Brexit: U-Turn for the Whole EU

Matt Snape

The transition period for the UK’s exit from the EU has ended after both sides miraculously drafted a trade agreement before the end of 2020. It did not take British and European politicians long to approve of the pact prior to January 1, and the anticipated disaster of a no-deal Brexit was avoided.

Brussels has proven yet again that it is notorious for approving of deals at the last minute.

What’s Next?

Now that Britain has left the EU, its member states no longer have to deal with a nation that was seen as an obstacle to its integrationist ambitions. The UK was once a valued member of the bloc thanks to its influence in the US and its significant contributions toward the EU budget, yet it was always the awkward partner when it came to further integration, particularly under Conservative governments. Brussels’ approval of a trade pact managed to prevent economic disruption. However, the EU’s greatest challenges lie ahead.

Further EU Integration is Likely on the Way for the Sake of Survival

In theory, integration should be a lot simpler, particularly when it comes to monetary union. Former British chancellor Gordon Brown vetoed the UK’s participation in the eurozone and his successors have followed suit. This always made economic integration harder, but now the EU no longer has that excuse.

Last year, the coronavirus exposed the eurozone’s weaknesses. In July, the European Council hosted its longest meeting that it has had since the Nice, France gathering in 2000, and agreed upon a €750 billion recovery package. The package consisted of grants and loans to counter the economic impact that the coronavirus has inflicted on the bloc since March 2020.

Yet the negotiations revealed how divided the EU is as Sweden, Denmark, Austria, the Netherlands and Finland opposed grant extensions, whilst Spain and Italy favoured this outcome. Should the coronavirus continue to devastate the EU’s economy, some longer-term solutions will be necessary to ensure that the bloc can survive.

Strong Eurozone? Not So Fast

Milton Friedman and Martin Feldstein warned in 1999 that the eurozone cannot succeed without a political union. Given how the 2008 recession and the coronavirus pandemic revealed how vulnerable the euro is, they were right to make this argument. Even though Britain has left the EU, a strong eurozone is in the UK’s best interest as Europe will remain London’s strongest trading partner for now. Despite this, a strong eurozone may be nothing more than wishful thinking.

Now that Brussels has awarded Britain a free trade deal, many remaining EU member states could realize that they may be able to achieve the same outcome should they leave the eurozone or the bloc itself. The economic impact of the coronavirus has frustrated the populations of EU nations who have suffered as a result of the pandemic.  The Daily Express reported on one survey which suggests that 50 percent of Italians support an “Italexit,” or Italy’s exit from the EU, whilst 27 percent of Italians prefer to remain within the bloc.

Eurozone membership makes it impossible for Italy to devalue its own currency which is part of the reason why Italy’s economy has stagnated since 2008. This makes the prospect of southern European countries leaving the eurozone a possibility, should Italians vote for a coalition government committed to this pledge in the future.

Political Union isn’t Easy

Political union will be impossible to achieve without the full support of all of the EU’s member states. Polish Prime Minister Andrzej Duda and Hungarian Prime Minister Viktor Orban blocked the approval of the EU budget in November 2020. Both Poland and Hungary seem to be pursuing their own paths contrary to the democratic principles the EU is meant to uphold.

This led to Tom Theuns of EU Observer suggesting that a new EU could be founded without the support of Budapest and Warsaw.  This is a radical idea, but one that could gain momentum in the future should Brussels get even more frustrated with Orban and Duda.

Brexit is an exciting opportunity for both the UK and the EU. Regardless, the latter may find its ambitions could be thwarted by obstacles that are still prevalent post-Brexit. What happens to Europe next is anyone’s guess.