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25 June 2024

Brexit will haunt a Labour government too

A closer relationship with the EU will be increasingly difficult to develop.

By Wolfgang Münchau

Keir Starmer, who will almost certainly be the UK’s next prime minister, has ruled out a full or partial Brexit reversal in the next parliament. But could he put the issue back on the agenda for the parliament after that?

Even if he wants to, I struggle to see how he can. I see the main constraint not in UK politics, but in regulatory divergence. Of the two, it is the EU that has diverged most. It has been a hyper-active regulator and lawmaker since Brexit formally took place in 2020. The European Green Deal is a large collection of laws – more than 50, depending on how you count them. Led by Thierry Breton, the French industry commissioner, the EU has also become more protectionist and less pro-digital. The EU is the first region in the world to come up with a restrictive regulation of AI. The Digital Markets Act, which came into force a year ago, constitutes a bulwark of micro-regulations about how digital companies and social media providers are allowed to operate. The EU is in the process of imposing tariffs on Chinese electric cars. I don’t think it would make sense for the UK to emulate most of these rules.

Starmer is seeking only minor tweaks to the existing EU-UK trade and cooperation agreement: a veterinary deal to reduce unnecessary border checks and the mutual recognition of professional qualifications. This falls into the nice-to-have category, but is economically irrelevant. For now, the gap between the UK and the bloc is widening. As the UK’s border target operating model, which sets border controls on imports from the EU, is being rolled out incrementally, there will be even more border controls for goods from the autumn onwards.

If a country wants to become an EU member, it must align with EU regulation. This is the most difficult part of the accession process. I struggle to see how a country that is not asking to become an EU member would do this voluntarily. All EU regulation and legislation is the result of lobbying and compromise. The UK could do some serious damage to its industry if the country adopted legislation or regulations made by third countries for itself, and which it was not able to influence at all.

The Starmer government would not only have to shadow what the EU is doing now, but also cover the large mass of legislation passed in the EU between 2020 and now – in addition to implementing its own legislative agenda.

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Another reason to be sceptical about UK-EU rapprochement is the unaddressed issue of the EU’s structural economic slump. I see the roots of that in fragmented capital markets, uncoordinated research and development spending by governments, and a built-in bias towards mostly mid-tech companies. I don’t see the EU fixing these problems in the next five years. The UK shares some of the problems but has the advantage of a functioning capital market and an absence of old-industry corporatism. A stagnating EU would be less attractive for UK voters. So is an EU in which right-wing governments are in charge.

Also consider that the UK could not pick and choose which parts of European integration to adopt. The EU offers five big services to its members: freedom of movement; a single market for industrial goods; a customs union and a joint trade policy; the euro; and the Schengen passport-free travel zone. The UK was not part of the euro and Schengen. Labour is not in favour of freedom of movement. So that would rule out membership of the EU itself or the single market.

It would be conceivable that the UK joins the customs union, as Turkey did in the 1990s. But border checks would still be needed and the benefits would be marginal. The UK is not an industrial powerhouse like Germany. Its specialisation is the export of services, but services do not have much to gain from a customs union.

There is, however, one area where the two sides can work together more closely. The UK and the EU could form a military procurement union. There is a lot of duplication going on, such as the 14 different battle-tank systems being operated in Europe. A procurement union would create a single buyer, which could force efficiency gains, for example by buying only a single tank. The UK is already part of a group of 21 Nato countries that cooperate on a joint air-defence system in the European Sky Shield Initiative. A European defence procurement union would be greater value for money, and ease pressure on military budgets. The European Commission could play a role as it knows a thing or two about running a single market and setting rules for public procurement tenders.

Beyond the military sector, however, I struggle to see any substantive areas of cooperation. It makes no sense for the UK to join the single market or the customs union when it has no influence over the policies. EU membership is a different proposition. But it would not be the same as it was. All the opt-outs would be gone. The UK would be under an obligation to join the euro. It would make no sense for the EU to make exceptions for the UK.

My advice to those in the UK who want to go beyond cooperation on joint projects is to understand the sheer magnitude of what they are up against and question lazy ideas like joining the single market. It would not be a Brexit reversal. It would be something completely new. And I would not count on Keir Starmer to be the one to make a gamble on the unknown.

[See also: The plain-speaking appeal of Nigel Farage]

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