Now on to the Brexit referendum

September 22, 2014

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

With Scotland voting to stay part of the United Kingdom, attention will turn to the next potential British referendum: on whether the country will remain in the European Union. David Cameron has promised to hold an In/Out referendum on the EU if he is re-elected as prime minister in next year’s general election. There are comparisons and contrasts between the two votes, as well as lessons to be learned.

If Scotland had voted to quit Britain, the influence of both Scotland and the rump UK would have been diminished. Scotland’s economy would have been damaged. The divorce would also have been acrimonious.

Many British politicians have been happy to deploy such arguments when seeking to prevent a schism with Scotland. But some are so deeply eurosceptic that they are not willing to take on board parallel arguments about the effect of a schism between the UK and the EU.

Look at the influence point. It is hard to see how the international standing of either the UK or the rump EU would be enhanced by Britain’s exit, or “Brexit.” Vladimir Putin would be delighted at the disarray on Russia’s Western front. Think, too, how much harder it would be for a fractured Europe to construct a proper policy for confronting extremism in the Middle East.

British eurosceptics say this is nonsense as a UK freed from its EU shackles would still be part of the NATO military alliance – and that is what matters. But the sense of common purpose and the ability to take joint action on foreign policy would have been reduced.

Now look at the economy. The main weakness in the case for Scottish independence was the claim that Edinburgh could share a single currency with the rump UK without having to do London’s bidding on matters such as fiscal policy. In fact, the British politicians said flatly there would be no currency union.

The UK doesn’t share a currency with the rest of the EU. But it does share the single market. It is just not credible that it could continue to do so after quitting the EU without following rules set in Brussels.

There are also parallels with the bitterness of a schism. Had Scotland voted for independence, there would have been intense wrangles over not just the currency but also the division of North Sea oil and the national debt. Years of uncertainty would have squished investment.

In a Brexit, the main dispute would be over the future trading relationship with the EU. It would be hard to reach a deal because the British leader (probably a populist eurosceptic rather than the moderate Cameron) might stake out impossible positions which would be hard to retreat from. There would be years of uncertainty which, again, would be bad for investment.

Eurosceptics, who are open to staying in the EU but only if there is a radical renegotiation of Britain’s relationship with it, might argue there is another parallel with the Scottish vote. The UK will get a really good deal with Brussels only if it takes the EU right to the brink. After all, it was because Scotland appeared to be on the verge of voting for independence that the main British political parties made a last-minute offer of powers to determine its own fate as well as guarantees over generous budgetary support.

Britain should certainly seek to reform the EU. But the best way of achieving this is not to engage in brinkmanship. In fact, Britain was forced into making eleventh-hour concessions to Scotland because it had previously thought there was no way Scots would vote to quit. Cameron made a near-fatal error by not coming up with a devolution package early on.

The good thing is that the British prime minister is focusing early on EU reform. He is also sensibly concentrating on matters that would benefit the whole of the EU – principally boosting its competitiveness – not just Britain.

The rest of the EU is starting to appreciate Britain’s concerns. Jean-Claude Juncker, the European Commission’s incoming president, plans to cut red tape, develop a capital markets union which would be great for London, complete the single market in services, cut a free trade deal with the United States and combat so-called benefit tourism.

One might think Britain could secure even more concessions if it took the negotiations to the wire. But here the parallels with Scotland break down. The emotional ties are not as strong. What’s more, the mechanism for reaching agreements in the EU is much slower-moving. Cameron could pull a rabbit out of the hat on Scotland by merely consulting the leaders of the two other main parties and without even debating his offer in parliament. Any concessions from the EU would require the agreement of either most, or in some cases all, other 27 countries.

Another lesson pundits might like to draw from the Scottish vote is that the people can ultimately be relied on to back the status quo. While there is something in this, the internal dynamics of the Conservative party could easily shift Cameron, who is politically weak, in a more eurosceptic direction. The euro zone might also enter a new crisis, which would make Britain’s EU membership seem less attractive. The bigger lesson of the Scottish referendum is the folly of complacency.

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