Britain's Long Goodbye?

An Interview with Anand Menon

As the United Kingdom prepares for what could be a historic referendum on its E.U. membership in June, pressing questions abound. A vote to leave — however unlikely polling suggests it is — would bring with it a host of unknowns. These range from the potentially disastrous effect of a so-called Brexit on England’s economy to a widepsread erosion of confidence in the E.U. Anand Menon, a leading authority on U.K.-E.U. relations, games out some of the likely consequences. These extend far beyond Europe.

Flickr. Britain's uneasy relationship with the E.U. has fueled the rise of once-marginal parties like UKIP.

 

Octavian Report: How likely do you think a U.K. vote to exit the E.U. is in June?

Anand Menon: I think the odds are against it, in both senses. One, if you go to the bookmakers, the odds are literally against it. The polls are very, very confusing because the telephone polls give a significant lead to the “Stay” camp. The internet polls put things about neck and neck. They’ve done so systematically. No one seems to know why this is true.

Your best guess, I suppose, is to average them. If you average them, you end up at about 55-45 for “Stay.” Things can change before the date, and there’s plenty of evidence to suggest that this is a sort of London noise at the moment. People are either uninterested or bored, or both.

At the moment, if you forced me to bet, I’d say we vote “Stay.”

OR: How did the U.K. get here?

Menon: Well, there’s a long-term answer and a short-term answer. The long- term answer is that we’ve always been different from other member states for lots of reasons.

One is geography. I think it makes a difference being an island, because you look at your neighbors differently. You can’t walk across borders. You don’t get their TV stations. I think it is far harder for a French person to imagine being out of the E.U. than for a British person, because they’ve got Germany to deal with whether they stay or go. Whereas there is a notion in the British mind that you can pull up a drawbridge, so to speak, and that we’re slightly separate and slightly apart.

We also joined for different reasons. If you go to the other member states, there are lots of reasons why they joined. It’s an economic club, but most of their reasons are political. The original six joined to prevent war. The Spanish, the Greeks, and the Portuguese joined to entrench democracy. The Central and Eastern Europeans joined as a symbol of not being part of the Russian sphere of influence. We joined because our economy wasn’t doing well, and theirs was doing well. We thought we’d like a bit of that. Ours has always been a more transactionalist approach to the E.U. than the others’. There’s no positive political narrative in our country that ties us to the rest of Europe in the same way that there is for other member states.

That’s the long-term view: we’ve always been awkward, or semi-detached — call it what you will. It has always been the case, apart from a brief period in the late 1980’s and early 1990’s when support for membership was very, very high, that one of our two main political parties was at best skeptical about the E.U. In the early 1980’s, the Labour Party wanted to leave. Following Margaret Thatcher, the Conservative Party was very, very badly divided. There’s always been, alongside the doubts that the British people have or the way they see themselves differently, a politics issue.

The short-term answer is that David Cameron does things for tactical rather than strategic reasons. He’ll fix today’s problems, even if in so doing there are longer-term problems being stored up. The context in 2012 and 2013, when this really started, was that he had his own party that was increasingly fractious about Europe. Indeed, back in 2011, he had said there was no need for a referendum. By 2013, his party’s looking more divided. You have the real danger of members of his own party defecting to UKIP, as a couple did. You have UKIP posing a real political challenge to the Conservatives from the right. Cameron’s promising a referendum, which was UKIP’s big promise, was a way of trying to nullify that opposition.

In that sense it worked, because he won the next election. It worked politically. He kicked the can down the road. But now we’re walking up the road and we’re about to reach the can, and so we’re going to have to deal with the implications of that.

OR: Do you think Cameron felt confident in a “Stay” victory because of the results of the Scottish referendum?

Menon: No, I think the overwhelming feeling after the Scottish referendum was it was a lot closer than it should have been. Support for independence went from 30 or 35 percent up to 45 in the campaign. Insofar as the Scottish referendum taught us anything, it was A, don’t mess with referendums because they’re a little bit unpredictable; and B, unless there’s a big margin, referendums don’t actually fix anything or solve anything. There’s talk of another referendum in Scotland now. So it’s only a matter of time before people start saying: how much is enough in this referendum? If it’s a three-percent lead on a 50-percent turnout, should we do it again? Is it binding?

OR: Why do you think Cameron has been hesitant about cracking the whip on fellow Conservatives who now support a “Leave” vote?

Menon: Cameron is trying to achieve three things. He wants to win the referendum, he wants to keep his party together, and he wants to ensure that his friend and ally George Osborne replaces him as leader — because of course Cameron is going before 2020. Doing all those things is a real problem because the party is divided. The party’s probably more divided than people thought it was going to be. Before the famous re-negotiation of our terms of membership, the Foreign Office was confidently predicting that only about 50 Tory MPs would defect to the “Leave” side. There’s now something like 130.

That changes the dynamics in all sorts of ways. One, it makes the split big and it makes it ugly. You can’t marginalize these people as being idiots because it’s almost half of your parliamentary party. Two, 130 is enough support to get a “Leave” campaigner through to the next round of any Conservative leadership contest. It changes that calculation fundamentally.

I don’t think the Prime Minister had any choice but to allow the skeptics a voice, because the only other option was to see them all resign en masse. I think the problem of party management now is becoming very, very severe. Even in the event that Cameron wins the referendum, these people don’t go away. What they say is, “Okay, we lost. Now what we need to do is make sure the next leader is someone who’ll try again.” All of a sudden, there is a camp in the Conservative Party that is committed to getting someone pro-exit in charge of the party.

I think Boris Johnson did the math on this. The Conservative party leadership election takes place in two stages. The MPs vote, and they keep voting until they’ve narrowed it down to two candidates. Once they’ve got two candidates, it’s the membership of the party that makes the final decision. And the membership of the party, depending on the poll you believe, is split either 60-40 or 70-30 in favor of an exit from the E.U. If you’re a skeptic, you will do well with that electorate. Boris Johnson’s thinking is pretty clearly, “There are obviously enough MPs here who could support me through the first stage, because they’re pro-exit.” And if you imagine a second round between Boris Johnson and George Osborne, you would have to put your money on Boris Johnson because the party will vote on Europe, and it will vote for the more skeptical candidate.

OR: What do you think the odds are that the next Prime Minister of the U.K. will be either Osborne or Johnson?

Menon: Very, very high. They are the strongest two candidates at the moment. Yes, there are people in the Conservative Party who say that no-one actually trusts Boris. You’ve let him be Mayor of London, and we think he’s great, but the notion of him having his finger on the nuclear trigger is not one we can countenance. What is yet to be put to the acid test is whether people will vote for Boris for the big job.

George Osborne has been very damaged by this referendum and by recent events, and it might be yet that another candidate emerges. A lot of Conservative MPs were a new generation in 2015. Osborne to them looks like the old guy. He’s not 50 yet, so we shouldn’t get carried away, but he looks like the establishment, the old guard.

OR: If the vote is to leave, what’s next?

Menon: If we vote to leave, lots of things will happen. I imagine, first and foremost, that the Prime Minister will resign. Even though he says he won’t. Or he might wait until a leader is elected, but the Conservative Party will almost certainly need a new leader. There’s uncertainty there.

Secondly, there is nothing legally about the referendum that means we have to say we want to leave, even if we vote to leave. There’s no legal provision that says a vote means we apply to leave. There’s an Article 50 in the Maastricht Treaty that is the provision for leaving, and it sets out a process. It’s a weird process, and it’s not very well specified, because I don’t think anyone ever thought it would be used.

Suppose, for example, we vote by a narrow margin on a small turnout to leave, and whoever is heading the country says, “You know what? This is an awfully big thing to do on a wafer-thin majority. Let me go back to the E.U. and say, ‘Can you give us a better deal and we can do it again?’” I’m not saying that will happen. I’m saying it’s a possibility because of the sheer horror of negotiating an exit, for us and for the other member states. The vast time commitment, when there are other things going on, is something that everyone wants to avoid.

If we trigger Article 50, we have a minimum of two years to negotiate a new relationship with the E.U. Nothing will change for at least two years, and there are people out there saying it will take longer than that. It can be a relatively long process of negotiating a new deal with the other European states.

OR: What do you think the impact of a vote to exit on the economy and the financial markets would be?

Menon: Financial markets will go down. They go down whenever there is a hint that the “Leave” camp is doing well. I think the initial danger is of an investment strike. That is to say, we vote to leave, then firms say, “Look, we’re not going to put money into the country until we know what’s going to happen.” You can imagine a situation where a new British leader immediately comes out and says, “I don’t want you people to panic. My first priority is to negotiate a deal with the E.U. that gives us complete access to the single market as if we were members.” That will reassure people. It’s politically difficult because everything suggests you can’t have access to the single market while disallowing free movement of people. Free movement of people is one of the big driving forces behind the “Leave” votes. We don’t want other Europeans being able to come here freely. There’s a political circle to square, but you can see a way in which a new Prime Minister would reassure the markets, reassure business, negotiate a deal, and we’d have business as usual.

OR: To what extent, if any, does a successful E.U.-Turkey migrant deal harden consensus around a leave vote?

Menon: It depends what you mean by successful. Successful looked at from the E.U. is: the Turks stop people coming here. Successful from the view of Turkey is: we get loads of money, and we get access to the market, and we get concessions that Erdoğan can sell at home as having been him beating the Europeans. I don’t think there’s much prospect in the short term of us signing a visa-free deal with the Turks. There are conditions they have to satisfy. What is certainly true is that the “Leave” campaign is talking about this being something that strengthens its case. If we stay in, they imply, there are 70-odd-million Turks who will be free to come here without visas. They’re even saying Turkey will be a member within the next year, which is nonsense.

They are trying to make a security issue out of it. They are trying to play to the xenophobic crowd, because if you can get those people out to vote, that’s great. A vote’s a vote. It doesn’t matter where it comes from. There’s plenty of xenophobia across the E.U. about Turkey. When the Christian Democratic parties talk about culture, I sometimes think they mean race. Turkey’s discussed in terms of a threat to our — and if you look at me, I find this quite laughable — shared Judeo-Christian heritage. There is a lot of talk about that, and people will use the scare stories and say, “My God, if we stay in, there’s a bigger risk of terrorism because there are all these Syrians.”

The fact is, Britain has border controls. When I go back, they will check my passport, they will scan it, they will see if I’m in their databases — and I’ve got a British passport. With a European passport, it’s exactly the same thing. Our borders aren’t open. All the treaties say is that there is no legal reason, unless there’s a security issue, to stop other Europeans coming in to work.

OR: Where do Jeremy Corbyn and Labour fit into all of this?

Menon: Labour is interesting. To win the referendum, the “Stay” camp will probably rely to a significant extent on Labour votes, because the Conservatives are split. Jeremy Corbyn, most people who’ve talked to him seem to assume, is at best a skeptic, at worst someone who wants an exit. He has agreed to campaign for “Stay” reluctantly and unwillingly. He hasn’t really used the resources of the Labour Party or his own profile as strongly as he might have to campaign to stay.

There are several reasons for this. One is that the Labour Party is terrified that if they’re seen as campaigning too hard to stay in, they will be identified with the Conservatives and with big business, who are also campaigning to stay in, and they will start to lose votes after the referendum to protest parties like UKIP. They are terrified about the politics after the referendum.

The other thing about Corbyn that’s interesting is that he, insofar as you can tell from what he says, likes membership in the E.U. for precisely the reasons that Conservative euroskeptics hate it. He likes it because it leads to open borders. He likes it because the E.U. regulates and passes social and economic rules. Those are precisely the reason why Tories want to leave. If he gets more involved, not only might he harm the Labour Party politically, but it will mess up the message of the “Stay” campaign because he’ll be saying something completely different from what the rest of them are saying.

OR: How do you see the vote affecting the E.U.? Does it do any structural damage to the Union?

Menon: If we vote to stay, it still has an impact. It has an impact because the British are going to keep going on about Europe even then. The vote won’t be a great affirmation of membership; it will be an expression of fear about leaving, which is a very different thing. The Conservative Party will continue to be obsessed by Europe. This doesn’t go away.

The other thing is that by having a referendum, we’ve made referendums seem like a good idea. The Dutch had one in April on the E.U.’s treaty with Ukraine. The Hungarians are saying they want one. There’s been an opinion poll recently that shows a majority of French people would like a referendum on membership. A significant majority would vote to stay, yes — but they want the choice. We might have set something going here that even if we stay could be negative.

If we leave, there are several possible effects. One is the sheer distraction of having to devote a lot of political energy to this, when you’ve got the eurozone, you’ve got the migrants, you’ve got Russia and Ukraine, you’ve got ISIS in the south. The notion that we’re going to spend two years with our heads of state obsessed with market access for the British is a bit like fiddling while Rome burns. More broadly, the other member states don’t want us to leave for two reasons. Not particularly because they love us. In fact, most of them now think we’re an incredible pain in the backside because we’ve done this to them. The first is that there is a weird balance-of-power thinking in the E.U., and Britain plays an important role in that thinking. The French don’t want to be stuck in an E.U. alongside just the Germans. The Germans don’t want to be left dealing with the French. None of the other member states want to live in an E.U. dominated by France and Germany. Britain has always played or been seen to play a mediating role, and that will go. It changes the balance in subtle ways.

The second thing is the danger if we leave of skeptics in other countries saying, “Well, if they can leave, we can.” Now, as I said before, geography and history make that slightly different for them. I’m not saying any of them would vote to leave, but it does give a boost to euroskepticism, and it ties into your question about what happens after we leave. This is one of the reasons why the other European states have a really big incentive to screw us. If they seem to give us a really sweet deal for leaving, then the National Front in France says, “Well, if they can leave and get all the benefits of membership with none of the costs, then we should leave.” That makes the negotiations very, very messy.

OR: If the U.K. were to exit, what are the most significant financial or economic impacts on both the British and on the remaining E.U. states? Do you see the U.K. looking across the Atlantic more than they have before for ties?

Menon: The first question’s easy: no one knows. It depends on the deal we get. If we get a deal that lets us access the single market in the way we do now, then actually not much will change. If we get a deal that reduces us to a WTO relationship with the rest of the E.U., and thus paying tariffs, that depends on the details of the deal.

If, say, car exporters face tariffs if they export to the E.U., some of the car manufacturers based in the U.K. will likely start to re-think whether they should be there or in the E.U. BMW, for instance, makes the Mini in the U.K. I can’t believe BMW would want a situation in which they pay tariffs to export Minis back to Germany. It depends on the deal. What the “Leave” campaigners say is, “We’re a big economy, they’re going to give us a deal because they depend on trade with us.” The “Stay” camp says, “If we leave, it will be carnage. They won’t give us a good deal.” I don’t know what will happen. It depends very much on the details of the deal that they end up signing

I do think a post-exit Britain would look to sign a free trade deal with the United States. This is one of the arguments. The “Stay” camp is saying 500 million Europeans could sign a far better deal with the U.S. than 70 million Brits, because they have more clout. 500 million people can say to the U.S., “If you want that, you’ve got to give us A, B, and C.” We will look to sign trading deals around the world. Actually, the rhetoric of the “Leave” camp is more global than it is Anglo-American. They’re talking about trading with the world, trading with the parts of the world where they can grow, trading with commonwealth countries. The U.S. figures in there, but it’s a more case of: we will be independent and free to trade with whomever we want.

TTIP is very relevant here. On the one hand, if you’re a Conservative, you say: look, the E.U. is helping us to liberalize global trade. Look at TTIP. For those on the left of the political spectrum, TTIP is the horror of horrors. People are very suspicious. And as is the case with almost all political discussions in Britain, if you can bring in the National Health Service, you bring in the National Health Service. The “Leave” camp is starting to say, “TTIP will lead to a privatization of the National Health Service.” That, again, will reduce support for membership.

OR: Do you see an erosion of the political center in the U.K. similar to what might be said to be going on in the U.S.?

Menon: I think what you’re seeing across Europe is the mobilization of people who think they’ve lost from globalization. These are the people who don’t like the way the world is going, who don’t want to be open to foreigners, who don’t want to see jobs going abroad, who don’t see the benefits of global trade. They doubt macroeconomic statistics in the sense that governments can bang on all they like about how the economy has grown by two percent, but for these people, that’s your two percent. We don’t see it, it goes to London and the southeast. London and the southeast get all this money while the rest of the country is left to rot.

This “losers from globalization” movement captures people on the left and right. You see the AfD growing in Germany, you see the National Front growing in France. You see parties like Podemos — not doing well anymore, but which flowered briefly in Spain. This anti-politics move — partly economic, partly because of corruption stories, partly because people are fed up of seeing the establishment feather their own nests — is a real problem.

One of the issues about this, of course (and this is what makes referendums interesting) is that 30 or 40 percent of the people vote for anti-system parties. That’s a massive deal. A referendum gives you a chance to give the establishment a bloody nose. That’s one of the dangers that we face in Britain. People come out and basically think: screw you, Cameron; screw you, British establishment. The whole mainstream establishment is on one side of this debate.

OR: You sound very much as though you think the E.U. has a future. Do you?

Menon: I think the E.U. has a future. I think there are some things the E.U. does very, very well. In many ways, the European market is more integrated than the U.S. market. I remember the days when mobile phones came out and you roamed when you went between states. It’s easy to forget because we don’t have a unified military, but in terms of the economics, Europe is quite an integrated market. That market has persisted despite the worst recession in living memory. That’s a real strength. The problem that Europe has is that the areas which aren’t its core concerns, areas where it only has a bit of power, are where the challenges lie — and that’s where everything is heading south.

On migration, the E.U. doesn’t have the power to say: you will take this lot, you will take these. It relies on the member states. The member states don’t agree, and nothing happens. I think the E.U. faces challenges, and I think the perception is that it’s failing on migrants, on the eurozone, on Russia. But ultimately I think people in Europe realize that the ability to trade across frontiers is quite a big deal.

OR: Do you think that there will be another eurozone crisis in the near future?

Menon: Yes.

OR: Do you see it as coming from Greece or elsewhere?

Menon: Possibly coming from Greece. Greece has got some loans to repay, and there’s a big argument with the IMF now about pension reforms. The Italian banking sector is a bit of a car crash. To call the French economy anemic would be to talk it up. There are no shortage of potential places where a crisis can come from. There are lots of problems, and no structural solutions. What the eurozone is, is partial integration. We integrated the money, but fiscal policy is national.

OR: How do you see them surviving that in the medium term?

Menon: They muddle on. They hope that this crisis is out of the way. They keep going. When the next crisis comes, you have the same debates all over again. Ultimately, the debate is about whether we take the plunge and become effectively a single economy where our finance ministers no longer get to decide everything — and therefore get rid of the risks, because we’re sharing risks — or we keep going like this. Every time a crisis happens, it ratchets up bitterness. Almost 50 percent of Italians are now euroskeptics.

OR: Do you see it getting to the point where a dramatic decision is made to completely integrate on the fiscal and economic side?

Menon: I find it very unlikely.

OR: Imagine that Italy or France has a Greek-style crisis but with correspondingly larger ramifications throughout the E.U. Do you think that rise you cited in skepticism would lead to a breaking apart of the eurozone?

Menon: It is conceivable. It is certainly conceivable. Even if we mutualized, you couldn’t bail out France or Italy. Their economies are too big. Bear in mind, though, that there are good economic reasons why Germany wants weak economies in the euro. If the eurozone were Finland, Holland, and Germany, the currency would be so highly valued that exports would plummet. Having the Greeks and Italians and who knows who else in there keeps that currency’s value far lower than the deutschmark used to be, and it allows Germany to export. The weakness of the euro is linked to the success of the German economy.

OR: Do you think the population in Germany understands that?

Menon: I don’t think they’ve been told it enough. I don’t think they’ve been told enough how much they benefit from exporting, even to the southern states. A lot of Greek debt was racked up borrowing money to buy BMW’s. I don’t think that’s how populations think. I don’t think that’s a uniquely German problem.

In Britain, to take a parallel, we go on about E.U. migrants coming over and working. The flip side of that deal is that British supermarkets have taken over in Central and Eastern Europe, driving Eastern European competitors out of business. They opened their markets to our businesses, we opened our markets to their people. It’s how the trade-off is seen over there. You’ll never hear that mentioned in the U.K., though. We notice what happens on our island.

OR: What are the risks here that people aren’t talking about?

Menon: The referendum campaign is a risk-centered campaign. It’s about the risks of staying or the risks of going. If you’re the “Stay” camp, you say, “If we leave, all hell will break loose.” If you’re in the “Leave” camp, you say, “If we stay all hell will break loose, because we’re shackled to this corpse that is the eurozone, all these migrants. What we need to do is be separate from them, we’ll be safer.” Sixty-seven or 68 percent of Brits could be described as euroskeptic. Which is the combination of people who want to leave and the people who want to stay but reduce the E.U.’s balance. That’s not going to change any time soon. What no one is trying to do is be positive. We don’t have a “Stay” camp in the U.K. that says, “Membership is great. It’s good for us in so many ways.” No one’s saying that. What they’re saying is, “Non-membership is scary.” Which is one of the reasons why I’m convinced that there’s a chance we’ll do this referendum again down the line.

What this debate hasn’t done is put the issue to bed. If we vote to stay, we will vote to stay — if we must. We realize this is best, but we feel no enthusiasm about it whatsoever.