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10 December 2020updated 07 Jan 2021 1:37pm

The EU would prefer a no-deal Brexit to a deal undermining the European social model

Regulatory alignment and the non-negotiable ideals of European society.

By Jeremy Cliffe

Last night Boris Johnson and Ursula von der Leyen met for dinner in Brussels, but by all accounts came no closer to ending the deadlock over an UK-EU trade deal ahead of the fixed end of the Brexit transition period on 31 December. The two have committed to a new deadline of Sunday (13 December) to reach an agreement. In practice talks may continue throughout December, not least as neither side wants to be seen as the one that walked away. The most important difference, more substantive even than the fraught question of fishing rights, is the so-called level playing field.

This means that the depth of the UK-EU trading relationship should reflect the degree of alignment between the two economies on regulation, tax and state aid. The closer the relationship, goes the logic, the more the two sides need to be aligned on those matters to prevent unfair competition. British negotiators have already agreed to a “non-regression” principle whereby the UK will commit not to weaken current standards. But that leaves open several big questions.

What happens if “non-regression” is broken? Or if the EU adjusts or adds to its current regulation, tax and state-aid standards? How should the two sides assess whether the UK needs to mirror such changes to maintain the level playing field? And what should happen if it does not? The EU has proposed a “ratchet clause” whereby the two parties can either advance in lockstep or the party with the weaker regime pays compensatory tariffs. The British government protests that this is incompatible with the regained sovereignty that Brexit was meant to bring, and so far is refusing to budge on what it characterises as an ideological point of principle.

In which light the EU’s intransigence looks petty: at best an attempt to win a few tiny slivers of a percent of GDP here or there by preventing EU-based firms from moving their activities to more favourable circumstances in the post-exit UK; and at worst a cynical bid to punish Britain for the sin of seeking independence, the EU cutting off its nose to spite its face.

Yet what is not sufficiently understood in Westminster is that the EU’s stance is more deeply felt than this and that the EU too is negotiating a point of principle. Yes, Brussels and the national EU capitals want to prevent Britain from undercutting EU regulations and rules on tax and state aid, and thus unfairly hoovering investment and jobs out of the Single Market. But if the EU’s basic concern were merely unfair competition at the margins of the single market, it could be far more flexible in making compromises to prevent a no deal. In fact, its stance is rooted in something more profound and of existential importance to the European project – the European social model.

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[see also: Why no deal remains the most likely outcome of the Brexit talks]

It may seem odd to talk about a European social model. The member states of the EU have different welfare regimes, tax levels and regulatory approaches. Yet in broad terms it does exist. The states of the EU clearly tend towards higher tax rates by international standards, which tend to be used to pay for relatively generous welfare safety nets. Non-market coordination systems – government industrial policies, automatic stabilisers, wage bargaining and employee representation measures – correct for market failures in Europe. No single country could sustain such policies on its own. But acting together, with common rules, the EU can do so. It puts floors under tax and regulation standards and makes state aid a European competitive advantage (think of Airbus), with rules preventing such support from descending into a doomed, runaway bidding war between governments.

The European social model first emerged during the post-1945 boom as the basis of social harmony in a continent torn apart by socio-economic fragmentation in the pre-war years. It united social democrats and socialists on the left with Christian democrats, Gaullists and moderate conservatives on the centre right. A typical example, as it happens, is Von der Leyen’s own father, Ernst Albrecht, the Christian democrat minister-president of the German state of Lower Saxony from 1976 to 1990. Albrecht brought together a fragmented state through a resolutely centrist politics that emphasised consensus between labour and capital in its industries (an approach that lives on in the success of Volkswagen, the state’s biggest employer).

The European social model really crystallised as something distinct and in need of protection in the 1980s. When Thatcherism and Reaganism were transforming the Anglo-Saxon world, a continental Europe led by François Mitterrand (a socialist chastened into social democracy by market reactions to his early presidency) and Helmut Kohl (a Christian democrat centrist) suddenly looked distinctive in its adherence to postwar social structures. In Brussels, then Commission president and moderate socialist Jacques Delors saw his chance, launching the Single Market with a clear social dimension. From the very start, Delors emphasised that this social dimension would only work with common rules. Speaking to the European Parliament in 1985, he argued: “What would become of us if we didn’t have a minimum harmonisation of social rules? What do we already see? Some member states, some companies who try to steal an advantage over their competitors, at the cost of what we have to call a social retreat.”

Delors went on to shape the Social Chapter of the 1992 Maastricht Treaty. Britain was the only member state to opt out at that time, but opted back in after Labour won power in 1997. Many British Conservatives insisted that the minimum standards contained in the chapter needed to go, a crucial dividing line that alienated the Tories from the continental mainstream centre right, and culminated in David Cameron’s decision to leave the European People’s Party grouping in 2009. Whereas the European social model enshrined in the Social Chapter’s eminently moderate and sensible worker protections was anathema to right-wing British MPs, on the continent it continued to be seen as an article of faith. In France, Germany, Spain, Italy, Scandinavia, the Low Countries and to a lesser extent central Europe, politicians still talk routinely of defending it. The term “European social model” (or related ones such as Germany’s Soziale Marktwirtschaft or “social market economy”) continues to move people on the continent.

The great irony is that the European social model has become even more politically salient since Britain’s referendum. As the Dutch historian Luuk van Middelaar writes in his 2019 account of the EU, Alarums and Excursions, the Brexit vote was the brush with mortality that the union needed. “Jean, this isn’t looking good” said Martin Schulz, then the European Parliament president, on a call with the then Commission president Jean-Claude Juncker at 7am on 24 June 2016. The referendum result turbocharged the notion of “l’Europe qui protège”, or “the protective Europe”; whereby the EU would restyle itself as a supporter of ordinary citizens in turbulent times.

This new idea touched on migration and borders – and some questionable policies on both fronts – but more fundamentally was a rebranding of the existing European social model for a harsh new climate. Voters hurting from globalisation and the global shift towards Asia, went the thinking, would only back an EU that helped protect their jobs, industries, public services and economic security. (Not irrelevant in this debate was the legacy of the Eurozone crisis in which, most mainstream EU leaders by this point belatedly acknowledged, the dogmatic defence of monetary union orthodoxies had created unforgivable ruptures with the union’s social mission.)

Jean-Claude Juncker’s Commission put forward new measures on work-life balance, including a minimum of ten days parental leave for fathers, of four months of parental leave for couples and five days of leave for those with caring responsibilities. Rules preventing employers from arbitraging wage differences by hiring workers to work in richer EU states on the terms of poorer states were tightened. Juncker’s proposed European Labour Authority opened its doors in Bratislava in 2019.

Von der Leyen, who had herself made the German welfare system more generous as families minister and then labour minister under Angela Merkel, has continued in this vein as Commission president. A moderate Christian democrat, she won her job last year thanks to a coalition including social democrats, socialists and greens and on the back of promises to introduce a guaranteed EU minimum wage and an unemployment benefit scheme. The Covid-19 pandemic has only served to strengthen the EU’s faith in its social model: thanks to work subsidy schemes that typify the model, unemployment in the union in recent months never reached the heights that it did in the US. In her “state of the union” speech to the European Parliament in September, Von der Leyen argued that “our first priority is to pull each other through this. To be there for those that need it. And thanks to our unique social market economy, Europe can do just that.” There, again, was the focus on Europe’s distinct economic model.

[see also: Liberalism will remain vulnerable unless it can speak to our need for emotional storytelling]

So to understand the EU’s intransigent position in the Brexit talks, you have to understand the depth of EU feeling about the European social model. Seen from London, the union’s preoccupation with the level playing field may seem bureaucratic and petty. Yet seen from the continent, it is a crucial defence of a social model whose maintenance is fundamental to Europe’s very identity and whose best shield is the EU.

Imagine, then, how it goes down in Paris, or Berlin, or Brussels, or Rome, when British politicians and commentators (whose words are – yes! – read and understood on the continent) wax lyrical about the country’s post-Brexit future as a low-tax, low-regulation offshore economy. A speech by Wilbur Ross in 2017 caused particular concern: in it the US secretary of state for commerce urged the UK to ditch EU protections and move closer to the American social model. Another frequent reference point for European leaders is the interview given the same year to the German newspaper Die Welt by Philip Hammond, in which the then UK chancellor of the exchequer mulled the possibility that “we will have to change our [economic and social] model to regain competitiveness”.

Such arguments may be less fashionable in London now, but it remains noted on the continent when, to use an example cited in European diplomatic circles in the past days, influential right-wing commentators like Allister Heath argue that: “Brexit needs to be accompanied by radical cuts and changes to tax and regulation”. In Germany the relatively few newspaper columns about Brexit tend to warn against the risk of a “Singapur in der Nordsee”. German commentators generally doubt that the low-tax, low-regulation dream of Brexit’s chief theorists will work out. But they also reckon that even a mangled British libertarian experiment could still hurt Germany’s social model and those of its partners.

Read the speeches or statements of top European leaders, or talk to them and their advisers, and one thing becomes clear: when they hear Brexit they think; “a risk to the European social model”. Some may merely pretend to care about that model. But many more see it as the big European advantage, the basis of a productive and confident European workforce, and the best chance of defending the European project (and its protective capabilities) against cynical populist authoritarians.

Losing Britain was already a great blow to the European project. For the country to leave the EU’s trading regime without a deal at the end of this month would be an even greater one. But for the EU it would also be perfectly reasonable to deem this a price worth paying. Britain will never not be a presence 33 kilometres from Calais, or immediately next to Ireland. UK leaders and opinion-makers have often mooted that their country should thrive by undermining the European social model of its neighbours. It is not just understandable that the EU should take this risk seriously. Anything less would be a dereliction of the union’s duty to its remaining 27 members. All are hoping for a deal with the UK. But not at any price.

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