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David Cameron and the Art of Bargaining from the Low-Ground

The current migrant and Eurozone crises have eclipsed a critical existential issue facing European construction today. Prime Minister David Cameron had promised as part of his re-election manifesto to hold a UK referendum on European inclusion by 2017. His pledge has been met with opposition of various intensity from the Scottish National Party, the Liberal Democrats and Labour. The move was seen as an unabashed attempt to woo Eurosceptic voters rallying around Nigel Farage’s UKIP as well as a means of shoring up his bargaining power against other European member states.

The PM has pressed renegotiations over the UK’s relationship with Europe because of the growing view that Britain’s prosperity is being hampered by the EU, which critics say imposes too many regulations on business and charges billions of pounds a year in membership fees for little in return. Mr. Cameron wishes to change four key parts of the UK’s membership. Firstly, he is demanding an opt-out on further integration according to the founding EU principle of ‘ever closer union,’ claiming that the Treaty of Lisbon (which the UK ratified) impedes on member states sovereignty. To this end he wants to divert greater power to national parliaments to block EU legislation and institute a veto for member states. Secondly, Cameron wants to cut down on the red tape of an overbearing European bureaucracy that is harming competitiveness.  The Tories are also seeking to restrict access to in-work benefits and housing aid for EU migrant workers until four years of residency. This issue has been the most controversial, causing staunch reactions from Portugal, Greece, Poland and Belgium. Lastly, Mr. Cameron wants official recognition that the euro is not the only currency of the European Union so that states outside of the Eurozone are not ‘materially disadvantaged.’

The President of the European Council Donald Tusk has marked February 18th and 19th for a summit in Brussels to hash out the details of a renegotiation plan. Cameron has recently even hinted at the in/out vote being held by the summer of 2016. And the most recent YouGov poll, dated February 5th, suggested more Britons favoured leaving the EU over staying in, with 45 per cent supporting Brexit compared with 36 per cent against, while a fifth remain undecided. The poll was published two days after the PM claimed to have secured favourable draft renegotiations, with hostile coverage in the right-wing press of Mr Cameron’s deal criticised by the Sun, the Daily Mail and the Telegraph.

All this commotion around the future of the UK within the Union begs the question of what the fallout of an actual withdrawal would be. Voters will go to the booths weighing the potential and quite probable short-term economic upheaval and diplomatic isolation against the strengthening of British sovereignty over national institutions, law, and borders.

Those in favour of terminating Britain’s membership would have you believe the EU would see —perhaps more so than the UK—its global influence much diminished. The UK is after all a net contributor to the EU, represents a third of it’s effective defence capabilities and holds strong historic ties to the USA and Commonwealth states. Economic instability in Britain would ripple through the EU reigniting the sovereign debt crisis. Brexit would open the flood gates and would prop up Eurosceptic populists to power across the EU presaging the end of European construction.

But, as with any such cataclysmic forecast, it is a gross exaggeration of reality. The EU would still be the world’s second largest economy in terms of nominal GDP were the UK to leave. It would remain a world leader in R&D, high-tech and service industries and tourism. Member states would continue to benefit from inclusion and new candidates would still salivate at the chance of joining. France and Germany would continue to punch above their weight on the international scene.

What is certain is that Britain would see its own influence greatly reduced. Politically side-lined and diplomatically isolated, the UK would loose access to the vast array of communication networks facilitated by inclusion and face embittered trading partners in France and Germany. Instead of being a powerful player within one of the most influential polities in human history, the UK would be relegated to a stark reality of international obsolescence—a turning point akin to the post-war sentiment of its colonial Empire slowly disintegrating.

Economically, Britain would suffer. Big business and industry leaders, from pharmaceutical conglomerates to the biggest investment banks, agree that an exit would be bad at best, and catastrophic at worst for the UK. Citi Bank forecasts inflation to balloon to 3-4% and the sterling to depreciate by 15-20%. Such a jump in prices could force the Bank of England to jack up interest rates at a moment of economic slowdown. Total decrease in GDP over the first three years is estimated at 4%. Increased deficit from lower state revenues would ensue. The fiscal future seems bleak.

In short, the UK has much more to fear than the EU from a Brexit. With the Tories tearing themselves up over the issue, Mr. Cameron facing potential cabinet resignations and Nicola Sturgeon threatening a new referendum on Scottish Independence were the UK to leave, the PM must be doubting his decision to throw himself into the foray. Why then, have Mr. Cameron’s demands been given so much attention by European leaders? Perhaps they haven’t studied their game theory carefully. Or perhaps they do not wish to see a third headache added to the long list of crises. What is clear is that Mr. Cameron has mastered the art of bargaining from a weak position: a vote to leave on referendum day could even give more bargaining power to Mr. Cameron and ironically see the UK staying in the EU on improved terms.

Image source: flickr

About Adrian Carlesimo

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