The threat of a Brexit

Woes of the old contient do not seem to end. In recent times, it was first the common currency crisis that almost sank the Euro; then Greece's debt crisis threatened to break the European Union; later came the refugee crisis with which Europe is still grappling. And now Brexit - Britain has threatened to exit the 28-nation Union.

Britain's Conservative party has always been sceptical about the European Union. Its election manifesto (May 2015) promised to hold a referendum by 2017 on whether Britain should stay or leave the European Union. But before the referendum, Prime Minister David Cameron wants to renegotiate the terms of Britain's membership with the EU. If he gets the reforms he wants, he will campaign for UK to remain with the EU. Britain joined the then EEC in 1973 but did not join the Eurozone established in 1999.   

In his letter on November 10, 2015 to Donald Tusk, President of the European Council, Cameron clearly set out the reforms he wants for Britain. At the European Council Summit in Brussels from December 17-18, 2015, Cameron developed four main areas, which set off serious negotiations between UK and the EU. They are summarised below for readers' convenience. 

Economic Governance - recognise that the EU has more than one currency; ensure that countries outside the Eurozone are not disadvantaged – key issue for the City of London; non-Eurozone members will not have to contribute to support Euro; if Eurozone decides to create a banking union, it should be voluntary for non-Euro countries.

Competitiveness - focus on economic growth to generate jobs; look into creating a Capital Markets Union; set targets to scale back unnecessary regulations that are a burden to business; promote the single market which would help add 3percent to EU GDP and boost competitiveness and productivity.

Sovereignty - it is the central issue of the debate, as EU regulations are not made by the European Parliament but by the European Commission; Britain wants to end working for an "ever closer union"; giving greater powers to national parliaments to block EU legislation; EU has to respect British Justice and Home Affairs protocols; national security needs to remain sole responsibility of member states, but they need to work together that affect the security of all. 

Immigration - the current rate of immigration of over 300,000 per year,  particularly from within the EU,  has put tremendous strain on British schools, hospitals and other public services; to stop the abuse of free movement, immigrants from the EU must live in UK and contribute to the economy for four years before they qualify for social benefits. 

Since the announcement of the referendum, there has been a flurry of studies on the pros and cons of Cameron's gamble. Euro sceptics argue that Britain pays more to the EU in the form of membership fees, than what it gets back from the EU. Sceptics have published studies arguing that Britain will be better off by quitting EU. Britain's trade will flourish and its growth will accelerate.  

Europhiles say that exiting EU will be a blunder as Britain will become poorer and lose its pre-eminent position in the world. Some argued that if Britain quits EU, then Scotland and Northern Ireland will secede from Britain. Many predicted that Britain's exit will prompt other members, particularly the weaker economies not in the Eurozone, to also leave. What will be the actual impact of Brexit is still an issue of debate. 

The narrative regarding the formation of the EU is interesting. In the early 1960s, Europe was clearly divided between the "Inner Six" (France, West Germany, Italy, Netherlands, Belgium and Luxemburg) and the "Outer Seven" (Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom).  Inner Six (EU6) included founder members of the European Economic Community (EEC), which was gradually moving towards integration. Outer Seven formed the European Free Trade Association (EFTA), but was not making much headway. 

Britain eschewed EEC membership in the 1950s, but when it applied for membership in the 1960s, it was snubbed by the redoubtable French President Charles de Gaulle. After being rebuffed twice by de Gaulle, Britain finally became a member on January 1, 1973, under Conservative PM Edward Heath, a staunch supporter of European integration. By then, de Gaulle had resigned (1969) and Georges Pompidou had become President of France.   

There were good economic reasons for Britain to join the EEC. It wanted to avoid economic decline. UK's per capita GDP compared to the EU6 members declined steadily from 1945 to 1972. However, it was relatively stable between 1973 and 2010 (Nauro F. Campos & Fabrizio Coricelli).

David Cameron has put the European Council on tenterhooks. Donald Tusk on February 2 unveiled a series of proposals to help persuade Britons to stay with EU. European Commission Chief Jean-Claude Juncker on February 3 said, "The settlement that has been proposed is fair for the United Kingdom and fair for the other 27 member states. It is also fair for the European Parliament. We have addressed the Prime Minister's concerns while respecting the EU treaties". Cameron said that the plan showed "real progress". Euro sceptics have greeted the plans with scorn, particularly UK Independence Party (UKIP) leader Nigel Farage dismissing them as "pathetic".    

What is amazing is that at a time when nation states are keen to form or join regional economic blocs, Britain wants to leave the largest powerful economic bloc in the world. Cameron knows that by being inside, Britain can influence the decisions of EU, but Brexit will deprive him of all the levers of pressure. Even with some reforms, he will campaign with Britons to stay in the European Union. Ultimately, Brexit is all about flexibility and money.

The joke that made the rounds in the 1970s was that Britain could not divide the EEC from outside, so they had to get inside to make a pig's breakfast of the whole thing. Let us hope that David Cameron will not ruin the European project.

The writer is former ambassador and secretary.