any particular time frame, and there are many reasons to expect ­disagreements. There is no reason to expect that France will systematically choose to act as a representative of a Southern statist bloc, or to expect that other southern states will choose to act as a bloc. Many of them have strong parties on the right which actively seek retrenchment, and most have incentives not to align themselves with any putative debtor bloc. The history of the Eurozone in crisis shows all of these dynamics – internal fissures in the putative ‘southern bloc’, and French reluctance or inability to act as a leader in opposition to Germany. What stands, however, is that without the UK, the ‘Hanseatic’ bloc will not have the economic or political heft that it had when the UK was present, and which sufficed to make it a strategic ally of Germany. In turn, then, France is once again a veto player. The future of EU social policy: decisions, non-decisions, agendas and blame In terms of thinking about the lineaments of future policy, we can start with arithmetic and decisions. The future winset of possible EU policy is likely to be the areas where French and German interest converge with available EU policy tools, since either France or Germany could effectively veto a proposal. What can we find in that winset? The answer is necessarily unclear since it depends on German and French domestic politics, which are both in flux. But deregulation in labor law, in particular, is likely to come to a halt, and the push for services deregulation as well (there are many constituencies in Europe for services and labor deregulation, but whether they can gain the commanding heights in Berlin and Paris is less clear). The more interesting questions arise when we recall that policymakers, politicians, and policy entrepreneurs are strategic actors embedded in complex and particular networks and information environments. Therefore, the step

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beyond thinking about decisions is to think about non-decisions: things that happen, or do not happen, without ever being part of a formal political process (Bachrach and Baratz 1962; Gaventa 1982). The presence of the UK meant that much of EU social policy was made of non-decisions in which a policy issue or alternative never appeared on the agenda because it was hopeless to propose it. The winset for future EU social policy is not just the items on which we know France and Germany have tended to agree; it is also the items that were thought up in Paris or Berlin but never taken seriously as EU policy proposals. Beyond decisions and non-decisions, we can ask how agendas will change. Agenda-setting dynamics might be influenced in more ways than are o ­ bvious – for example, by the change in the credibility and influence of UK-based lobbies in Brussels. One way that they will change that is worth highlighting is blame avoidance. Just as in fiscal governance many pro-­austerity politicians and governments are happy to hide behind blame-­absorbing Germany, many liberalizers have been content to let the UK take the blame for promoting liberalizing policies. That option will end soon, and liberalizing politicians will have to find not just a coalition but also a way to manage blame associated with their positions. Theoretically, this all reduces to the following: the EU agenda will shift to reflect things that a Franco-German EU might adopt, which will make many liberalizing policies unworkable and turn them into non-decisions while allowing those who had for practical reasons never proposed other kinds of measures to get their ideas on the agenda. The impact of Brexit on social Europe will be seen first in agendas, and might be seen there very quickly (as Greer and Löblová show in Chapter 8, it is already happening in some out-of-the-way policy areas such as health technology assessment). Conclusion Socially, Brexit is negative-sum, at least in the short and medium term. It deprives the UK of a model that has worked well for it and deprives many Europeans of the UK exit option without imposing any of the changes that would have made the exit option unappealing. Redirecting intra-EU migrants into Germany or other member states is likely to be less positive-sum, since it will be harder to integrate them into their labor markets. And nothing about Brexit, or the loss of the exit option of the UK, will necessarily make labor markets and economies elsewhere function differently. Maybe CEE citizens will return home and, deprived of the exit option, use their voice and have their societies respond, but that desirable outcome is not guaranteed. Politically, the arithmetic of votes in the EU, and the impact of soft power and advocacy by big countries within the grid of EU policy options all point towards a new EU social policy built on shared German and French preferences – which is likely to mean the end of deregulatory measures across the public

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The European Union after Brexit services and in labor and services law (and possibly other areas outside social policy). The UK was a key part of a liberalizing coalition across almost all sectors. Without the UK, it is difficult to see how the ‘Hanseatic’ states can reliably team up with other states even when they are run by liberals – the Italian liberalism of Bocconi, CEE strategies that others will often perceive as ‘disloyal competition’, Irish low-tax strategies focused on attracting multinational corporations (MNCs) and Nordic efforts to maintain their social models produce few obvious shared policy agendas. In short, the future of social Europe in a post-Brexit EU is strong but will likely be distinctively new. The UK was a key part of a liberalizing coalition in all sectors; it was a huge beneficiary of free movement, probably with p­ ositive-sum effects for the EU but a brain-drain in lots of EU member states; it was an intellectual pillar of a concept of deregulated labor market and a minimalist welfare state; and it is now gone. The result is that a free-market northern coalition is no longer enough to drive EU politics. The Germans are going to have to come to terms with the French, and that is going to shift EU economies towards thinking about social welfare in connection with labor market status. Given that the price of liberalization in France has been an expanded welfare state (Vail 2010), it is almost certain that efforts to liberalize the welfare state through competition law, services regulation and such will cease to be plausible. The era of grinding defensive battles against proposals for liberalization of welfare provision might come to an end in a newly Franco-German EU. Whether the newer, and equally grinding, wars over austerity will change form or even continue is less clear. It has been so long since Paris was a veto player in Europe that we might all be surprised by how it develops. Notes 1 I would like to thank the following people for their comments: Adrian Favell, Holly Jarman, Dora Kostakopoulou, Janet Laible, Matthias Matthijs, Olga Löblová, and audiences at the 2018 meetings of the European Community Studies AssociationCanada and the European Consortium on Political Research’s Standing Group on European Integration, and at the 2019 European Union Studies Association annual meeting. 2 Hantrais (2019) was published too late to be discussed here but is very helpful.

References Afonso, Alexandre, and Camilla Devitt. 2016. ‘Comparative Political Economy and International Migration’. Socio-Economic Review, 14:3, 591–613. Alter, Karen J. 2001. Establishing the Supremacy of European Law. Oxford: Oxford University Press. Bachrach, Peter, and Morton S. Baratz. 1962. ‘The Two Faces of Power’. American Political Science Review, 56, 947–952.

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Brunnermeier, M. K., H. James, and J. P. Landau. 2016. The Euro and the Battle of Ideas. Princeton: Princeton University Press. Caporaso, James A. and Sidney Tarrow. 2009. ‘Polanyi in Brussels: Supranational Institutions and the Transnational Embedding of Markets’. International Organization, 63, 593–620. Coase, Ronald H. 1937. ‘The Nature of the Firm’. Economica, 4:16, 386–405. Dehousse, Renaud. 1994. ‘Comparing National and EC Law: The Problem of the Level of Analysis’. American Journal of Comparative Law, 42:4, 761–781. Dyson, Kenneth H. F. 2014. States, Debt, and Power: ‘Saints’ and ‘Sinners’ in European History and Integration. Oxford: Oxford University Press. Favell, A. 2014. Immigration, Integration and Mobility: New Agendas in Migration Studies: Essays 1998–2014. ECPR Press Essays. Colchester: ECPR Press. Favell, Adrian, and Roxana Barbulescu. 2018. ‘Brexit, “Immigration” and AntiDiscrimination’. In Routledge Handbook of the Politics of Brexit, edited by Patrick Diamond, Peter Nedergaard, and Ben Rosamond, 118–133. Abingdon: Routledge. Gaventa, J. 1982. Power and Powerlessness: Quiescence and Rebellion in an Appalachian Valley. Urbana, IL: University of Illinois Press. Glinos, Irene. 2012. ‘Worrying about the Wrong Thing: Patient Mobility versus Mobility of Health Care Professionals’. Journal of Health Services Research & Policy, 17:4, 254–256. Greer, Scott L. and Eleanor Brooks. 2018. ‘Termites of Solidarity in the House of Austerity: Undermining Fiscal Governance in the European Union’. Manuscript, University of Michigan and Edinburgh University. Greer, Scott L., and Holly Jarman. 2016a. ‘Reinforcing Europe’s Failed Fiscal Regulatory State’. In A Global Perspective on the European Economic Crisis, edited by Bruno Dallago, Gert Guri, and John McGowan, 122–143. Abingdon: Routledge. Greer, Scott L., and Holly Jarman. 2016b. ‘European Citizenship Rights and European Fiscal Politics after the Crisis’. Government and Opposition, 1–28. Greer, Scott L., and Tomislav Sokol. 2012. ‘Rules for Rights: European Law, Health Care, and Social Citizenship’. European Law Journal, 20:1, 66–87. Greer, Scott L., Holly Jarman, and Rita Baeten. 2016. ‘The New Political Economy of Health Care in the European Union: The Impact of Fiscal Governance’. International Journal of Health Services, 46:2, 262–282. Hancké, B. 2013. Unions, Central Banks, and EMU: Labour Market Institutions and Monetary Integration in Europe. Oxford: Oxford University Press. Hantrais, L. 2019. What Brexit means for EU and UK social policy. Bristol: Policy Press. Herszenhorn, David M., and Lili Bayer. 2018. ‘Commission Wants Bigger Budget for Smaller EU’. Politico.eu, 5 February, https://www.politico.eu/article/­ europeancommission-proposes-eu-budget-cap-multiannual-financial-framework-guentheroettinger/. Hervey, Tamara K., Calum Alasdair Young, and Louise E. Bishop, eds. 2017. Research Handbook on EU Health Law and Policy. Cheltenham: Edward Elgar. Höpner, Martin, and Armin Schäfer. 2010. ‘Polanyi in Brussels? Embeddedness and the Three Dimensions of European Economic Integration’. MPIfG Discussion Paper 10/8, Cologne. Jarman, Holly. 2018. ‘Legalism and tobacco control in the EU’. European Journal of Public Health, 1:28 (suppl_3): 26–29.

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The European Union after Brexit Johnston, Alison. 2016. From Convergence to Crisis: Labor Markets and the Instability of the Euro. Ithaca, NY: Cornell University Press. Kelemen, R. Daniel. 2011. Eurolegalism: The Transformation of Law and Regulation in the European Union. Cambridge, MA: Harvard University Press. Khan, Mehreen. 2018a. ‘EU’s New Hanseatic League Picks Its Next Battle’. Financial Times, 19 July. Khan, Mehreen. 2018b. ‘“Hanseatic” States Remain as One in EU Big League’. Financial Times, 26 November. Majone, Giandomenico. 1996. Regulating Europe. London: Routledge. Page, Edward C. 2001. ‘The European Union and the Bureaucratic Mode of Production’. In From the Nation State to Europe: Essays in Honour of Jack Hayward, edited by Anand Menon, 139–157. Oxford: Oxford University Press. Scharpf, Fritz W. 2010. ‘The Asymmetry of European Integration, or Why the EU Cannot Be a “Social Market Economy”’. Socio-Economic Review, 8:2, 211–250. Schelkle, Waltraud. 2009. ‘The Contentious Creation of the Regulatory State in Fiscal Surveillance’. West European Politics, 32:4, 829–846. Schmidt, Vivien A. 2016. ‘Reinterpreting the Rules “By Stealth” in Times of Crisis: A Discursive Institutionalist Analysis of the European Central Bank and the European Commission’. West European Politics, 39:5, 1032–1052. Stamati, Furio, and Rita Baeten. 2015. Healthcare Reforms and the Crisis. Brussels: European Trade Union Institute. Stone Sweet, Alec. 2004. The Judicial Construction of Europe. Oxford: Oxford University Press. Streeck, Wolfgang. 1996. ‘Neo-Voluntarism: A New European Social Policy Regime?’ In Governance in the European Union, edited by Gary Marks, Fritz W. Scharpf, Philippe C. Schmitter, and Wolfgang Streeck, 64–94. London: Sage. Vail, M. 2010. Recasting Welfare Capitalism: Economic Adjustment in Contemporary France and Germany. Philadelphia: Temple University Press. Vail, M. I. 2018. Liberalism in Illiberal States: Ideas and Economic Adjustment in Contemporary Europe. Oxford: Oxford University Press. Vauchez, Antoine. 2013. L’Union par le droit: l’invention d’un programme institutionnel pour l’Europe. Paris: Presses de Sciences Po. Zeitlin, Jonathan, and Bart Vanhercke. 2018. ‘Socializing the European Semester: EU Social and Economic Policy Co-ordination in Crisis and Beyond’. Journal of European Public Policy, 25:2, 149–174.

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5

European citizenship and free movement after Brexit Willem Maas

Free movement has been central to the European project since the introduction of mobility rights for coal and steel workers in the 1951 European Coal and Steel Community Treaty (ECSC; Treaty of Paris) and the right of EU citizens to live and work anywhere in the common territory has developed as one of the four fundamental freedoms (alongside free movement of goods, services, and capital) that undergird the Single Market (Maas 2005, 2007). Since the Maastricht Treaty, these rights have been enshrined as a key element of EU citizenship, to which some have attributed federalizing aims and which the European Court has suggested is ‘destined to be the fundamental status of nationals of the Member States’ (Maas 2014, 2017b). The right to live, work, and study anywhere within the EU usually tops public opinion surveys asking Europeans what the EU means to them, and these rights are enormously popular across the EU, even in the UK (Maas 2017a, 584). Whichever form Brexit takes – hard, soft, simply symbolic, or even cancelled entirely – free movement is a significant issue in the process. This chapter examines the effects of the Brexit process and potential post-Brexit scenarios on EU citizenship and free movement. The UK has been a key impediment to a more fully developed EU citizenship, but nationalist or protectionist tendencies are also present elsewhere. For example, in 2013 then-Home Secretary Theresa May convinced her interior minister colleagues from Germany, Austria, and the Netherlands to demand new rules to deal with what they alleged were fraudulent welfare claims being lodged by EU citizens making use of their free movement rights, upon which the European Commission asked for evidence of the alleged ‘benefit tourism’ (Travis 2013). Starting by showing how shared European rights culminating in citizenship are central to the European project, the chapter next considers uncertainties, challenges, and opportunities caused by the Brexit process. Uncertainties include the form that Brexit may take and how the

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The European Union after Brexit UK’s relationship with the (rest of the) EU will evolve, how stark divisions within the UK will be managed, and the status and rights of the 3.6 million EU-27 citizens and members of their families residing in the UK (with citizens of Ireland the largest group), the over 1.3 million UK citizens residing in the EU-27, and others. Challenges include the status of Northern Ireland and how to avoid reintroducing a border; the need for more coordination in member state citizenship laws and policies; persistent differences in member state social policies and labor market institutions causing ongoing disagreements between EU member states about free movement rules; and the rise of so-called illiberal democracy with a focus on borders and nationalism, against the EU’s aim of superseding nationalism and making borders lose their significance. In line with the idea that the UK’s absence from decision-making processes may deepen integration by bringing the remaining EU member states together (Cini and Verdun 2018, 71), Brexit also raises several opportunities for strengthening EU citizenship and free movement. The opportunities flow from how Brexit has uncovered and stimulated increased attachment to the EU and the European project more generally; high support for greater harmonization of member states’ social and welfare policies, which would address many of the worries of those concerned about open borders within the EU; and the chance to clarify the relationship between national and EU citizenship. Citizenship and the European project The political push for common European rights predates the 1950 Schuman Declaration that led to the ECSC of 1951. For example, the Italian Movimento Federalista Europeo promoted a European ‘continental’ citizenship alongside national citizenship, entailing direct political and legal relationships with a European federation, the legal equality of citizens of all European states, and the ‘option to take out European citizenship in addition to national citizenship’, while the Dutch ‘European Action’ group called for European citizenship to supplement national citizenship (Maas 2005, 1012). At least as early as 1946, Winston Churchill was promoting what he called ‘a kind of United States of Europe’, meaning ‘a European group which could give a sense of enlarged patriotism and common citizenship to the distracted peoples of this turbulent and mighty continent’ (cited in Maas 2014, 173). The 1948 Hague Congress, presided by Churchill and gathering some 750 influential delegates from across the political spectrum,1 resolved that European union should grant citizens direct access to redress before a European court of any violation of their rights under a common charter, and proposed ‘a European passport, to supersede national passports and to bear the title “European” for use by the owner when travelling to other continents’ (Maas 2014, 173). Europe’s postwar political leaders arguably viewed various forms of economic integration as simply interim measures towards a genuine European political community with a common citizenship.2



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The Schuman Declaration portrayed ‘common foundations for economic development as a first step in the federation of Europe’; a common market would create ‘a wider and deeper community’ and ‘lead to the realization of the first concrete foundation of a European federation’. But the path towards a federal Europe was not easy. As Jean Monnet realized in 1956, ‘fusion of the European peoples’ would not result from supranational integration in the limited domains of coal and steel or atomic energy; the sentiment that their destiny is shared and their prosperity is shared has not been established between the peoples of Europe by the ECSC and will not be by Euratom. How to do it? It is very difficult to find a form that is satisfactory – indeed political – and that is accepted by the parliaments and peoples. We must continue to speak of the Common Market and as far as possible to achieve its beginning at least. But we must find the political opportunity that gives these countries of Europe the sense of a common destiny.3

Moves to such a sense of common destiny were enshrined in the 1957 Treaty of Rome, inspired by the idea that European integration would lead to monetary stability, economic expansion, social protection, a higher standard of living and quality of life, economic and social cohesion, and solidarity among the member states.4 Importantly, the Treaty of Rome expanded free movement rights to most workers and members of their families, and also copied from the Treaty of Paris the idea of non-discrimination on the basis of nationality (Maas 2005). Alongside the expansion of the transnational European Court, the principle of non-discrimination would guarantee individual European rights, centered on rights of free movement; as European Commissioner (later Commission VicePresident) Étienne Davignon noted in 1979, ‘the status of “Community citizen” [was] officially recognized from the moment when the Treaties granted rights to individuals and the opportunity of enforcing them by recourse to a national or Community court’ (cited in Maas 2007, 4). The point of this brief history is to demonstrate the centrality of free movement and citizenship to the European project. Free movement and a common citizenship are part of the DNA of European integration, even if the transformation of free movement rights from being defined and promoted in economic terms to forming the core of a shared European citizenship was gradual, from the 1960s through to the 1980s and ultimately to the Maastricht Treaty. Despite substantial support in the early 1970s for introducing European citizenship into the treaties, the first enlargement (the United Kingdom, Ireland, and Denmark in 1973) stymied the process, leading to gridlock in the Council; but the two subsequent enlargements (Greece in 1981, followed by Spain and Portugal in 1986) reinvigorated it, resulting finally in the inclusion of EU citizenship in the Maastricht Treaty (Maas 2007). Historical hypotheticals are difficult to evaluate, but if the UK had not joined in 1973 it seems likely that EU citizenship would have been introduced sooner. Concomitantly, if Brexit



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The European Union after Brexit means that the UK loses its decision-making role in the Council, Parliament, and other EU institutions, this may mean a reweighted majority in favor of deepening EU citizenship.

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Uncertainties At the time of writing, significant uncertainties remain about the outcome of the Brexit process, with possible scenarios ranging the full gamut from a ‘no deal’ departure all the way to a second referendum reversing the results of the first and keeping the UK in the EU, though that would depend on how other member states would respond (Mindus 2017). In October 2018, building on similar earlier mobilizations (Brändle, Galpin, and Trenz 2018), an estimated 700,000 people rallied in London in support of a second referendum, with most of the marchers expressing support for remaining in the EU (Helm, Savage, and Courea 2018). In November 2018, the largest public opinion survey since the referendum showed support for Remain had grown to 54 percent while support for Leave had shrunk to 46 percent (Worrall 2018) and subsequent polls showed similar results5 – a large shift from the 48.1 percent to 51.9 percent result of the 2016 referendum. Both the Conservative and the Labour Parties were divided on issues of free movement and citizenship, with Labour Party leader Jeremy Corbyn in July 2017 having pronounced his opposition to ‘wholesale importation of underpaid workers from Central Europe in order to destroy conditions’, and suggesting that it would be better to leave the Single Market in favor of a UK immigration policy that ‘would be a managed thing on the basis of the work required’ rather than EU free movement (Chakelian 2017). Meanwhile, Prime Minister Theresa May repeatedly said she believed ‘ending free movement once and for all’ was one of the messages voters sent in the 2016 referendum (Stewart 2018). An analysis prepared by the Bank of England showed that all forms of Brexit would make the UK worse off economically than remaining in the EU: a no-deal scenario would result in 10.7 percent lower GDP in 15 years’ time than remaining in the EU; a Canada-style deal would result in 6.7 percent lower GDP than remaining in the EU; and a Norway-style European Economic Area (EEA) scenario favored by some Conservative remainers would result in 1.4 percent lower GDP in 15 years’ time, better than some of the forecasts for the withdrawal agreement negotiated by Prime Minister May, although in the EEA model free movement of EU citizens would continue (Sabbagh and Partington 2018). Such grim projections appeared more stark because of the intergenerational divide among voters: the 2016 referendum was highly skewed by age, with three-quarters of voters aged 18–24 having voted Remain (Cresci 2016). Because of low turnout, however, more Eurosceptic older voters determined the outcome, which unleashed furious responses such as one widely shared ­comment: ‘The younger generation has lost the right to live and work in 27

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other countries. We will never know the full extent of lost opportunities, friendships, marriages and experiences we will be denied. Freedom of movement was taken away by our parents, uncles and grandparents in a parting blow to a generation that was already drowning in the debts of its predecessors’ (quoted in Cosslett 2016). In this quotation and in similar responses from other young people (‘The 75 percent’ 2016) the EU’s environmental or consumer regulations, trade relations with other countries, and many other EU activities and institutions are ignored in favor of the rights of individuals to live and work across Europe, the core rights of EU citizenship. Hardline Brexiteers, on the other hand, saw free movement as an unalloyed negative. ‘We must break free of the EU and take back control of our borders’, declared a poster unveiled by UKIP leader Nigel Farage during the Brexit referendum campaign, and Farage subsequently emphasized that ‘the main reason above all that we voted to leave the European Union is we wanted to get back control of our lives and, in particular, control of our borders because unrestricted free flow of unskilled labor had driven down wages, had made it tough to get a GP appointment, to get our kids into the right school’ (Campbell 2017). Blaming EU free movement rather than successive UK governments implementing austerity measures for cuts to medical care and education budgets misrepresented reality; as one commentator puts it specifically for issues of citizenship (Guild 2017, 54), British citizenship confers fewer and fewer rights on its holders. Similarly mischievous was the Leave campaign’s infamous bus emblazoned with the promise that leaving the EU would mean £350 million per week extra spent on the National Health Service (NHS), a promise from which Brexiteers quickly backtracked after the vote (Independent 2016; McCann and Morgan 2016). Similarly, Conservative MEP and Leave campaigner Daniel Hannan admitted he could envisage a situation where the UK kept free movement of labor with the EU after Brexit and, asked if he thought Leave voters had been deceived into thinking their vote would end free movement, replied ‘do not imagine that if we leave the EU it means zero immigration from the EU, it means we will have some control’ (Quinn 2016). Despite or perhaps because of the mendacity of the campaign, Brexit threatened the future unity of the United Kingdom: a June 2019 poll of Conservative Party members found that 59 percent would prefer Brexit even if it led to Northern Ireland leaving the United Kingdom, 61 percent would prefer Brexit even if it led to significant damage to the UK economy, and fully 63 percent of Conservative Party members polled would prefer Brexit even if it led to Scotland leaving the UK.6 Brexit also threatened the traditional party system, as a newly founded party in favor of Brexit immediately rocketed to the top of voter intentions: a June 2019 poll found that if an election were held, 23  ­percent of respondents would vote for the Brexit Party and 21 percent would vote Liberal Democrat, relegating Labour and the Conservatives to only 20 percent each.7

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The European Union after Brexit The result of the 2016 referendum immediately created considerable legal  and personal uncertainty for the 3.6 million EU-27 citizens and their families resident in the UK (with citizens of Ireland the largest group), the over  1.3  ­million (not including many dual citizens) UK citizens and their ­families resident in the EU-27, and others (Shaw 2018). Confusion reigned both in the UK and outside, as the UK government appeared unprepared for a vote of Leave. As an example of this government confusion, some EU citizens who had resided in the UK for many years were given notice that they would need to depart (O’Carroll 2016). The UK government later changed its tone, with Prime Minister May, in the speech accompanying the triggering of the Article 50 process, emphasizing that the UK would ‘seek to guarantee the rights of EU citizens who are already living in Britain, and the rights of British n ­ ationals in other member states as early as we can’ (May 2017). In the same speech, Prime Minister May emphasized her government’s desire to ‘maintain the common travel area with the Republic of Ireland. There should be no return to the borders of the past. We will control immigration so that we continue to attract the brightest and the best to work or study in Britain, but manage the process properly so that our immigration system serves the national interest’ – which implies that the right of EU-27 citizens to live and work in the UK was against the national interest, or at least had been managed improperly. Aside from some exceptional cases, most EU-27 citizens saw no change to their legal status while Brexit negotiations were under way, as was generally also true for UK citizens residing in the EU-27. Yet the question of how to deal with UK citizens and members of their families residing in the EU, and vice versa, remained unclear even with the Withdrawal Agreement agreed to on 25 November 2018. A ‘questions and answers’ document prepared by the European Commission (2018) leads with the proviso that the description of UK laws and the UK’s intended approach to implementing the Agreement ‘is based on the information that we have currently available’ – which failed to provide certainty for many categories of people affected by Brexit (Garner 2018). This despite the Agreement’s assurance that UK legislation protecting EU rights would prevail over other UK legislation, and that the implementation and application of the citizens’ rights part of the Agreement would be monitored by an independent national authority. British in Europe (a coalition of groups advocating for the rights of the over 1.3 million British citizens living and working elsewhere in the EU) and the 3 Million (a group advocating for the rights of the roughly 3.6 million EU citizens living and working in the UK) issued a joint letter in September 2018 arguing that ‘If the fundamental status of EU citizenship means anything at all, we need to be protected rather than penalized for seizing all the opportunities that European citizenship has given us – and which were confirmed by successive UK governments during the UK’s membership of the EU.’8 Coalitions

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such as People’s Vote advocated a referendum on the final deal before it could be implemented.9 In the area of citizenship and freedom of movement, this matters because member groups such as Healthier in the EU argue that one of the arguments used by the Leave campaign, that Brexit would help the National Health Service, is wrong; Healthier in Europe proclaimed that ‘Softening a hard Brexit or stopping it altogether is key to limiting the damage to our NHS and healthcare.’10 Meanwhile, the chair of British in Europe argued in August 2018 that the only solution to protect the rights of UK citizens living in other EU countries as well as EU citizens and British citizens themselves in the UK was for the UK to reverse Article 50 and remain in the EU.11 One reason these and similar groups are significant is that they advocated increasing the content or scope of EU citizenship. For example EuroCitizens, a group for UK citizens in Spain and Spanish citizens in the UK, advocated a situation in which ‘UK nationals are given full European citizenship’ even after Brexit.12 Similarly, Welsh nationalist party Plaid Cymru argued that UK citizens should be allowed to retain their EU citizenship after Brexit, or else develop a new model of ‘Associate European Citizenship’ (Masters 2018). Others spoke of an ‘EU protected citizen’ status for EU citizens (Kostakopoulou 2018). Finally, a European Citizens’ Initiative (ECI) on ‘permanent European Union citizenship’ asked the Commission to propose ways to avoid ‘collective loss of EU citizenship and rights, and assure all EU citizens that, once attained, such status is permanent and their rights acquired’; the ECI reached significantly more signatures than the related ‘Retaining European Citizenship’ ECI and two similar ones launched in 2017 but did not pass the threshold.13 In June 2018, the Amsterdam appeals court overturned a lower court ruling to refer to the Court of Justice of the European Union (CJEU) a question about the EU citizenship of British citizens post-Brexit since this was still considered hypothetical.14 Similarly, a House of Commons study (Walker, Robinson, and Miller 2018) concludes that the feasibility of proposals for ‘associate EU citizenship’ and all similar schemes remains uncertain; their desirability also remains open to debate (Maas 2019). Challenges One of the most vexing issues surrounding Brexit is the status of Northern Ireland, both for issues of borders and trade but also for issues of citizenship and free movement of people. In order to ensure no border would need to be reinstated between Northern Ireland and the Republic of Ireland after Brexit, either Northern Ireland or else all of the UK would need to remain inside the EU customs union – what became known as the ‘Irish backstop’ in the withdrawal negotiations. In the Good Friday Agreement of 1998, the governments of the UK and Ireland had recognized ‘the birthright of all the people of Northern Ireland to identify themselves and be accepted as Irish or British, or both, as they may so choose, and accordingly confirm that their right to hold both British and

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The European Union after Brexit Irish citizenship is accepted by both Governments and would not be affected by any future change in the status of Northern Ireland’.15 If the context of shared EU membership (in the words of the Good Friday Agreement, the UK and the Republic of Ireland signed the agreement ‘as friendly neighbors and as partners in the European Union’) were to change because of a UK departure from the EU, the question of citizenship would return. In the 2016 referendum, 56 percent of voters in Northern Ireland chose Remain, but many unionists voted Leave; and following the 2017 elections, Prime Minister May’s minority government depended on the parliamentary support of the Democratic Unionist Party (DUP), which opposed any distinction between Northern Ireland and the rest of the UK. Meanwhile, Ian Paisley Junior, son of the DUP’s founder, was advising his constituents and others to acquire Irish passports.16 In November 2018, over a thousand academics, filmmakers, lawyers, writers, athletes, business owners and others implored Irish Prime Minister Leo Varadkar to protect the rights of Irish citizens in Northern Ireland (Carroll 2018). The Protocol on Ireland/Northern Ireland included in the November 2018 Withdrawal Agreement (it takes up 29 pages of the 585-page agreement, signifying that this is not a minor matter) notes that the EU and UK intend to ‘replace the backstop solution on Northern Ireland by a subsequent agreement that establishes alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing’ and also that ‘Irish citizens in Northern Ireland, by virtue of their Union citizenship, will continue to enjoy, exercise and have access to rights, opportunities and benefits, and that this Protocol should respect and be without prejudice to the rights, opportunities and identity that come with citizenship of the Union for the people of Northern Ireland who choose to assert their right to Irish citizenship.’ In other words, many of the questions that were resolved with the 1998 Good Friday Agreement were reopened by the possibility of Brexit (McTague 2018). Another challenge that is sharpened by Brexit relates to the need for some degree of harmonization or Europeanization of the citizenship laws of the member states. Increased cross-border migration and family formation leads to functional pressures for basing access to citizenship rights on residence rather than nationality, and the introduction and growth of EU citizenship has profoundly altered the nature of Europe and the meaning of European integration for its citizens, which forces even notionally sovereign EU member states to coordinate their citizenship policies (Maas 2016). To take one example: investor citizenship schemes proliferated in the EU following the financial crisis, and their attractiveness relies at least partially on the right to live and work in other EU member states (Parker 2017; Džankic´ 2019). Commenting on investor citizenship schemes in Malta and Cyprus, Justice Commissioner Jourová noted that they raise ‘legitimate concerns, because if in one country a dangerous person gets citizenship, he gets citizenship for the whole of Europe. Maybe we all have to renegotiate the whole system and the whole competence of Europe. Because

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there is a contradiction. Once we have some weak points in the EU, some weak points where it is easy to enter the space, the whole of Europe has a problem’ (Garside and Osborne 2018). Similarly, a 2010 CJEU judgment concluded that member state competence concerning citizenship must be exercised in accordance with the treaties and that member state decisions about naturalization and denaturalization are amenable to judicial review carried out in the light of EU law (discussed in Maas 2016, 542). The European Parliament resolved in 2014 that there should be ‘closer coordination and a more structured exchange of best practices between member states with respect to their citizenship laws in order to ensure fundamental rights and particularly legal certainty for citizens’, and also called for ‘comprehensive common guidelines clarifying the relation between national and European citizenship’ (cited in Maas 2016, 540), a need that is exacerbated by Brexit. Free movement of people was a major theme of the 2016 referendum campaign, and persistent differences in national welfare state and labor market institutions suggest ongoing disagreements between EU member states about free movement rules (Ruhs and Palme 2018). The absence of clear and stringent guidelines regarding access to benefits confronts potential beneficiaries with significant uncertainty, as evident in the case of EU students: the heterogeneity of national schemes results in significant inequality, with many possible combinations of cross-border situations of student support (Schenk and Schmidt 2018, 1535). Member states have been remarkably successful at using welfare policies to limit the mobility of poor or otherwise undesirable EU migrants (Lafleur and Mescoli 2018), for example by limiting access to benefits. Indeed, just nine days before the 2016 Brexit referendum, the CJEU issued its ruling in Case C-308/14 Commission v UK, which appeared to be motivated solely by ‘the need to accommodate the UK’s desires to discriminate, in order to avoid offending national welfare sensitivities, and placate the population sufficiently to tempt it to vote to stay in the Union’ (O’Brien 2017, 223). Even without that judgment, however, EU free movement provisions have always existed in tension with national welfare states, and balancing the rights of individual European citizens to move, consume services, or find employment or housing across the entire EU territory with the desire of member state governments to maintain some degree of preferential treatment for their own citizens remains a challenge for EU institutions (Maas 2009, 279). Indeed, other instances of multilevel citizenship generally entail a space for inequality of some citizenship rights, including preferential access to social benefits (Maas 2013b, 2017c), which in the EU has meant continued discrimination against groups such as the Roma (Gehring 2013; Parker and López Catalán 2014) and against other poor, ‘dangerous,’ or otherwise undesirable individual EU citizens (Mantu 2017), despite little or no evidence of ‘welfare tourism’ actually occurring. A final important challenge relating to citizenship and free movement is the lingering popularity of border controls, not only in the UK (which is not

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The European Union after Brexit a member of the Schengen system and thus maintains its own border controls) but also in member states where nationalist parties do well, such as Hungary and Poland. Though the Schengen system removed physical border controls, many member states nevertheless retain mobile policing units whose officers focus on certain ethnic and migrant groups as dangerous others, despite the idea that free movement constitutes ‘the very essence of what the EU means’ (Brouwer, van der Woude, and van der Leun 2018, 456). Public opinion data underscores the issue: 49 percent of respondents think globalization threatens their country’s identity, compared with only 41 percent who think it does not, recalling the Brexit slogan ‘take back control’ and suggesting that European publics want to keep ways to control outsiders.17 The Spring 2018 Standard Eurobarometer showed 38 percent of respondents citing immigration as one of the two most important issues facing the EU, well down from its peak of 58 percent in fall 2015, but still ahead of terrorism (29 percent) and the economic situation (18 percent), which had led responses from the financial crisis until spring 2015, when immigration overtook it as the most cited important issue. Even though the refugee crisis has abated as of this writing, and even though EU policy is not directly responsible for member state decisions regarding immigration from outside the EU, member state publics likely agree with former UK Prime Minister David Cameron about the ‘need to have either a system with external borders or a system with internal borders. You can’t have borders that don’t work at either level’ (ITV News 2015). Mobile EU citizens are both more aware of and more supportive of EU citizenship (Siklodi 2015), but most Europeans stay in their country of origin, even though mobility is increasing and residence may not be the best way to measure mobility (Recchi 2015). Opportunities The Brexit referendum has uncovered and stimulated a growing attachment to the European Union and the European project more generally. The post-­ referendum rallies and marches in the UK are perhaps the most visible manifestation, but public opinion surveys underscore a similar trend across Europe. A November 2018 Flash Eurobarometer survey found that 59 percent of Europeans trust the EU while only 42 percent trust their national government, continuing a trend towards more trust in the EU.18 The Spring 2018 Standard Eurobarometer survey showed that 58 percent of Europeans view ‘the free movement of people, goods and services within the EU’ as among the EU’s most positive results, with respondents in the UK less positive (51 percent) but growing more so.19 Meanwhile the sense of European citizenship also continues to grow: 70 percent of respondents across the EU feel that they are citizens of the EU, the highest ever recorded (the same as autumn 2017, and an increase from 64 percent in autumn 2015), with respondents in the UK having among the lowest such feeling, meaning that Brexit would shift the average feeling of European citizenship

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upwards.20 Within the UK, as demonstrated in the 2016 referendum, there is a strong generational difference: 70 percent of UK respondents aged 15–24 feel they are citizens of the EU, compared with only 44 percent of those aged 55 and over.21 In terms of social rights, a strong majority of Europeans favor the harmonization of social welfare systems: the 2017 Eurobarometer survey found 64 percent in favor, 26 percent opposed and 10 percent don’t know – compared with 62 percent/24 percent/10 percent in 2016.22 Importantly, of all 28 member states, respondents in the UK were least supportive, with only 47 percent favoring harmonization. Support for harmonization was highest in Croatia, Hungary, Cyprus, Bulgaria, Latvia, Romania, Slovenia, Portugal, Slovakia, Greece, and Spain, with Belgium, Poland, Estonia, Luxembourg, Italy, and Latvia also being above the EU average. This is 17 out of the 28 member states, and if the UK leaves then the support for harmonization will increase even more.23 Also notably, younger respondents (those aged 15–39) were more in favor of harmonization compared with older respondents (those aged 55+), 67 percent to 61 percent. Brexit could allow new coalitions of member states to work towards greater harmonization of social policies. As Greer notes in Chapter 4, the UK has been a huge beneficiary of free movement, inducing a brain-drain in many EU member states; successive UK governments have also been the driving force behind deregulating the labor market and favoring a minimalist welfare state (see Scott L. Greer, Chapter 4 this volume). The loss of UK voices in the Council, Parliament, Commission, and other EU institutions will result in new coalitions in all policy areas. For free movement and citizenship, the effect is likely to reinvigorate the Franco-German axis, particularly when joined with southern member states which have traditionally favored strengthening EU citizenship (Maas 2007), and perhaps Central and Eastern European member states, if their support for more free movement within Europe can be coupled with calls for more social Europe, such as the European Pillar of Social Rights proclaimed in 2017 (Vandenbroucke 2018). Another opportunity is that Brexit allows member state governments and EU institutions to clarify the relationship between national and EU citizenship, as suggested for example by greater coordination of naturalization policies. Indeed, as some legal scholars argue, Brexit puts EU citizens of exclusively UK nationality at risk of being stripped of their EU citizenship in a way that ‘might fall within the ambit of EU law’ (Mindus 2017, 90), a conclusion consistent with ‘the gradual absorption of national citizenship within Union citizenship’ so that ‘the two levels of citizenship are intertwined in a mutually dependent way, neither able to develop without taking account of the other’ (Davies 2011, 5, 9), and with ideas for a transnational EU citizenship (Olsen 2012). The various proposals for associate EU citizenship or permanent EU citizenship (Maas 2019) all assume greater decoupling between EU and member state citizenship in ways that recall earlier debates about extending EU citizenship to third-country nationals (Maas 2008). At the same time, Brexit is also spurring member states to consider their

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citizenship laws: German citizens taking up another nationality lose their German nationality, and non-Germans acquiring German nationality must renounce their previous nationality, unless the state of other nationality is an EU member state or Switzerland; but the UK may be granted a transition period (Auswärtiges Amt 2018). Similarly, the Netherlands is considering proposals to extend the possibilities for dual nationality, prompted by Brexit. And of course many individuals are naturalizing as insurance in case Brexit results in the loss of their rights in the UK or the EU-27 (Schrauwen 2017; Jessurun d’Oliveira 2018). Conclusion With or without the United Kingdom as a member, the European Union will continue to face the tension between unity and diversity. Despite the genesis of European rights in the principle of non-discrimination on the basis of nationality, EU free movement provisions have always existed in tension with national welfare states and the desire of member states to control access to their territories, labor markets, and related institutions (Maas 2009, 279). Balancing the rights of individual European citizens to move, study, consume services, or find employment or housing across the entire EU territory with the desire of member state governments to maintain some degree of preferential treatment for their own citizens remains a challenge for EU institutions. This chapter has charted the most significant uncertainties, challenges, and opportunities posed by Brexit for EU citizenship and free movement. Recalling the centrality of individual rights and shared citizenship to the European project may also offer the best conclusion: Brexit exacerbates many challenges and uncertainties facing the EU – the ones examined above, the challenge of developing the monetary union into an effective European political union (Habermas 2018), the rise of Europhobic nationalism and illiberal democracy, and geopolitical and environmental challenges galore – but European leaders will rediscover that shared rights are the only effective way of fostering the sense of a common destiny that is necessary for any political project to have legitimacy. Free movement rights for workers launched the process of European political integration, and the continuing development of European citizenship is central to sustaining and furthering the European project (Maas 2013a, 96). This may occur through more harmonized European social rights, expanding programs such as Erasmus or the European Solidarity Corps, and other initiatives undergirded by the growing appreciation of European citizenship. Or Brexit, if it occurs, may be the first of several nationalist retreats to ‘little England’, little (or revanchist greater) Hungary, Poland, Italy, and away from a supranational Europe which promised, paraphrasing the European Coal and Steel Community treaty, to substitute for age-old rivalries the merging of essential interests and lead to a broad and independent community among peoples with a destiny henceforward shared.



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Notes   1 Besides Churchill: three former French prime ministers, François Mitterrand, Konrad Adenauer, Harold Macmillan, Altiero Spinelli and his wife Ursula Hirschmann, Walter Hallstein, Salvador de Madariaga, Raymond Aron, and hundreds of other political leaders, professors, businesspeople, religious leaders, journalists and others.   2 As Belgian Prime Minister Paul-Henri Spaak later wrote: ‘Full well did they measure the importance of the economic transformations they had just decided, but in their minds, those transformations, for all their greatness, were merely accessory to, or, at the very least, the first stage of a yet greater political revolution’ (cited in Maas 2007, 9).   3 Entry in Diary of Jean Monnet, 5 August 1956 (unpublished; my translation) on file at the Fondation Jean Monnet pour l’Europe. Grateful thanks to the Fondation and its Director, Gilles Grin, for allowing me to consult the diary.   4 These were the conclusions of the Spaak Report of April 1956.   5 For example a 9–10 June 2019 YouGov poll on the question ‘In hindsight, do you think Britain was right or wrong to vote to leave the European Union?’ found 47 percent overall answering wrong to leave, compared with only 41 percent answering right to leave and 12 percent saying don’t know; there was a majority for ‘right to leave’ only by respondents aged over 50, while respondents aged 25–49 answered 56 percent ‘wrong to leave’ compared with only 32 percent ‘right to leave’ with 13 percent don’t know, and respondents 18–24 showing an even larger gap.   6 YouGov, ‘Most Conservative members would see party destroyed to achieve Brexit’, 18 June 2019.   7 ‘Latest YouGov Westminster voting intention figures’, 21 June 2019. In the poll, 9 percent would vote Green and 8 percent would vote for other parties. The numbers were consistent over several weeks, and reflected the results of the May 2019 European Parliament elections, in which the Brexit Party won twenty-nine of the UK’s seventy-three seats (up from zero, although UKIP had won twenty-four seats in the previous elections), the Liberal Democrats sixteen (up from one), Labour ten (down from twenty), the Greens seven (up from three), and the Conservatives faced a staggering fall to fifth place: four seats from the previous nineteen.  8 https://www.the3million.org.uk/publications and https://britishineurope.org/jointpaper-issued-with-the3million/.  9 https://www.peoples-vote.uk. 10 https://www.healthierin.eu/factsheet. 11 ‘As children of the European project who have lived its benefits first-hand and know what future generations in the UK are set to lose – enough is enough. We have no choice but to accept that the only solution to protect our lives and livelihoods (and those of EU citizens in the UK), as well as those of all Brits in the UK, is to remain in the EU.’ https://www.theguardian.com/commentisfree/2018/aug/14/ brexit-ruin-lives-british-citizens-europe-peoples-vote. 12 https://eurocitizens2020.blogspot.com/. 13 https://www.eucitizen2017.org. The threshold for a successful ECI is one million signatures from at least seven member states with a minimum number of signatures per member state.

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The European Union after Brexit 14 https://linkeddata.overheid.nl/front/portal/document-viewer?ext-id=ECLI:NL: GHAMS:2018:2009. 15 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ireland (Good Friday Agreement), Art. 1(vi). 16 https://www.theguardian.com/politics/live/2016/jun/25/brexit-live-emergencymeetings-eu-uk-leave-vote?page=with:block-576e43c3e4b0be24d34f6033#block576e43c3e4b0be24d34f6033. 17 Ten percent don’t know; the corresponding numbers for 2016 were 53 percent, 38 percent and 9 percent, so the proportion of those who think globalization does threatens their country’s identity has dropped but still remains the most widely held view. Special Eurobarometer 467, 2017, 46. 18 Flash Eurobarometer 472, ‘Public opinion in the EU regions’ (November 2018). 19 Standard Eurobarometer 89, Spring 2018, 20. The question is: ‘Which of the following do you think is the most positive result of the EU? Firstly? And then?’ allowing three responses. 20 Fifty-seven percent total yes (25 percent ‘yes, definitely’ plus 32 percent ‘yes, to some extent’) and 41 percent total no (26 percent ‘no, not really’ plus 15 percent ‘no, definitely not’) and 2 percent don’t know (Standard Eurobarometer, Spring 2018, 31). 21 Standard Eurobarometer, Spring 2018, 34. 22 The question was: ‘Today, each European Union Member State is responsible for its own social welfare system. To what extent would you be in favour or opposed to the harmonisation of social welfare systems within the European Union?’ 23 Standard Eurobarometer, Spring 2018, 135.

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The European Union after Brexit Travis, Alan. 2013. ‘Benefit Tourism Warnings by Theresa May Get Short Shrift from Europe’. Guardian, 29 April, https://www.theguardian.com/world/2013/apr/29/ benefit-tourism-theresa-may-europe. Vandenbroucke, Frank. 2018. ‘2017: A Turning Point in the  Development of the EU’s Social Dimension?’, https://www.clingendael.org/pub/2018/clingendael-stateof-the-union-2018/12-the-eus-social-dimension/. Walker, Nigel, Timothy Robinson, and Vaughne Miller. 2018. ‘European Union Citizenship’, https://researchbriefings.parliament.uk/ResearchBriefing/Summary/ CDP-2018-0061. Worrall, Patrick. 2018. ‘Major New Brexit Poll Shows Voters Swinging towards Remain’. Channel 4 News, 5 November, https://www.channel4.com/news/ major-new-brexit-poll-shows-voters-swinging-towards-remain.

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The EU legal order without the UK: a pity to lose the contribution? Jessica Guth

There is a plethora of writing about European Union (EU) law post-Brexit. Almost all of it is focused on the application of EU-law in the UK and what relationship, if any, the UK might have with the Court of Justice of the European Union (CJEU). The focus of this writing appears to be on the complexities of untangling the UK legal systems from the EU, highlighting the wide-ranging protection offered by EU law that is likely to be lost and understanding where legal gaps will need to be filled. There is, however, far less work which considers what the EU legal order might lose following Brexit, and even volumes which do consider Brexit from an EU or member state perspective do not include much or any detail on the impact on the legal order (see Jacobs 2018; Oliver 2018). It is of course too early to predict the impact on EU law and legal institutions of the UK leaving the EU, but it is not too early to think about the contribution the UK has made in this sphere and then think about what therefore might be lost. This is the aim of the chapter. It begins by setting out the position of the CJEU at the time of writing and what I mean by the EU legal order so as to set the context for the discussions which follow. Parts two to four of the chapter then outline a number of key contributions made by the UK to that legal order, focusing in particular on the CJEU and more specifically perhaps the Court of Justice (which is referred to as ECJ throughout) and its jurisprudence. These sections argue that the contributions made by cases referred by or involving the UK, the common law more generally and individuals are significant but not unique. Part five then tentatively concludes that the impact of Brexit on the EU legal order is not likely to be all that dramatic.

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The EU legal order and the current situation As Jacobs (2018, 72) notes, ‘[t]he extent to which the ECJ will have a continuing role in future EU-UK relations is a particularly sensitive matter in the current Brexit negotiations, and will depend closely on the final outcome.’ At the time of writing the position the CJEU finds itself in is as follows: In a ‘no deal’ scenario the Court’s jurisdiction could end on exit day. However, more likely is that the Court will continue to have jurisdiction through any transitional period (suggested to run until the end of 2020) and that its future role will have to form part of any deal made. The draft withdrawal agreement states in Article 82 (1): ‘The Court of Justice of the European Union shall continue to have jurisdiction for any proceedings brought before it by the United Kingdom or against the United Kingdom before the end of the transition period.’ It then confirms that the same is true for any preliminary references in Article 82 (2) and that new cases can be brought before the end of the transition period (Article 83). Furthermore it suggests that the outcomes of those cases will be binding on and in the UK (Article 85), that the UK will be allowed to make submissions and intervene in such cases in the same way as the remaining EU member states (Article 86), and that lawyers authorized to represent clients before the UK courts can continue to represent or assist on CJEU cases which are pending or have been brought before the end of the transition period (Article 87). It is unclear what will happen to the UK judges and Advocates General and whether they will continue to serve until their term expires. If this is something along the lines of what will happen, then the UK influence from the CJEU will not disappear completely for some time yet. There is of course a possibility that the CJEU will retain jurisdiction in some areas and that there will be considerable interaction between it and the UK legal system. Just like the legal implications of Brexit in the UK, the ramifications of whatever is eventually to be agreed will take years to untangle and fully appreciate. This chapter is focused on a quite likely scenario in which, over time anyway, there is only a limited ongoing relationship and one where the UK no longer participates in the Court’s business in terms of referring preliminary references or representing clients. Crucially, it is perhaps also a scenario in which the UK no longer has Advocates General, judges or other personnel working at the Court. The chapter is not concerned with individual policy areas or specific legal issues. Instead it is interested in exploring the possible impact of Brexit on the EU legal order as a whole. To do so, it first sets out what, for the purposes of this chapter, the EU legal order is considered to be. The EU is, arguably at least, a union of law, legal texts and regulations, and a union for lawyers who play out the nitty-gritty of EU governance in the Court based on cases brought by citizens from across the member states. The legal order is framed by the treaties and supported by secondary legislation, but it is defined, clarified and put into action by the Court. The legal order can therefore be defined and analyzed

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in many different ways and on many different interrelated levels. However, it is beyond dispute that the Court is central to how EU law works, and as I have argued elsewhere (Guth 2016a, 2016b), not only the way the Court has developed substantial legal topics, but also the way in which law works across the Union are large parts of what makes the EU legal order unique. For that reason, this chapter focuses on the Court as the core of the EU legal order, and sees it as its director and engine room at the same time. The important role lawyers, litigation and the Court have played and continue to play in the development of EU law is seen by some as a move towards a legal adversarial model familiar from the US context and here termed Eurolegalism (Kelemen 2011). The history of how the EU legal order came to be what it is now is beyond the scope of this chapter, but as I have previously written: The importance of the ECJ and of litigation in shaping the EU legal system should not be underestimated. The ECJ transformed the treaties into something far more relevant to Member States and their citizens than they would otherwise have been and thus opened the (flood) gates for litigation on EU law issues. (Guth 2016a, 465)

The legal order as we know it today is the result of a series of bold decisions by the Court in which it established the supremacy of EU law and fully embedded the Preliminary Rulings procedure under what is now Article 267 of the Treaty on the Functioning of the European Union (TFEU) into its ways of working. As Stone Sweet (2010, 201) notes: For more than 40 years, this system has successfully managed the myriad complexities of legal integration. It has also heavily conditioned legislative outcomes in a wide range of policy domains, and it has helped to determine the course of European integration more generally. But the system has never been ‘perfected’. It has evolved continuously, often unpredictably, in response to a steady stream of challenges to supremacy arising from litigation of EC law in national Courts.

The EU legal order, then, is a unique system of interaction between an international court and national courts where the national courts have been co-opted into upholding EU law and in which the power of enforcement has been put into the hands of those most likely to use it and most likely to benefit from it – the EU citizens. Or put another way: The essential characteristics of the Community Legal Order which has thus been established are in particular its primacy over the law of the member-States and the direct effect of a whole series of provisions which are applicable to their nationals and to the member-States themselves. (ECJ 1991, para. 21)

It is a legal order which relies on EU citizens seeking to enforce their EU law rights before their national courts and on those national courts referring questions

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to the ECJ, thus allowing the Court to provide definitions and interpretations of the EU legal texts which then apply across the Union. It has developed into this system partly through judicial activism, and it is not really comparable to any other legal order across the world. It has been shaped by the legal systems of the member states and initially was based heavily on the dominant French legal traditions and civil law systems more generally (for obvious reasons, given the founding members). The next section examines the contribution made by the UK to this unique legal order. The UK case law contribution As is obvious from the discussion above, the focus here is on the Court as the key player in the EU legal order and this section examines the contribution the UK has made to the working and the work of that Court to try and understand what impact Brexit might have on the EU legal order that relies so heavily on references from member states and the interaction between national courts and the CJEU. A very brief look at the statistics When we look at the engagement of the UK with the key mechanism feeding into the EU legal order, it is perhaps easy to conclude that little will be lost with Brexit. Its willingness to refer cases via the preliminary reference procedure under Article 267 TFEU is below average and generally has been so throughout history (CJEU Annual Reports 1997–2018). This is in quite stark contrast to other large member states such as Germany, which appears keen to seek CJEU guidance regularly. Searching for cases by classification and country of origin also suggests that the general pattern of below average references holds true when looking at individual policy areas in most cases. One notable exception is citizenship, where the UK has the second-highest number of references in the last five years with eight references. Germany has the highest number with twelve. In other areas where the UK might be said to have particular legal expertise (see ‘Looking at substantive cases’) such as anti-­discrimination law, the UK references are below average with only one in the last five years, whereas Germany referred eleven cases. Those references classified as relating to fundamental rights are interesting as the UK has not made a single preliminary reference in the last five years in spite of there being quite a high number of referrals overall. Again Germany leads the referral tables with ten cases sent to the ECJ in the last five years. Looking at substantive cases However, numbers are not everything; the Court also of course depends on quality references and on knowledgeable and effective advocates in order to

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develop its jurisprudence in any given area. Arguably there are two or three key areas in which the UK has made a particularly strong contribution. Locke (2017) identifies anti-discrimination law and procedural law as areas where the UK courts and lawyers can be said to have made a particular mark on the EU legal order, and I would add EU citizenship as a further category. A full examination of each of these, or indeed other policy areas is beyond the scope of this chapter but it is worth briefly outlining the contribution in order to allow us to examine the claim made. The UK has a long history of anti-discrimination law, with legislation first being introduced in 1965 in the form of the Race Relations Act which was soon followed by statutes on equal pay and sex discrimination. The EU was rather late to the equality law party, with legislation in relation to most protected characteristics not making an appearance until 2000. Moreover, as Locke points out, some member states, including Germany, only introduced anti-discrimination law because of these EU-level developments. Maybe because the UK was ahead of the curve, the UK courts and lawyers working in them were well versed in the complexities of anti-discrimination laws and their application. It therefore comes as no surprise that some of the ground-breaking cases which shaped anti-discrimination law as it stands now originated in the UK (Suk 2017). The cases of Marshall (1986) and Foster (1990) are key examples, notable not only because of their contribution to anti-discrimination law in relation to sex but also because they clarified and developed the doctrine of direct effect in relation to directives, thus further developing and cementing that particular cornerstone of the EU legal order. In Marshall and Foster, the Court confirmed that differing retirement ages for men and women amounted to discrimination and that directives did not give rise to horizontal direct effect and were thus only enforceable against the state. In Foster the Court set out its fairly broad understanding of what falls within the definition of ‘the State’. In the second ECJ case to arise from Ms Marshall’s proceedings (Marshall II 1993), the ECJ further confirmed that setting a limit for compensation in anti-discrimination cases was contrary to EU law. Clearly then, these cases made a significant contribution to both the substantive law area and the workings of EU law. Further contributions to legal developments can be seen in cases about rights granted to LGBTQ persons in relation to benefits for same sex partners (Grant v South West Trains 1998), or recognizing gender reassignment as a protected characteristic (P v S 1996). In addition, it was a UK case which allowed the ECJ to introduce the concept of discrimination by association, highlighting that anti-discrimination provisions applied to a mother who was treated less favorably because of her son’s disability (Coleman v Attridge Law 2008). If we turn to the case law on free movement of persons and on citizenship, we can also list a series of key cases originating in the UK which will be familiar to any student of EU law and which have undoubtedly made a significant contribution to the development of the law and to legal integration across the

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The European Union after Brexit Union (Guth 2016b). Early case law on the free movement of workers and workers’ rights for example clearly established the ECJ’s jurisdiction to deal with these matters, and cases such as Baumbast (2002) inserted the requirement for proportionality in otherwise rigid and strict treaty provisions, thus allowing for greater flexibility in legal application. Much of the key citizenship case law which developed the concept and led to the granting of ever more generous rights to EU citizens and their families also originated in the UK. For example, cases such as Zhu and Chen (2004) set in motion the development of rights for carers of EU national children, which was then taken forward in cases such as Ibrahim and Teixera (2010). Dany Bidar’s case (2005) confirmed and expanded rights for EU national students studying in other member states. The UK has also been at the forefront of some of the case law which appears to be back-pedaling from the expansionist agenda the CJEU seemed to follow until recently. In Shirley McCarthy’s case (2011) the Court appeared to distance itself from its decision in Zambrano (2011) and limiting citizenship rights derived from non-economically active EU citizens (see Leanarts 2015), and in the more recent case of Commission v UK (2016) the ECJ has, so it seems, begun dismantling rights previously thought to be well established (O’Brien 2017). Cases originating from or involving the UK have therefore clearly played a part in shaping the law in this area. In his recent blog post Locke (2017) argues that ‘The second area of rights protection in which UK lawyers can claim special expertise are procedural rights, which is due to the traditionally stronger protection that the common law offers in this regard.’ He cites AM&S v Commission (1982), in which the ECJ strengthened procedural rights for companies by recognizing a type of legal professional privilege in EU law as an example. In other examples (such as Commission v Council 1991), the so-very-English man on the Clapham omnibus gets a mention to signify the need for a more common-sense (or common law?) approach (Bradley 2011). The three brief examples given above highlight that the UK has in fact made a not insignificant contribution to the EU legal order. It referred cases which led to the development of key EU law principles which helped further cement this unique legal order, and it is the source of many high-quality and clear references which have afforded the Court the opportunity to clarify, develop and expand EU law and the rights of EU citizens in particular. However, the same can be said for most if not all member states. In fact, if we consider the same substantive law areas we can see that if we simply select a different set of cases we can make very similar claims for other member states, too. A significant equality law case which also established the direct effect of directives is Defrenne II (1976) – originating in Belgium. Belgium also referred key citizenship cases such as Grzelczyk (2001) in which the Court said ‘Union citizenship is destined to be the fundamental status of nationals of the Member States’ (at para. 31) and Zambrano (2011) in which the Court held for the first time that a cross-border

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element was not required for EU law to apply because ‘Article 20 TFEU precludes national measures which have the effect of depriving citizens of the Union of the genuine enjoyment of the substance of the rights conferred by virtue of their status as citizens of the Union’ (at para. 42). If we think of Germany we can also easily to point to key equality law decisions (Kalanke 1995; Marschall 1997) and citizenship cases such as Martinez-Sala (1998) which ‘exploded the linkages’ (O’Leary 1999, 68) between economic activity and citizenship rights, or Dano (2014), in which the court made clear that member states do not have to grant social assistance to EU nationals who appear to have no intention of working in the host member state. No member state we might choose, even a relatively new and tiny one such as Malta, can be said not to have contributed to the EU legal order. While the cases originating in or concerning Malta barely reach double figures, they arguably deal with matters which the Court would otherwise not have had the opportunity to rule on. Perhaps the most well-known case involving Malta relates to the trapping of songbirds to satisfy the cultural tradition of keeping songbirds in captivity (Commission v Malta 2018). The ECJ concluded, following Eleanor Sharpston’s lead who acted as Advocate General in the case, that Malta was not fulfilling its obligation under EU law and that ‘provided traditions evolve there is no insurmountable conflict’ (Commission v Malta 2018, Advocate General Opinion at para. 110). This might not seem that significant, but it does say something about how the EU sees traditions and cultural practices which are in direct conflict with EU law, and as such adds to our understanding of the expansive scope of EU supremacy and the limited scope of exceptions to EU legal provisions. The point should now be clear: whichever member state we pick, if we try, we will be able to highlight the contribution made to the EU legal order. There is nothing particularly novel or unique about the UK’s contribution when viewed this way. It appears merely to refer clear questions which have allowed the ECJ to develop the law and some of the referrals have had EU constitutional significance. While one might argue that the UK has particular expertise in some areas, such as anti-discrimination law or citizenship, the statistics on referrals do not necessarily back this up – very few anti-discrimination cases have been referred by the UK in the last five years for example and of course a high number of referrals could also indicate a lack of competence in a particular legal area resulting in an increased need for guidance from the EU. We can also point to other cases with equal or greater constitutional significance, and it is hard to argue that if the UK had not brought a particular case or had not been subject to proceedings, the legal point would not have been established in a different case at a different time. The point is, we can make the argument as we want to and we can probably find examples from the case law to support whatever argument we want to make. In addition, the reality of case law, particularly rights-based case law arriving at the Court, must also be taken into account. A full evaluation of the role legal

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The European Union after Brexit mobilization and civil society play in this regard is outside the scope of this discussion, but it is worth remembering that there is an impressive machinery in play aimed at identifying and supporting potential cases which might further a particular cause at EU level (Cichowski 2007; Guth and Elfving 2018). In order to ensure that good-quality references which ask the right questions continue to arrive at the Court post-Brexit, these groups will simply focus on the remaining member states and not worry too much about what issues are coming up in UK courts. Overall then, the contribution made by the UK since joining the EU has been significant. It has helped to develop both individual policy areas and the legal order itself. However, its contribution is not significantly different from that made by any other member state, and as such the UK exit is not likely to have a major impact: Cases will still be referred, legal developments will still happen, the cases will just come from the remaining member states and not the UK. The importance of the man on the Clapham Omnibus: general contribution of common law The discussion above highlights some of the specific contributions made by the UK in terms of cases in which UK lawyers and judges were involved and which were referred from the national courts; it also highlights that while important, the UK’s contribution is not unique. However, there is perhaps a more general and less tangible way in which the UK has shaped the legal order of the Court: it brought a common law tradition to a civil law world (Fennelly 2018). The UK introduced a slightly different way of thinking about law and doing the business of law to a Court which had a way of working modeled predominantly on the French legal tradition. The common lawyers joining the Court brought with them a degree of pragmatism derived from a system of legal reasoning based on case law precedent and analogy, and thus perhaps injected a degree of flexibility into an otherwise rather rigid approach based on the strict interpretation and application of legal texts. Important concepts such as the right to a hearing before an adverse decision is made, a well-established common law right, was introduced by Jean Pierre Warner, the first Advocate General from the UK, in Transocean Marine Paint v Commission (1974). The Court is now also in the habit of asking questions during proceedings, something which did not happen before the UK joined. Thus, ‘It can plausibly be claimed that the common law with the presence of common-law judges and Advocates General has enriched the jurisprudence of the Court of Justice’ (Fennelly 2018, 494). The addition of a common law tradition and common law-trained lawyers subtly but perhaps importantly changes the nature of arguments put to the Court and reasoning given by the Court. While we might not always be able to analyze these contributions through the published judgments, given their unanimous



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and to-the-point nature, we can speculate that the different approaches and legal traditions coming together and possibly even clashing behind closed doors overall make for better informed decisions. In many ways it is simply a more diverse judiciary coming together to be a better judiciary (see Guth and Elfving 2018). Eleanor Sharpston, who has served the Court as an Advocate General since 2006, put it this way: The UK has made a very strong contribution to this court and the evolution of EU law since it joined in terms of injecting a degree of pragmatism…. The procedures of this court and the way it deals with cases have been improved by the addition of the [British] common law tradition into the mix. (Sharpston 2016, quoted in Bowcott 2016)

However, the common law tradition will not disappear from the CJEU after Brexit. Ireland, and to some extent Malta and Cyprus will continue to provide a common law perspective, and common law-trained lawyers, judges and Advocates General. It is not that the UK is the only member state with a common law-based system, it is just that it is the home of common law and the largest common law member state, with a well-respected and formidable legal system which is recognized around the world. Clearly therefore, the common law influences are likely to be weaker, but they will not disappear. In addition, it is worth noting that the legal order and procedural rules operating in the CJEU are well established, and just because the common law influence is diluted does not mean that the contribution it has made to the EU legal order will be lost. Its legacy will remain even if future developments are likely to be dominated by the civil law traditions. I think it is also naïve to presume that personnel including judges and advocate generals who work in an international setting will rigidly stick to their own legal traditions and ways of doing things. Instead it seems likely that they will want to learn from each other and take the best bits from each system to feed into a unique legal order such as the EU. In addition, these highly educated and trained lawyers will be well aware of some of the benefits common law approaches can offer, and while thinking outside your own tradition and way of doing things can be difficult, it is not impossible. Common law has undoubtedly made a positive contribution, and the EU legal order is better for that different approach. However, it is not so clear that the contribution needs to be a continuing one. It may be that the legal order at EU level has taken all that it can benefit from in the UK’s years of membership, and has developed its own version of common law principles and approaches, and that therefore the continuing presence of a strong common law jurisdiction is no longer needed for the benefits to stand. If that is the case, then Brexit stands to have little impact on the legal order, and the Court will continue to do its business. In the context of anti-discrimination law,

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The European Union after Brexit Suk (2017) summarizes the position in a way that can equally be applied to the UK’s contribution more generally: ‘the United Kingdom’s contributions to EU antidiscrimination law over the last four decades have been so significant across a range of doctrines and problems that they will likely remain, even if Britain does not’ (Suk 2017, 1552).

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‘Some very good people have served in the court’: contributions by individuals The final contribution to consider in this chapter is that made by individuals. Again, a full analysis of each judge and Advocate General’s term(s) of office is beyond the scope of this chapter and could make for a fascinating book in itself, but some of the best legal minds have served the Court and it is worth noting the overall contribution they have made. As noted above in relation to the case law of the Court, this exercise can probably be done for each member state and it is difficult to argue that the contributions made are unique and special. If the people mentioned here had not made their contributions, others would have, and losing UK personnel is no different or more or less significant than losing personnel from other countries, except perhaps in relation to the common law points made above. Sharpston (quoted in Bowcott 2016) notes: ‘Some very good [UK] people have served in the court – Lord Gordon Slynn, Sir Konrad Schiemann [both appeal court judges] and Sir Francis Jacobs – and they have made a difference.’ And of course, she herself has done so too. Given that Sharpston specifically singles out those three of her colleagues, this chapter focuses on them as well as on her contribution to the legal order through their work in the Court. Lord Slynn became the UK’s second Advocate General in 1982. Goebel (2011) noted that ‘[Slynn] soon became known for the rapidity and acumen of his opinions, acquiring the nickname juriste de grande vitesse, among the Court law clerks.’ In addition, he was, at least according to the obituary published in the Daily Telegraph (2009), ‘particularly influential in importing [to the Court] English common law principles of procedural fairness’. It certainly seems true that he, along with Lord Mackenzie Stuart, his predecessor in the position of ECJ judge, encouraged the Court to engage in oral arguments and take a more common law approach to hearings. Works dedicated to Lord Slynn’s legacy (O’Keeffe and Bavasso 2000; Goebel 2011) refer to the fact that he wrote opinions on all aspects of EU law and thus was influential across the board; they also note that he made a particular contribution to highly technical fields such as completion law (Greaves 2011). In the context of the discussion about the particular contribution made by the UK to equality law outlined above, it is perhaps interesting to note that as Advocate General in Commission v France (1988), Slynn shaped what Suk (2017, 1544) called the Court’s ‘skeptical approach to the special ­protection of maternity in construing the Equal Treatment Directive’.

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He noted ‘France’s insistence on the traditional role of the mother, as I see it, ignores developments in society whereby some men in “single-parent families” have the sole responsibility for children or whereby parents living together decide that the father will look after the children, in what would traditionally have been the mother’s role’ (Commission v France 1988, Advocate General Opinion, 6328). Links between policy areas where the UK is said to have made a significant contribution in terms of referrals, and the opinions and judgment of those UK personnel serving on the court can therefore also be made. We can also draw on examples from Sharpston’s opinions here. In fact, Suk (2017) points to the clear difference between her approach and that of Advocate General Juliane Kokott in relation to the debate about the banning of headscarves. She notes UK Advocate General Sharpston issued an opinion that was much more protective of the Islamic employee’s religious freedom in construing the scope of EU protection from religious discrimination than the approach taken by German Advocate General Juliane Kokott. Although Kokott’s approach is closer to the reasoning adopted by CJEU, Sharpston’s opinion led the Court to limit the employer’s discretion to ban the headscarf, notwithstanding the Court’s decision to accept the employer’s pursuit of neutrality as a legitimate justification for banning the headscarf. (Suk 2017, 1548)

Sharpston’s contribution goes beyond religious discrimination cases though. She is the first female Advocate General to be appointed from the UK and describes herself as a generalist EU lawyer who is happy to deal with any EU law issues which arise (as do all of the Advocate Generals) (Competition Law Insight 2012). Recent significant opinions include her comments on the EU-Singapore trade deal in which she concluded that the agreement could only be concluded by both member states and the EU and not the EU alone. This approach was followed by the Court (ECJ, 2017) and is likely to have implications for pending and future trade deals, including the deal that might ultimately be made between the EU and the UK. Both Schiemann and Jacobs might be familiar as having contributed to the Brexit debate and for considering what the post-Brexit position might be. As well as their considerable contribution while at the Court, they are now making their voices heard to try and help sort out ‘the Brexit Mess’ (King 2017). Schiemann has, for example, provided written evidence to the Treasury Select Committee in the inquiry into EU membership of October 2015, and more recently he assisted the Lords’ Justice Subcommittee, part of the select committee on the European Union on the future of the EU–UK relations and the Court in particular. Jacobs has also written on the EU post-Brexit dealing with a number of legal, administrative and policy issues (Jacobs 2018). Moser and Sawyer’s collection examines Jacobs’ legacy in some detail, and it is notable that a broad range of topic areas is represented in the volume. Particular mention might be made of cases such as Bronner (1998), a competition law case, in

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The European Union after Brexit r­elation to which Wish (2008) has argued that the opinion delivered by Jacobs has had a greater lasting impact than the judgment. The individual contribution of Judge Schiemann is harder to gauge than that of the Advocates General, simply because we cannot pick out his voice at the Court. While we can track the cases judges were involved in, we do not know how closely the judgment reflects their own view or what influence they had over the final outcome. As with the case law, it is clear that individuals make a contribution to the legal order. In some cases it is easy to track and highlight that contribution, as can be seen in Weatherill’s (2008) contribution to Moser and Sawyers’ collections on Francis Jacobs’ work. In other cases it is less tangential, and we rely on comments such as those made by Sharpston about her predecessors quoted above. However, as indicated, the same is probably true for all of those who have served as judges or Advocates General on the Court. Post-Brexit the EU will of course lose the contribution of those UK legal minds, but there may be other ways in which they can and will still contribute to EU law and the legal order. Most UK universities have well-established law schools which all include EU lawyers to a greater or lesser extent, and some have very well-respected research centers dealing with all aspects of EU law. EU law is likely to continue to be taught in UK law programs even if its influence might diminish (Guth and Hervey 2018). Legal academics focused on EU law analysis will continue to do their work, and that work can still be of use and relevant to the Court if it chooses to take it into account. Whether this is something the Court will do, and what will be the impact academic scholarship has on the Court, is a question for another day but one worth keeping in mind. A pity to lose the contribution? Having outlined the contribution to the EU legal order made by the UK in the previous section, this part of the chapter considers what the impact of Brexit might be. It grapples with questions about the future development of EU law and the legal order, and asks whether the input from UK courts and lawyers will be missed or if their absence will even be noticed. The EU legal order is well established. As I have argued elsewhere (Guth 2016a), the CJEU transformed it into what it is today but that transformation was fairly quickly completed in terms of the legal order overall – instead the legal order continues to develop and evolve, with some specific areas being susceptible to transformation at key points when the ‘right’ case comes along. If the hallmark of the EU legal order today is Eurolegalism as defined by Kelemen (2011) or if, as Stone Sweet put it (2011, 145), it is ‘one of the most important examples of extensive judicialization ever documented across a wide range of policy areas’, then Brexit will have little immediate and obvious impact. Cases across policy areas will still be referred, considered, heard and decided. The statistics, some of which were outlined earlier in this chapter, suggest that the

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UK’s withdrawal will not significantly impact the number of cases referred in most policy areas, and that there is no policy area where referrals come only or predominantly from the UK. The Court will therefore still get the cases to allow it to develop the law in any given area. It may be, however, that there are some areas where a distinctly British (or a distinctive Sharpston, or others) approach can be identified, and once UK influence and personnel are no longer at the Court, those areas might continue their development in different directions. Locke (2017) argues that ‘it would appear fair to suggest that developments in these particular areas will be slower without the potential input from an experienced and big legal order capable of producing opportunities for the ECJ to hone its own approach.’ Throughout this chapter the contributions made have been highlighted as being significant but not unique. It is true that ‘It would be a pity to lose this contribution …’ (Sharpston, quoted in Bowcott 2016); a pity, yes, but it will, in my opinion, not have a significant impact on specific legal areas or the EU legal order overall. References Bowcott, Owen. 2016. ‘“We Don’t Decide National Cases”: ECJ Veteran Swipes Away Eurosceptic Barbs’. Guardian, 19 April, https://www.theguardian.com/law/2016/ apr/19/we-dont-decide-national-cases-ecj-veteran-swipes-away-euroscepticbarbs. Bradley, Kieran St Clair. 2011. ‘Powers and Procedures in the EU Constitution: Legal Bases and the Court’. In The Evolution of EU Law, edited by Paul Craig and Grainne De Burca, 2nd ed., 85–109. Oxford: Oxford University Press. Cichowski, Rachel A. 2007. The European Court and Civil Society: Litigation, Mobilization and Governance. Cambridge: Cambridge University Press. CJEU (Court of Justice of the European Union). Various dates. Annual Reports, https:// curia.europa.eu/jcms/jcms/Jo2_11035/rapports-annuels. Competition Law Insight. 2012. Interview with Eleanor Sharpston, https://www.com petitionlawinsight.com/Interview/interview-with-eleanor-sharpston-58965.htm. Daily Telegraph. 2009. ‘Obituary of Lord Slynn of Hadley’. 8 April. ECJ (European Court of Justice). 1991. Opinion 1/91 delivered pursuant to Article 228(1) of the Treaty [1991] ECR I-6079. Luxembourg: ECJ. ECJ (European Court of Justice). 2017. Opinion 2/15 delivered pursuant to Article 218(11) of the Treaty [2017]. Luxembourg: ECJ. European Commission. 2018. ‘Draft Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community.’ TF50 (2018) 35 – Commission to EU-27, https:// ec.europa.eu/commission/sites/beta-political/files/draft_agreement_coloured.pdf. Fennelly, N. 2018. ‘Brexit: Legal Consequences for the EU’. ERA Forum, 18:4, 493–511, https://doi.org/10.1007/s12027-018-0492-9. Goebel, Roger J. 2011. ‘Introduction: In Honor of Gordon Slynn, U.K. Law Lord and Judge of the EC Court of Justice’. Fordham International Law Journal, 33:5, 1335.

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The European Union after Brexit Greaves, Rosa. 2011. ‘Selected Opinions of Lord Slynn as Advocate General’. Fordham International Law Journal, 33:5, 1522. Guth, Jessica. 2016a. ‘Law as the Object and Agent of Integration: Gendering the Court of Justice of the European Union, its Decisions and their Impact’. In Gendering European Integration Theory: Engaging New Dialogues, edited by Gabriele Abels and Heather MacRae, 176–196. Leverkusen: Barbara Budrich Verlag. Guth, Jessica. 2016b. ‘Transforming the European Legal Order: The European Court of Justice at 60+’. Journal of Contemporary European Research, 12:1, S1, 455–466. Guth, Jessica, and Elfving, Sanna. 2018. Gender and the Court of Justice of the European Union. Abingdon: Routledge. Guth, Jessica, and Tamara Hervey. 2018. ‘Threats to Internationalised Legal Education in the Twenty-First Century UK’. The Law Teacher, 52:3, 350–370. DOI: 10.1080/03069400.2018.1463035. Jacobs, F. B. 2018. The EU after Brexit. Basingstoke: Palgrave. Kelemen, Daniel R. 2011. Eurolegalism: The Transformation of Law and Regulation in the European Union. London: Harvard University Press. King, Katie. 2017. Top Ex-Judges Reunite to Help Parliament Fix Brexit Mess. Legal Cheek, https://www.legalcheek.com/2017/11/top-ex-judges-reunite-to-help-parl iament-fix-brexit-mess/. Leanarts, Koen. 2015. ‘EU Citizenship and the European Court of Justice’s “Stoneby-Stone” Approach’. International Comparative Jurisprudence, 1:1, 1–10, https://doi. org/10.1016/j.icj.2015.10.005. Locke, Tobias. 2017. ‘Brexit and the Impact on Rights in the EU’. European Futures Blog, http://www.europeanfutures.ed.ac.uk/article-5666. O’Brien, C. 2017. ‘The ECJ Sacrifices EU Citizenship in Vain: Commission v UK, 54(1) Common Market Law Review, 54:1, 209–244. O’Keeffe, David, and Antonio Bavasso. 2000. Judicial Review in European Union Law: Liber Amicorum in Honour of Lord Slynn. The Hague, London, and Boston: Kluwer Law International. O’Leary, S. 1999. ‘Putting Flesh on the Bones of European Union Citizenship’. European Law Review, 24:1, 68–69. Oliver, Tim. 2018. Europe’s Brexit: EU Perspectives on Britain’s Vote to Leave. Newcastle: Agenda Publishing. Stone Sweet, Alec. 2010. ‘The Judicial Coup d’Etat and the Problem of Authority: CILFIT and Foto-Frost’. In The Past and Future of EU Law, edited by Miguel P. Maduro and Loic Azoulai, 201–210. Oxford: Hart Publishing. Stone Sweet, Alec. 2011. ‘The European Court of Justice’. In The Evolution of EU Law, edited by Paul Craig and Grainne De Burca, 2nd ed., 121–153. Oxford: Oxford University Press. Suk, Julie C. 2017. ‘Equality after Brexit: Evaluating British Contributions to EU Antidiscrimination Law’. Fordham International Law Journal, 40, 1535, https:// ir.lawnet.fordham.edu/ilj/vol40/iss5/8. Weatherill, Stephen. 2008. ‘A Consumer’s Appreciation of the Contribution of General Advocate Francis Jacobs to the Shaping of the EC’s Legal Order’. In Making Community Law: The Legacy of Advocate General Jacobs at the European Court of Justice, edited by Philip Moser and Katrine Sawyer, 28–53. Cheltenham: Edward Elgar.



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Wish, Richard. 2008. ‘Competition Law’. In Making Community Law: The Legacy of Advocate General Jacobs at the European Court of Justice, edited by Philip Moser and Katrine Sawyer, 115–131. Cheltenham: Edward Elgar.

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Cases cited Baumbast and R v Secretary of State for the Home Department (C-413/99) [2002] ECR I-7091 Asma Bougnaoui and other v Micropole SA (C 188/15) [2017] EU:C:2017:204 Oscar Bronner v Mediaprint (case C-7/97) [1998] ECR I-7791 S Coleman v Attridge Law and Steve Law (C-303/06) [2008] ECR I-5603 Elisabeta Dano and Florin Dano v Jobcenter Leipzig (C-333/13) [2014] EU:C:=2014:2358 Defrenne v Sabena (C-43/75) [1976] ECR 00455 (Defrenne II) European Commission v French Republic (Case 312/86) [1988] EU:C:1988:485 European Commission v Republic of Malta (C-557/15) EU:C:2018:477 European Commission v UK (C-308/14) [2016] EU:C:2016:436 A. Foster and others v British Gas plc (Case 188/89) [1990] ECR I-3313 Lisa Jacqueline Grant v South-West Trains Ltd (C-249/96) [1998] ECR I-00621 Rudy Grzelczyk v Centre public d’aide sociale d’Ottignies-Louvain-la-Neuve (C-184/99) [2001] ECR I-6193 Eckhard Kalanke v Freie Hansestadt Bremen (C-450/93) [1995] ECR I-03051 London Borough of Harrow v Nimco Hassan Ibrahim (C-310/08) [2010] ECR I-01065 Hellmut Marschall v Land Nordrhein-Westfalen (C-409/95) [1997] ECR I-6363 M Helen Marshall v Southampton and other (C-152/84) [1986] ECR 723 M Helen Marshall v Southampton and other (C-271/91) [1993] ECR I-4367 (Marshall II) Maria Martínez Sala v Freistaat Bayern (C-85/96) [1998] ECR I-2691 Shirley McCarthy v Secretary of State for the Home Department (C-434/09) [2011] ECR I-3375 P v S and Cornwall County Council (C-13/94) [1996] ECR I-2143 R, on the application of Dany Bidar v London Borough of Ealing and other (C-209/03) [2005] ECR I-2119 Maria Teixeira v London Borough of Lambeth and other (C-480/08) [2010] ECR I-1107 Transocean Marine Paint v Commission (Case 17/74) EU:C:1974:106 Gerardo Ruiz Zambrano v Office National de l’Emploi (ONEm) (C-34/09) [2011] ECR I-1177 Kunqian Catherine Zhu and Man Lavette Chen v Secretary of State for the Home Department (Case C200/02) [2004] ECR I-9925

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7

The East–West divide: obstacles to European integration Kristin Makszin

Introduction This chapter assesses the main vulnerabilities for European (dis)integration in the wake of Brexit, with a focus on the Eastern member states of the European Union (EU).1 These vulnerabilities include substantial development gaps between the East and the West, and erosion of democratic institutions in some Eastern member states, most notably Hungary and Poland. These concerns were present long before Brexit, but remain critical in the postBrexit EU. Therefore, rather than a critical juncture in the path of EU (dis) integration, Brexit will likely represent the beginning of another phase where the ‘new’ member states remain peripheral within the EU. Addressing critical divisions between the West and East will shape the future of the EU and contest integration efforts. In this chapter, I first outline three potential direct impacts that Brexit may have on Eastern member states, including loss of a strategic ally, restriction on out-migration to the UK, and Brexit as a model opening up the possibility of other member states also exiting the EU. Then I will outline the major obstacles arising in relation to the Eastern member states. These ongoing challenges include the persistent economic development gaps between Eastern and Western member states and the tendency for democratic backsliding in some Eastern member states. The lack of convergence on economic development, combined with a shift away from redistributive cohesion policy since 2013, suggests that the post-Brexit EU will need to cope with vast inequality within its borders. This is not inherently problematic, but given the decreasing willingness to fund other countries’ development on the part of net contributors, the gaps will likely endure and create ripe ground for future tension. The other concern, which may well be related to lagging economic development in the East, is the rise of governments with populist messages who erode rule of law

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The East–West divide: obstacles to European integration 129

and democratic institutions. This is most visible in Hungary since 2010 and Poland since 2015. By now, the EU has started formal processes  to address democratic backsliding in these countries (through Article 7), but the impact of this process seems insufficient to shift the direction of these democracies thus far. Furthermore, these countries are poised to protect each other in any further attempt to intervene in their national political developments. Unless the EU develops more impactful approaches for addressing developmental gaps and erosion of democracy within member states, I claim that these two factors may be forces for EU disintegration in the coming years, regardless of the decisions made in the wake of Brexit. The next section summarizes the less substantial, but more direct impact that Brexit may have on Eastern member states. The third section summarizes the ongoing challenges based on development gaps between Eastern and Western member states and the critical erosion of democratic institutions in multiple Eastern member states. The conclusion considers the consequences of these obstacles for the post-Brexit EU. Effects of Brexit on Eastern member states The primary issues where Brexit may be considered to directly affect Eastern member states include the loss of a strategic ally within the EU, the lost opportunity of out-migration from the Eastern member states to the UK, and Brexit as a model for exiting the EU. Considering the first, while from some perspectives Brexit represents the loss of a strategic ally of the Eastern member states, the strongest area of alliance seemed to be on hesitation about further EU integration and towards migration from outside the EU, rather than on broader policy issues. Observing voting patterns on the European Council, the Eastern member states and the UK do not stand out as clear allies (Hix, Hagemann, and Frantescu 2016, 5–6). Furthermore, Eastern member states still have allies among themselves, with multiple Eurosceptic governments in the region. There has been a tendency for heightened coordination between Eastern member states, which was stronger pre-accession, faded, and then was renewed around the time of Brexit and the refugee crisis (Végh 2018). This alliance was also visible in voting on Article 7 against Hungary, when representatives from multiple Eastern member states supported Hungary, such as Bulgaria, Romania, and Poland among others. This suggests that Eastern member states may find closer allies by partnering with each other. The exit of the UK represents the loss of a strong voice wary of deeper integration, but likeminded Eastern European actors may find strength in numbers by allying with one another. On the issue of resistance towards the inflow of refugees or migrants, there is likely to be an increase in governments with similar views, given prevailing anti-migration public sentiment rising in Western member states as well. The second concern regards restrictions on migration from Eastern Europe to the UK. While the details remain to be decided, the loss of free movement to

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The European Union after Brexit the UK is clearly a concern for governments and citizens from Eastern member states. In Brexit negotiations, Visegrád country (Czech Republic, Hungary, Poland, and Slovakia) representatives explicitly mentioned the priority of maintaining the right for Eastern European citizens to work in the UK (Payne 2016). This is not only a concern for individuals from East Central Europe (ECE) in search of better opportunities, but out-migration has also been vital means of alleviating labor market mismatches in the region (Kahanec and Kureková 2016; Kureková 2011). So this may have a dramatic impact on ECE, but given the uncertainty of the situation of migration to the UK post-Brexit, this remains outside the scope of this chapter. The third potential effect of Brexit is the contagion effect, whereby Brexit becomes a model of exit from the EU that other countries may follow. Brexit clearly ‘lay to rest the once dominant idea that European integration is an irreversible process’ (Matthijs 2017, 85). With Brexit as a precedent, one question often raised is: will there be another member state that follows suit? The tumultuous process of the Brexit negotiations may deter other countries from pursuing exit from the EU. Regardless, I maintain that that the chances of any Eastern European member state pursuing its own exit from the EU is highly unlikely unless the conditions of membership change dramatically in the postBrexit era. This claim is based on these countries’ high economic dependence on EU countries, and public support for staying in the EU. Economic dependence was core to Eastern member states’ models of development (Bohle and Greskovits 2012; Nölke and Vliegenthart 2009). The stakes of exiting the EU are magnified due to the ‘hyper-integrationist development model’ (Scepanovic 2013), implying a critical role of foreign capital in the ECE economies as sources of foreign direct investment (FDI) and trade. While there is significant variation in the models of capitalism in the Eastern member states, they all represent different forms of dependence (Bohle and Greskovits 2012). The Visegrád countries (Czech Republic, Hungary, Poland, and Slovakia) have an export-led growth model that depends on FDI in the manufacturing sector, whereas the Baltic states (Estonia, Latvia, and Lithuania) developed ‘dependent financialization’ (Bohle 2018, 240). While the economic consequences of Brexit for the UK seem dire, if a single Eastern member state left the EU it would cut  itself off from its economic lifeline. This means that Eurosceptic governments in the East seek to shake up the status quo within the EU while remaining members. Despite the rise of nationalist tendencies in multiple countries and the increasing prevalence of Eurosceptic parties in power, public opinion clearly favors staying in the European Union. This was measured quite directly in the most recent Eurobarometer poll, which asked respondents how they would vote if a referendum on EU membership of their country was held tomorrow (European Parliament 2018). The results for the Eastern member states compared to the EU-28 average are shown in Figure 7.1.



The East–West divide: obstacles to European integration 131 Poland Estonia Lithuania EU-28 Slovenia

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Figure 7.1  Public survey responses to hypothetical referendum on EU membership, 2018 Source: Parlemeter (European Parliament 2018).

Most countries are near the EU average with around 60 to 65 percent of respondents clearly favoring remaining in the EU. At least half of the remaining respondents expressed uncertainty. Poland is an outlier on the Remain side, with 75 percent indicating that they would vote to remain and only 11 percent indicating that they would vote to leave (and 14 percent unsure). Even in Hungary, where the government led recent campaigns to ‘Stop Brussels’, over 60 percent of respondents support remaining (17 percent support leaving and 22 percent are unsure). While public opinion on this issue may be volatile, especially if the structure of the EU changes dramatically, Brexit did not appear to create broad public support for exiting the EU in Eastern member states. The Czech Republic is a notable exception, with 47 percent of respondents opting to stay in the EU, 24 percent supporting leaving, and 29 percent unsure. The Czech Republic does have a clearly Eurosceptic government led by Andrej Babiš, but it also has a public that identifies more clearly as European than in the UK (Whitlock 2018). Czech politicians have debated revised laws on referenda, with some proposals seeming to allow the possibility of the country exiting the EU. In the end, even the Eurosceptic Prime Minister Babiš stated that he would not want to hold a referendum on exiting the EU. A shift in government with more support for the extreme right could mean that a Czech referendum demanding exit from the EU remains within the scope of plausibility. For the other Eastern countries, even the Eurosceptic governments seem more likely to join forces to change the EU, rather than leave it. This is most notable in the cases of Hungary and Poland, as will be explored in the section ‘Erosion of rule of law in the East’.

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The European Union after Brexit

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The rifts between East and West While the direct effects of Brexit summarized in the previous section remain limited, the post-Brexit EU faces acute challenges related to the Eastern member states, which are not new, but which I claim represent significant obstacles to post-Brexit European integration. Even without dire examples of the unraveling of the European Union, there are significant concerns about European disintegration within the remaining EU member states. Focusing on the perspective of East Central European EU member states, the two greatest concerns are the lack of convergence of East to West, combined with increasing resistance to funding redistributive cohesion policy, and the decline of rule of law in some Eastern member states, most notably Hungary and Poland. I will explore these in the following two sections. An economic divide Accession to the EU was an achievement of great hope for the Eastern new member states.2 While perhaps the aspiration to catch up with Western European economies was never realistic, the persistency of the gaps between the East and West clearly represent an obstacle to European unity. Figure 7.2 shows the average GDP per capita for the fifteen countries that were members of the EU prior to the 2004 enlargement compared to the average for the eleven Eastern new member states that joined the EU in 2004, 2007, and 2013.3 For many years, the hope of convergence was sufficient to avoid any resistance from Eastern member states experiencing much lower levels of development. However, the prolonged disparity in levels of development has by now created fertile soil for political conflict. This is not an argument about the overall economic benefits of joining the EU. There were clear benefits of membership and there would have been substantial economic costs for a single country opting out of EU membership in terms of foreign direct investment and trade. Furthermore, EU funding for various development projects had clear positive effects. However, these benefits were ‘pro-cyclical’ in that the countries benefitted significantly in the good times, but the global financial and economic crisis also had an extreme impact, hitting the region particularly hard (Jacoby 2014). The challenge posed by significant development gaps is not new and was clearly on the radar of EU actors at the time of enlargement, even in the case of the Southern enlargement. Cohesion policy was designed to address some dimensions of this gap. Significant funds have been invested in infrastructure and development in the Eastern member states both before and since joining the EU. Nevertheless, this gap in the level of development persists, with no sign of convergence (Makszin, Bohle, and Medve-Bálint 2020). Wages in Eastern Europe similarly have not converged, but stagnated at around 55 to 60 percent

30,000 GDP per capita

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40,000

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Figure 7.2  Average GDP per capita for EU-15 and Eastern member states with standard errors, 1995–2017 Source: World Bank (World Bank Data 2018).

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The European Union after Brexit of the average Western European level, even taking purchasing power into account. The Eastern periphery is actually not alone in this lower tier: since the global financial crisis it has converged with Southern Europe on both GDP per capita and wages, promoting a core–periphery dynamic in the EU (Makszin, Bohle, and Medve-Bálint 2020). Even when significant resources were devoted to attempts to redistribute to the less developed Eastern member states, the gap persisted. Convergence of the economic development of EU member states has failed to materialize (since 1980 for the South, 2004 for the East). This is at least in part due to allocation of funds that did not meet the greatest developmental needs of Eastern member states (Medve-Bálint 2018). The redistributive effects of the cohesion funds are now even more limited because of a lack of political will among net contributor states. Since 2013 there has been an explicit shift to prioritize competition over cohesion (Cohesion policy 2018). This means that a smaller share of funds is earmarked for less developed regions, and the explicit goal of cohesion policy is to support the competitiveness of the EU overall rather than to support less developed regions. The persistent development gap between the East and the West is not necessarily a problem for the EU economically, but the deterioration of hope for convergence may have consequences for political support for European integration. Public awareness of the development gap is widespread. Figure 7.3 shows the deep awareness of the economic divides between the West and the East, relying on Eurobarometer surveys conducted in 2013 asking respondents about the position of their country relative to the EU average. The vast majority of the publics in all Eastern (and Southern) member states are aware of the gap. Circular migration patterns between East and West reinforce this awareness. Figure 7.4 displays the share of the population stating that their country’s position was worse that the EU average over time, including all years for which data is available. Given the clear division between the Southern countries (Greece, Italy, Portugal, and Spain) and other EU-15 members, I plot the Southern countries separately from the remaining EU-15 countries, which I label as Western. This demonstrates that both the gaps in economic development and the public awareness of these gaps are persistent over time. On the one hand, this problem is as old as the EU. However, it will likely remain an obstacle for future European integration, as such persistent inequality may facilitate a rise in anti-EU sentiments among publics and their governments, with severe political consequences. Erosion of rule of law in the East Strong democratic institutions were a prerequisite for accession to the EU, but concerns about the quality of democracy in Eastern member states emerged shortly after accession (Bohle and Greskovits 2009; Greskovits 2007). These

ed en en m G ar er k m an Lu Au y xe str m ia bo ur F N i g U eth nla ni n te erl d d an Ki d ng s d Be om lg iu Fr m an Es ce to C ni ze ch Irel a a R nd ep ub Po lic l H and un Li gar th y ua Sl nia ov ak i La a tv ia R Ital om y an C ia ro at i Sp a Po ain rt Sl uga ov l e Bu nia lg a G ria re ec e

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Figure 7.3  Share of respondents stating country’s position relative to the EU average, 2013 Source: Eurobarometer. Don't know

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Figure 7.4  A  verage share of population stating that country’s position is worse than the EU average by region within the EU with standard errors, 2004–13 Source: Eurobarometer.

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The East–West divide: obstacles to European integration 137

concerns were based on public dissatisfaction with the transition and on the rise of radicalism, including the radicalization of moderate parties (Greskovits 2007, 45). They foreshadowed the erosion of democratic institutions and the turn towards extreme parties and populist leaders on the left and right. The response on the EU level was inconsistent at first, but then in 2018 an Article 7 procedure (the so-called ‘nuclear option’) was launched against both Poland and Hungary. Among the many ongoing crises within the EU, there was a clear need to expand the tools for addressing declining rule of law in Eastern member states. This is evident in the new Rule of Law framework that was introduced in 2014 to support dialogue between the EU and member state actors when concerns are detected before an Article 7 procedure is introduced. It formalized a process for applying social pressure to countries with deteriorating rule of law, which was deemed effective in the Romanian case in 2012 (Sedelmeier 2017). A multilayered conflict between the prime minister, Victor Ponta, and the president, Traian Ba˘ sescu (who were affiliated with opposing political parties) manifested itself also in a dispute over which of the leaders had the mandate to represent Romania on the European Council. When the constitutional court decided in favor of the president, the government led by Victor Ponta took complex, reactionary, though ultimately unsuccessful, steps to oust the president (for a detailed summary, see Perju 2015). There was a clear  and public reaction from the European institutions, evidenced in communication from both the president of the European Commission and the president of the European Parliament, who was also the leader of the political party family (the European Socialists) to which Prime Minister Ponta’s party belonged. Eventually, most likely influenced by political pressure from EU actors, the clear violations of the rule of law were undone. In this case, the existing EU mechanisms to enforce rule of law seemed to work, but that depended on several circumstantial factors that are not present in the cases of Hungary and Poland, including the Mechanism of Co-operation and Verification requirements, which added regular inspections, especially of the judicial system, for Romania and Bulgaria after the countries joined the EU in 2007. Also, the influence of the leader of the party group was likely decisive. The political calculations of Prime Minister Ponta depended on several contingencies that may not be present in future crises (Perju 2015; Sedelmeier 2017). While the efforts of the EU to restore rule of law in its member states have some relative success stories, there are also cases that produce reason for grave concern. In this section, I summarize the attempts of the EU to address challenges to the rule of law in Poland and Hungary, which thus far have been largely ineffective. There have been clear violations of democratic principles in these two countries (for a broader summary of these cases, see Kelemen 2017). In this section, I summarize the EU attempts to reverse the deterioration of the rule of law in each case and summarize the claim that existing EU mechanisms for sanctions, including Article 7 and the newer Rule of Law Framework are

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The European Union after Brexit insufficient for changing the course of these national governments (Halmai 2018; see also Pech and Scheppele 2017).

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Poland In the parliamentary elections of 25 October 2015, the nationalist opposition Law and Justice Party (PiS) won an absolute majority of seats and formed a government headed by Beata Szydło, which took power on 16 November 2015. A dispute over the appointment of judges to the Constitutional Tribunal, Poland’s constitutional court, emerged due to the fact that three judges’ terms expired on 6 November 2015, after the parliamentary election, but before the formation of the new government. Two more judges had terms expiring in December 2015. Prior to the election, the Civic Platform Party, which led the government, passed a law enabling them to appoint five judges to replace the vacancies that would occur in November and December after the election. The constitutional court ruled that the appointments for November were chosen properly, but the two vacancies for December should be filled by the new Parliament formed after the election. The crisis escalated when the new Parliament with a PiS majority invalidated all five appointments and did not wait for the decision of the constitutional court on the matter (for a chronology of events, see Szuleka, Szwed, and Wolny 2016). The new Parliament hastily appointed five different judges and voted on them without waiting for the constitutional court’s ruling, despite protests from the legal community that this action was unconstitutional. The president, Andrzej Duda, an ally of PiS, promptly swore four of the five new judges in, despite delaying a similar action for the three judges appointed by the previous Parliament. The head of the constitutional court refused to acknowledge the new judges due to the illegal actions taken to appoint them. In December 2015, further reforms to the operation of the constitutional court were passed that required a two-thirds majority for decisions and the presence of thirteen judges to make a valid decision (increasing it from nine). The latter move meant that the court could not rule without the five disputed judges. Multiple procedural changes were also made that slowed down the ability of the court to act. One example was by fixing the order in which the Constitutional Tribunal considers cases to the order in which they arrive. In March 2016, the Constitutional Tribunal ruled that these changes were unconstitutional. The PiS-led government declared this decision as non-binding, as it did not adhere to the rules that the amendment itself introduced, creating an impasse. The Deputy Minister of Justice referred to the session when the amendments were declared unconstitutional as a ‘private meeting of judges’ (Szuleka, Szwed, and Wolny 2016, 33), essentially delegitimizing the actions of the Constitutional Tribunal. The Constitutional Tribunal continued its work based on the rules prior to the December 2015 amendments but the government did not accept any of its rulings.

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The EU Commission launched a Rule of Law dialogue in January 2016 in response to changes introduced in the Constitutional Tribunal that unduly introduced partisan bias and jeopardized judicial independence. This was the first application of the new Rule of Law dialogue mechanism (European Commission 2014). The Polish government dismissed the accusations of violation of the rule of law, as demonstrated by this statement of the Prime Minister: ‘I think that Poland does not deserve to undergo examination by the European Commission because human rights are not violated, nor is the rule of law […]. We should deal with our Polish matters within our Polish borders. Foreign assistance has not always worked well for us’ (as quoted in Szuleka, Szwed, and Wolny 2016, 43). The Polish government also questioned the legality of the Rule of Law Framework more generally (Pech and Scheppele 2017, 15). Nevertheless, the Parliament prepared a revised draft act in June 2016, but the changes were only minor and not aligned with recommendations from the EU Commission, and the government’s efforts to exert executive control over the court clearly continued. The government only demonstrated a limited response to feedback through the Rule of Law dialogue and a parallel assessment by the Venice Commission of the Council of Europe. The new act was passed in July 2016 with the government claiming that the reforms to the Constitutional Tribunal were necessary to address corruption within the institution. The steps of the Rule of Law procedure continued without any significant impact, as shown by the Polish government’s decision to appoint the president of the Constitutional Tribunal despite explicit warnings not to do so before addressing the EU Commission’s concerns. In December 2017, an Article 7(1) procedure was launched by the EU Commission against Poland, as a result of the lack of response to earlier efforts. Article 7 of the Treaty on the European Union is designed to suspend some rights of a member state decided to be in systematic violation of the principles related to democracy and rule of law (summarized in Article 2 of the Treaty on the European Union). This so-called ‘nuclear option’ had not been applied before. However, the first phase of Article 7 is essentially a warning about the possibility of sanctions or potential loss of voting rights. In July 2018, retroactive changes to the mandatory retirement age were applied to judges on the Constitutional Tribunal, demonstrating that efforts to reshape the court continued essentially uninhibited by the EU efforts. The constitutional crisis is ongoing. Further steps in Article 7 are hindered by institutional constraints which will be explored further in the section ‘The limited strength of EU interventions’ after introducing the Hungarian case. Hungary Concerns about the erosion of democratic institutions began much earlier in Hungary, though the EU reaction came later than in the Polish case. In the

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The European Union after Brexit 2010 parliamentary election, the Fidesz government, led by Viktor Orbán, won a free and fair sweeping victory resulting in single-party control of twothirds of the seats of Parliament. This victory emboldened the government to consolidate its power and centralize its control over many institutions that were perceived as potential challenges to its power. Given the ability of the government to pass any legislation and constitutional amendments, its efforts went largely unchecked. Like in Poland, in many instances the reforms were framed as addressing earlier faults in the system that exposed it to corruption. However, compared to Poland, the degree of institutional reform in Hungary was broader  and restricted multiple institutions that provided checks on the government’s power. The deterioration of Hungarian democracy was not about breaking rules, but fundamentally reshaping them (Jenne and Mudde 2012, 148). Concerns about the situation in Hungary emerged with the introduction of a media law in early 2011 that restricted the independence of the press and ­introduced partisan control into media regulatory agencies. Some members of the European Parliament protested during a speech by Hungarian Prime Minister Viktor Orbán in January 2011. The EU Commission reviewed the law and made several recommendations. Prime Minister Orbán defended the action of the government, but made some of the requested modifications to the media law. With the benefit of hindsight, these adjustments were insufficient for defending media freedom in Hungary, which continued to deteriorate for several years, and multiple independent sources were closed down under suspicious circumstances. In its first year governing after the 2010 elections, the Fidesz government passed multiple reforms to the constitution (for a thorough summary, see Bánkuti, Halmai, and Scheppele 2012). This was enabled by first reducing the required share of Parliament necessary for constitutional amendments from four fifths to two thirds. One of the early changes was regarding the selection of judges for the constitutional court, which previously required the approval of a majority of parliamentary parties in addition to two thirds of the members of parliament. This shift meant that the government could appoint judges without support from any other political party. In response to one of the court’s rulings, the government also removed the power of the court to rule on issues that impact the government budget, which significantly reduced the court’s power in a series of events with a tit-for-tat dynamic. When the court ruled something as unconstitutional, the government had the power to change the constitution. The size of the court was also increased to give the government the ability to appoint several judges that sympathize with the government. Similar to Poland, these steps represented clear efforts to eliminate the constitutional court’s ability to serve as a check on government power. Another major reform was to the electoral system. While a proposal to reduce the size of Parliament had long been under consideration, the ­government

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decided to reduce seats in parliament in a way that clearly favors large parties. The Hungarian mixed electoral system combines proportional representation seats (from party lists) with single-member district representatives (SMDs, elected through plurality). After the electoral reform, the share of seats devoted to SMDs increased from 45 to 53 percent of parliament. Subtle compensatory mechanisms were also introduced that redistributed seats to parties that received more than the required plurality in the SMD elections. The result was that in the 2014 parliamentary election, the government received 7 percent fewer votes (45 percent of popular vote) and still maintained two thirds of the seats in Parliament, allowing it to continue concentrating power. A few other examples of steps that eroded democratic freedoms (though this summary is by no means exhaustive) include a higher education law that suspiciously targeted the private, international Central European University; centralization of funding and decision-making that reduced academic freedom; and measures to restrict the operations of non-governmental organizations (NGOs), particularly those with foreign funding. NGOs that were critical of the government or supported refugees became the target of raids. The ­government used multiple propaganda tools to convince the public of enemies that they should fear, including refugees and liberal philanthropist George Soros, and even undertook a public campaign with the slogan ‘Stop Brussels’ in 2017. Despite strong evidence for the erosion of democratic institutions and rule of law from 2011 on, the EU did not introduce any formal action until December 2015, when the EU Parliament voted to initiate a Rule of Law procedure against Hungary. After this date, the EU Commission stalled and did not launch the formal procedure (Kelemen 2017, 226). Almost three years later, in September 2018, the EU Parliament eventually voted to trigger Article 7 against Hungary. However, like Poland, this currently remains at the warning stage without accompanying loss of voting rights or sanctions. The Hungarian government remains defiant, denying that any problem exists and being strongly critical of any EU attempts to intervene. In the next section, I will review reasons for the belated reaction in the Hungarian case and the likelihood of future sanctions or loss of voting rights in both the Hungarian and the Polish cases. The limited strength of EU interventions EU action in the case of Poland was swifter and stronger than in the case of Hungary, even though it nevertheless had minimal impact. Partisan politics at the EU level offers one clear explanation for the differential treatment of the member states. The EU impact in the Romania 2012 case was in large part due to internal party group pressure from the European Socialists group. Poland’s PiS is a member of the European Conservatives and Reformists Party group, which

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The European Union after Brexit was formed by the UK Conservative Party in 2005 with explicitly anti-federalist views. While we would not expect this party group to promote strong EU intervention into Polish politics, it also lacked the will and strength (with less than 10 percent of seats in the EU Parliament) to defend the Polish government. Hungary’s Fidesz, on the other hand, is a member of the European People’s Party (EPP) group. Some MEPs actively defended the Fidesz government, and public pressure on Fidesz from the EPP group came only very late in the process, shortly before the 2018 European Parliament vote to trigger Article 7 (Kelemen 2017, 225). In March 2019, the EPP suspended Fidesz’s voting rights, but they were not expelled from the party group, likely due to the anticipated success of Fidesz in the upcoming European parliamentary elections in Hungary. The Fidesz leadership also mentioned the possibility of leaving the EPP. Party groups of the governing party may be the most effective mode of intervening in cases where the government erodes democracy. However, reliance on the political calculations of party group leaders seems to be an unreliable method for defending democracy and rule of law in EU member states. There is also a feasible possibility that parties that implement democratic backsliding could join forces in a single party group, making party groups an unreliable mechanism for protecting democratic quality. Since the initiation of Article 7 came from the EU Parliament in the case of Hungary, we can observe patterns of support for Hungary across party groups and countries. While some MEPs from within the EPP were ready to confront the Hungarian government regarding the erosion of democratic principles and rule of law in 2018, many MEPs from Eastern European member states opted to vote against the Article 7 procedure against Hungary. These included MEPs from Bulgaria across multiple party groups, and the government even expressed concern that Bulgaria could be next (Gotev 2018). Leaders from the Baltic countries also expressed understanding for the Polish reforms to the constitutional court. The solidarity of Eastern member states seems to be on the rise and could significantly impact the post-Brexit EU. The opposition to the quota system in response to the 2015 refugee crisis seemed to strengthen coordination and unity among the Visegrád countries (Végh 2018). Additionally, after Brexit, the voting power of the Visegrád countries is expected to increase (Göllner 2018). Therefore, coordination and cooperation between Eastern member states may accelerate in the future, providing another obstacle to EU intervention in cases of democratic backsliding in the East. Initiation of the next phase of Article 7 requires a unanimous vote of the European Council (excluding the country under review) identifying a persistent breach. After this phase, it would be possible for the European Council to vote on sanctions or loss of voting rights by a qualified majority. However, progress to that phase is essentially prevented by the fact that Hungary and Poland have both credibly committed to blocking such action against the other. Furthermore, in the future it is not difficult to imagine a scenario where Hungary or Poland



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would be backed by more Eastern member states, possibly even challenging the presence of a qualified majority. At this point in time, apart from through party group or social pressure, the EU seems incapable of reversing the deteriorating rule of law on its Eastern periphery. This may represent an extreme challenge to future EU integration efforts and plans in a post-Brexit era.

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Conclusion The combination of persistent divisions in economic development and emboldened leadership on the periphery create further obstacles for continued EU integration. The main challenges arise not from the possibility that more countries may follow the UK’s example in exiting the EU, but that they may cooperate to destabilize the EU from within. Some key leaders in the periphery, including Fidesz and the PiS leadership, are clearly discontented with the status quo. The challenges to the EU have also emboldened national leaders from Eastern member states to seek to reform the EU from inside, especially Hungary and Poland. They are increasingly vocal and demanding even in terms of regional development funds (Visnovitz 2018). Given the economic and political rifts between East and West, a successful model of European integration after Brexit seems elusive. It remains unclear what type of model of European integration Eurosceptic Eastern European governments would support, but their presence within the EU should be as concerning as the threat of more member states exiting the EU. Paths of ­ European disintegration may occur even without future cases of exit. Brexit represents one of multiple, simultaneous crises that the EU faces. As EU leaders reimagine the future of the Union, the challenges of divisions between East and West, while not new, are ever more politically salient. Notes 1 This includes Bulgaria, the Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. 2 This section was strongly informed by common work with Dorothee Bohle, but all errors remain my own. 3 I opted to include all eleven countries over the entire time to facilitate over-time comparison.

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The European Union after Brexit Bohle, D., and B. Greskovits. 2009. ‘East-Central Europe’s Quandry’. Journal of Democracy, 20:4, 50–63. Bohle, D., and B. Greskovits. 2012. Capitalist Diversity on Europe’s Periphery. Cornell Studies in Political Economy. Ithaca, NY: Cornell University Press. Cohesion policy. 2018. Frequently Asked Questions, http://ec.europa.eu/ regional_policy/en/faq/#3. European Commission. 2014. A New EU Framework to Strengthen the Rule of Law. EURLex-52014DC0158-EN-EUR-Lex, https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX%3A52014DC0158. European Parliament. 2018. ‘Parlemeter 2018: Taking up the Challenge’, http://www. europarl.europa.eu/at-your-service/en/be-heard/eurobarometer/parlemeter-2018taking-up-the-challenge. Göllner, R. T. 2018. ‘The Visegrád Group: A Rising Star Post-Brexit? Changing Distribution of Power in the European Council’. Open Political Science, 1:1, 1–6. DOI: 10.1515/openps-2017–0001. Gotev, G. 2018. ‘Bulgarian Government Sides with Orban against Article 7’. Euractiv, 19 September, https://www.euractiv.com/section/eu-elections-2019/news/bulgariangovernment-sides-with-orban-against-article-7/. Greskovits, B. 2007. ‘Economic Woes and Political Disaffection’. Journal of Democracy, 18:4, 40–46. Halmai, G. 2018. ‘The Possibility and Desirability of Rule of Law Conditionality’. Hague Journal on the Rule of Law. DOI: 10.1007/s40803–018–0077–2. Hix, S., S. Hagemann, and D. Frantescu. 2016. ‘Would Brexit Matter? The UK’s Voting Record in the Council and the European Parliament’. VoteWatch Europe, Brussels, Belgium, https://www.votewatch.eu/blog/special-report-would-brexit-matter-theuks-voting-record-in-the-council-and-the-european-parliament/. Jacoby, W. 2014. ‘The EU Factor in Fat Times and in Lean: Did the EU Amplify the Boom and Soften the Bust?’ JCMS: Journal of Common Market Studies, 52:1, 52–70. DOI: 10.1111/jcms.12076. Jenne, E. K., and C. Mudde. 2012. ‘Can Outsiders Help?’ Journal of Democracy, 23:3, 147–155. DOI: 10.1353/jod.2012.0057. Kahanec, M., and L. M. Kureková. 2016. ‘Did Post-enlargement Labor Mobility Help the EU to Adjust during the Great Recession? The Case of Slovakia’. In Labor Migration, EU Enlargement, and the Great Recession, edited by M. Kahanec and K. F. Zimmermann, 189–218. Berlin and Heidelberg: Springer. DOI: 10.1007/ 978–3–662–45320–9_9. Kelemen, R. D. 2017. ‘Europe’s Other Democratic Deficit: National Authoritarianism in Europe’s Democratic Union’. Government and Opposition, 52:2, 211–238. DOI: 10.1017/gov.2016.41. Kureková, L. 2011. ‘From Job Search to Skill Search: Political Economy of Labor Migration in Central and Eastern Europe’ (DPhil thesis, Central European University), http://www.etd.ceu.hu/2011/kurekova_lucia.pdf. Makszin, K., D. Bohle, and G. Medve-Bálint. 2020. ‘North and South, East and West: ­ ost-Crisis European Is it Possible to Bridge the Gap?’ In Governance and Politics in the P Union, edited by A Crespy, R Coman, and V Schmidt. Cambridge: Cambridge University Press.

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Matthijs, M. 2017. ‘Europe after Brexit: A Less Perfect Union’. Foreign Affairs, 96, 85. Medve-Bálint, G. 2018. ‘The Cohesion Policy on the EU’s Eastern and Southern Periphery: Misallocated Funds?’ Studies in Comparative International Development, 53:2, 218–238. DOI: 10.1007/s12116–018–9265–2. Nölke, A., and A. Vliegenthart. 2009. ‘Enlarging the Varieties of Capitalism: The Emergence of Dependent Market Economies in East Central Europe’. World Politics, 61:4, 670–702. DOI: 10.1017/S0043887109990098. Payne, A. 2016. ‘A Key Group of EU States is Threatening to Totally Sabotage Brexit’. Business Insider, 18 September, http://uk.businessinsider.com/brexit-article-50-britainfree-movement-of-people-2016-9. Pech, L., and K. L. Scheppele. 2017. ‘Illiberalism Within: Rule of Law Backsliding in the EU’. Cambridge Yearbook of European Legal Studies, 19, 3–47. DOI: 10.1017/ cel.2017.9. Perju, V. 2015. ‘The Romanian Double Executive and the 2012 Constitutional Crisis’. International Journal of Constitutional Law, 13:1, 246–278. DOI: 10.1093/icon/ mov011. Scepanovic, V. 2013. ‘FDI as a Solution to the Challenges of Late Development: Catch-up without Convergence?’ International Relations and Public Policy, Doctoral School of Political Science, Central European University, Budapest. Sedelmeier, U. 2017. ‘Political Safeguards against Democratic Backsliding in the EU: The Limits of Material Sanctions and the Scope of Social Pressure’. Journal of European Public Policy, 24:3, 337–351. DOI: 10.1080/13501763.2016.1229358. Szuleka, M., M. Szwed, and M. Wolny. 2016. ‘The Constitutional Crisis in Poland ­2015–2016’, Helsinki Foundation for Human Rights, September, http://www.hfhr. pl/en/publication/the-constitutional-crisis-in-poland-2015-2016/. Végh, Z. 2018. From Pro-European Alliance to Eurosceptic Protest Group? The Case of the Visegrad Group. Swedish Institute for European Policy Studies, http://www.sieps.se/ en/publications/2018/from-pro-european-alliance-to-eurosceptic-protest-groupthe-case-of-the-visegrad-group/. Visnovitz, P. 2018. ‘Can Development Aid Conditionality be Rejected? The Case of Hungary and the EU Structural and Investment Funds’. Unpublished manuscript. Whitlock, B. 2018. ‘Czech Attitudes toward Europe: How Likely is a Czexit?’ EUROPP, http://blogs.lse.ac.uk/europpblog/2018/03/13/czech-attitudes-towardeurope-how-likely-is-a-czexit/. World Bank Data. 2018. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.

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Networks after Brexit Scott L. Greer and Olga Löblová

If scholarship on the European Union has taught us anything, it is that networks and policy communities matter. Without them it is unlikely that we would have the European integration that we have today, and without them it is impossible to understand the evolution of policies and politics in the EU today. Whether the theory is new intergovernmentalism (Puetter 2014), experimentalist governance (Sabel and Zeitlin 2010), an approach to soft law, or plain old neofunctionalism (Greer and Löblová 2017; Mattli and Slaughter 1998; Greer 2006), there are within it crucial mechanisms described variously as policy, regulatory, or epistemic networks and communities (Radaelli 1999; Zito 2001a, 2001b; Rozbicka 2013; Cross 2011; Brooks 2018; Löblová 2018a). The profusion of language to discuss the phenomenon, frustrating as it can be, probably just speaks to the manifest importance of the topic and the difficulty studying it relative to formal institutions. We can therefore take it as a given that networks of organizations and people, and communities of technical experts who share normative and technical expertise and validation, are important to understanding both the progress of European integration and the use made of the European policy space thereby created. It is also not hard to see the reasons why Brexit should change the meaning and impact of these networks. The United Kingdom, reflecting its size, wealth, relatively functional labor markets (see Chapter 4), and sheer power as a scientific and research country, was well represented in European meetings. Its agencies were influential in European deliberations, its experts sat on and chaired technical working groups, its standards shaped debate globally but especially in Europe. It is not surprising to find that half of the medicines approval committees of the European Medicines Agency (EMA) are chaired by UK-based experts.

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This power was often used in opposition to the formal stances of the UK government. UK formal Euroscepticism was to some extent undercut by the work of UK-based experts using their personal and institutional resources to propose policies that deepened and broadened European integration. Whitehall was occasionally adept at, and allowed use of, this divergence as a hedge, shaping policy ideas that the UK would seek to opt out of or block. The fact that many of these UK-based experts and policymakers were by nationality citizens of other member states contributed to making the UK more powerful and less Eurosceptic an influence than the formal politics of the country would suggest. European Union law, it bears noting, was among the areas where the UK exercised a powerful and often integrative force through networks, as Jessica Guth discusses in Chapter 6. Part of the methodological challenge of understanding the place of networks and communities in EU governance is that it so often interacts with individual careers. Many things go into the career of an individual: citizenship, credentialing, patronage, linguistic skills, personal life, age, horizontal networks, the structure of the systems within which the person works, and luck. The more kinds of social, scholarly, and economic capital somebody possesses, furthermore, the harder it is to figure out just why that person is effective. How crucial is EU membership to the career of a UK specialist, be they a professor, an employee of a regulatory agency, or an engineer at a standards-setting body? And how much of a drag can the EU be on their career if it starts to systematically exclude them based on their nationality or place of work? Put another way, a peripheral academic from a peripheral country, where opportunities are less reliably recurrent, is likely to be much clearer about the contribution of an EU network to their career than one in a wealthy and high-status institution in a big country with extensive opportunities for collaboration from local to global institutions (as we see with EU intellectual collaboration such as the European Collaboration in Science and Technology, aka COST actions). Given the role expert consensus has played in major and not-so-major moments of EU integration (e.g., Verdun 1999; Eriksson, Karlsson, and Reuter 2010), who gets to sit at the table matters – not just for the experts themselves, but for the entire EU. The departure of the UK from the institutions that underpin and sustain many of these networks raises important questions on the border between sociology and political science. What will happen to these networks? How, and how much, will UK influence survive? How will Brexit interact with individual careers, as stratified by age, citizenship, and established position? It is easy to imagine that things will go on as they had before, and those impressed with the UK’s intellectual impact often do imagine that. But it is hard to see why that should be expected. It is also hard, though, to think through the impact on the EU – its policies, its integrations, and the careers of its experts. Here, we start to sketch out the issues, fully aware that an interdisciplinary inquiry spanning

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The European Union after Brexit individual biographies, technical professions, and EU politics requires more than a book chapter. Our approach is to very briefly synthesize the enormous literature on networks and communities to identify a few basic propositions that span it and give us guidance on how to identify what shapes them, what they shape, and why. We then proceed through two brief case studies from the health policy area, where EU competency is limited, influence is particularly likely to be technical, and where influence in the EU is particularly likely to come through embeddedness in, and social capital relevant to, specialist technical communities. In each case study, after briefly addressing the background context and policy, we focus on three things. First, we attend to the role played by the UK, its institutions and experts. Second, we look at the treatment of Switzerland and other external countries, as a gauge of how much proximity, status, money and technical contribution can counteract willful exclusion from EU institutions. Third, insofar as it is possible, we try to gauge changes so far in both the agencies and in the broader policy direction (e.g., towards more integration in health technology assessment). Communities, networks, integration, and governance in the EU Policy communities, policy networks, regulatory networks, epistemic communities, advocacy coalitions, and a variety of other terms are subtly differentiated, and often have several different definitions, but are broadly about the phenomenon of people who agree on some issues and work together despite not being employed in the same organization (Sabatier 1988; Haas 1992; Heclo 1978; Carlsson 2000; Dowding 1995; Wright 1988). As a mode of social organization, networks stand alongside market and hierarchy as a way to coordinate actions and manipulate resources. As a rule of thumb, a theory about networks, in particular a framework such as regulatory networks connecting formal organizations, is sharper and more delineated (though, as a good look at the chaos in this literature would predict, this ‘consensus’ is the opposite of March and Rhodes’ classic 1992 definition). A network implies continuous and often formal connection and coordination (as the etymology of net-work suggests, as does the word in, for example, Spanish or Catalan, where network translates into the word for net). A community, by contrast, is about what a set of people have in common: education, professional outlook, normative assumptions, technical language, and often a sense of shared goals (again, the etymology is a hint, focusing on what is in common). A community is a fertile ground for one or more networks, so the ‘transport policy community’ of a given jurisdiction could theoretically be divided between several policy networks interested in different objectives. It could also be so divided, e.g., between rail and road advocates, as to produce rail and road transport communities and no transport policy community.



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That kind of question about networks and communities is an empirical question not answerable without research. For our purposes, the upshot of this big literature might be as follows: – Both networks, of intentional coordination, and communities, of shared values and approaches, can be found in any policy area. – These are often diverse and multi-level, but the EU, through funding, delegation of technical tasks, and co-optation of experts, is a major force in shaping the communities and networks by influencing goals, agendas, and the suitability of different kinds of people for promotion. – Various kinds of social, scholarly, and sometimes economic capital, created and valued at levels from local to international, affect the entry, careers, and influence of various experts, and a successful career involves arbitraging between these different resources and networks. – It follows that the UK has been a major contributor to these networks, and that many individual people based in the UK have been influential in policy substance. – These networks play a large role in shaping EU policy and the direction of integration, both on the level of relatively small-scale policies such as defining diseases for European epidemiological reporting and on much larger ones such as the contests over how to interpret the economic and debt crises that started in 2010. From micro-level studies of EU networks, we know that within these networks,  not all experts are equal. How seriously they are taken by their colleagues  depends in part on their personalities, knowledge and commitment, but also on the importance and clout of the institutions and countries they represent: Where one speaks from, matters as well: members of the executive board are persons whose opinions count. This happens not so much thanks to their formal status per se, but rather because becoming a board member is a sort of gratification for being active and displaying expertise within the network. […] the job requires a strong personal commitment and logistical as well as political support from home. (Papadopoulos 2017, 440)

In practice, large rich countries with strong public sector institutions are able to devote more resources both to developing internal expertise and to actively participating in EU networks (e.g., have specialized staff exclusively for EU matters) (Papadopoulos 2017). Weak institutional and political mandates play against even active experts within the ‘hierarchy’ of an epistemic community (Galbreath and McEvoy 2012). Conversely, coming from a large economy with well-resourced governmental, academic, or non-governmental institutions gives one a voice that is hard to ignore.

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The United Kingdom in the EU’s networks Starting with the obvious: the United Kingdom is a big country, with extensive technical resources in its government, specialist agencies, and higher education. It has a globally important research and higher education establishment which is well funded by EU standards, benefits from decades if not centuries of public investment, and operates a relatively meritocratic hiring process with acceptable, relatively stable jobs (Afonso 2016). As a result, the UK offers multiple opportunities to develop a strong professional, technical, and scientific reputation and build a successful career. This made the UK both open to, and attractive to, citizens of other EU member states. Smaller and poorer countries will often be less able to sustain a high level of specialization or furnish as many opportunities to develop international networks. Other big countries, notably France and Germany but also influential countries such as the Netherlands, are less likely to have that particular combination of open, stable, desirable, specialist positions (it is much easier to find nationals of other member states in the universities, ­businesses, civil society and government services of the UK than France or Germany, for example). The desirability of the jobs might admittedly be changing rapidly in some sectors, insofar as the enormous expansion of UK universities over the last decade involved hiring many people on more precarious terms than before. The special cases of EU agencies, of course, are still more dramatic. The EMA is part of the London labor market. For personal reasons, even a move to a city as agreeable and international as Amsterdam might be unacceptable to employees whose families depend on the London labor market (and Amsterdam, in particular, is a city where high-skilled immigrants have trouble integrating and tend not to remain (Favell 2014)). Likewise, what have been the effects of hiring in a region with both a large pharmaceutical industry, a large government with extensive specialist regulators, and the background of London’s high-end service sector? Whatever else Amsterdam may be, it is not part of London’s labor market. Likewise, the European Banking Authority’s move could change the outlook of its employees once they are part of a French labor market, with its different people and values. From a UK point of view, the interesting question would be what happens to the overall influence and prestige of the country (as well as the careers of experts based there). From a European point of view, the question is whether the UK was indeed contributing vital technical skills that were not to be found elsewhere; if it was, how can they be replaced, or must reliance on the UK continue; and in what direction will policies tend should UK participation and influence erode? These are also, of course, interesting questions for people of different ages, professional statues and nationalities whose career options will be changed by Brexit.



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Living without Britain This section sketches out the British role, and likely effects of a British departure, in two technical, network-driven areas of European politics: health technology assessment (HTA) and communicable disease control. Public health is hardly the core of the EU; it is an area with limited hard law and formal hierarchy of the Union, constrained by the treaties that explicitly limit the EU’s competences. This makes it a suitable case to examine the impact of intellectual, personal and network influence in a pair of policy areas where these factors should be particularly important. Health technology assessment HTA is an evidence-based evaluation of the clinical, economic, social, ethical, legal, organizational and other aspects of new health technologies, meaning medicines, medical devices, diagnostics or surgeries, mobile health apps and other interventions. HTA bodies that assess the ‘value for money’ of new technologies can be found in almost all EU member states, although they often differ in appearance. Depending on the organization of member states’ health systems, HTA bodies are established nationally or regionally (and sometimes both), are independent or integrated within ministries of health or other agencies that finance health care and can have a staff of several hundred or a handful. Crucially, in more or less straightforward ways, they all influence which treatments patients can access. The EU has had a longstanding interest in HTA, sponsoring collaborative projects since the early 1990s (Banta 1997), but its competence in HTA has so far been rather limited. HTA is closely linked to matters of pricing and reimbursement of health products and services (a member state competence), which has made any discussion of further harmonization a delicate exercise in avoiding subsidiarity objections from the member states. As a result, European HTA has been a sequence of expert-led, largely voluntary networking collaborations. These have been institutionalized in EUnetHTA – the European network for HTA, which started in 2006 as a three-year Commission-sponsored project, followed by a member state-funded EUnetHTA Collaboration in 2009 in the absence of EU funding, and continued in three consecutive joint actions (JAs) with Commission and member state financing: JA1 (2010–2012), JA2 (2012–2015) and JA3 (2016–2020). Over the years, EUnetHTA’s members have included more than 30 national and regional HTA bodies, as well as several non-profit organizations with ‘associate’ status, from EU, European Economic Area (EEA) and accession countries. The UK is very influential in the world of HTA. In Europe, academic output on HTA is heavily concentrated in UK universities and institutes (Benoit and Gorry 2017). The National Institute for Health and Care Excellence (NICE), founded in 1999 and responsible for binding HTA decisions for pharmaceuticals

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The European Union after Brexit and non-binding recommendations and guidance for other health technologies (medical devices, diagnostics, interventions, clinical practice), is probably the best-known HTA body worldwide, attracting the most media coverage (Benoit and Gorry 2017). It also attracts the most scientific interest: a PubMed search of ‘HTA and National Institute for Health and Care Excellence’ resulted in July 2018 in 152 items, whereas ‘HTA and Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen’ (the key German HTA body) and ‘HTA and Haute Autorité de Santé’ (the French HTA body) had 7 and 16 results respectively. NICE is also often heralded as best-in-class in terms of procedure and transparency by the HTA community (Meneu 2015; Ozieran´ski et al. 2018), and serves as a reference or model for other countries (Löblová 2018b). The UK, and NICE specifically, has actively exported its vision of HTA to countries without HTA in Central and Eastern Europe, and globally through its consultancy NICE International. In Romania for instance, NICE-trained experts were paid by the Troika to develop models for local policy (Lopert, Ruiz, and Chalkidou 2013; Rusu, Preda, and Hövels, n.d.). Many jurisdictions incorporate NICE’s decisions into their own HTA processes – per one report, over 60 countries worldwide reference NICE or their Scottish and Welsh equivalents, noticeably more than the French, German, Swedish or Irish agencies (Sealey, Edathodu, and Mukku 2014). Referencing happens formally, via EUnetHTA’s internal information exchange, but also informally because NICE and other UK HTA bodies make large parts of their output public – and in English. In short, the UK’s mark on HTA is undeniable. In comparison, the country seems to punch below its weight in terms of its formal involvement in EUnetHTA. With the exception of the initial 2006–08 EUnetHTA Project, the UK has participated in all EUnetHTA exercises, represented first by the National Institute for Health Research Evaluation, Trials and Studies Coordinating Centre, and later by the NICE, Healthcare Improvement Scotland, and recently also the All Wales Therapeutics and Toxicology Centre. The EUnetHTA website (EUnetHTA n.d.; Eunethta Collaboration 2009) documents that UK HTA bodies have participated in a total of fifteen EUnetHTA work packages – fewer than France and Germany with twenty-seven and ­twenty-five or Switzerland and Norway with twenty work packages. This is hardly a result of capacity barriers: NICE is one of the largest and best-staffed HTA bodies in Europe (Wild et al. 2015; Barham 2018). More likely, the UK’s relative underrepresentation is a consequence of either active resistance by other member states, or the UK’s own reluctance. The latter seems more plausible for two reasons. One, the UK has been consistently active in EUnetHTA on issues that mattered, such as important, methodology-heavy work packages (e.g., methodology for relative effectiveness assessment in JA1), rather than more administrative ones (e.g., dissemination). Methodology is perhaps the most contentious technical issue in HTA, and one where the NICE approach differs starkly (in its extensive reliance on financial consequences of new technologies) from the ­traditional

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French and German approach. This therefore suggests prioritization on the part of the UK government or HTA bodies, rather than a containment strategy of other EU partners. Two, the UK was particularly inactive in EUnetHTA during the 2012–15 JA2, following steady activity in JA1 and preceding a notably increased participation in the current JA3 (approved before Brexit). Regardless of the possible reasons, the UK is far from the leading voice in institutionalized European collaboration on HTA. Brexit does not have to change either of these slightly contradictory dynamics. The UK’s academic expertise in HTA is largely home-grown and reinforced by the international standing of its universities and other research institutions, and is unlikely to decline because of Brexit. Equally unlikely to lose importance is the policy expertise in HTA the UK has accumulated. As an English-speaking and methodologically as well as procedurally transparent institution, NICE (and to a lesser degree, the Scottish HTA (e.g., Kolasa and Wasiak 2012)) will continue to serve as a reference point in the EU and internationally. Finally, the UK may continue to be a member of EUnetHTA, and the activity of Norway and Switzerland in EUnetHTA throughout the years suggests it may even be more active than some EU member states. Both Norway and Switzerland have relatively strong traditions of HTA research, but the importance of NICE and the UK health economic school it represents is hard to rival. In short, the UK is unlikely to lose much of its influence in the world of HTA after Brexit and, if the present trend of including non-member states within EU HTA bodies continues, it might even maintain much of its institutional influence. If, however, HTA harmonization becomes more synonymous with EU membership, the UK (as well as Switzerland or Norway) may well stand to lose some of its importance. This is a possible development: Brexit comes at a time of a renewed push for harmonization of HTA. Even though talk of a future EU HTA agency has been recurring for over a decade (Drummond 2003; Greer and Löblová 2017; Böhm and Landwehr 2014), attempts at institutionalizing European-level HTA had long proven difficult. The first mention of HTA in EU legislation came with the Patient’s Rights Directive 2011/24/EU that foresaw the creation of a ‘permanent network of national HTA bodies’, which would by contemporary accounts provide a dedicated, permanent budget for EUnetHTA. Instead, the new HTA Network came to include mostly representatives of health ministries and became described as the ‘political arm of HTA’, in opposition to the ‘scientific and technical arm’ that was EUnetHTA. In January 2018, the Commission issued a proposal for a Regulation on HTA (European Commission 2018), which foresees the establishment of a ‘coordination group’ of national HTA bodies that would develop joint clinical assessments (the part of HTA most dissociable from matters of price, which are a member state competence). Member states would be able to nominate more than one HTA body into the coordination group, with nevertheless one vote per member state. Participation in the joint assessments

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The European Union after Brexit would be mandatory, as would their uptake, explicitly preventing member states from conducting their own clinical assessment. This would effectively make the coordination group, and its subgroups, an EU authority for HTA. The proposal has proven controversial with the member states, notably France, Germany, Poland and the Czech Republic (MAPBioPharma.com 2018), as well as with the medtech industry (Maxwell 2018). The UK has been silent on the topic, leading to counterfactual thinking in Brussels that the current maximalist Commission proposal would not have been possible with the UK in the EU. Whether the Commission’s more radical starting position will have any effect on the final legislation remains to be seen, but it could mean that Brexit will free up space for more harmonization in HTA. On the other hand, the specter of Brexit has led to concerns about the expert capacity of the potential new EU coordination group without the manpower of NICE and its research subcontractors (Barham 2018). For the moment, however, the future of EU HTA seems less determined by the threatened absence of the UK than by the French and German opposition to the new regulation. Communicable disease control Communicable disease control is the field preoccupied with identifying, measuring, and controlling the risks from infectious diseases from influenza to Ebola. It is at the core of public health. While it is often low-profile and neglected, it can also catapult onto the political agenda when there is an outbreak of disease such as SARS, Ebola, Zika, variant Creutzfeldt-Jakob disease (‘mad cow’) or even bacteria in the industrial food chain. It is also a tremendously, astonishingly, diverse field of activity. Countries’ basic priorities and organization vary enormously, as do their best practices. In northwestern EU countries best practice tends to be led by independent agencies, in southern Europe by health ministries, and in central and eastern Europe by a mixture of ministries and universities. Despite the Europeanizing efforts of the EU and associated organizations such as the Association of Schools of Public Health of the European Region, it is still wise to assume that any assertion about how things should or do work is applicable only to the speaker’s country. In addition to diversity of all sorts, one of the key attributes of public health is the close connection between academia and the public sector. As with all health policy, postgraduate degrees and extensive training are common, and senior figures accumulate and intermingle scholarly and political capital. Government officials will publish in scholarly journals and hold university appointments while academics will work for and with government. We can even see a functional relationship: one way to keep microbiological and epidemiological experience available when there is no special challenge is to support universities. The researchers can develop their skills and expertise in the universities, and be called upon when there is a challenge.

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The European Union’s action in public health has been a slow, but theoretically elegant, case of neo-functionalist integration (Greer 2006) leading to Europeanization of uncertain real impact. Essentially, steadily increasing integration creates cross-border public health threats for obvious reasons, ranging from complex cross-border logistics chains to low-cost air travel. The stage was set for networks of policy entrepreneurs to start framing the issue and shaping the agenda (Greer 2012; Deruelle 2016). The EU slowly developed surveillance and coordination mechanisms which came together, in the shadow of SARS and worries about pandemic influenza, into the European Center for Disease Control and Surveillance (ECDC). The ECDC incorporated and has extended a wide variety of European networks from training to standardization (e.g., of case definitions) to surveillance systems harmonization and improvement. Neofunctionalist mechanisms led to EU legislation, networks and an agency, which contributed to considerable superficial homogeneity in member state practices, but stark and often unspoken diversity remains (Greer 2017). The UK is disproportionately represented in the scholarly public health literature, though not as greatly as in the case of HTA. Its powerful institutions of higher education, backed up by one of the world’s oldest and most elaborate professional public health systems, give it considerable influence in scholarly literature. Its institutions train and hire professionals from across the continent, win competitive research funds, and produce extensive English-language scientific and practical publications. Given the size and seriousness of both its public health and tertiary education enterprises, we should expect the UK to supply scientific leaders who influence debates, and indeed it does. The UK is also influential in the ECDC. The ECDC has a very large Management Board, representing each member state, which means that the executive team and a number of highly engaged member states with resources (including the UK) have been influential. In part this reflects not just the UK’s strong academic infrastructure, but also its large public health apparatus. Frequently reorganized (currently most of the capacity is in Public Health England), English public health in particular is consistently a large professional bureaucracy with expertise and self-confidence in international forums. Meanwhile, what of the EU relationships with the EEA countries and Switzerland, which might presage the future connection with the UK? There is a basic division between the European Free Trade Association (EFTA)/ EEA countries and Switzerland here. Norway, Iceland, and Lichtenstein have observer status on the Management Board and contribute members to the advisory board. They participate in most routine relevant activities, including surveillance (the tracking of diseases) and receive funding. Their member states contribute to the EU budget, which supports the ECDC and other agencies. For functional purposes, if not ultimate governance, the ECDC has 31 member states. This means that Norwegian experts and views, for example, will be taken into account in deliberations about technical but important issues such as the

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The European Union after Brexit definition of diseases and the development of surveillance systems. This is a benefit of EEA membership, in law and in spirit. By contrast, Switzerland’s preference for bilateral relations and special agreements with the EU has produced a much lesser degree of Swiss engagement and influence. This is not necessarily functional. Geography, and the density of all kinds of interconnections between Switzerland and EU member states, suggest the desirability of coordination between Switzerland and the EU. But the coordination that exists is far less institutionalized than the EEA coordination and not obviously conducive to Swiss influence. There is no Swiss membership of the ECDC’s (very large) Management and Advisory boards. The Swiss ability to participate in ECDC projects and networks is limited and might be costly for the Swiss. Even where it might be helpful to have Swiss surveillance data, the Swiss participate at low levels and their own expense if they participate at all. This is partly an effect of the ECDC’s date of creation, which coincided with a hardening of the general EU attitude towards Switzerland. This hardening might have been for several reasons, from a growing sense in Brussels that the Swiss were receiving too good a deal overall, to specific resentment of the Swiss arrangement by countries which had undergone extensive transformation in order to accede to the EU. In other words, Switzerland has been substantially frozen out of the main forum for EU communicable disease control and policy. Neither Swiss public health expertise nor the obvious Swiss location at the crossroads of Europe (in personal and transportation terms) has obliged the EU to develop anything like the strong connection that we see with the EEA states. Swiss researchers and institutions, if they do not wish to remain idiosyncratic, will have to either adapt or hope that they make a compelling enough scholarly case to influence the ECDC from the outside. The implications for the UK are fairly obvious. If it does not seek and attain some kind of status in or resembling the EEA or EFTA, it is likely to be on the outside. Its impressive scientific and scholarly resources might give it influence via scientific and policy literature, and there is likely to be cross-border coordination on specific issues, but the mechanisms of representing opinions on working groups and similar forums will be unavailable to it. UK researchers will be like Swiss or American ones: potentially influential via the literature, but not in decision-making positions. The United States is large enough and separate enough from Europe to make coordination with the EU on many issues something of a luxury. It is doubtful that the UK is, and so we can expect it to be influenced by practical ECDC decisions regardless of its stances. The ECDC has not noticeably changed direction since the Brexit vote. Its history is of slow accretion of tasks and programs and some difficulty filling top positions, which amounts to a low political profile. Since it sponsors little research, it is also relatively disconnected from discussions about science and research funding. There is considerable interest in the UK in continuing to

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participate in as much ECDC activity as possible, since there are considerable public health benefits.1 But the lack of apparent thought on the EU side, and for that matter the lack of clear UK negotiating priorities on public health, suggest that the UK will be placed in a governance position akin to Switzerland, which will immediately diminish British participation in networks and working groups under formal EU rules. Over time it will degrade the value of its participation in networks for individuals and the British influence they create. Not only will they have to compete on scientific merit, they will have to do so with limited institutional platforms due to Brexit and with less sense of what is wanted as a result of their isolation from EU policy debates. Conclusions Academics live in transnational networks and many of us study them and debate their influence. There is an enormous and diverse literature on the impact of such networks and policy communities in Europe, which is a subset of even larger literatures on networks in politics of all kinds, from the global to the local. Most of the debates about networks and policy communities try to parse the real influence of networks compared to harder forms of power by process-tracing various decisions or studying the social construction of problems. Brexit gives us a rare opportunity to see what happens when a tightly integrated system of power, expertise, and networks starts to tear apart, exposing what individual social and intellectual capital will buy and what governments really can and cannot do without experts. Our analysis here merely skims the surface of the problem, since a fuller exploration would require a combination of bureaumetric (Hood and Dunsire 1981), bibliometric, and interview-based data in order to understand the changing nature and usefulness of scholarly and practical credibility in a Europe without the UK. Health is a valuable place to look for the interplay of networks, expertise, power, and policy but a chapter such as ours that is only grounded in health is necessarily partial. The impact of Brexit on younger and older experts, on more and less technical experts, and on various kinds of networks needs exploration in a stratified manner encompassing more policy areas than health. The ability and desire of EU member states to substitute for absent UK resources will also be in question, as will the actual impact of losing those resources. Provisionally, Brexit shows the gap between academic influence and actual policy influence where networks govern. British scholarly influence does not buy it more formal power and, as the Swiss involved in communicable disease control will testify, even membership on advisory boards depends more on politics than on the potential quality of one’s advice. In HTA the United Kingdom has already become mostly irrelevant to the debates about further harmonization in the European Parliament and the Council, despite its impressive intellectual and scientific contributions to the field. Perhaps academics overestimate the

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The European Union after Brexit impact of the UK precisely because we are often engaged in the intellectual conversations where the UK bulks so large – in which case it is wise to remember that the United States, nobody’s idea of an EU member state, is also influential in global academia without making European policy. There are limitations to our study, partly due to the obvious provisional status of any empirical inquiry and also because of case selection. We have taken two examples from a rather atypical EU policy area where formal influence probably matters less than informal influence, just because the EU’s competence is more limited in health care than other policies. This is definitely true in HTA where even EUnetHTA has little impact on national funding decisions beyond information exchange. If HTA becomes more harmonized, though, perhaps to the level of communicable disease control, the informal influence of UK experts is likely to matter less than their non-involvement in formal decision-making. Nonetheless, we are confident that Brexit will involve a test and recreation of the networks that underpin and shape so much of European integration. The European Union is, from central bankers to air traffic controllers to epidemiologists, a Europe of networks in a world of expert networks. Removing the UK pulls apart the components of influence, leaving us with a test of the influence of ideas and intellectual stature, of national power and priorities, and of individual resources and strategies. There will undoubtedly be personal winners and losers among the experts of Europe; there might well also be losers across the continent among people who are less well served by reconfigured expert networks. Note 1 The Daily Star, a UK tabloid known mostly for its pictures of half-naked women, threatened its readers with the consequences of leaving EU public health collaboration: ‘Brexit STD WARNING: Super-gonorrhea to spread more easily when UK leaves EU’, 30 July 2018, https://www.dailystar.co.uk/news/latest-news/719863/diseasewarning-std-brexit-sex-infection-super-gonorrhoea-uk-eu-latest-news. Groups with more public health credibility, such as the Faculty of Public Health, also lobbied the government for the closest possible relations with ECDC and the EU in public health matters.

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European Union trade policy in the wake of the Brexit vote Holly Jarman

Introduction In May 2018, under a year before the UK was due to exit the EU, British Cabinet ministers still could not agree on whether the UK should seek a customs union with the EU-27. Embroiled in a battle that had more to do with internal Conservative Party politics than public policy outputs or impacts, Cabinet ministers rejected Prime Minister Theresa May’s proposal for a ‘customs partnership’. Observers, reasonably, concluded that they were leaving this decision too late. The shrewdest commentators noted that May’s strategy of deliberately putting off such decisions was rapidly burning off any remaining patience for the process among EU negotiators, UK parliamentarians and the public at large (Hutton 2018). After sequestering themselves in Chequers for a long day of talks, the Cabinet hashed out a proposal for a novel form of economic relationship between the UK and EU that, among other things, would see the UK remain in the Single Market for goods but not for services and would involve the UK collecting tariffs on the EU’s behalf. The relief at finally reaching a position that the government could push for in negotiations was all too brief, however, as a wave of remorse caused Brexit Minister David Davis and Foreign Secretary Boris Johnson to resign from their positions. In July, the EU’s Chief Negotiator for the Brexit talks, Michel Barnier, thoroughly rejected the UK’s proposal, stating that ‘The EU cannot and the EU will not delegate the application of its customs policy and rules and VAT and excises duty collection to a non-member who would not be subject to the EU’s governance structures’ (BBC News 2018). This vignette illustrates the challenges that EU negotiators face in bargaining with the UK: both the deep divides in British politics and the sheer complexity of unpicking the UK’s economic integration with the Single Market. Since

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UK accession to the European Economic Community (EEC) in January 1973, British trade has been governed by Brussels. This means that the UK is part of an EU-wide customs union: as a Single Market, the European Union applies a common external tariff to imports entering its market and allows them to flow more freely among its member states. The EU has an established, collective, policy process for approving mandates for new agreements and concluding deals after negotiation. It defends its markets against unfair trade practices as a single entity. Finally, the EU (in theory at least) negotiates trade agreements with ‘one voice’, with the European Commission representing its member states during talks and at the World Trade Organization (WTO). Since the 1970s, the UK institutions that once dealt with these trade policy functions have evolved to become somewhat vestigial organs of the state. Rather than negotiate trade deals on behalf of the UK, or set unilateral policy, UK trade officials prepare to represent the country in Brussels and seek to influence EU trade policy formation. In June 2016, the UK electorate voted by 51.9 percent to 48.1 percent to leave the European Union. The result of this popular referendum was surprising to many commentators who mistakenly thought an outright Leave vote unlikely. The vote highlights both the strong political divides present in the UK as well as the dissatisfaction with the country’s direction felt by many. But it also, specifically, reflects a populist rejection of the EU trading bloc in favor of an idealized ‘global Britain’ that has the ‘freedom’ to forge trade agreements on its own terms with the US, Canada, and dynamic emerging economies. This argument carries with it, by implication, the freedom for UK politicians to deregulate the domestic UK market, disinvest in public services, and control immigration, should they so choose. Despite a lack of concrete direction from UK leaders, it seems likely that some sort of Brexit will happen. What, then, will trade policy among the remaining EU member states look like after that happens? The remaining EU member states will retain their significant bargaining power, even with a somewhat smaller internal market. But for EU and national officials remaining in the Single Market, there are some important questions to answer: what will the politics of EU trade policy look like without one of the trading bloc’s most pro ‘free trade’ members? What will the EU’s market look like without the UK’s economic contributions? And will the EU’s place in the world look a little different without the UK as a member? In other words, when we remove British preferences from the equation, what will be the impact on EU trade decision-making? This chapter examines the role of the UK in setting past EU trade policy in order to draw conclusions about the likely effects of Brexit. It concludes that the departure of the UK (and perhaps other member states) from the common market will have a strong destabilizing effect, not just on the economic and social wellbeing of European countries, but also on the often-tenuous political consensus that underlies the Common Commercial Policy.

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The European Union after Brexit But I also argue that Brexit is a symptom of wider problems in the EU that have gone unresolved for decades. Trade is at the heart of the EU project, central to the promises made to postwar generations that a unified Europe could ensure peace and economic stability. EU trade policy today is an essential component of the promise made to the current generation of European voters: that a sufficiently large, integrated, and efficient EU market could trade its way out of the fiscal crisis that began in 2008, producing greater economic growth and creating jobs (European Commission 2010). The consensus underpinning the EU’s trade agenda is already under considerable strain, with both public and state dissatisfaction with the EU’s trade agenda currently at high tide. Protests from citizens and governments alike reflect enormous uncertainty about the future, distrust of government, and fundamental imbalances within the EU between social and economic integration. Perhaps the biggest ongoing problem for EU trade policy is not the departure of the UK, but dissatisfaction with the existing regime as expressed by stakeholders, civil society groups, populist politicians and the public on both the left and the right of the political spectrum. What does the UK trade with the rest of the EU? During the Brexit referendum debates, prominent figures in the Leave campaigns argued that the size of the UK’s market and its international importance meant that other countries would have to prioritize negotiating new trade deals with an independent Britain or risk damaging their economic growth. ProBrexiteers expressed supreme confidence that other states would be lining up to seal deals with an independent UK, and that these deals would be better for the UK economy than remaining in the Single Market. How accurate are these claims? To what extent would an independent UK be able to exert influence over other states in trade relations due to the size of its market? What exactly does the UK economy produce for export, and what does it need to import? The UK is a large market, and a significant market in the context of the EU, but its growth is sluggish. In May 2018, the UK was the world’s sixth largest economy in terms of nominal GDP, and the third largest economy in the EU behind Germany and France. In 2017, the UK accounted for approximately 15 percent of total EU GDP. Despite the size of the British market, however, UK GDP has been growing very slowly for years, and has not exceeded 1 percent of GDP in any quarter since late 2005. Indicators seem to suggest that this stagnation worsened in late 2017. And given the high level of income inequality present in the UK, inflation as a result of the falling pound, and a surprise bump in unemployment at the end of 2017, the UK probably does not feel like it is growing at all for many British people. Overall, the UK runs a significant deficit in goods and a smaller surplus in services traded with other states. Britain is the fifth largest destination for

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merchandise imports in the world, but the tenth largest exporter of merchandise among WTO members, meaning that the UK runs an overall trade deficit in manufactured goods. Balancing out this trend to some extent is the fact that the UK is the world’s second largest exporter and fifth largest importer of services (WTO 2018b). What does this mean for the EU? Britain has had a larger surplus in services than other EU member states by quite a large margin in recent years, and also sells more services to the rest of the world than its EU neighbors do (22 percent of extra-EU services exports in 2016), beating both Germany and France (Eurostat 2018). But it is important to remember that the UK, while a substantial and important economy, is not an exporting powerhouse. Globally, the UK’s strength as a services exporter is not enough to offset its trade deficit in goods. And across all its trade, Britain runs a deficit with both EU and non-EU countries. Nevertheless, pro-Brexiteers are partially accurate when they point out that the UK economy has oriented away from the EU over time. Between 2000 and 2015, UK exports to the EU fell from 60 percent of the national total to 47 percent. But the UK’s trading relationship with the EU remains by far its most significant, and over that same time period, imports from the EU to the UK remained constant (Milmo 2018; ONS 2017). Just under half of the UK’s goods exports are destined for the EU, followed by the US, China, Switzerland, and the UAE. Over half of merchandise imports come from the EU, followed by China, the US, Norway, and Canada (see Table 9.1). In recent years, the UK has traded most of its services with the EU and then the United States, with smaller but still significant proportions of its services traded with Switzerland, Japan, India, and Australia (see Table 9.2). What about the often-repeated claim that post-Brexit the UK will be Europe’s largest market for exports? Post-Brexit, the EU would send approximately 16 percent of its goods exports to the UK, which is a larger percentage than to any other country (the US comes in second with 15 percent). However, including services in the analysis, where the UK runs a surplus with the EU, Table 9.1  UK merchandise trade, 2017 Destination European Union United States China Switzerland United Arab Emirates Other Source: WTO 2018b.

Exports (%)  47.7 13.3 4.8 4.6 2.2 27.4

Origin European Union China United States Norway Canada Other

Imports (%) 53.1 9.3 9.2 3.6 2.3 22.4

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The European Union after Brexit Table 9.2  UK trade in services, 2017

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Destination European Union United States Switzerland Japan Australia Other

Exports (%) 37 21.4 5.1 3 1.8 31.6

Origin European Union United States Switzerland India Japan Other

Imports (%) 50 19.4 2.4 2.2 2.1 23.9

Source: WTO 2018b.

would decrease this percentage (Portes 2015). Despite this, the UK would still be more dependent on the EU than the EU would be on the UK. And, taken individually, EU member states are even less dependent on the UK. Only Ireland and Cyprus represent more than 10 percent of the market for total UK exports (excluding intra-EU trade; see Portes 2015; Eurostat 2015). These calculations assume that the EU’s international relations with the rest of the world will remain static, but after Brexit the EU-27 is likely to develop its own agenda and priorities that diverge somewhat from British preferences. What do these trading relationships mean for future UK–EU relations? Despite rhetoric from some politicians that overstates the importance of the UK economy to EU member states, the EU-27 will clearly want to sign a new trade deal with the UK after Brexit, with such a deal offering economic benefits for many EU businesses and lifelines for some (the UK is tightly bound into global value chains with Germany, for example; see WTO 2018a). In terms of bargaining power, the EU enters into any trade negotiations with the UK in a stronger bargaining position overall, and EU negotiators will also likely have more experience than their UK counterparts for some time. But the economic and political stakes behind a potential deal are significant and the risks of failure for EU leaders are real. The EU stands to suffer from any disruptions to its economy as a result of Brexit, in addition to the overall subtraction of UK GDP from the EU total (which we can crudely assume results in a loss of global bargaining power for the trading bloc). There is also the chance that the classic EU w ­ eakness – the inability of member states to speak with ‘one voice’ in negotiations – might hamper talks and slow down or derail the conclusion of a deal. Brexit is not just a matter of economics or relative power, however, but a strong reaction to perceived differences in cultural values between the UK and the European continent. And these differences in values are likely to prove pivotal in trade negotiations, where standards and regulatory harmonization could prove to be sticking points (as they have been in the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and US, which are now stalled indefinitely). If UK politicians choose to emphasize



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these ­differences (as they might, for example, by moving towards Irish-style low corporate t­axation, emphasizing the UK’s differently structured agricultural sector, or seeking to liberalize the NHS) rather than propose an agreement that looks more like the former relationship between the EU and UK, this could be detrimental to the overall trading relationship for years to come. The next section explores potential sources of political conflict between the EU and UK and their impact on future EU trade policy. Political challenges for EU trade policy after Brexit Brexit poses a number of significant political challenges for the EU-27 in that it fundamentally questions the purpose of the EU and its benefits to member states. This section of the chapter focuses on three of the most pressing problems that the EU will face in terms of its trade policy. In order to maximize its chances of survival and success, the EU must establish a new trading relationship with the UK while reorienting its own trade agenda, maintaining cordial relations with the United States (the EU’s largest trading partner), and dealing with the ongoing democratic divide in EU trade policy that has been exacerbated by Brexit. Establishing a new trading relationship with the UK Since the 18th Century, this country has been leading the fight for free trade across the globe. From Adam Smith’s Wealth of Nations and the repeal of the Corn Laws, to Bretton Woods and the completion of the European Single Market, we have been at the forefront for most of the last 250 years in calling for the removal of trade barriers. (UK Foreign Secretary William Hague, 2013) It is only by taking back control of our laws that UK firms and entrepreneurs will have the freedom to innovate, without the risk of having to comply with some directive devised by Brussels, at the urgings of some lobby group, with the aim of holding back a UK competitor. That would be intolerable, undemocratic, and would make it all but impossible for us to do serious free trade deals. It is only by taking back control of our regulatory framework and our tariff schedules that we can do these deals, and exploit the changes in the world economy. (UK Foreign Secretary Boris Johnson, 2018)

Under any Brexit scenario, it is in the interests of the EU-27 to work to establish a new kind of trading relationship with the UK. But this will not be an easy task. Tensions in UK-EU negotiations are likely to be exacerbated by the focus of UK political elites on internal party politics and domestic elections. In public debates, UK politicians often paint an idealized picture of Britain as a global trading power. According to these leaders, the UK has a long history of championing free trade around the world. Inside the EU, they argue, the UK was too often a lonely voice calling for liberalization – something that even the expansion of the EU to ‘pro-free trade’ Eastern European states could not correct.

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The European Union after Brexit Much of this rhetoric is pure nostalgia that conveniently forgets periods of mercantilism and the consequences of British colonialism. But statements like these did make a significant difference in the Brexit referendum debate, and a substantial section of the public bought into the ideal of the UK as a revitalized economy and a dominant, independent trading power. After the referendum and Article 50 notification, the public promise to forge a new wave of trade agreements with the rest of the world seems to have impacted the success of the UK–EU Brexit negotiations. This promise of ‘global Britain’ is important because it effectively binds populist, pro-Brexit members of the government to certain narrow positions such as opposing a UK-EU-27 customs union on the grounds that being part of a customs union with the EU is not compatible with an independent UK trade policy. Bickering in the UK Executive over whether or not a customs union is desirable only resulted in greater delay and confusion in what was already a difficult and fraught set of negotiations. This uncertainty hurts the EU as well as the UK, both economically and politically. The UK is currently highly politically divided, and politically divided countries do not make good trade partners. The Brexit referendum exposed severe divisions among UK regions (Scotland and Northern Ireland voted heavily to Remain, while England and Wales supported Leave), generations (over-65s leaned heavily toward Leave while young people voted to Remain), and within both leading political parties. It will be hard for any political leader to span these divisions, which go much deeper than the question of EU membership to touch on the role of government and the media, the extent of the welfare state, control of migration and divisions over race and ethnicity. As a consequence of these divisions, and an ill-advised attempt to seek a fresh electoral mandate, Theresa May was left leading a minority government that may not survive long enough to conclude the negotiations. The UK is also somewhat bureaucratically unstable. After decades without its own trade negotiators, the UK now has a Department of International Trade, with a Cabinet-level minister. This transition involves a major change in function, with the new department required to conduct not just trade promotion activities such as ministerial visits to prospective trading partners, but a fully fledged trade policy. In addition to the Trade Minister, the UK has ministers in charge of foreign policy (with a well-established department) and Brexit (with a brand-new department), with authority over trade in the context of Brexit split between the three departments. Abrupt ministerial departures notwithstanding, it seems inevitable that there will be power struggles between the three units. The UK must also craft a new trade policy process. There remain significant concerns about whether there will be adequate parliamentary scrutiny of new UK trade policies after Brexit. None of this makes it easier for EU negotiators to establish rapport with their UK counterparts. Nevertheless, the departure of the UK does mean that the EU has the opportunity to modify its trade agenda. The UK’s economic policy

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priorities differ from those of the EU-27 in several important ways, including on support for agriculture and the significance of services in international trade negotiations. In 2015, France, Germany, Italy, and Spain accounted for over half of the EU’s agricultural output. But agriculture is only a small part of the UK’s economy and UK agriculture is differently structured, a distinction that famously resulted in Margaret Thatcher securing a ‘rebate’ for the UK from its payments towards subsidies under the Common Agricultural Policy. Once the UK is no longer an EU member state, it is likely that the EU’s preferences on agriculture in trade negotiations will change somewhat. Similarly, the UK has long been a supporter of liberalizing trade in services. The UK is significant in the insurance industry, for example, with the second highest number of firms and third highest number of employees among all EU member states in 2015 (WTO 2017), and also has significant strengths in legal services, finance, and logistics. After Brexit, perhaps this issue will also lose relative priority in terms of the EU’s negotiating mandates. Transatlantic trade relations If you look at the European Union, it’s very solidly against us in terms of trade. It’s very unfair … it’s almost, we can’t even do business. They send their cars over here, they send everything over here. They don’t want to take our product. So we can’t let that happen. (Donald Trump, West Virginia, 5 April 2018)

A second major challenge for the EU is managing its trading partnership with the United States. The EU–US economic relationship is one of the most significant in the world, and the US is the EU’s largest trading partner and source of investment. But negotiations towards the TTIP, a proposed new trade agreement between the EU and US, are currently stalled. When originally conceived, TTIP was considered by many to be one of the most ambitious and valuable trade deals ever proposed by the EU. The deal was supposed to add significant value to both economies, ensuring that exports and investment could continue to flow freely and tackling difficult issues such as agriculture, trade in services and regulatory harmonization. Ambitious deals such as TTIP were considered to be of huge importance to the EU’s overall agenda of economic revitalization in the aftermath of the fiscal crisis. Some even considered that a successful deal would help to revitalize failed multilateral trade negotiations within the WTO (Gstöhl 2016). Vitally, the TTIP was designed to cement a strategic alliance between the United States and EU countries that would protect both from rapidly growing emerging economies, particularly China (Egan and Nugent 2015). This alliance has not materialized, however. The EU has (almost) managed to implement a significant trade deal with Canada and completed another with Mexico, but EU negotiators have so far failed to make progress on a deal with the US.1 In part, this is due to some real differences of opinion on policy

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The European Union after Brexit between the two sides and the difficulties of harmonizing different sets of complex regulations. But it also reflects popular opposition to the agreement within both the United States and Europe. In the United States, Donald Trump has been pushing for more protectionist trade policies across the board. In March 2018, Trump announced that the US would unilaterally impose strong tariffs on steel and aluminum imports, causing loud complaints from the United States’ trading partners and potentially starting a trade war. Responding to this unilateral action, the European Commission’s Directorate-General for Trade (DG Trade) threatened to challenge the US via the WTO’s dispute settlement mechanism. Trump’s unpredictable leadership style and preference for pleasing his core voter base in rustbelt states has led many to conclude that further antagonistic changes in policy are likely. In the EU, popular opposition to the TTIP has been strong in certain states for several years, particularly in Germany, Austria and the UK. Common criticisms of the proposed trade deal have included its potential impact on regulation of food, pharmaceuticals, and chemicals, the secretive and undemocratic nature of the negotiation process and the proposed investor-state dispute mechanism, and the potential of the agreement to promote the privatization of public services (Buonanno 2017; Jarman 2017; Jarman and Koivusalo 2017). Over time, right- and left-wing populist parties in EU member states have also started to adopt official positions on the TTIP, Comprehensive Economic and Trade Agreement (CETA), and other trade agreements that mirror these arguments, essentially co-opting grassroots discontent. Taken together, and coming from all political angles, this opposition to what is essentially the EU’s flagship trade policy – a core component of the Europe 2020 strategy – should be of grave concern for EU officials and for the EU project going forward. Complicating the narrative is the fact that while the UK public is one of three populations in the EU that has expressed the most negative opinions about TTIP, the UK government has been a consistently strong supporter of the agreement. The Coalition, Cameron and May governments all supported the trade deal despite popular opposition, claiming that it would have significant economic benefits for the UK in areas such as trade in services. These supporters of TTIP went out of their way to deflect claims that TTIP would undermine the NHS. British right-wing populism,2 which has influenced each of these governments in turn, paints the EU’s trade policy as protectionist, overbearing and statist and instead emphasizes the desirability of negotiating an idealized, ‘better’ version of TTIP between the UK and US (Jarman 2018). At the time of writing, the impact of Brexit on the future US–EU relationship is still unclear. But given the political preferences of the current UK and US governments, it does seem likely that London will drift closer to Washington in terms of its trade policy preferences. This could cause headaches for the EU when it comes to promoting its own ideas to the White House and its preferences within the WTO. That said, the EU remains the world’s largest market,



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with all the soft power that implies, and even without the support of the US, would have other allies to draw on. Either way, what is certain is that Brexit signals a significant shift in the liberal world order at the global level.

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The democratic divide The fact that such a fundamental agreement that will catapult us into another world is being negotiated in secret and without a democratic mandate is a scandal. It is particularly scandalous that Mrs Merkel now wants to bring the agreement to a close with particular emphasis because she evidently fears the wrath of the Americans, who are increasingly expressing their displeasure at the delays. (Alexander Gauland, 3 May 2016, AfD 2016) It is vital that the French people know about TTIP’s content and its motivations in order to be able to fight it. Because our fellow countrymen must get to choose their future, because they should impose a model for society that suits them, and not be forced by multinational companies eager for profits, Brussels technocrats sold to the lobbies, politicians from the UMP, who are subservient to these technocrats. (Marine Le Pen, 19 May 2015, RT.com 2015)

How EU leaders deal with these challenges – forming a new trading relationship with the UK, reorienting the EU trade agenda to the EU-27, and rescuing (or reimagining) the transatlantic trade relationship – depends on their ability to overcome both divisions among member states and divisions between political elites and the wider public that are internal to the EU. Brexit is certainly going to be a cause of disruption among EU states, but it is also a symptom of much larger social and political shifts. The EU’s current troubles are not a new problem that should surprise us. Major debates in EU scholarship focus on the EU’s democratic deficit, the constitutional asymmetry of European integration, the inability of EU leaders to realize a true ‘Social Europe’ and the reliance of EU officials on ‘throughput’ or procedural legitimacy (Scharpf 2010; Schmidt 2013). Despite these problems, the EU has seen off many calls for a multi-tier Europe, accommodated special exceptions for member states facing political roadblocks, created new forms of governance, established citizenship rights and seen off two previous anti-EU referendums. Nevertheless, divisions between European elites and members of the public are in the EU’s DNA. Trade policy illustrates this nicely. Governing trade in goods among member states is one of the earliest EU competences, but for many years policy decisions were determined by the Council and Commission alone, working in relative secrecy. Elected representatives at the European and national levels, in particular, had little ability to scrutinize the details of negotiating texts, which were also not made public. Many key works in political science and economics support this deliberate exclusion – delegating much of the power to negotiate

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The European Union after Brexit and ­conclude trade agreements from legislatures to executives is seen as crucial in order to avoid situations where elected representatives block or delay the approval of negotiated agreements (although much of this body of work takes an American perspective on legislative behavior that does not always apply in other types of political systems). But things began to change as the EU’s prospective trade agreements engaged more fully with issues and sectors that were member state competences. Many of the EU’s more recent trade agreements have been ‘mixed’, covering economic and political topics where there are a mixture of EU and member state competences (Jarman and Koivusalo 2017). This development increased the level of attention to EU trade policy among both member states and the public. Member states wanted to protect their ability to make national policy decisions in sensitive areas, but they also – until Brexit – all wanted to reap the benefits of belonging to a large free trade bloc. Members of the public and non-governmental organizations (NGOs) criticized both the process and substance of EU trade policy, lobbying and protesting at both the national and EU levels. The EU responded to these concerns by changing the way that it makes policy. Under the Lisbon Treaty, the ordinary legislative procedure was applied to trade policy for the first time, giving the European Parliament a significant role in decision-making. The European Commission, always concerned about its legitimacy and keen to build consensus among stakeholders through consultation, went to greater lengths to make key trade policy documents available to the public and to elected representatives in member state legislatures, and paid greater attention to how it justified its role to NGOs and the public in communications. In response to a flood of strong criticisms of investor-state dispute settlement (ISDS), the EU Commission proposed the creation of a multilateral investor court that would be more transparent and permanent than traditional ISDS (European Commission 2017). In the context of traditional trade policymaking styles, these were responsive and novel ideas that were cautiously welcomed by many stakeholder groups. Nevertheless, the goal of pro-free trade EU and member state officials throughout this process has been to solidify, legitimate, and build upon the EU’s authority to set trade policy for its member states, including in areas with mixed competence. The goal of these reforms was not to rethink globalization, but to manage it. This is a problem, because it puts European elites at odds with the views of a significant proportion of the EU public. Many of the criticisms of EU trade policy are valid. EU trade policy has been secretive, and the policy process relatively undemocratic by design, for decades. There are valid concerns about the ability of firms to sue governments via closed, extra-territorial dispute settlement, about the impact of regulatory harmonization and its distance from democratic deliberation, and about globalization and the ways in which it can impact inequality and cultural values.

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The pressing problem, however, is that these arguments have been seized upon by political forces that want to see the EU fail. Populist parties are in power or proximate to power in a significant number of EU member states. The presence and even success of populist parties is not new (Mudde and Kaltwasser 2017; Müller 2016; Kriesi 2014). But the recent public prominence of populist parties such as the UK Independence Party, Fidesz in Hungary, the Law and Justice Party in Poland, Alternative for Germany (AfD), the National Front in France, the ANO Party in the Czech Republic, the Freedom Party in Austria, and the Five Star Movement in Italy, among others, is a significant challenge to the EU’s current trade agenda. Both TTIP and CETA were opposed by populist parties of the left and right across Europe, including Podemos, Syriza, the Five Star Movement, the National Front, AfD, and the Freedom Party. EU officials have tried to respond to demands to reform EU trade policy. But they have no good answer to those who would like to dismantle it for good. No matter how the UK ‘Brexits’, then, EU trade policy is unlikely to become less contentious. One of the key disappointments of the collapse of the TTIP negotiations is that EU officials had begun to take steps to respond to the concerns of moderates, with the chance that these new ways of working could also improve the global trade regime. While all of these proposals can be criticized, they were, at least, concrete proposals that attempted to address valid complaints about EU trade policy. It seems likely that in the wake of Brexit the EU will continue on its current trajectory in trade, and perhaps even double down on its attempts to strike new agreements with a diverse range of trading partners. The risk remains that, if the EU’s current trade agenda loses any more legitimacy, momentum towards new ways of working and thinking about globalization will disappear before the European public gets the chance to engage in the debate. Conclusion Brexit should not be taken lightly in terms of its impact on EU trade. In 2017, despite facing economic disruption and political stagnation, the UK was the third largest economy among EU member states, and its largest exporter of services. With these factors in mind, businesses in the EU with supply chains or capital flows that connect to UK businesses or rely on the UK for back-office services face tough choices about where to do business in the future, and are being forced to make them under conditions of great uncertainty and little information. The planned movement of EU-level regulatory functions from the UK to other EU member states (for example in pharmaceuticals) will also cause disruption. Because of the close economic ties between the UK and EU, a ‘no-deal’ Brexit scenario would have serious consequences for European economies and impact the strength of the EU bloc going forward, and EU negotiators should want to avoid this situation at all costs.

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The European Union after Brexit Brexit also poses some important political challenges for the EU’s trade policy. EU leaders will have to manage the bloc’s new trading relationship with its politically unstable neighbor, while formulating and maintaining their own internal consensus. They will also have to contend with shifting geopolitical relationships beyond Europe, including the increasingly protectionist stance of the EU’s largest trading partner, the United States. Ultimately, Brexit is merely a symptom of a bigger challenge for EU policymakers, the influence of populism. The failure of the EU to legitimate its trade policies among the wider public has left the door open for populist political leaders to denounce its trade agenda. Populist movements in European countries and elsewhere have announced that they are attempting to increase sympathetic representation in EU institutions in order to give them greater influence over the EU project including, potentially, the ability to destabilize it. The extent to which these voices gain dominance in national politics and in the European Parliament is likely to have a huge impact on the EU’s future unilateral policies and its trade negotiations. Notes 1 The CETA deal between the EU and Canada has been finalized but was classified as a mixed agreement. Internal bargaining among EU institutions and member states means that the agreement has provisionally entered into force at the time of writing, pending individual ratification by member states. 2 Following Jan-Werner Müller (2016), I define populists as anti-elitist (advocating for a morally pure, but fictional ‘people’ and against a ‘corrupt’ elite) and anti-pluralist (decrying all opposition as illegitimate).

References AfD (Alternative für Deutschland). 2016. ‘Gauland: TTIP ist von Anfang an falsch angegangen worden’, 3 May, https://www.afd.de/gauland-ttip-ist-von-anfang-an-falschangegangen-worden/. BBC News. 2018. ‘Brexit: Barnier Rules Out Key Customs Proposal’, 26 July, https:// www.bbc.com/news/44964521. Buonanno, Laurie A. 2017. ‘The New Trade Deals and the Mobilisation of Civil Society Organizations: Comparing Eu and US Responses’. Journal of European Integration, 39, 795–809. Egan, Michelle, and Neill Nugent. 2015. ‘The Changing Context and Nature of the Transatlantic Relationship’. In The New and Changing Transatlanticism: Politics and Policy Perspectives, edited by Laurie Buonanno, Natalia Cuglesan, and Keith Henderson, 23–42. Abingdon: Routledge. European Commission. 2010. A Strategy for Smart, Sustainable and Inclusive Growth. COM/2010/2020 final.

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European Commission. 2017. ‘A Multilateral Investment Court’. State of the Union 2017  Brief, http://trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156042. pdf. Eurostat. 2015. ‘EU’s Top Trading Partners in 2014: The United States for Exports, China for Imports’, 27 March, http://ec.europa.eu/eurostat/documents/2995521/6 760204/6–27032015-AP-EN.pdf. Eurostat. 2018. ‘International Trade in Services’. Statistics Explained, 15 June, http://ec. europa.eu/eurostat/statistics-explained/index.php/International_trade_in_services. Gstöhl, Sieglinde. 2016. ‘“Trade for All” – All for Trade? The EU’s New Strategy’. College of Europe Policy Brief, 3.16, http://aei.pitt.edu/93101/1/gstohl_cepob_3-16.pdf. Hague, William. 2013. ‘EU-US Free Trade Agreement’, 18 March, https://www.gov. uk/government/speeches/eu-us-free-trade-agreement. Hutton, Robert. 2018. ‘Stuck in the Middle: These are Theresa May’s Four Brexit Options’. Bloomberg, 3 May, https://www.bloomberg.com/news/articles/2018-05-03/stuckin-the-middle-these-are-theresa-may-s-four-brexit-options. Jarman, Holly. 2017. ‘Trade Policy’. In The Routledge Handbook of European Public Policy, edited by Nikolaos Zahariadis and Laurie Buonanno, 203–212. Abingdon: Routledge. Jarman, Holly. 2018. ‘Populist Rhetoric and the Transatlantic Trade Relationship’. Paper prepared for ECSA–C conference, Toronto, May. Jarman, Holly, and Meri, Koivusalo. 2017. ‘Trade and Health in the European Union’. In Research Handbook on European Union Health Law and Policy, edited by Tamara K. Hervey, Calum A. Young, and Louise E. Bishop, 429–452. Cheltenham: Edward Elgar. Johnson, Boris. 2018. ‘The Road to Brexit: A United Kingdom’, Spectator, 14 February, https://blogs.spectator.co.uk/2018/02/full-text-boris-johnsons-brexit-speech/. Kriesi, Hanspeter. 2014. ‘The Populist Challenge’. West European Politics, 37:2, 361–378. Milmo, Dan. 2016. ‘How Will Brexit Affect Britain’s Trade with Europe?’, Guardian, 26 June, https://www.theguardian.com/business/2016/jun/26/how-will-brexit-affectbritains-trade-with-europe. Mudde, Cas, and Cristóbal Rovira Kaltwasser. 2017. Populism: A Very Short Introduction. Oxford: Oxford University Press. Müller, Jan-Werner. 2016. What is Populism? Philadelphia: University of Pennsylvania Press. ONS (Office for National Statistics). 2017. ‘Additional Country Data for Goods and Services between 1999 and 2016’, 8 November, https://www.ons.gov.uk/economy/ nationalaccounts/balanceofpayments/adhocs/007716additionalcountrydatafortrade ingoodsandservicesbetween1999and2016. Portes, Jonathan. 2015. ‘After Brexit: How Important Would UK Trade Be to the EU?’ Blog Post, National Institute of Economic and Social Research, 2 November, https:// www.niesr.ac.uk/blog/after-brexit-how-important-would-uk-trade-be-eu. RT.com. 2015. ‘“We Must Resist Corporations”: Le Pen Targets Troubled TTIP Deal in New Campaign’, 19 May, https://www.rt.com/news/259805-lepen-ttipcampaign-secrecy/. Scharpf, Fritz. 2010. ‘The Asymmetry of European Integration, or Why the EU Cannot Be a “Social Market Economy”’. Socio-Economic Review, 8, 211–250.

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The European Union after Brexit Schmidt, Vivien. 2013. ‘Democracy and Legitimacy in the European Union Revisited: Input, Output and “Throughput”’. Political Studies, 61:1, 2–22. Trump, Donald. 2018. ‘Remarks by President Trump at a Roundtable Discussion on Tax Reform’, 5 April, https://www.whitehouse.gov/briefings-statements/remarkspresident-trump-roundtable-discussion-tax-reform/. WTO (World Trade Organization). 2017. Trade Policy Review: European Union. Geneva: WTO. WTO (World Trade Organization). 2018a. ‘Trade in Value Added and Global Value Chains: UK’, https://www.wto.org/english/res_e/statis_e/miwi_e/GB_e.pdf. WTO (World Trade Organization). 2018b. World Trade Profiles: UK. Geneva: WTO.

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A stronger European Union? The unexpected security consequences of Brexit Federiga Bindi Introduction Will Brexit reinforce or weaken EU security and defense policies? Opinions are divided. A nation with substantial military and diplomatic resources, the UK has traditionally played a prominent role in European defense. Despite cuts in recent years, the UK remains Europe’s largest defense spender and had planned before Brexit to further increase spending in coming years. This includes a commitment to meet the NATO target of spending 2 percent of GDP on defense, increasing the defense budget by 0.5 percent annually to 2020–2021. In addition, the UK plans to spend £178 billion over ten years on new military equipment, with a 1 percent yearly rise in the procurement budget. Britain is also among the biggest spenders on defense R&D in Europe, with France, Germany, and the UK accounting for 92 percent of the EU’s total €2 billion of funding (Black et al. 2017, 15–16). The question is further complicated by the fact that it is impossible to talk about European defense – even EU defense – without also taking into consideration the other side of the Atlantic. European security and defense policies are intrinsically connected to transatlantic security cooperation, which in turn means NATO. Progress in EU integration in foreign and defense policies appears to be inversely proportional to the highs and lows in the transatlantic relationship. Europeans generally progressed toward more integration in the foreign and defense cooperation at times of friction with the US (Bindi 2018). In fact, ever since Nixon – and even more so since the end of the Cold War – the various US administration have insisted the Europeans should contribute more in transatlantic defense, meaning by this greater investment and defense expenditure in NATO (namely an increased purchase of US defense hardware, rather than more EU autonomy in defense and security). In that there is no

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The European Union after Brexit difference between Democrats and Republicans, including Donald Trump and his predecessor Barack Obama. In advocating for more NATO rather than more EU security, the US has always found an ally in the United Kingdom. In fact, we can better understand the EU–US relationship as a triangle, rather than a bilateral EU–US relation. It is not by chance that Washington pushed London to join the European Economic Community (EEC) ever since its creation and that the Obama administration lobbied furiously in favor of the UK remaining in the EU, effectively campaigning against Brexit. However, things have changed with Trump. For the first time, there is a genuine disinterest on the part of the US administration about the EU, which is reflected in the general US national foreign debate, which is heavily influenced by the preferences of the administration in office. In other eras, an initiative such as a Permanent Structured Cooperation (PESCO, see below) would have made Americans cry wolf, just as the Single Market and the introduction of the euro did. Today in Washington the debate about PESCO is non-existent, and even the defense industry seems not to be worried about its potential negative effects.1 So, if two sides of the triangle disappear, what of the remaining side? Will it disappear, too, or will it be reinforced? This last is the question this chapter is addressing. The chapter will proceed as follows: We will first briefly examine how EU security and defense policies developed and the role the UK played in them. We will then look at developments since the Brexit referendum. In the conclusions we will make hypotheses for the future. The path to EU security and the role of Britain After World War II, London took the lead in European defense: the Treaty of Brussels was signed on 17 March 1948, including France, the UK, and the three Benelux countries. It called for military cooperation and mutual defense, though it also included clauses for economic, social, and cultural cooperation. Slowly, the idea of a defense system bringing Western Europe and the United States together started to develop. The Pentagon Talks thus began between Britain, the United States, and Canada, later to be joined by France, Holland, Belgium, and Luxembourg. Numerous difficult questions emerged: What would the aim of the treaty be? What kind of responsibilities would members have? Which states should be included? For instance, the UK strongly opposed Italy’s participation due to its fragile economic and political landscape. Eventually, the North Atlantic Treaty was signed on 4 April 1949, in Washington, DC, with Italy part of it, due to French pressure, alongside the UK, the three Benelux countries, Canada, the US, Iceland, Denmark, Norway, and Portugal. After a successful start to the European Coal and Steel Community (ECSC 1951) – of which Britain refused to be part – France launched the idea of a

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European Defense Community (EDC) – including a European army – as a way to reinstate Germany’s military sovereignty, while at the same time embedding it into a European framework. However, following a change in government, in 1954, France (and Italy) failed to ratify the EDC Treaty. Defense hence became a taboo word in Brussels; it would be 40 years before the EEC would start talking about defense again. Anthony Eden, the British foreign minister, then came to the rescue of the continent, proposing that Italy and Germany sign the Brussels Pact, which in turn transformed into the Western European Union (WEU). However, as the WEU was merely a talk shop without military capability, European security was exclusively left in NATO’s hands. In 1955, Germany was also admitted into NATO. By the 1970s, the United States – which had supported the creation of both the ECSC and the 1957 EEC – started to perceive the Community as an economic competitor, holding it responsible for the US trade deficit. US behavior vis-à-vis the EEC became rather contradictory. Under Richard Nixon the United States started to ask the Europeans to spend more on defense and contribute more to NATO expenses – a request that it has since never stopped making, despite at the same time reiterating the principle of American leadership over the organization. The US had also long been pushing for its most loyal ally to be included into the EEC. That finally happened in 1973, when the UK joined the EEC alongside Ireland and Denmark. Contrary to US expectations, however, this inclusion initially did not bring the two sides of the Atlantic closer (Bindi 2018). In December 1973, the EEC foreign ministers adopted in Copenhagen a ‘Declaration on European Identity’. The objective was to better define the EEC’s relations and responsibilities to the rest of the world and the place they occupied in world affairs. According to the declaration, the nine EEC members were to play an active role in world affairs. The most significant outcome was the progressive development of the so-called European Political Cooperation (EPC) – which was then formally included in the EEC treaties with the 1987 Single European Act. EPC established the principle of mutual consultation among Europeans and paved the way for ever-closer cooperation in foreign affairs. However, it always fell short of creating cooperation in the security field. The year 1989 brought dramatic and unexpected changes in Europe; perhaps the most poignant of which was the fall of the Berlin Wall on 9 November. In December 1989, the European Council in Strasbourg had no choice but to second Germany’s desire to reunite. Yet the prospect of possible German dominance in both monetary and security policies worried many. Led by the German Chancellor Helmut Kohl and the French President François Mitterrand, the Europeans decided that German unification was to be counterbalanced by a more integrated European Community. This was done by negotiating and approving a new treaty: the 1992 Maastricht Treaty or Treaty on European

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The European Union after Brexit Union (TEU). The Maastricht Treaty set the course for a European Single Currency and created the Common Foreign and Security Policy (CFSP). And this is where our story really begins. The initial idea was to lay the conditions for a proper European defense policy. However, this was strongly contested by the UK. Margaret Thatcher had already lost her premiership during the pre-negotiations phase, in November 1990, over the European Monetary Union. London’s ally – Washington – was equally suspicious of possible development in the field of defense outside of NATO. As Operation Desert Storm (1991) divided the Europeans, their differences spilled over into the negotiations for the Maastricht Treaty, in particular setting London on the opposite side to the others. The negotiators disagreed on the voting majorities, on how to integrate foreign policy into the EU, and on whether the philosophical distinction made between security and defense could be abandoned. Different views were also expressed over whether the WEU should be merged with the EU. The United States and the more pro-NATO member states were extremely worried about this possibility and what they saw as an impediment to NATO and Western security. As a result, CFSP was far from the EU foreign and defense policy initially envisaged. It nonetheless established systematic cooperation between member states in adopting ‘common positions’ in foreign policy matters; coordinating their actions within international organizations and conferences; engaging in joint actions; and refraining from any action that is contrary to the EU. The WEU was to be closely associated with the CFSP, acting as a bridge to NATO, and the CFSP was finally permitted to address the previously taboo question of ‘defense’, with the possibility held out in the Maastricht Treaty of gradually moving toward a common defense system. The council presidency was to represent the EU in CFSP matters. Abroad, member state diplomatic missions and European Commission delegations were to cooperate, and the European Parliament was to be consulted. Soon, the Europeans began talking of a European security and defense identity (ESDI). This idea, however, was not so well received in the United States. President Bill Clinton, like his predecessors, was eager for the Europeans to bear more of the financial defense burden, but not if this was to mean an EU  defense pact rivaling NATO. As a result, at the June 1996 NATO ministerial meeting in Berlin, EU defense ministers agreed to build ESDI within NATO, while simultaneously stressing the supremacy of the principle of transatlantic cooperation within the alliance (NATO 1996). In parallel, the US administration pushed for speedy NATO enlargement: on 8 July 1997, the North Atlantic Council in Madrid invited the Czech Republic, Hungary, and Poland to begin accession talks with a view to joining NATO by its fiftieth anniversary in 1999. At a meeting in Saint-Malo in December 1998, British Prime Minister Tony Blair and French President Jacques Chirac, the leaders of the EU’s two nuclear



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powers, agreed to establish European military cooperation within NATO. The declaration stated the following aims: The European Union needs to be in a position to play its full role on the international stage. To this end, the Union must have the capacity for autonomous action, backed up by credible military forces, the means to decide to use them and a readiness to do so, in order to respond to international crises. In strengthening the solidarity between the member states of the European Union, in order that Europe can make its voice heard in world affairs, while acting in conformity with our respective obligations in NATO, we are contributing to the vitality of a modernized Atlantic Alliance which is the foundation of the collective defense of its members. (Smith 2015)

Washington promptly responded with Madeleine Albright’s ‘three Ds’: no decoupling (of European Security and Defense Policy, or ESDP, from NATO); no duplication (of capabilities); and no discrimination (against non-NATO members). NATO formally endorsed European defense cooperation at its fiftieth anniversary summit (25 April 1999). In June 1999, at the Cologne summit, the EU heads of government announced their decision to absorb the WEU into a new ESDP, renamed by the Lisbon Treaty the ‘Common Security and Defense Policy’. The former NATO general secretary, Javier Solana, was appointed Secretary General of the WEU and High Representative for the CFSP. At the Helsinki European Council in December 1999, it was then agreed that by 2003 the EU would be able to deploy up to 60,000 troops within 60 days for at least one year. In December 2002, NATO and the EU negotiated a set of agreements, called ‘Berlin Plus’, to govern the sharing of assets between the EU and NATO for crisis management and peacekeeping operations. The events of 9/11 were to have lasting effects on transatlantic relations. The George W. Bush administration was quickly at odds with its European allies on issues such as missile defense, climate change, and relations with Russia and the Balkans (Peterson and Pollack 2003, 85–98). The Anglo-American attack on Iraq in 2003 was supported by some EU member states while others strongly opposed it, leading to deep divisions among Europeans – in particular between French President Jacques Chirac and British Prime Minister Tony Blair. Trying to secure reconciliation, the European Council agreed at the Thessaloniki Summit in December 2003 on a European Security Strategy (ESS) entitled ‘A Secure Europe in a Better World’ (Council of the European Union 2003). The text identified a list of key threats Europe needed to deal with: terrorism, proliferation of weapons of mass destruction, regional conflict, failed states, and organized crime. Central to the ESS was the promotion of regional stability in Europe and its ‘neighborhood’ (Council of the European Union 2003, 6) with the EU’s strategic priorities identified as Europe (Balkans, Eurasia, Russia), the Mediterranean, and the Middle East.

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The European Union after Brexit In 2000, the Nice European Council agreed the creation of permanent political and military structures within the EU for Common Security and Defense Policy (CSDP) purposes. In 2003 was thus created an EU civil-military planning cell, which would operate in parallel with a European cell based at NATO’s operational planning HQ (SHAPE). Initially France, Germany, Belgium and Luxembourg had proposed the creation of an entirely independent EU military planning cell, outside of the NATO framework. It was only UK opposition and influence that led to the proposals being watered down. The resulting compromise was a small EU operational planning cell of thirty to forty people established within the existing EU Military Staff in Brussels, rather than as an independent entity, and subject to an operational planning hierarchy that would give first refusal to NATO and then to any national operational HQ before the EU planning cell would play a role. The civil-military cell achieved full operational capability (FOC) on 1 January 2007 (Mills 2018, 13). Still, as this included the capacity to generate an operations centre in order to run an autonomous EU operation as and when required, The Economist argued: ‘a large oak [will] grow from the acorn being planted in Brussels’ (The Economist 2003). Indeed, the idea of an entirely independent military HQ for the EU has never been far off the agenda. It was proposed again during the French presidency of the EU in the latter half of 2008 and by the Polish presidency in 2011. Both times those proposals were dropped due to the UK veto (Mills 2018, 13). One of the outcomes of the ESS was the creation, in 2004, of the European Defense Agency (EDA). The concept of an EU battlegroup was also first launched that same year, as a result of a Franco-British proposal; it was designed to allow the EU to rapidly respond, in a military capacity, to a crisis or urgent request from the UN. It achieved full operational capability in 2007, although no EU battlegroup has ever been deployed on operations. The UK has been a consistent contributor to EU-led operations, often as lead nation, and since the battlegroups concept was launched the UK has provided, or led, a battlegroup five times. The UK had been provisionally scheduled to provide an EU battlegroup in the second half of 2019. However, in March 2018, the UK had reportedly withdrawn that offer, citing the uncertainties of Brexit (McTague and Herszenhorn 2018). Then, in December 2007, the Lisbon Treaty was signed. The new treaty finally entrusted the EU with legal personality and introduced a series of important innovations both in the fields of EU foreign policy and defense, now an integral part of CFSP. Most notably, the Lisbon Treaty created the High Representative for European Union Foreign Affairs and Security Policy, a double-hatted position combining the existing portfolios of the CFSP High Representative and the EU Commissioner for external relations. Barack Obama was sworn into office in January 2009. In December of the same year, the new Lisbon Treaty also entered into force. The new treaty was seen in Europe and abroad as a substantial upgrade in the field of European

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foreign policy. The British EU Commissioner and former Minister in the Blair government, Lady Catherine Ashton, was appointed as the first EU High Representative (EUHR) in November 2009 (European Parliament 2010a, 2010b). While initially relatively unknown, Ashton was able to develop a close personal relationship with Secretary Hillary Clinton first and Secretary John Kerry  afterwards, thus managing to substantially raise Brussels’ voice in Washington. However, the election of Conservative Prime Minister David Cameron deprived Ashton of the support of her own government, which it is alleged would not even pass her the national security briefings. Instead, London chose to sign the Lancaster House Treaties with Paris (2010). Both France and Britain had faced defense spending cuts since the end of the Cold War, which accelerated with the economic crisis starting in 2008. Bilateral cooperation was  thought of as a way to make savings, especially on new armament programs  and the pooling of existing equipment and of support resources, and the sharing of training infrastructures (Pannier 2016). However, a key rationale for the British government was to develop regional defense ties outside the EU. Indeed, British governments had been gradually disengaging from the CSDP (especially CSDP operations and the EDA) since the mid-2000s, while at the same time constantly reasserting the centrality of NATO and the ‘Special Relationship’ with Washington as the cornerstones of the UK’s security (Pannier 2016). The UK and France have achieved significant results in cooperation since 2010, in armaments, nuclear cooperation and operational cooperation. In the field of armaments, cooperation has been thriving in the missile sector. The French and British governments developed a strategy to integrate their missile industries around the already half-integrated firm MBDA. Another key industrial sector for Anglo-French cooperation has been unmanned aerial vehicles, around the Future Combat Air System (FCAS) program. France and the UK have also collaborated on Maritime Mine Countermeasures, consisting of an unmanned underwater vehicle. Cooperation in the nuclear field has been on the rise since 2010, too, as part of the Joint Radiographic/Hydrodynamics Facilities. On the operational side, France and the UK have been cooperating over the development of a non-permanent Combined Joint Expeditionary Force (CJEF). The CJEF rapidly became the flagship project for cooperation between French and British armed forces and it has gone hand in hand with the densification of institutional links, as there are now 50 exchange officers from each country swapping positions every year (Pannier 2016). In 2011, Nicolas Sarkozy and David Cameron took the lead on the intervention in Libya, though cooperation on the ground was limited, due to different command channels and different rules of engagement. The case of Libya is also controversial. Both the European Union and the United States failed to foresee the coming of the Arab Spring. The response was slow, fuzzy, and contradictory. The 2011 Libyan uprising occurred in the context of popular protest ­movements

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The European Union after Brexit and political change in other countries in North Africa and the Middle East. In mid-February 2011, confrontations between opposition activists and government security forces in the eastern cities of Benghazi and Bayda resulted in the death of some unarmed protestors. Security forces used military force to subdue subsequent funeral gatherings and protests in incidents that reportedly killed or wounded dozens, if not hundreds, of civilians. Opposition groups seized several police and military facilities and took control of some eastern cities. In the weeks that followed, counterattacks on opposition-controlled areas by supporters of Muammar Qaddafi, and opposition advances toward Qaddafi strongholds, pushed Libya to the brink of civil war. The French airstrike on 20 March 2011 marked the beginning of the allied operations in Libya (Bumiller, Erlanger, and Kirkpatrick 2011). In the first week of Libya operations, the United States dropped bombs from B-2 stealth planes flown from Missouri and roughly 200 missiles launched from submarines in the Mediterranean, causing alarm that any extended campaign would quickly cost billions of dollars more. But after the US military ramped up the operation, other NATO countries shouldered most of the air burden. Americans took a supporting role, providing aerial refueling tankers, electronic jamming, and surveillance. Hence, for the first time since the Cold War, the United States decided to neither exercise leadership nor fully share risks in a war in which it was otherwise participating. However, the United States provided intelligence, refueling, and more precision bombing assistance than Paris or London want to acknowledge (Erlanger 2011). A majority of NATO and EU members, including Germany, Poland, and Turkey, refused to support the war, notwithstanding an explicit United Nations Security Council (UNSC) resolution. Even jointly owned assets such as NATO’s fleet of Airborne Warning And Control System (AWACS) radar aircraft were deprived of German personnel, although these were not strike aircraft. In addition, the EU played no identifiable part in the war, exposing EU structural insufficiencies and flaws in the defense field (Heisbourg 2011). In September 2012, eleven EU member states (excluding the UK),2 published a communiqué on ‘The Future of Europe’ which called for, among other things, a new model defense policy, designed to create a ‘European Army’ and more majority-based decisions in defense and foreign policy, in order to ‘prevent one single member state from being able to obstruct initiatives’ (EU Observer, 2018). The proposals were supported in a further communiqué issued by France, Germany, Italy, Poland and Spain in November 2012, which also called for a ‘new military structure’ for EU-led operations to be established (Mills 2018, 13). But once again, this time by the hand of Prime Minister David Cameron, the UK announced it would block any attempts to give the European Union a bigger role in coordinating the bloc’s defense policy (Griffiths 2013). As the Trump administration took office in the United States, the new EUHR, Federica Mogherini, was among the first to arrive in Washington and to invite Vice President Mike Pence to Brussels. However, as it became



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i­ncreasingly clear that the United States would no longer be the trusted partner of the past, the EU decisively pushed on the integration accelerator. That meant, first of all, a new EU Security Strategy.

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The Global Strategy The work for the EU Global Strategy (EUGS) began in September 2015 and ended a few days before the Brexit referendum (Tocci 2016). Mogherini had laid down two strategies: in the event of a Remain vote in the UK on 23 June 2016, the EUGS would have been circulated the following day, and formally presented by the HRVP to the European Council on 28 June 2016. If instead the British public had voted Leave, the EUGS launch would have been postponed to a later date. As Nathalie Tocci wrote: When the devastating news of Brexit hit home around 5 am on the 24th, I assumed it would all be called off. Indeed, this was the HRVP’s first inclination that day. Yet as the hours went by, it became increasingly clear that presenting the EUGS in September was not an option as the European Council would have informally debated Brexit at 27 Member States on that occasion. The alternative would have been October or December 2016. But the magnitude of the Brexit earthquake risked being so great that in all likelihood the project would have been dropped altogether. (Tocci 2016, 470)

Mogherini thus finally decided to stick to the original plan. As she wrote in the Foreword: ‘The purpose, even existence, of our Union is being questioned. […] In challenging times, a strong Union is one that thinks strategically, shares a vision and acts together. This is even more true after the British referendum’ (European Union External Action 2016). On 28 June 2016, EUHR Federica Mogherini officially presented the Global Strategy at the European Council (European Union Global Strategy 2016). The EUGS advocated for the European Union to play a major role, including as a global security provider. In the drafting of the EUGS, defense, immigration, and relations with Russia had proved the three most contentious points. According to Nathalie Tocci, [T]here was a critical mass of Member States that were keen to press the accelerator on European security and defense. This was complemented by the security and defense community within and beyond official institutions, which, having seen to their dismay an ESS being ‘diluted’ into a broader EUGS, wanted to make sure their baby was not entirely stolen from them. They wanted to make sure the EUGS would have strong hooks on defense. The Commission, traditionally reluctant to name the ‘D’ word, was also on board, partly due to the personal views of Commission President Juncker on European defense and the broader evolution of the defense debate within the Commission as a whole. This, however, had to be reconciled with a set of dissenting voices. Some Member States, while keen on security and defense in general, wanted to ensure that in no way would the EUGS challenge NATO’s

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supremacy on collective defense, nor would it question the national sovereignty of Member States on defense matters. Other Member States, notably some of the non-NATO Member States, felt uneasy about a strong NATO focus in the EUGS and wanted to make sure that their status and autonomy as non-NATO members was fully respected and reflected in the Strategy. Other Member States along with segments of the EEAS, the Commission, the European Parliament, as well as human rights organizations, cautioned against an excessive security focus in the EUGS. (Tocci 2016, 466–467)

The Global Strategy finally identified a number of defense capability priority areas in which Europe needs to invest and develop collaborative approaches: intelligence-surveillance reconnaissance, remotely piloted aircraft systems, satellite communications and autonomous access to space and permanent earth observation; high end military capabilities including strategic enablers, as well as capabilities to ensure cyber and maritime security. In parallel, the EU-NATO Joint Declaration was signed in Warsaw in 8 July 2016 to relaunch EU–NATO cooperation (NATO 2016). Advancements in EU security since the Brexit referendum Striving to relaunch after the Brexit Referendum, President Juncker stressed in his 2016 State of the Union Speech the need for a Europe that protects, empowers and defends, and called for the creation of a European Defense Fund (European Commission 2016a). Italy, France and Germany also came forward with proposals to bring together the EU’s disparate military assets, spend more, develop technology and rely less on the United States (Emmott and Siebold 2016). Meeting informally in Bratislava at the end of September, ‘all 28’ of the EU ministers of defense agreed to work together to move forward in the field of defense, despite London’s opposition to both an EU army and an EU common military headquarters (Barigazzi 2016, 6). Consequently, HRVP Mogherini proposed an Implementation Plan on Security and Defense (European Union External Action 2016b). The plan defined the types of civilian missions and military operations that the EU should be capable of undertaking within the context of the Global Strategy, and had five specific work strands (Mills 2018, 11–12): • Deepen defense cooperation – including establishing a Coordinated Annual Review on Defense to promote transparency and cooperation through joint programs among member states; and a review of the Capability Development Plan by spring 2018 in order to identify capability shortfalls. • Rapid response – identify options for more flexible, faster and targeted actions in civilian crisis management, and develop the EU battlegroups so that they are more usable and effective.

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A stronger European Union? The unexpected security consequences of Brexit 187 • Planning and conduct of missions – oversight of all EU missions (both civilian and military) needs to be enhanced and coordinated, and in the short term, a new permanent operational planning and conduct capability will be established within the EU Military Staff of the European External Action Service, for non-executive military missions. • New Permanent Structured Cooperation (PESCO) – to investigate areas for CSDP cooperation using the PESCO mechanism, as set out in the Lisbon Treaty. An agreement on the possible common commitments and projects to be implemented within the framework of PESCO will be presented to member states for comment. • CSDP partnerships – cooperation with the UN, NATO, the African Union, and OSCE will be enhanced. Options on a more strategic approach to engaging with third-party countries in CSDP matters will be presented.

PESCO As London’s opposition was this time weakened by Brexit, Mogherini’s proposals were now endorsed by the Foreign Affairs Council on 14 November 2016. Both the European Parliament and the European Commission followed up with reports, respectively ‘The European Defense Union’ (European Parliament 2016) and the ‘European Defense Action Plan’ (EDAP) (European Commission 2016b). According to the European Commission, the European defense market suffered from fragmentation and insufficient industrial collaboration. A more efficient use of public money and a stronger industrial base could be achieved by strengthening the Defense Single Market, reducing duplications and improving the competitiveness of the EU defense industry. Collectively, Europe is the world’s second largest military spender. However, it still lags behind the US and suffers from inefficiency in spending due to duplications, a lack of interoperability and technological gaps. Moreover, defense budgets in Europe have been shrinking in recent years, while other global actors (China, Russia and Saudi Arabia) have been upgrading their defense sectors on an unprecedented scale. Without a sustained investment in defense, the European industry risks lacking the technological ability to build the next generation of critical defense capabilities. Ultimately, this will affect the strategic autonomy of the Union and its ability to act as a security provider. The defense industrial sector is not only of strategic importance for Europe’s security. With a total turnover of €100 billion per year and 1.4 million highly skilled peopled directly or indirectly employed in Europe, it is also a major contributor to the European economy.3 The Commission had already developed strategies to support the competitiveness of the European defense industry and the creation of a more integrated defense market in Europe with the adoption, in 2009, of two defense directives. In 2013, the Commission had already identified a list of actions to further strengthen the Single Market for

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The European Union after Brexit defense and promote a more competitive defense industry. Now, for the first time, the Commission was tabling a proper European Defense Action Plan based on three main pillars: launching a European Defense Fund; fostering investments in defense supply chains; and reinforcing the Single Market for defense. These proposals were endorsed by the December European Council, which also approved a set of forty-two measures to strengthen EU-NATO cooperation. Consequently, during the 60th anniversary of the Treaties of Rome (March 2017), the EU leaders announced their decision to move forward on European Union defense and security cooperation. On 7 June 2017, the Commission launched the European Defense Fund to help member states reduce duplications in military spending, by coordinating, supplementing and amplifying national investments in defense research, in the development of prototypes and in the acquisition of defense equipment and technology. Finally, in the summer of 2017, discussions started on activating PESCO, as well as on a proposal for regulation of the European Defense Industrial Development Programme (EDIDP). As Mogherini put in while presenting the first year of the implementation of the Global Strategy: ‘The Global Strategy has served as a springboard to relaunch the process of European integration after the British referendum […] we have moved fast – and united – on concrete implementation, starting with security and defense. In this field, more has been achieved in the last ten months than in the last ten years’ (Mogherini 2017). In the absence of the United Kingdom – embedded in the Brexit negotiations and unable to say anything about the EU’s future – in December 2017, ­twenty-five member states (all but the United Kingdom, Denmark, and Malta) agreed to step up the European Union’s work in the defense area by creating PESCO on security and defense.4 Through PESCO, member states will increase their effectiveness in addressing security challenges, advance toward further integration and strengthen defense cooperation within the EU framework. By providing enhanced coordination and collaboration in the areas of investment, capability development, and operational readiness, PESCO will be a fundamental driver of integration in the European defense industry. Massive European financial investment and European-wide procurement procedures are likely to significantly affect the military industry, relaunching the European one and challenging the American one. The ­twenty-five member states made binding commitments to enhanced coordination, increased investment in defense and cooperation in developing defense capabilities. In March 2018, the Council thus adopted a roadmap for the implementation of PESCO and reached a decision formally establishing the initial list of seventeen collaborative projects which were agreed politically in December 2017. PESCO will gradually deepen defense cooperation within the EU framework. It will be a driver for integration in the field of defense, by making European defense more efficient and by enhancing coordination and c­ollaboration in the areas of investment, capability development and operational readiness. It



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will decrease the number of different weapons’ systems in Europe, and will strengthen operational cooperation among member states, and increase interoperability and European industrial competitiveness. PESCO will also reinforce the EU’s strategic autonomy to act alone when necessary and will act as a catalyst for a competitive and innovative European defense industry, including the many SMEs and mid-cap companies in the defense supply chain. In particular: • CARD, to be run by the European Defense Agency, through systematic monitoring of national defense spending plans, will help identify opportunities for new collaborative initiatives. • The EDF (European Defense Fund) will provide financial incentives to foster defense cooperation from research to the development phase of capabilities including prototypes, by offering grants for collaborative research in innovative defense technologies and products. For instance, the Fund will create incentives for member states to cooperate on the joint development of prototypes. For the first time, EU budget money will be used to buy military equipment, boosting EU-wide defense procurement. • Cooperation will also be fostered on specific initiatives such as: military mobility, energy operational function, upgrade of maritime surveillance, cyber rapid response teams and mutual assistance in cyber security, development and building prototype European armored infantry fighting vehicle / amphibious assault vehicle / light armored vehicles development of underwater autonomous vehicles. Conclusions With €203 billion spent on defense in 2015, EU member states are the world’s second largest military spender, after the US. With PESCO injecting substantial funding into European defense procurement and R&D, US military goods exports to Europe may substantially decrease in the mid and long term, while the EU will become one of the biggest defense research investors in Europe, and will foster the development of cutting-edge, fully interoperable technologies and equipment.5 It is therefore no surprise that the Europeans have long wanted to further integrate this field. This time several factors suggest that the EU will achieve its goals in integrating in security and defense, and that PESCO will be successful. First and foremost, PESCO comes at a time of waning US influence in Europe, with the transatlantic alliance and NATO both under pressure. For the first time Europeans are facing a far less reliable American partner, implying the need – and the opportunity – to do more on their own. Likewise, President Trump has far less personal leverage on European leaders than his predecessors had.

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The European Union after Brexit Secondly, the EU is pursuing pragmatic implementation strategies in security and defense that echo those effectively employed to create the European Single Market in the late 1980s and 1990s, for instance by calculating the cost of non-cooperation (which has been has been estimated at €25 to €100 billion a year) and, like for the Single Market, it put a substantial pot of money on the table (€5.5 billion a year). The EU is also creating initiatives and policies fostering intra-European cooperation in the field of defense and it is promoting the adoption of EU-wide standards in military hardware, software, procedures and in EU-wide procurement. Finally, the Brexit factor. As we have seen, the UK has been both an engine and a thorn in the making of European defense, but it has vocally and persistently opposed all measures of EU integration in the field, advocating on the contrary for more NATO influence. In fact, the UK government’s rationale on defense has been that of developing regional defense cooperation outside of the EU (Pannier 2016). The UK has mostly played its prime role in defense alongside France. Just as the Franco-German tandem has been the main engine for EU political integration, Franco-British cooperation – the two European nuclear powers – has been at the core of European defense. Hence, whether the EU will be successful in the field of security and defense will ultimately depend on France. President Emmanuel Macron has been a vocal supporter of Europe’s need to take its security into its own hands. According to Daniel Keohane, Macron’s defense vision draws on the urgent strategic necessity for Europeans to work together, infused with a strong sense of political opportunity (Keohane 2017). Macron’s main military objective is to enable Europeans to act autonomously when needed, complementing NATO’s territorial defense role with a European capacity to intervene abroad, particularly to the south of Europe. He wants EU governments to quickly implement recently agreed initiatives, such as the European Defense Fund and PESCO. At the 2018 annual conference of French Ambassadors, Macron again called on Europe to build its financial and defense autonomy in response to the shifting balance of power as partners like the US ‘turn their back’ on the current world order. ‘The real question for Europe is if China and the U.S. see Europe as being strategically autonomous; today they don’t,’ Macron told French ambassadors in Paris on Monday during the president’s annual foreign-policy speech. ‘Europe can no longer rely solely on the United States for its security. We must guarantee our own security and sovereignty’ (Fouquet 2018). As the only EU nuclear power and UN Security Council Permanent Member after Brexit, France has a vested interest in promoting EU defense and security, as this will amplify its role and influence in world affairs, a goal France has never ceased to pursue. With Brexit, France will seek to recoup in the ­security domain the prominent role it had in the early days of European integration. Alex Lust argues that France’s defense policy under Macron reflects  both a shift away from President Charles de Gaulle’s focus



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on national independence and the continued relevance of the Gaullist idea of European military ­autonomy  (Lust 2018). However, just as in 1954 France destroyed its own brainchild – making discussions on EEC security and defense policies off limit for decades – one can never be sure of what Paris’ next moves will be.

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Notes 1 Top EU importers of US military goods include Italy (10th), Germany (12th), France (17th), Netherlands (18th), Spain (19th) and Poland (30th): with PESCO injecting substantial funding in European defense procurement and R&D, US military goods exports to Europe may substantially decrease in the mid and long term, while the EU will become one of the biggest defense research investors in Europe (International Trade Administration 2016). 2 Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, the Netherlands, Poland, Portugal and Spain. 3 COM_2016_950_F1_COMMUNICATION_FROM_COMMISSION_TO_ INST_EN_V5_P1_869631 4 PESCO is a form of enhanced cooperation among European member states as foreseen by the Treaty on the EU, in articles 42 (6) and 46, as well as protocol 10. 5 Since the end of the Cold War, the EU defense markets have fallen into three tiers: France, Germany and the UK, which were essentially self-sufficient and have technologically advanced firms in most sectors; a second tier (dominated by Italy and Spain and trailed by Belgium and the Netherlands) that had considerable i­ndigenous ­capability and some advanced firms but also depended heavily on collaboration; and Greece, Portugal, and Denmark, which mostly relied on imports and licensed production. In all, the European defense industry provides thousands of highly skilled jobs, as it directly employs about 400,000 people, in addition to 960,000 indirect jobs. The defense industry is a major industrial sector, generating innovation and centering on high-end engineering and technologies. Its cutting-edge research has created important knock-on effects in other sectors, such as electronics, space and civil aviation. Therefore, it is a sector that is essential for Europe to retain and invest in. https://www.globalsecurity.org/military/world/europe/ industry.htm.

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The European Union after Brexit Bumiller, Elisabeth, Steven Erlanger, and David D. Kirkpatrick. 2011. ‘Allies Open Air Assault on Qaddafi’s Forces in Libya’. New York Times, 19 March, https://www. nytimes.com/2011/03/20/world/africa/20libya.html?pagewanted=all. Council of the European Union. 2003. ‘A Secure Europe in a Better World: European Security Strategy’, 12 December, https://europa.eu/globalstrategy/en/ european-security-strategy-secure-europe-better-world. The Economist. 2003. ‘Defensive War: Arguments on Defence Further Complicate Negotiations on EU Constitution’, 6 December. Emmott, Robin, and Sabine Siebold. 2016. ‘Britain’s Fear of European Army Muddles EU Defense Plan’. Reuters, 27 September, https://www.reuters.com/article/us-eudefence/britains-fear-of-european-army-muddles-eu-defense-plan-idUSKCN11 X00G. Erlanger, Steven. 2011. ‘Libya’s Dark Lesson for NATO’. New York Times, 3 September, https://www.nytimes.com/2011/09/04/sunday-review/what-libyas-lessons-meanfor-nato.html. EU Observer. 2018. ‘Ministers Call for Stronger EU Foreign Policy Chief ’, 18 September. European Commission. 2016a. ‘Authorized Version of the State of the Union Address 2016: Towards a Better Europe’. State of the Union 2016, 5–22. Brussels: European Commission, https://ec.europa.eu/commission/presscorner/detail/en/ SPEECH_16_3043. European Commission. 2016b. ‘Towards a European Defence Union: Permanent Structured Cooperation and the European Defence Fund’, https://ec.europa.eu/ commission/sites/beta-political/files/defence-union_en.pdf. European Parliament. 2010a. ‘Hearing of Catherine Ashton’, https://multimedia. europarl.europa.eu/en/hearing-of-catherine-ashton-high-representative- ­designatefor-foreign-policy-afet-audition-de-cather_1477_c. European Parliament. 2010b. ‘Summary of Hearing of Catherine Ashton, EU High Representative-Designate for Foreign Policy’, https://multimedia.europarl.europa. eu/en/hearing-of-catherine-ashton-high-representative-designate-for-foreign-­ policy-afet-audition-de-cather_1477_c. European Parliament. 2016. ‘Report: The European Defence Union’. (2016/2052(INI)). European Union External Action. 2016. ‘EU Global Strategy’, https://europa.eu/ globalstrategy/sites/globalstrategy/files/regions/files/eugs_review_web_0.pdf. European Union Global Strategy. 2016. ‘Shared Vision, Common Action: A Stronger Europe’, http://eeas.europa.eu/archives/docs/top_stories/pdf/eugs_review_web.pdf. Fouquet, Helene. 2018. ‘Macron Urges EU to Boost Defense, Finance Autonomy from U.S.’,  Bloomberg, 27 August, https://www.bloomberg.com/news/articles/ 2018-08-27/macron-urges-eu-to-boost-military-financial-autonomy-from-u-s. Griffiths, Peter. 2013. ‘Cameron to Resist Closer EU Defence Plans’. Reuters, 18 December, https://www.reuters.com/article/uk-britain-europe-defence/cameronto-resist-closer-eu-defence-plans-idUKBRE9BH10120131218. Heisbourg, François. 2011. ‘Libya: A Small War with Big Consequences’. New York Times, 29 August, https://www.nytimes.com/2011/08/30/opinion/30iht-edheis bourg30.html. International Trade Administration. 2016. 2016 Defense Markets Report: Defense Products. A Market Assessment Tool for U.S. Exporters. Washington, DC: U.S. Department of

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Commerce, https://www.trade.gov/topmarkets/pdf/Defence_Executive_Summary. pdf. Keohane, Daniel. 2017. ‘Macron’s European Defense Doctrine’. Judy Dempsey’s Strategic Europe, 28 September, http://carnegieeurope.eu/strategiceurope/73246. Lust, Aleksander. 2018. ‘The Foreign Policy of France: Continuity and Change’. In The End of Transatlantic Relations? edited by Federiga Bindi, 31–65. Washington, DC: Brookings Institution Press. McTague, Tom, and David M. Herszenhorn. 2018. ‘Britain Pulls Out of EU Defense Force’. Politico, 20 March, https://www.politico.eu/article/theresa-may-uk-militarybritain-pulls-out-of-eu-defence-force/. Mills, Claire. 2018. ‘European Defence: Where Is it Headed?’ House of Commons Briefing Papers, No. 8216, 1 May. Mogherini, Federica. 2017. ‘The EU Global Strategy at 1: Personal Message by Federica Mogherini’. Europa.eu, https://eeas.europa.eu/topics/eu-global-strategy/49750/euglobal-strategy-%E2%80%93-year-1_en. NATO (North Atlantic Treaty Organization). 1996. ‘Final Communique’, Ministerial Meeting of the North Atlantic Council, Berlin, 3 June, https://www.nato.int/docu/ pr/1996/p96-063e.htm. NATO (North Atlantic Treaty Organization). 2016. ‘Joint Declaration by the President of the European Council, the European Commission, and the Secretary General of the North Atlantic Treaty Organization’. Press Release 119, 8 July, https://www. nato.int/cps/ra/natohq/official_texts_133163.htm. Pannier, Alice. 2016. ‘The Anglo-French Defence Partnership after the “Brexit” Vote: New Incentives and New Dilemmas’. Global Affairs, 2:5, 481–490. Peterson, John, and Mark Pollack. 2003. Europe, America, Bush: Transatlantic Relations in the Twenty-First Century. Abingdon: Routledge. Smith, Karen E. 2015. ‘Would Brexit Spell the End of European Defence?’ LSE: European Politics and Policy Blog, 2 July, https://blogs.lse.ac.uk/europpblog/2015/07/02/ would-brexit-spell-the-end-of-european-defence/. Tocci, Nathalie. 2016. ‘The Making of the EU Global Strategy’. Contemporary Security Policy, 37:3, 461–472.

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Conclusion – the EU after Brexit: hard or soft? Vivien Schmidt Introduction The future of the EU is in question, and not just because of Brexit, which is only one of the many crises that have hit the Union in recent years. The Eurozone crisis, the refugee crisis, and the ongoing security crisis are equally problematic. But how Brexit occurs, whether very hard or somewhat ‘soft’, may have a significant impact on future European integration. At the same time, future integration – its form and content – will also have an impact on how the UK engages with the EU going forward. This chapter discusses the various options for the UK’s future relations with the EU, not so much to examine the details or the potential effects on the EU, but rather as a way in to exploring how the EU may itself develop, and how this might impact the UK and its relations with the EU. The chapter therefore considers the various proposals for the EU’s future, including a ‘hard core’ Europe, a Europe of concentric circles, and a differentiated Europe in a range of different forms. It argues that only by conceiving the future of the EU itself as flexibly differentiated – with a ‘soft’ rather than hard core constituted by different clusters of members in overlapping policy communities – is the UK likely to be able itself to negotiate a ‘soft’ Brexit that would enable it to continue to have productive interactions with the EU through some of its various policy communities. The EU now has too many members with too many diverging interests and ideas to be able to reach optimal agreements on deeper integration, in particular given EU unanimity rules for treaties. Although many such divergences may have long existed, the problems have become more acute as a result of the concatenating crises in key areas, such as money (eurocrisis), borders (immigration and refugee crisis), security (terrorism and the neighborhood), and the continuing integrity of the EU itself (Brexit). In conjunction with these crises has come an over-arching political crisis. It results in large part from the failure

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to resolve the EU’s multiple crises, along with the impact of the very existence of the EU on national democracies. This cross cutting political crisis manifests itself in the increasing politicization of the very idea of European integration, along with growing questions about European democracy and legitimacy, as national electorates turn increasingly to populist parties to protest perceived failures of EU and national policies, politics, and economics. All of this together challenges the gains of European integration, and could even threaten to bring disintegration. This chapter begins with a discussion of Brexit and the UK’s relationship to the EU, in order to briefly elucidate British reasons for Brexit and its long-term relationship in (and opting) out of Europe. The chapter then considers the range of crisis challenges to the EU, regarding money, borders, and security, in addition to Brexit. It follows with a discussion of the current state of differentiated integration, and ends with an exploration of the future possibilities of a soft-core EU, suggesting that deeper integration in certain less developed areas (e.g., immigration and security) might be complemented by greater flexibility and decentralization in others, most notably the Eurozone. The challenges for EU integration: Brexit and beyond Brexit was an accident waiting to happen. It was a consequence not just of the politics of the moment but of the history of Britain’s relationship with the EU and its actions within the EU. These include the UK’s push for a particularly neoliberal EU and its increasing demands for opts-out of major areas of EU policy. British reasons for exit British disaffection from the EU has many proximate causes, but it is also the consequence of many long-standing internal political trends. Party politics and political leadership, media communication, and public (mis)perceptions about the impact of the EU have all contributed to the problems. Political leaders have historically failed to provide a positive pro-European discourse that went beyond the focus on economic interest to answer the anti-EU discourse on sovereignty and identity. The media has engaged in a slow-drip of Euroscepticism over the years. On both sides of the political spectrum, political parties have long been internally split on Europe. The split started very early on in the Labour Party, reaching its pinnacle in 1983 with the call for withdrawal from the EU, then abated, only to reemerge with the referendum on British membership of the EU, and the subsequent party leadership of Jeremy Corbyn. Party divisions came later for the Tory party, with Margaret Thatcher, but only intensified over time. They came to a head in the referendum, with Conservative Prime Minister David Cameron’s ill-fated gamble that a vote would enable him to counter

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The European Union after Brexit challenges from the outside, in particular from UKIP’s radical Euroscepticism, while healing the internal schism within the party with its increasingly strong Eurosceptic wing (Howorth and Schmidt 2016). The rest is history, as the government of Prime Minister Theresa May struggled without much success to develop a ‘have your cake and eat it’ exit strategy that has failed to convince anyone – the EU or UK citizens. British citizens’ vote against the EU was of course not just a matter of bad history and politics. It was also a response to their dissatisfaction with national affairs – economic and socio-cultural as well as political. In the UK, the effects of neoliberal policies imposed by one government after the next were a major contributor to support for the Brexit camp. But neoliberalism as a theme was remarkable for its absence in the referendum debate. The anger of working- and middle-class people against the worsening of their life chances due to stagnant wages, growing inequality, and the increasing difficulty for the young to get a foot on the real estate ladder, or a steady well-paid job, much as the revolt against the political parties, the rejection of the experts, and the distrust of the elites more generally – all of this had to do with neoliberalism. And yet it was never addressed in campaign discourse. Instead, the EU and immigration were blamed for all of Britain’s ills. Better to blame the outsiders (i.e., immigrants and Eurocrats) than to recognize that the problems came from the inside, from the policies of British governments – on the center left as much as the center right (Schmidt 2017). The center-right was responsible for introducing neoliberal ideas, beginning with Thatcher’s rallying cry of ‘less state to free up the markets’, and has maintained a rhetoric of neoliberalism ever since, even if the reality was more pragmatic. The center-left enhanced neoliberal ideas with the cry of ‘more state to make the markets work better’ with Blair’s New Labour in the 1990s. And during the referendum campaign, despite the fact that the Labour party then had a more radical Labour leader at its head, Jeremy Corbyn offered relatively little critique of the national sources of the problems resulting from neoliberalism, at least in comparison to the EU, with his lukewarm support to vote Remain ‘in order to reform the EU’ (Democracy Now 2016). As for the EU, why not acknowledge that the UK’s neoliberalism has had a big hand in how the EU has developed? The UK from Thatcher on was a key promoter of the Single Market in order to push its own neoliberal agenda, including free movement of goods, capital, services, and, yes, the free movement of peoples. Moreover, as an integral partner in EU decision-making, British governments regularly approved EU policies in the Council, including the austerity policies for all of the EU during the Eurozone crisis. As for immigration policy, the blame should be placed not so much on the EU as on British governments. The UK was one of the countries that pushed most strongly for Eastern Enlargement. And it was Prime Minister Blair who decided to open the UK to the CEECs immediately upon their accession in

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Conclusion – the EU after Brexit: hard or soft? 2004 rather than wait the agreed seven years. By grossly miscalculating the number, claiming that only 30,000 would come when it was over a million Poles alone, and then not managing the process adequately, the government’s open-door policy also fanned the flames of anti-immigration sentiment. Immigration played into concerns not only about jobs and state control but also about English national identity. For decades after World War II, the English remained ‘proud to be British’ and tended not to minimize that identity by embracing ‘Englishness’. But with the 1990s devolution of powers to the UK’s three other nations (Scotland, Wales, and Northern Ireland), Britishness versus Englishness became an issue. The question was of enough concern to Prime Minister Gordon Brown that he sought to reinforce citizen’s sense of ‘Britishness’ with a series of measures, including a statement of British values akin to France’s motto liberté, égalité, fraternité. This led to innumerable jokes, including a contest for the best motto by The Times newspaper (22 November 2007) – with the winner ‘No motto please, we’re British,’ and a runner-up ‘At least we’re not French’ (Schmidt 2011, 20). There was a growing sense, arising out of the 2014 Scottish referendum on independence from the UK, that the English finally had to look after their own interests (Henderson, Jeffrey, and Lineira 2015). The Brexiteers fuelled this emergence of a crusading English identity. The referendum results demonstrated that the more electors identified as English, the more in favor they were of Leave, as well as the reverse, the more electors identified as British, the more they voted Remain (Kenny 2016). Britain in and (opting) out of the EU In the EU, the UK has always been known as the ‘awkward partner’ (George 1998). In EU decision-making, where the culture of compromise and consensus is far removed from the adversarial culture of British politics, the UK has tended to engage in hard bargaining for its interests and has been quick to declare its red lines. Such threats may have played well with the British public, as recounted in press conferences following European Council meetings and summits. But as maneuvers in the meetings themselves, they often led to disastrous results. A case in point is Prime Minister David Cameron’s veto at the December 2011 Council meeting of a proposed treaty reinforcing rules on government spending, with sanctions for those failing to follow the rules. His hard-bargaining strategy to ring-fence the City with special protections for UK finance backfired massively. The member states went ahead without the UK (and the Czech Republic) to create a treaty outside the treaties, known as the Fiscal Compact. The main legacies of the UK’s 43-year membership of the Union were: active resistance to any quasi-federal ambitions; energetic pursuit of neoliberal deregulation; faith in market forces; and enthusiastic support for enlargement to the East (advocated primarily as further market opportunities). To a significant degree, the UK succeeded in turning the EU into a force for supply-side

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The European Union after Brexit economics and minimal political authority. In the 2005 referendum on the embryonic Constitutional Treaty, the French rejected the draft in part because it was perceived as too neoliberal. At the same time, the British felt that the Treaty was too state-heavy and even protectionist. There was never anything approaching a meeting of minds about the nature of the European project. The British in general and the English in particular never really accepted that it was a project. For decades, a ferociously hostile media lampooned the Union for its alleged encroachments on the lives of ordinary Britons – including apocryphal stories, such as demands for round gin bottles (in place of the British square bottles) and non-curved bananas.1 No UK leader ever tried to make the case for the EU – in large part because none (with the exception of Edward Heath) espoused it. The very notion of ‘Ever Closer Union’ was explicitly rejected by the UK. This is why, during the Brexit ‘debate’ in 2016, the ‘Remain’ camp did not even attempt to make a case for staying and structured their campaign exclusively around the (overwhelmingly economic) reasons for not leaving (see Howorth and Schmidt 2016). The catchword of the Brexiteers was ‘Take Back Control’ (Hall 2016). The ironic truth is that, through its opt-outs, London had never relinquished control over any significant aspect of sovereignty: money, borders, or defense. British opting out of monetary union in particular served as a defining moment not just for the UK’s engagement in the EU but also for the EU itself, since it was the first major step toward a more flexible, differentiated Europe. British resistance – and threat of veto – to the Treaty of Maastricht with regard to both monetary union and social policy served to constitutionalize differentiated integration in the Euro by allowing some member states to participate in limited ways or not at all in EMU and to opt out of the Social Chapter, although the opt-outs were assumed to be temporary, with opt-ins expected at a later time – as was true for the Social Chapter, into which Blair opted in 1997. Had the Maastricht Treaty not done this, it would never have gotten through. But in so doing, it established the legal machinery for the future, with structural differentiation occurring both at the time of law-making and at the time of its application, with the institutions of the EU made available to the selected group of member states going forward with deepening integration (De Witte 2017, 154–155). Once its opt-outs had been agreed, the UK (joined soon thereafter by Denmark) took on an outsider status in the EU. Their decision to opt out of the euro, as Rebecca Adler-Nissen argues, relegated both the UK and Denmark to the margins, in a process of stigmatization intended in part to ensure the symbolic stability of co-operation among existing euro members (despite their many disagreements). But whereas British representatives accepted the stigma as an emblem of their difference, remaining happy as outsiders with the pound, Danish representatives felt frustrated and sought to compensate for their outsider status. This helps account for the fact that while Cameron vetoed the December

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2011 treaty amendment that was to become the Fiscal Treaty, the Danish government sought to be included in the treaty (Adler-Nissen 2014, 75). But it does not explain the earlier history, in which British representatives were mostly seeking to compensate for their remaining outsiders by appearing to be model states, for example, by being very active on the Lisbon strategy, or, between 1997 and 2010, by signaling their openness to joining EMU at the right time, once they met the ‘five economic tests’ (Adler-Nissen 2014, 102–3). In terms of borders, moreover, with regard to the Amsterdam revision treaty that ‘repatriated’ the Schengen common border policy community by bringing it under EU law, the British once again negotiated an opt-out (joined by Ireland, forced to join to preserve its Common Travel area with the UK) (De Witte 2017, 155). But here, British opt-out from the common border policy did not stop it from selectively opting in with regard to police and judicial cooperation, along with the Schengen Information system. With asylum policy, moreover, the UK has done much to try both to influence and imitate EU measures. It has opted-in to most civil law measures, all asylum measures, and most measures regarding illegal migration, while opting out of protective measures on legal migration, visas, and border control (Adler-Nissen 2014, 127). The main issue in the Brexit campaign was migration from the EU under free movement, with a particular focus on Polish workers. Although EU migration became mixed up with the question of refugees as a result of the UKIP poster depicting thousands of Syrians lined up at the borders in Eastern Europe, the UK in fact managed its refugee policies through the EU without any difficulty – and has taken in very few. Finally, as for security and defense policy, the UK since 1999 has been no better, nor much worse, than any of the other ‘serious players’ in the area. Slow and hesitating forward movement has been the modus vivendi. In the decade following the Franco-British summit in Saint-Malo in 1998, the UK was active in its engagement in setting up a rapid reaction force based on the battle-groups; rethinking the finances of the Common Security and Defense Policy (CSDP); agreeing to implementation of permanent structured cooperation; inauguration of a European ‘semester’ on defense; pooling and sharing in capacity procurement; and tightening CSDP–NATO cooperation (Howorth 2014; Howorth and Schmidt 2016). Its main negative ‘talking point’ was resistance to the very idea of a ‘European army’, but this in any case was a Eurosceptic invention, since the UK would not have been alone in resisting any such notion. The crisis challenges to EU integration There are those who argue that now that the UK is moving out of the EU, the EU can quickly move to integrate more deeply. But this would be a mistaken assumption, given the existing differences among member states across a number of areas. Moreover, it fails to deal with the ongoing problems of the EU, in

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The European Union after Brexit particular its inability to resolve some of the major crises it has been facing in recent years (Börzel and Risse 2018). In some areas, such as the Eurozone, integration has gone very far indeed. In response to the sovereign debt crisis, integration deepened with the reinforcement of macroeconomic rules mandating low inflation, low deficits, and low debt along with greater oversight over member state governments’ budgets (Blyth 2013). This was to ensure greater convergence. Instead, Eurozone ­policies of ‘governing by rules and ruling by numbers’ have only increased the  divergence between national political economies (Schmidt 2015, 2016). The  differences have been particularly pronounced between the export-­ oriented creditor countries in the North that have continued to flourish during the crisis and the more consumption-oriented debtor countries in the South which have languished as a result of the stability-based regime (Baccaro and Pontusson 2017). The Eurozone crisis has also fueled anti-euro and even anti-EU feeling, swelling the ranks of the populists both in the South – opposed to austerity – and in the North – angry about what they think of as a ‘transfer union’. In other areas, EU integration has barely developed at all, such as immigration or defense. In the refugee crisis, the EU response has, in contrast with the Eurozone, involved a lack of coordination accompanied by increasing fragmentation. member states have divided over what to do and how, retreating even from the integration already in place, both in terms of Schengen’s borderless Europe and the rules governing asylum seekers. In the security crisis, moreover, the failure to move toward any significant integration continues to plague the EU’s Common Security and Defense Policy (CSDP) – and this despite the rising risks of terrorism coming from the Middle East and the continued threat from Russia linked to the frozen conflict in the Ukraine – not to mention the complications coming from volatile US foreign policy with regard to, for example, Iran or North Korea. Brexit represents its own special challenge. Here, the uncertainty of how and what the UK will negotiate in terms of its future relationship with the EU opens up a whole range of questions not only about the future of the UK but also of the EU. The negotiation process itself risks splitting the member states with regard to the terms of Brexit, in particular given all the other crises that have made EU governance increasingly gridlocked. Moreover, the loss of the UK – if it comes to that – while perhaps facilitating agreements among the remaining 27, at the same time weakens the EU economically as well militarily, unless some form of positively differentiated integration is negotiated. But even more importantly, and regardless of the outcome, Brexit from the EU in any form challenges the very idea of European integration, and raises the specter of EU disintegration. These crises not only pose major policy challenges for the EU, whether with regard to promoting economic prosperity, guaranteeing the borders, ensuring

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security, or negotiating Brexit. They also represent significant political challenges, with spillover effects on national democracy and legitimacy. Together, the policy crises embody a cross cutting political crisis concerning the EU’s democratic legitimacy. As authority and control have moved up to the EU level in order to solve common problems, national democracy has been increasingly emptied of substance in EU dominated policy areas, in particular as EU level technocratic decisions are perceived to have substituted for the national level politics of left and right (Schmidt 2006). All member states as a result struggle with an upsurge of populism, as the political extremes have made the EU a prime target because of concerns about national identity and sovereignty focused on the impact of the euro and fears of immigration mingled with worries about terrorists. The simple fact of Brexit only further intensified the populist pressures by energizing European extremist parties with calls for withdrawal from the EU, or at least the euro, as well as an end to open borders (Schengen) and restrictions on immigration and citizenship. Finally, even though most populist parties moderated their rhetoric with regard to exit from the euro subsequent to Macron’s election defeat of Marine Le Pen, this constituted only a momentary reprieve from the rise of populism, as attested by the new Austrian conservative far Right government and the Italian far Right (Lega) and radical center (5 star) government. The only way out of this political crisis is for the EU to respond effectively to its crisis challenges with new, more successful policies as well as new politics. But none of this will be easy, given how the increasing politicization related to rising Euroscepticsm on the political extremes along with growing citizen dissatisfaction negatively affect EU member state leaders’ ability to reach agreements in the Council of Ministers. The current state of EU differentiation The complicated political dynamics of current EU governance helps explain why the EU is already in a state of differentiated integration. That differentiation can be seen not only in the member states’ differential participation in the EU’s many policy communities but also in the increasing differentiation within and across the member states. As Stefano Bartolini has argued, European integration has led to a ‘process of nation state boundary transcendence, resulting in a process of de-differentiation of European polities’ after a history of five centuries of progressive differentiation into nation states (Bartolini 2005). This goes all the way from competition policy and state aid to the very boundaries of the welfare state, as Maurizio Ferrera has shown, despite the clear lack of EU jurisdiction in this area (Ferrera 2005). The fruits of nation-state boundary transcendence could arguably also be seen lately in the rise of sub-national regional movements for independence, encouraged to go it alone in the European Union by their state’s loss of control over many state-defining areas in the belief that they would do better apart – as

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The European Union after Brexit a ‘nation’ as well as a state. This has been most notable in the cases of Scotland – where Brexit represents a major challenge for a ‘nation’ that voted in favor of staying in the EU – and Catalonia – in particular with the Catalan referendum on independence representing yet another unresolved crisis for the EU. But even without such movements, a process of ‘re-scaling’ has been in progress in which the regions have become spaces for the further differentiation of the nation-state ‘from below’, by constituting a new meso-level of policymaking, political activity, and cultural expression that makes for increasing diversity within as well as between the member states (Keating 2013). Across the member states, then, de-differentiation results from pressures from above, at the EU level, and from below, at the regional. All of this makes for an EU that is itself highly differentiated internally, in particular in terms of participation in different policy areas. While all member states are part of the Single Market, membership of other policy areas is highly variable. Such variable geometry includes Schengen borders (minus the UK and Ireland but with Norway, Iceland, and Switzerland), Common Security and Defense Policy (without Denmark but with the participation of Norway in the Nordic battlegroup and with all members being able to opt in or out), the Charter of Fundamental Rights (with opt-outs for the UK and Poland), even freedom of movement of workers, which excluded Romania and Bulgaria until 2014 (and for which the UK demanded an extension). And of course there is the Single Currency, which includes 19 out of 27 member states, the rest of which either have permanent opt-outs (UK and Denmark), are resistant but without an opt-out (Sweden), or are eager but not yet ready to opt in (the other CEECs). But even the UK has agreed to participate in various instruments of Eurozone governance, including the Stability and Growth Pact, the European Semester, and the Six Pack. Moreover, Brexit will add yet another level of complexity to the EU, depending upon how and in which areas its involvement with the EU is renegotiated. Even in the Single Market, integration is differentiated through negotiated opt-outs for individual countries, by providing for special exemptions to commonly agreed rules. ‘Informal governance’, as Marieke Kleine explains, has been a normal part of a process of negotiated agreement in the Single Market since the very beginning. Its purpose has been to reinforce the legitimacy of the formal governance processes in cases where the political fallout from domestic groups’ objections could jeopardize consensual EU level politics or national political stability (Kleine 2013). The Lisbon Treaty agreement for ‘permanent structured cooperation’, moreover, permits the greatest variability in the defense and security policy arena and ‘enhanced cooperation’ in all others. ‘Permanent structured cooperation’ enables any number of EU member states to agree to deeper integration of their military capabilities and engagement in joint military operations subject, of course, to their obligations under the various EU and NATO treaties. It was also intended

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to enable member states to create coalitions of any size under the umbrella of Common Security and Defense Policy (CSDP) (Howorth 2014). But beyond this is a proliferation of differentiation, with the recent initiative focused on security and defense cooperation (PESCO) coming alongside other initiatives, including the ‘Framework Nation Concept’ and the ‘European Intervention Initiative’. ‘Enhanced cooperation’ has also begun to work, despite the fact that it requires at least nine participant member states, with authorization by the Council to be ‘a last resort’ decision when the Union as a whole cannot attain those same objectives within a reasonable period (Treaty of Lisbon, 2007/C 306/22/2). It has already been deployed in the areas of divorce of cross-border couples and patents, and is also in process with regard to the harmonization of one kind of fiscal policy: the financial transaction tax. The fact that enhanced cooperation was even agreed in the Lisbon Treaty also signals member states’ acknowledgement that a high degree of differentiation without ­integration – even fragmentation – remains the norm in a wide range of policy areas. Although monetary policy and the rules of fiscal discipline represent areas of increased convergence, defense and security is not the only area characterized by continued divergence. Transport, communications, and infrastructure have also seen minimal integration or forward movement. Worse yet, however, are areas such as energy and the environment, as well as migration, mobility, and asylum, which are subject to fragmentation and the risk of disintegration (Tocci 2014). The problem here is that continued differentiation without integration also undermines EU capacity to deal with challenges that the member states themselves cannot solve on their own. Differentiated integration is not only an issue with regard to member states’ differential participation in the various policy areas. It is also increased by the presence in the EU of ‘outside insiders’ like Norway, Iceland, and Switzerland that participate in the Single Market as well as in a range of other EU policy communities such as Schengen and CSDP but don’t have a vote. It is complicated by initiatives like the Bologna process for higher education harmonization, which was set up outside the EU by EU member states, includes most member states (but again not the UK) as well as many non-EU states across Europe, and was aided financially and administratively by the Commission (Ravinet 2008). Differentiated integration was only further extended by the Eastern Partnerships and other ‘Neighborhood’ policies which by now involve deep and comprehensive free trade agreements, gradual integration into the EU economy, ‘mobility and security pacts’, and the promotion of democracy and good governance. Moreover, the EU’s finalité remains to be decided. It now looks as if enlargement will stop at the Balkans, but no final decisions have been made with regard to the Ukraine and Georgia, despite the geopolitical issues related to Russia, let alone Turkey, with its drift to authoritarianism.

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The future of differentiated integration in the EU So the question becomes whether, for the sake of further European integration as much as for the future of the relationship with the UK, the EU will move forward through more differentiated integration. EU leaders themselves have acknowledged as much in recent declarations and positions papers, not to mention the growing numbers of think-tanks’ reports and scholarly articles. In the ‘Rome Declaration’ of 25 March 2017, EU leaders stated that: ‘We will act together, at different paces and intensity where necessary, while moving in the same direction, as we have done in the past, in line with the Treaties and keeping the door open to those who want to join later’ (European Council 2017). And the European Commission, in the White Paper on the Future of Europe published earlier that same month, on 1 March 2017, elaborated a scenario made up of ‘coalitions of the willing’ that would carry forward new cooperation projects in areas such as defense and security, justice, taxation and social policy, with other member states able to join those projects at a later stage, once ready or willing (European Commission 2017). Many possible differentiated futures have been evoked over the years, including a multi-speed Europe, a hard-core Europe around the Eurozone, a Europe of variable geometry, and more, all raising questions about the EU’s finalité, that is, where it is going. The EU was never going to become the federal superstate that the British in particular have feared or the United States of Europe that European federalists have long envisioned. But is it going to become a two-speed Europe (Piris 2012)? A Europe of concentric circles surrounding a compact core?2 A Europe with a ‘hard core’ centered around the Eurozone? Or, failing these, a Europe completely à la carte? I prefer to think about the EU’s future organization not in terms of a hard core around the Eurozone but, rather, as a soft core Europe, made up of overlapping clusters of European countries participating in the EU’s many different policy communities, all administered by a single set of EU institutions, and in which most member states will be involved in most areas (beyond the Single Market, to which all belong by definition), even if some, like the UK, will have more limited involvement. As for the EU’s many policy areas, while some, such as security and defense policy, immigration and refugee policy arguably require more differentiated integration, the Eurozone demands greater deconcentration and decentralization, to give back to the member states control over their economic policies, so as to reinvigorate national politics while dampening populism. Toward a soft-core Europe The problem with visions of a future EU at multiple speeds with concentric circles is that it doesn’t reflect the realities of what is already a highly differentiated Europe, with different member states participating in different policy

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Conclusion – the EU after Brexit: hard or soft? 205

­communities. While all member states are part of the Single Market, membership of other policy areas is variable, with many countries in and others out of the Eurozone, Schengen, Common Security and Defense Policy, and so on. If we continue to think about the EU as at multiple speeds, the question for the UK is whether it would be at the outer limits of the second speed, in a third speed all its own, with many more opt-outs – or outside with occasional opt-ins. The problem with a hard-core Europe, especially one in which the Eurozone sits at the core, is that it assumes that France and Germany agree on policy. They do not, in particular in the Eurozone, where Germany stands for restrictive budgetary policy to maintain stability, France for more expansionary policy to promote growth.3 Were such a hard core to be established, it would most likely be dominated by Germany. Moreover, there is little certainty that a smaller hard core around Germany and France would be able to come to agreement more readily than the larger EU membership, in particular if the unanimity rule were maintained. Furthermore, why assume that a cluster of member states that takes the lead in one policy area (i.e., the Eurozone) would have the ability, let alone the will or imagination, to lead in the others (e.g., in security or immigration)? In fact, deeper integration in one area could instead produce an even higher degree of differentiation without integration in other policy areas (Tocci 2014). What is more, it would fully alienate the post-Brexit UK, and most likely preclude British engagement with the EU beyond a minimal involvement with the Single Market. The British might very well ask, ‘why deal with the EU at all?’ if the Eurozone were to become the central focus of EU integration as a whole, with a hard core of member states led by Germany and France, where insiders with dedicated institutions then set the trajectory for the remaining outsiders. However, the EU could retain its appeal – for the UK as well as other member states resisting membership of the Eurozone, such as Sweden, or on the outside looking in, such as Norway and Switzerland – if the Eurozone were to be seen as just one of the EU’s many policy ‘communities’, and the EU itself seen as consisting of a soft core of overlapping clusters of member states in which any duo or trio of member states would take leadership. With this in mind, while the UK may continue to stand aside with regard to the Eurozone, it could decide that it should reclaim a leadership role in Common Security and Defense Policy, as one of two European nuclear powers. As for immigration policy, given the problems of reaching a common policy in the context of the refugee crisis and mounting disagreements over immigration more generally, this might be an area where deeper integration involving EU wide agreement on principles of treatment could be accompanied by more differentiated integration regarding the modalities of implementation. As for the Single Market and concerns about the impact of further deregulation on the welfare state, what about the creation of ‘pools’ for health-care provision among countries sharing borders, with ­similar health-care systems (Schmidt 2009)?

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The European Union after Brexit Seeing the future of EU integration as a differentiated process of member state participation in different policy communities beyond the Single Market would also allow for each such community to further deepen by constituting its own special system of governance. In two of the three crisis policy areas, immigration and security, the EU has so far done very little of the institution building and law-making required for deeper integration. So the question for these areas is how they can move forward to deepen integration either differentially – most likely the case for security, or all together, as must be the case for refugee policy (as a human rights issue) – while allowing for solutions adapted to the differences among country hosts. Rethinking Eurozone governance from the bottom up The Eurozone is different, since it has already deepened its integration, with dedicated oversight processes such as the European Semester, with dedicated institutions such as the European Stability Mechanism (ESM) and Banking Union, and even more envisioned, such as a European Treasury, a Finance Minister, and more. Such deepening, when viewed not as at the center of a hard-core Europe but the first of the developing policy communities of a softcore Europe, could be seen as a template for the future of EU governance. But there is one caveat. What the Eurozone needs is something other than the centralized governance by restrictive rules and sanction-triggering numbers, which have not worked – as evidenced by the rise of anti-euro political sentiment along with the poor Eurozone results (as compared to EU members outside the Eurozone as well as to the US) (e.g., Blyth 2013). The EU would do better to have a looser coordination of macroeconomic governance while decentralizing microeconomic governance to the benefit of national capitals. Because the Eurozone already has an amazing architecture of economic coordination, why not use that coordination to ensure that countries consult while themselves determining what works for their very specific economic growth models and varieties of capitalism? Moreover, why not use the Maastricht criteria as general guidelines for variable yearly targets, depending upon the Eurozone’s employment as well as inflation prospects? And rather than demanding that all member states meet the same yearly targets (e.g., of deficit and debt), why not set differential country-specific targets (depending upon where the member states are in their economic cycle, and whether they are over-heating and therefore need to contract, or are contracting and need to expand)? Such decisions on the yearly budgetary cycle could be debated with the other member states in the Euro-group as well as the Commission, the EP, and the Council to enhance legitimacy. All of this together would make Eurozone governance more democratically legitimate, especially if national parliaments were brought in both nationally and at the EU level, via consultation with the EP. Doing this might in turn help counter the populist drift in many countries, as political

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parties of the mainstream right and left could begin again to differentiate their policies from one another, with proposals for different pathways to economic health and the public good (Schmidt 2019, upcoming). None of this will work, however, if member states continue to have to contend with excessive debt loads that weigh on their economies (e.g., Greece and Italy), if they are left without significant investment funds provided by banks or the state (e.g., Portugal, Spain, Italy, and even France), as well as if some countries continue to have massive surpluses while failing to invest sufficiently (i.e., Germany and other smaller Northern European countries). Some extra form of solidarity is necessary, beyond the ESM, such as Eurobonds, Europewide unemployment insurance, EU investment resources that dwarf the Juncker Plan, or other mechanisms. Failing this, at the very least member states should be allowed to invest their own resources in things like infrastructure, education and training, incurring long-term debt at low interest rates, even if this does not fit the current deficit and debt rules. More solidarity mechanisms across crisis areas and more resources The other crisis areas need more, rather than less, integration, and they also require solidarity mechanisms. For the Eurozone crisis, many have already proposed some sort of unemployment fund, for all countries to pay into, to use when their unemployment goes above a certain threshold. But there also should be an intra-European ‘EU mobility adjustment fund’ to support the extra costs for social services and the retraining needs of workers in countries with greater than usual EU migrant worker inflows which may constitute an excessive burden to the welfare state. This could have worked for the UK, with a mobility fund addressing the Brexiteers’ fears about the impact of EU freedom of movement on the National Health Service (especially because the government, in trying to access the funds, would most likely have to admit that there was little or no excess cost). But even more significantly, it could benefit other member states with other kinds of out-migration as opposed to in-migration concerns, such as Greece for the costs of educating the 2000 medical doctors who have gone to practice in Germany. More integration through new solidarity mechanisms has great advantages, especially if an EU mobility adjustment fund were accompanied not only by the oft-proposed EU unemployment fund but also by a European fund for refugee support. Different countries would benefit at different times from the funds, which could be triggered when any one country finds itself overburdened by the extra costs it incurs because of the asymmetric functioning of the Single Market and the Single Currency, or because of its openness to refugees. Different funding mechanisms are possible, including from member state contributions, but the best would be from the EU’s own resources, based on monetary gains of the Single Market and Single Currency, such as VAT collected in trans-border

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The European Union after Brexit transactions. And what of an EU ‘solidarity tax’ levied on all citizens and residents of the EU, which would have the added advantage of building a sense of citizen-to-citizen solidarity. This, plus the financial and cross-border transaction generated taxes, might ensure that no one could claim any longer that the EU was a ‘transfer union’ in which one or more member states paid for the rest.

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Reforming the institutional rules For such differentiated integration to work, however, with all member states feeling part of this soft-core EU, whatever their level of involvement, they need to be full members of the EU institutions. This means that all members should be able to exercise voice in all areas, but vote (in the Council and the EP) only in those areas in which they participate. Since all are members in the most significant policy community, the Single Market, this ensures that they will be voting a lot. But for the Eurozone or Schengen, for example, only active members should be able to vote. For the Eurozone, this would mean envisioning that where some members in the future, say, pledge their own resources to a EU budget, their representatives would be the only ones to vote on the budget and its use, although everyone could discuss it (no separate Eurozone Parliament, then, but separate voting for members of a deeper budgetary union). For Schengen, this could mean that current Schengen participants that are not EU members, like Norway or Switzerland, would have voice and vote. For these two countries, it could also mean that they could vote in the Single Market. For the moment, they experience a major loss in democratic engagement, since they have to follow Single Market rules and regulations, as well as contribute to the EU budget, without the ability to exercise voice, let alone vote. For the UK in particular, which has been negotiating Brexit in order to ‘take back control’, what is the value-added of continuing engagement with the EU (say, via a customs union) if it does not have a voice and a vote in the areas in which it participates? But to make EU governance truly workable, the institutional decision-­ making rules also require revision. Among these, the unanimity rule for intergovernmental decision-making needs to be abandoned. The most sensible replacement would be one setting up ‘constitutional’ treaties amendable by -23 or -45 majorities. At the same time, many of the current treaty-based laws should become ordinary legislation, amendable by simple majority through the Community Method – as detailed by Dieter Grimm (see Grimm 2015). Thus, for example, while the Lisbon Treaty would remain a constitutional treaty, amendable however by -23 or -45 majorities, the various treaties involving the Eurozone, such as the Stability and Growth Pact or the Fiscal Compact, should become ordinary legislation – much like the Six-Pack and the Two-Pack. This means that they would be open to amendment through political debates and compromise, and subject to the Community Method of co-decision.

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In the case of new legislation, moreover, whether ordinary or constitutional, opt-outs for individual member states should be allowed for exceptional reasons, such as where a member state’s government, citizens, and/or parliament reject the initiative (e.g., the UK and Denmark on the Single Currency). But as Fritz Scharpf has argued, any such opt-out could be subject to denial by qualified majorities, in cases where the opt-out would unfairly advantage the member state and/or threaten the viability of the policy itself (Scharpf 2014). Alternative accommodations would then need to be made for the member state in question. The knotty problem remains the question of politics and democracy. Representative institutions need to be reinforced. At the moment, the EU serves the purpose of the populists, by hollowing out national representative institutions, allowing the populists to claim that they are the true representatives of the people. To change this, the EU needs to do more to reinforce citizen representation and participation. For the Eurozone in particular, this at the very least demands more involvement of the European Parliament in decision-making through a return to the Community Method. Turning Eurozone treaties into ordinary legislation, moreover, would help break the stalemate that makes it impossible to change such legislation (given the unanimity rule), and make them subject to political debate. But the EP would also need to find more ways to bring national parliaments into EU-level decision-making. And the EU as a whole must devise new means of encouraging citizen participation, from the ground up. Conclusion In sum, the future of EU governance is very open. It is best conceived not as a hard-core Europe centered around the Eurozone, let alone a future ‘superstate’, but as a region-state made up of a soft core of overlapping clusters of member states in the EU’s many policy communities. In this context, increasing flexibility in the EU’s legislative and policy processes, along with decentralization to the benefit of the member states, would enhance policy effectiveness as well as democratic legitimacy. In short, re-envisioning the future of the EU in terms of a future soft-core Europe makes the most sense. To extend a metaphor I have previously evoked, the future cannot be a hard-core Europe, with one set menu (prix fixe, pas de substitutions) for the chosen few. This is not to suggest, however, that the EU is now to be ‘Europe à la carte’, where everyone orders different things. Rather, this is an elaborate gourmet ‘menu Europe’, with a shared main dish (the Single Market), all member states sitting around the table and engaging in the conversation, and only some choosing to sit out one course or another (Schmidt 2009). If we add graduated membership to this, we could imagine additional guests joining the diners at the table for particular courses and, slowly over time, partaking of more and more dishes even as they learn the manners of the table and the rules of the conversation.

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The European Union after Brexit For the UK to flourish in such an EU, it would need not just to internalize such a soft-core vision of the EU’s future but also to engage with it through softer consensus-seeking deliberation rather than remaining isolated through interest-focused hard bargaining. That said, British policymakers may very well still want to maintain their special status with regard to money and borders – at least until the crises subside. As for the security and other challenges facing the EU, such as energy and the environment, the UK cannot in any case exist in isolation. The EU needs effective leadership across its many policy communities. And it needs the UK to sit at the table and join in the conversation, even if it chooses to sit out many of the courses. Notes 1 For more examples, see: https://vip.politicsmeanspolitics.com/2017/12/06/see-20years-of-fake-news-about-eu-by-uk-press/. 2 Pushed by, e.g., the Glienicker Group (2013), the Eiffel Group (2014), and the Future of Europe initiative (2012). 3 See for example a recent study on the diverging views of French and German MPs on Eurozone governance by Blesse et al. (2016).

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The European Union after Brexit Schmidt, Vivien A. 2015. ‘Forgotten Democratic Legitimacy: “Governing by the Rules” and “Ruling by the Numbers”’. In The Future of the Euro, edited by M. Matthijs and M. Blyth, 90–116. Oxford: Oxford University Press. Schmidt, Vivien A. 2016. ‘Reinterpreting the Rules “by Stealth” in Times of Crisis: The European Central Bank and the European Commission’. West European Politics, 39:5, 1032–1052. Schmidt, Vivien A. 2017. ‘Britain-Out and Trump-In: A Discursive Institutionalist Analysis of the British Referendum on the EU and the US Presidential Election’. Review of International Political Economy, 24:2, 248–269. Schmidt, Vivien A. 2019. ‘The Future of Differentiated Integration: A “Soft-Core” Multi-Clustered Europe of Overlapping Policy Communities’. Comparative European Politics, 17:2, 294–315. Schmidt, Vivien A. (Upcoming). Europe’s Crisis of Legitimacy: Governing by Rules and Ruling by Numbers in the Eurozone. Oxford: Oxford University Press. Tocci, Natalie. 2014. ‘Imagining Post-Crisis Europe’. Imagining Europe, Istituto Affari Internazionali Working Paper No. 10, June.

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Index

Adler-Nissen, Rebecca  198 Advocate General  114, 119–23 agendas and agenda-setting  3, 10–13, 90–3, 154–5 Albright, Madeleine  181 Amsterdam city  65, 68, 150 treaty 199 anti-discrimination  13, 73, 81–2, 85–6, 97, 103, 106, 116–17, 119, 121–3 Article 7 (Treaty on European Union) 129, 137, 139, 141, 142 Article 50 (Lisbon Treaty)  2, 57, 100–1, 168 Ashton, Catherine  183, 192 austerity  13, 15, 18–22, 24, 30–2, 41, 58–60, 80, 88–92, 99, 196, 200 Austria  20, 67, 84, 95, 135, 143, 170, 173, 191, 201 Australia  82, 165, 166 automotive sector  60, 64–5 Baltic states  4, 82, 89, 130, 142 banking union  8, 38, 40–52, 70, 74, 206 Barnier, Michel  66, 162 Barroso, José Manuel  90 Bartolini, Stefano  201 Belgium  62, 67, 69, 74, 105, 118, 135, 178, 182

Blair, Tony  180, 181, 183, 196, 198 Brexit referendum  1–2, 4, 6, 14, 19–34, 44, 47–8, 57–8, 69, 98–105, 130–1, 163–4, 171, 178, 185–6, 188, 186–7, 202 Brown, Gordon  3, 197 Bush, George W.  181 Cameron, David  3–4, 16, 19, 21–6, 31–2, 34, 37, 42, 46, 69, 90, 104, 170, 183, 194–5, 197–8 Canada  98, 163, 165, 169 capital markets  6, 38, 44–9, 51, 60, 74 Central and Eastern Europe (CEE)  6, 7, 67, 82, 84, 87, 91–2, 98, 104, 128–45, 152, 154 Chirac, Jacques  180–1 citizenship  7, 8, 15, 19–33, 95–106, 114–19, 130, 147, 150, 164, 171, 196–7, 201, 208 civil law  116, 120–1, 199 Clinton, Bill  180 Clinton, Hillary  183 Coase, Ronald  81 Common Commercial Policy  163 Common Foreign and Security Policy (CFSP) 180–2 Common Security and Defense Policy (CSDP)  182–3, 187, 199–200, 203

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Index common law  7, 113, 118, 120–2 communicable disease control  12, 151, 154–7, 158 Conservative Party  18–27, 30–3, 90, 99, 141, 162 Corbyn, Jeremy  19, 98, 195, 196 Court of Justice of the European Union (CJEU)  7, 38, 70, 86, 95–7, 101, 103, 113–25, 137–44 crisis (economic, 2008–)  3, 9, 16, 21–2, 25, 31–2, 35, 40, 70, 73, 87, 89–90, 102, 104, 132, 134, 194, 200 Croatia  62, 105, 131, 135 Customs Union  58–9, 61, 64, 66–8, 71–3, 101, 162–3, 168, 208 Cyprus  3, 102, 105, 121, 166 Czech Republic  130, 131, 135, 154 defense  7, 9, 11, 24, 30, 177–91, 198–200, 202–5 Denmark  4, 52, 67, 74, 97, 135, 178, 179, 188, 198, 202, 209 democratic backsliding  2, 15, 87, 128, 129, 142 differentiated models/differentiation  9, 10, 66, 71, 74, 148, 194, 198, 201–6 Dublin  65, 74 England  1, 4, 12–15, 57, 62, 83, 98, 106, 118, 122, 155, 168, 197–8 enhanced cooperation  187–91, 196, 202–3 epistemic community  146, 148–9, 159–60 equalities policy  80, 86, 96, 117–19, 122 Estonia  4, 52, 105, 130–1, 135 EUnetHTA  151–3, 158–9 euro (currency)  3, 23, 32, 38, 58, 60, 65, 70, 72, 74, 90, 178, 198, 200–1, 206 see also European Monetary Union (EMU) Eurolegalism  115, 124 European Banking Authority (EBA)  42, 150 European Capital Markets Union (CMU) 38, 40, 44–51, 62, 70

European Center for Disease Prevention and Control (ECDC)  155–8 European Central Bank (ECB)  21, 40, 43, 55 European Coal and Steel Community (ECSC)  95, 97, 106, 178, 179 European Commission  3, 39–53, 61, 63, 65–70, 86–7, 90, 95, 97, 100–3, 105, 118–23, 139–41, 151–4, 163–4, 170–2, 180, 183, 185–8, 203–6 European Council  2, 4, 11, 66, 97–8, 105, 118, 129, 137, 139, 142, 179, 180–2, 185, 187–8, 186, 197, 201–8 European Defense Agency (EDA) 182–3 European Defense Community (EDC) 179 European Economic Area (EEA)  98, 151, 155–6 European Economic Community (EEC) 11, 178–9, 191 European Free Trade Area (EFTA) 155–6 European integration  9–10, 15, 38–9, 48–53, 58, 62–4, 72–4, 85–8, 96–7, 102, 106, 115, 128–30, 132, 143 European Medicines Agency (EMA)  68, 146, 150 European Monetary Union (EMU)  40, 42, 44, 52, 65, 70, 72, 106, 180, 198 European Parliament  4, 11, 88, 98, 103, 105, 107, 137, 142, 157, 172, 174, 180, 187, 209, 210 European Political Cooperation (EPC) 179 European Security Strategy (ESS)  181, 185 European Semester  87–8, 199, 202, 206 European Union budget  13, 23, 57, 58, 66–7, 74, 86–7, 93, 99, 143, 155, 189, 208 European Union Global Strategy  185–6, 192 Eurozone  10, 15, 31–40, 42, 60, 70–4, 87–90, 194–6, 200, 202, 204–10

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exit option  81, 83, 91 see also Hirschman, Albert O. experimentalist governance  161 expertise  12, 66, 116, 118–19, 146, 149, 153–7 exports  11, 29, 47, 58, 63, 65–9, 84, 165, 166, 169, 189 Farage, Nigel  22, 27, 99 see also European Parliament Ferrera, Maurizio  201 Fidesz  140, 142, 143, 173 financial services  19, 38, 45, 47, 58, 61–2, 64–8, 70–5 ‘financial trilemma’  39, 44, 48–52 fiscal governance  8, 13, 15, 74, 87–8, 91, 203, 208 ‘four freedoms’  2, 47, 60, 66–7, 71–5, 95 France  4, 8–9, 11, 33, 40, 42, 46, 52–3, 58, 66–9, 72, 74, 80, 83, 88–92, 122–3, 135, 150, 152, 154, 164–5, 169, 173, 177–9, 182–6, 190, 197, 205, 207 Frankfurt  65, 67, 71, 74 free movement  6–7, 27, 47, 60–1, 74, 92, 95–9, 101, 103–6, 117–18, 129, 173–4, 196, 199, 202–3, 207 Front National (FN)  25, 33, 103, 118, 173 Georgia 203 Germany  8–11, 19–20, 31–3, 39–40, 40–53, 58, 62, 65–8, 69, 72–4, 81, 83–4, 87–92, 95, 105–6, 116–19, 123, 135, 150, 152–4, 164–6, 169–73, 177, 179, 182, 184, 186, 190, 205, 207, 210 Good Friday Agreement  15, 101–2 Greece  3, 15, 40, 97, 105, 134–5, 191, 207 Grimm, Dieter  208–11 ‘Hanseatic League’  4, 89–90, 92–3 health care  6, 11, 24–5, 81–8, 99, 101, 148, 151–8, 205, 207

health technology assessment (HTA) 151–8 higher education  3, 12, 28–30, 61, 83–4, 124, 141, 150–1, 154–5, 203 Hill, Jonathan  45–7 Hirschman, Albert O.  60, 72 Hollande, François  89 Hungary  15, 33, 87, 104–6, 128–32, 135, 137, 139–43, 173, 180 Iceland  155, 178, 202, 203 immigration see migration inequality (economic)  9, 14, 18, 59, 60, 103, 128, 134, 164, 172, 196 internal market see Single Market Iran 200 Iraq  3, 90, 180–1 Ireland (Republic of Ireland)  2–4, 15, 41, 46, 52, 59–60, 62, 67–8, 71, 74, 83, 87, 96, 97, 99–102, 108, 121, 135, 179, 199, 202 Italy  3, 40, 45, 74, 83, 89, 105–6, 134–5, 143, 169, 173, 178–9, 184, 186, 207 Jacobs, Francis  113–14, 122–4 Japan  64–5, 165 Johnson, Alexander Boris de Pfeffel  27, 32, 34, 162, 167 judges  121–6, 138–40 Juncker, Jean-Claude  43, 47, 90, 185–6, 207 Kelemen, R. Daniel  124 see also Eurolegalism Kerry, John  182 Kleine, Marieke  202 Kohl, Helmut  179 Kokott, Juliane  123 labor market  6, 9, 11–12, 59–62, 66, 70–4, 80–5, 89–92, 96, 99, 103, 105–6, 130, 146, 150 Labour Party  18–22, 26, 30, 90, 98–9, 195, 196

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Index law  7, 12–13, 61, 70, 72, 81, 85–6, 90, 92, 96, 100, 102–3, 105–6, 113–25, 128, 131–2, 137–43, 147, 151, 156, 167, 198–9, 206, 208 Law and Justice Party  138, 173 legal order  6–7, 113–22, 124–5 legitimacy  2, 14, 33–4, 106, 171–3, 195, 201–2, 206, 209 liberal bloc  4, 80, 89 Liberal Democrats  20–4, 99 liberalization  4, 8–10, 46, 50, 57, 59–64, 66, 69–74, 90–2, 167, 169 Libya 183–4 Lisbon Treaty  23, 57, 87, 172, 181–2, 187, 202–3, 208 London  11–12, 14, 19, 27–9, 48, 50–1, 65–6, 70–1, 74, 82, 98, 150, 170, 178, 180, 183–4, 186–7, 198 Luxembourg  46–7, 52, 62, 67, 73–4, 105, 178, 182 Maastricht Treaty  85, 95, 97, 179–80, 198, 206 see also Treaty on European Union (TEU) Macron, Emmanuel  33, 53, 66, 190, 201 Malta  12, 102, 119, 121, 188 May, Theresa  6, 13, 63, 82, 95, 98, 100, 102, 162, 168, 170, 196 Merkel, Angela  47, 66, 171 migration  2, 12–14, 21, 25–30, 33, 38, 60, 68, 81–2, 84, 98–100, 102, 104, 128–30, 134, 163, 168, 185, 194–7, 199–201, 203–7 Mitterrand, François  179 Mogherini, Federica  184–8 Monti, Mario  63 multi-year financial framework (MFF) see European Union budget

negative integration  20, 22, 25, 31–5 neighborhood policies  181, 194, 203 neo-functionalism  146, 155 neoliberalism  8–9, 18, 20–3, 25, 27, 30–3, 60, 70, 72, 74, 195–8 Netherlands  46, 52, 60, 67, 72, 74, 83, 95, 106, 150 networks  3, 6, 12, 63, 81, 90, 146–51, 153, 155–8 new intergovernmentalism  146 Nixon, Richard  31, 177, 179 non-decisions  81, 91 North Korea  200 Northern Ireland  15, 28, 59–60, 62, 68, 71, 96, 99, 101–2, 168, 197 Norway  98, 152–3, 155, 165, 178, 202–3, 205, 208 nuclear (weapons)  180–1, 183, 190, 205 Obama, Barack  178, 182 Orbán, Victor  140 O’Toole, Fintan  1 Paris city  11, 65, 74, 90–2, 183–4, 190–1 Treaty of  96–7 PESCO (Permanent Structured Cooperation)  178, 187–90, 203 Poland  33, 87, 104–6, 128–32, 137–43, 154, 173, 180, 184, 202 Polanyi, Karl  13, 15 policy communities  146, 148–9, 157, 194, 199, 201, 203–4, 206, 208–10 policy networks  3, 6, 148 Ponta, Victor  137 populism  2, 4, 21, 27, 60, 170, 172–4, 201, 204 Portugal  3, 23, 97, 105, 134, 178, 207 Quaglia, Lucia  38

National Health Service (NHS)  25, 27, 32, 99, 101, 167, 170, 207 nationalism  4, 14, 22, 32, 63, 96, 106 NATO (North Atlantic Treaty Organization)  7, 9, 11, 177–90, 199, 202

regionalism  4, 201–2 see also nationalism regulation  6, 38, 40–2, 47, 53, 58–9, 61–5, 69, 74, 85–6, 92, 99, 114, 153–4, 170, 188, 208

Index

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regulatory alignment 58–9, 68, 71 regulatory polity 85 research 6, 12, 68, 124, 146, 150, 153–6, 188–9 Romania 84, 89, 105, 129, 137, 141, 152, 202 Russia 2, 181, 185, 187, 200, 203 Saint-Malo summit 180, 199 Schengen 72, 104, 199–203, 205, 208 Schiemann, Konrad 122–4 Scotland 14, 28, 99, 152, 168, 197, 202 security 7, 9, 11, 177–91, 194–5, 199–206, 210 services 8, 11, 19, 24, 38, 47, 58, 61–6, 68–75, 81–2, 84–8, 90–2, 95, 103–4, 106, 151, 162–5, 169–70, 173, 196, 207 Sharpston, Eleanor 119, 121–5 Single Currency see Eurozone Single Market 2, 6, 8–9, 11, 38, 44, 46–8, 51–3, 57–75 passim, 162–4, 167, 178, 187–8, 190, 196, 202–9 Slynn, Gordon 122 Social Europe 9, 80, 88, 91–2, 105, 171 social policy 7–9, 11, 80, 85–92, 198, 204 social welfare 9, 82, 86, 92, 105 Solana, Javier 181 soft law 146 soft power 12, 91, 171 sovereignty 9, 20, 31, 33, 59–60, 68, 179, 186, 190, 195, 198, 201 Spain 3, 9, 62, 87, 97, 101, 105, 134, 169, 184, 207 Stability and Growth Pact 87–8, 208 Sweden 46, 52–3, 67, 72, 74, 83, 202, 205 Switzerland 106, 148, 152–3, 155–7, 165, 202–3, 205, 208 Syria 84, 199

Thatcher, Margaret 18–21, 23–4, 26, 169, 180, 195–6 trade 7–8, 11, 15, 57–60, 62–5, 67–9, 71–5, 99, 101, 130, 132, 163–74, 179 trade agreements 8, 58, 63–4, 66–8, 71, 123, 163–4, 166–73, 203 training 81, 83–4, 154–5, 183, 207 Transatlantic Trade and Investment Partnership (TTIP) 8, 166, 169–71, 173 Treaty of Rome 47, 97, 188 Treaty on European Union (TEU) 2, 139, 180 see also Maastricht Treaty Trump, Donald 31, 169–70, 178, 184, 189 Turkey 184, 203 Ukraine 200, 203 United Kingdom Independence Party (UKIP) 22–3, 25, 27, 32, 99, 196, 199 United States 2, 7, 9, 18, 81–2, 156, 158, 165, 167, 169–70, 174, 178–80, 183–4, 186, 190 universities see higher education Visegrád

84, 130, 142

Wales 14–15, 19, 62, 168, 197 Warner, Jean Pierre 120 Western European Union (WEU) 179–81 withdrawal agreement 67, 98, 100, 102, 114 World Trade Organization (WTO) 58, 71, 165, 169–70

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