Compromise on so many levels

In her January speech which set out what the UK seeks for its post-Brexit future, Theresa May stated that the UK does not seek “partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.” But if politics is about anything it is the about the art of compromise, and over the past week, signs have emerged that the government is indeed prepared to “hold onto bits of membership” in order to avoid the cliff-edge that the prime minister has warned about.

The Financial Times reported in midweek that the UK may accept ”the possible extension of free movement, as the European Parliament agreed to open the way to a potential association agreement.” This sounds very much like the sort of policy guaranteed to get hard-Brexiteers foaming at the mouth but it is a rational and sensible response to something that could otherwise become a major problem. The UK is an open economy which has taken international specialisation to extremes. To simplify hugely, the UK has become a service-based economy and sources large chunks of its manufactured goods offshore. Precisely because the services sector is highly labour intensive, the UK needs to import large quantities of labour in order to meet demand. This model means that the UK is highly integrated into the global economy meaning that it makes little sense to suddenly throw up obstacles to the supply of labour which the UK needs to continue generating output.

The UK has also suggested that it may be prepared to take the rulings of the European Court of Justice into account in the interpretation of laws which derive from the EU – at least until there is time and appetite to change them. To the extent that the ECJ is a symbol to many Brexiteers of all that is wrong with the EU – overbearing, overreaching and undemocratic – this sounds like a significant concession. It is also recognition that taking back control of your own laws, after 44 years during which a large proportion have been designed with the EU in mind, is not an easy task. It is also yet another indication that the domestic civil service will be overwhelmed with the task of dealing with post-Brexit Britain and that large parts of the policy agenda will be given secondary consideration (see this article in today’s Observer).

All this suggests that there is a dawning realisation in government that the process of exiting the EU will be a lot more complex than people were led to believe twelve months ago (don’t say I didn’t warn you). It will also cause friction within the group of Leave supporters who seem to be split between the desire to “take back control” (whatever that means) and the slightly less-unhinged who (wrongly) see Brexit as an opportunity to remap Britain’s international trading relationships. Anyone advocating a clean break after two years of Article 50 negotiations is simply intent on marching the UK towards the cliff-edge that the prime minister is intent on avoiding. I am thus more optimistic after this week than I have been for a long time that if we cannot avoid Brexit, we may at least be able to secure an exit which minimises the damage.

It also raises the question of post-Brexit UK-EU relations? Extrapolating from this week’s (admittedly very small) sample of events, there is a possibility that the UK could indeed become the half-in half-out member that Theresa May appeared to rule out in January. On the one hand, this is a very bad compromise for it will not give the Leavers what they want and will fail to satisfy the Remainers who argue that we can obtain the same benefits by remaining in the EU. Yet it is the least worst outcome for a country which appears intent on leaving the EU.

But it also raises another question of what the EU wants to be in future. Twenty years ago, many economists argued that the EU was not ready to pursue a policy of full integration and that a variable speed Europe was the better option. The rationale was that since many countries were coming from different starting points, attempts to impose common standards would raise the degree of strain as they were forced to arrive at the same point at the same time. The experience of EMU, in which Italian output has not expanded since it joined the single currency, is an indication of the damage that can be caused if countries do not put in place the requisite reforms to ensure they comply with common standards (in Italy’s case, this means labour market reform). Brexit may thus be a precursor of a regime in which different countries integrate at different speeds. It may be no bad thing, and I will come back to it in a future post.

But as the British may well prove over the coming years, EU membership may not be a binary choice. After all, in this day and age, consumers are increasingly unwilling to accept take-it-or-leave-it choices. Why should the EU be any different?