RaboResearch - Economic Research

Dit artikel is ook beschikbaar in het Nederlands

Reformed EU membership for the UK: gains and concessions

Economic Comment

Share:
  • On 19 February, European leaders reached an agreement on reforming British EU membership
  • Despite some gains, Cameron also had to make concessions and as a result, secured fewer reforms than he had promised ahead of the EU-summit
  • Politician’s negative responses to the deal will increase the likelihood of a British exit from the EU (Brexit)
  • Nevertheless, our baseline scenario remains that a majority of the British population will vote in favour of EU membership at the June 23 referendum

The deal on reforming EU membership that British Prime Minister David Cameron and the other European leaders agreed upon on Friday 19 February, surprised slightly on the positive side from a British point of view. However, Cameron also had to make many compromises, therefore securing fewer reforms than he had promised and providing the 'out'-campaign with ammunition. Cameron also announced that the referendum on British EU membership will be held on June 23 2016.

The details of the agreement: what will change?

Cameron aimed to modify UK’s EU membership in four areas: limiting access to social security by immigrants, increasing the role of national governments, protecting non-eurozone countries and improving firm’s competitiveness.

Social benefits and immigration

The agreement states that EU immigrants will have limited access to in-work benefits in the first four years of employment, if an emergency brake system is activated. The emergency brake is activated when the public interest is compromised, for example when the sustainability of the social security system is under pressure, and could be extended to seven years. However, the exclusion of in-work benefits is gradually reduced over the years, which implies that EU immigrants are already entitled to a share of the benefits after their first year in employment. In addition, child benefits for children who do not live in the country where the parent is working will from now on be calculated based on the standards of living in the country of origin. In the UK, Polish citizens represent around 65% and Lithuanian citizens around 6% of all families receiving child benefit for children living in a different member state. As the standards of living in these countries is lower than in the UK, this will result in savings for the British government[1]. All EU members are allowed to apply this recalculation of child benefits directly for new arrivals and from 2020 also for all existing workers.

While Cameron managed to negotiate some changes in this policy area, he also had to make concessions. It is therefore uncertain whether the changes are significant enough to convince the British people to vote to stay in the EU, especially since this is the most sensitive issue for the British people (Rahman et al., 2016).

Sovereignty

Member States will have more opportunities to stop or adjust new European legislation by using the so-called red card. If a majority of the national parliaments is against a bill, the proposal can be withdrawn or modified. This red card is more powerful than the already existing yellow and orange cards, that London thought were too weak, as the European Commission is only obliged to reconsider the bill again when the yellow and orange cards are pulled. Furthermore, the fact that the UK is excluded from the ‘ever closing union’ is now in much stronger terms included in the treaties.

Economic governance

Cameron’s main objective in the economic governance adjustments was to ensure the protection of non-eurozone members against legislation developed by the eurozone, for example to protect the City of London. Surprisingly, Cameron secured some gains in this area, as any non-eurozone member can now put up for debate issues that could discriminate against non-eurozone members at an EU summit. In practice, this will probably lead to postponement, and not rejection of eurozone legislation, because none of the EU members has a veto.

Competitiveness

As part of the deal, European leaders also agreed that the relevant EU institutions and member states will take concrete steps to reduce bureaucracy, increase free trade and complete the internal market, improving firms’ competitiveness.

Footnote

[1] The House of Commons estimates, however, that 0.26 percent of total UK child benefit claims are paid to EU immigrants whose children live in another EU member state.

Negative responses to the deal increase likelihood of a Brexit

Our baseline scenario is that a majority of the British population will vote for EU membership, as a Brexit is undesirable due to the economic and political impact (Prins, 2015). It is, however, possible that the British people value these rational arguments less than emotional arguments. Now that Cameron has achieved a number of gains with the renegotiation of the British EU membership, this will support his 'in'-campaign. However, negative responses to the agreement, not only from the British Eurosceptic camp but also from within Cameron’s Conservative party, increase the likelihood of a Brexit. For example, two important Conservatives, Michael Gove, the British Minister of Justice and a long-term ally of Cameron, and Boris Johnson, the popular mayor of London and a likely candidate to succeed Cameron as prime minister, have announced that they will support the 'out' campaign.

Literature

Rahman, M., Lichfield, C. & Petrova, T. (2016). United Kingdom – Deal will serve its purpose, but only just, Eurasia Group.

Share:
Author(s)

naar boven