Former Prime Minister John Major called the UK “the country of long shadows on cricket grounds, warm beer, invincible green suburbs, dog lovers, and pools fillers. But what he was really describing was England. Indeed, the key elements of modern UK identity all seem to belong to England, rather than to the composite entity. Not only the individuality, but Britain as one of the former members of EU also began to lose its voice, as the EU expanded from six countries to 28.
Jean Monnet’s dream of a United States of Europe was not what the British wanted when they joined the EU 40 years ago. Nor were they seeking a European counterweight to the United States, as Konrad Adenauer, Germany’s first post-war chancellor, had once advocated. Britain simply wanted the advantages of increased trade and labor-market integration with countries across the English Channel.
The EU began as an agreement among six countries to achieve free trade in goods and capital and to eliminate barriers to labor mobility. When EU leaders sought to reinforce a sense of European solidarity by establishing a monetary union, Britain was fortunately able to opt out and keep the pound – and control over its monetary policy. But the opt-out has left Britain a relative outsider within the EU.
With the expansion of Eu, Britain could not permanently limit entry to its labor market by workers from the new member states. As a result, the number of foreign-born workers in Britain has doubled since 1993, to more than six million, or 10% of the labor force, with most now coming from low-wage countries that were not among the EU’s other original members.
The “Stability and Growth Pact” of 1998 imposed a limit on member countries’ annual deficits and required that debt-to-GDP ratios shrink toward a maximum of 60%. When the global financial crisis began in 2008, German Chancellor Angela Merkel saw an opportunity to strengthen the EU even further, by enforcing a new “fiscal compact” authorizing the European Commission to oversee members’ annual budgets and impose fines for violating budget and debt targets (though no fines have been levied). Germany also led the move to establish a European “banking union” with a single regulatory framework and a binding resolution mechanism for troubled financial institutions.
Not all of these policies directly affected the UK; nonetheless, they widened the intellectual and political gap between Britain and the EU’s eurozone members. That reinforced the fundamental difference between market-oriented British governments and those of many EU countries, with their traditions of socialism, government planning, and heavy regulation.
The UK is also now in a better position to negotiate a more favorable trade and investment treaty with the US. Although the proposed US-EU Transatlantic Trade and Investment Partnership (TTIP) is bogged down, a British government outside the EU could negotiate a deal with the US far more easily. The US would be negotiating with one country, not 28 — many of which do not share Britain’s pro-market policies.
For now, E.U. leaders will have to remove only one chair from the continental conference table, and the challenges Britain faces as it unwinds its relationship with the rest of Union will likely play a big role in determining if any other members follow. As with all things political, however, psychology will play at least as big a role as reason in the decisions those countries make. It’s a messy truth, but it’s an entirely human one too.