Foreign Policy

We’re all Brexiters now

Imagine British political headlines in 30 years. Number 10 could explain the victory in achieving carbon neutrality. Westminster could exceed a universal minimum income to cope with mass unemployment due to automation. But the country is almost certainly not going to debate whether to rejoin the European Union.

Instead, Labor and the Conservatives (or their future incarnations) will compete over who is the tougher negotiator with Brussels. The remains will have become a relic of the past. The UK will be a land of multiracial Eurosceptics.

How can we possibly know? The answer is simple: with a view to Switzerland.

For the Swiss, the 2016 Brexit vote was a strange déjà vu. In 1992, 50.3 percent of the Swiss voted against joining the EU internal market. The classic free trade agreement they negotiated with the bloc in 1972 remained the basis for their economic relations with the EU.

Under this agreement, the Swiss continued to enjoy duty-free and quota-free trade in industrial goods with the EU. Compared to their EU competitors, however, many Swiss exporters were confronted with restricted access to EU markets as well as administrative costs and chronic legal uncertainty, which restricted their competitiveness.

The result? A decade of little growth. In search of easier access to EU markets, Swiss exporters have outsourced production facilities – initially to Germany and later to the newer EU member states. A real estate bubble that turned into a financial crisis dealt another blow to the Swiss economy in the early 1990s.

Although difficult to imagine today, prosperous Switzerland was the worst performing economy among the countries of the Organization for Economic Cooperation and Development (OECD) between 1992 and 2002. And this despite Bern, obsessed with austerity measures, which tried to compensate the blow to the Swiss export economy with budget deficits of up to 3 percent of GDP.

This is the not-so-rosy outlook the UK is facing right now. The final Brexit deal is a free trade agreement that is only marginally more advanced than the 1972 Swiss deal. It is likely that the country’s EU exporters will gradually move production and jobs to the continent over the years.

The economic problems for Great Britain are likely to be even worse than for Switzerland in the 1990s.

On the one hand, the deepening of the EU internal market since the 1990s has made the Union more protectionist. In the case of financial services in particular, the EU has massively promoted the harmonization of regulations across the continent, thereby excluding service providers from third countries such as Switzerland and the United Kingdom.

Second, the UK economy is more fragile than that of Switzerland in the 1990s. The country’s share of business investment as a percentage of GDP is already only around Italy’s level among Europe’s main economies, which also explains the UK’s flat productivity growth, high proportion of low-income jobs and persistent export weakness. Great Britain is even more dependent on domestic consumption than Italy or Spain.

Third, the pandemic hit UK companies particularly hard. A budget deficit of a whopping 16.9 percent is forecast for London in 2020, compared to 9.5 percent in Paris or 6.3 percent in Berlin. Nonetheless, the OECD predicts that in 2020, the UK will see the biggest year-on-year GDP decline among Argentina, apart from Argentina.

Given these difficult economic conditions, it won’t be long before British companies are pushing London to reconnect to the EU single market, as the Swiss business lobby did in the 1990s.

British diplomats are likely to spend the next few years in Brussels to complement the current agreement with negotiations on UK participation in some sectors of the EU’s single market. And just like the Swiss diplomats in the 1990s, in return for market access, they have to agree to comply with the Brussels regulations. In the long run, the economy will outpace concerns about sovereignty.

But at least the compromise has paid off for Switzerland. The new agreements that grant Swiss companies access to the internal market and enable free migration of workers to the EU came into force in 2002. You gave the economy a permanent restart. Since 2003, Swiss GDP growth has been in third place among western countries.

So all is well, that ends well, right? Not quite. Twenty-eight years after the Swiss Brexit moment – and even if companies are satisfied with the market access agreements and the purring of the economy – the EU question remains the most controversial in Swiss politics. And for two reasons.

First, it was illusory to imagine that relations between Switzerland and the EU would ever reach a stable equilibrium. The world keeps turning, new economic sectors develop and interests change. In life, as in politics, there is no final state – devaluing death. For this reason, the Swiss-EU agreements of 2002 must be continuously revised in order to remain effective. To put it simply: the negotiations between Bern and Brussels have never stopped since 1992. The same logic applies to the UK’s future relationship with the EU

Second, carefully crafted trade deals do not end cultural wars. This is especially true as the winning camp doesn’t drop the topic and prefers to milk it instead. Swiss newspapers and politicians continue to find something to get upset about in order to revive the opposition to Brussels. This is the case when there are legitimate concerns about the EU excluding Swiss banks from the market, or when it is a pseudo-concern, as claimed in 2008 that the EU would ban the Swiss national sausage.

In other words, British politics will remain consumed by its relations with Brussels for decades to come, and will continue to detract from other important issues. In the long run, these opportunity costs could prove to be the greatest damage Brexit has wreaked in the UK

As a further consequence of Brexit and the associated drama, the British people – even for those remaining in the EU – will increasingly perceive the EU as an opponent rather than a partner.

In constant negotiations, the EU will continue to defend its perceived collective interests without taking British public opinion into account. With London at the end of the negotiations more often, it will badmouth the EU to defend its own reputation at home. The often unsatisfactory compromises with Brussels that London has to accept will ignite the flames of Euroscepticism in Britain

This has happened in Switzerland over the past 28 years. Almost half of the Swiss agreed to the idea of ​​EU membership in 1992. Today there are far fewer. At the turn of the millennium, three of Switzerland’s four big parties supported joining the EU. Today not a single party is actively campaigning for EU membership.

The political debate in Switzerland has completely shifted from the benefits of possible EU membership to what can be achieved in negotiations outside the Union. The Swiss who continue to talk about membership are classified as non-thematic and unable to answer immediate practical questions. Even the left parties, which have traditionally been the most pro-European, have given up on the issue.

In statements on the Brexit deal at the last minute, European politicians quickly expressed their regrets about the divorce, but also the hope that one day a new generation of Britons would knock on the door of the EU.

But if Swiss history is a guide, that’s unlikely. In time, the market access issues will likely be addressed so that the UK economy can find its level. But this will come at the cost of making the British more and more eurosceptic. The cards are now stacked tightly against the remains.

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