The following is a guest post by Georgetown University political scientist Kathleen R. McNamara, the author of The Currency of Ideas: Monetary Politics in the European Union.
In a long postponed speech, British Prime Minister David Cameron today outlined his plan for renegotiating Britain’s relationship with the European Union (EU), promising to bring the result to the British people in an “in-out” referendum within the next five years. Speaking at the London Bloomberg offices, Cameron’s speech comes at a pivotal time, when relative tranquility in financial markets has shifted attention from a possible Greek exit from the eurozone to a “Brexit,” a British exit from the EU itself. Today Cameron presented a forceful vision of how British interests might be met while also forging a broader collective good for Europe and the world, but made clear that the EU’s current course was straying far from that vision. Highlighting developments within the eurocrisis, declining European competitiveness, and a lack of democratic accountability, Cameron hammered home the idea that Britain should opt out of most of the EU’s activities—but continue to participate as a full member of the EU’s Single Market. This is an understandable position—the Single Market accounts for roughly half of all British exports and investment — but Cameron’s desire to have his cake and eat it too is a nonstarter. While calling for an unwinding of Britain in the broader EU is a crafty political stance for domestic reasons, it ignores the reality that deep market integration is always and everywhere unsustainable without a broader panoply of laws, institutions, and political community to support such integration. No matter how Cameron tries to finesse it, we may be seeing the end of British membership in the EU before the end of this decade.
Whatever else, the speech was a genuinely impressive piece of diversionary politics. Cameron is facing unrest in his Conservative Party, including a vocal minority in the UK Independence Party (UKIP) led by the ever entertaining euro-basher (and Member of European Parliament himself) Nigel Farage. But most damaging to Cameron’s party’s chances in the 2015 elections is an economy mired in recession and ravaged by austerity policies. Playing the Brussels card allows for voters to rally round the hated eurocrat bureaucracy in support of the Conservative Party, and puts Labour in a very awkward position of potentially having to campaign against holding a referendum on the EU.
But the irrevocable problem is that the play to isolate the single market from the other aspects of the EU ignores both history and logic. Deep integration across all the various factors of production—goods, services, capital and labor—does not occur without extensive rules and institutions to regulate and stabilize market exchange and protect investors, contracts, consumers, and workers. As Karl Polanyi argued long ago in his work on the historical embeddedness of markets, and Neil Fligstein has shown, political bargains and the institutions to support them are part and parcel of modern market economies. There is a reason why the WTO falls far short of the liberalization of trade that occurs within nation-states or in the EU: it lacks the complex series of rules and agreements and institutions that uphold markets and allow for the political and social bargains to support them. Britain could follow Norway or Switzerland to a looser free trade arrangement with the EU, but Cameron explicitly argued against this in the speech. Despite his rhetoric, however, the reality is a starker choice—all in, or all out—than he is making it out to be.
Ultimately, Britain is facing this decision about its future in Europe not just because of Cameron’s domestic political issues, or unhappiness with the eurocrats in Brussels. Instead, the real impetus lies ultimately in the eurocrisis, as Cameron obliquely put it, “driving fundamental change in Europe.” The dynamics that push forward political development when markets deepen also apply to the single currency. Europe now faces the fact that the euro cannot continue without a more federalized union, including fiscal consolidation at the EU level and new forms of political accountability in Brussels. Unprecedented actions on the part of the European Central Bank, new financial stabilization institutions, a banking union, and ongoing discussions about ramping up political union mean that the core eurozone countries will continue to pull away from the vision of British interests Cameron laid out at the start of his speech. The collective good of the EU is demanding change, and it is a change that is unlikely to suit either political party in Britain. A Brexit and membership in the European Free Trade Association may ultimately be the most likely outcome, despite Cameron’s savvy political politics.