Federal Trust Blog

Ernesto Rossi and the Call to Europe

by Roger Casale
Founder, Secretary General & CEO, New Europeans

23rd May 2020

This article was first published by Euractiv.

It is time to rebuild the EU on the foundations set by Ernesto Rossi and others, writes Roger Casale.

It is hard to escape the impression that we are witnessing the death of the old and the birth of the new in the global response to Covid-19.

Ernesto Rossi, Italian anti-fascist and co-author of the Manifesto of Ventotene would not have felt out of place against the background of such epoch-making changes.

Continue reading Ernesto Rossi and the Call to Europe

“A Far Away Country” and how Britain could exit NATO

A Royal Norwegian Air Force F-35 Lightning II takes off from Keflavík Airport in Iceland as part of NATO’s Air policing mission. Photo copyright: NATO

by Dr Andrew Black
Senior Research Fellow at Global Policy Institute; Senior Research Fellow, Brunel Business School

27th May 2020

How horrible, fantastic, incredible it is that we should be digging trenches and trying on gas-masks here because of a quarrel in a far away country between people of whom we know nothing.”  —Neville Chamberlain, British Prime Minister
Broadcast before leaving on September 27, 1938 for a meeting with Hitler, Daladier of France and Mussolini of Italy


Introduction

Following the 2016 referendum that gave a slim majority to the Brexiteers, the European Union planted its flag in an area long resisted by Britain, that of defence. The EU would now add to its responsibilities a duty to protect EU citizens, and to protect the EU.  And following on from that, and building on earlier initiatives, a series of new acronyms emerged.

Continue reading “A Far Away Country” and how Britain could exit NATO

Weaponising the Exit Agreement: the ongoing Irish dimension of Brexit

by Dr Andrew Blick
Reader in Politics and Contemporary History at King’s College London; Senior Research Fellow at the Federal Trust

20th May 2020

Prior to the referendum of 23 June 2016, little attention was given at UK level to its possible implications for Northern Ireland. But in the wake of the ‘leave’ result of 23 June 2016, many issues that – though knowable in advance – were neglected, now became impossible to ignore. Northern Ireland is a focus for a number of complications associated with Brexit for the following reasons:

Continue reading Weaponising the Exit Agreement: the ongoing Irish dimension of Brexit

Where will the jet-set go after Brexit?

by Bob Savic
Senior Research Fellow at the Global Policy Institute; Visiting Professor at the Asia Research Institute, Nottingham University

18th May 2020

An interesting side-effect of Brexit is that currently, UK tax-resident non-domicile individual clients are increasingly, and understandably, seeking alternative residence in largely English-speaking European jurisdictions, such as Malta and Cyprus. They want above all to secure their EU citizenship post the UK’s EU transition period, which may possibly expire by the end of this year. 

Malta is one of the many EU countries which offers a High Net Worth Individual “HNWI” Residence Scheme for non-EU nationals.  Many EU states also provide the same, including Portugal, Spain, Ireland, Greece, among others.  The principal difference in the attractiveness of Malta and Cyprus, for HNWIs and their UK-based families, essentially revolves around these countries’ English-speaking environments.  Clearly, Ireland is also English-speaking, the problem is that its weather is overwhelmingly influenced from the cold, wet and blustery Atlantic, rather than the warm, dry and breezy Mediterranean, and therefore, doesn’t attract many of the global jet-set to settle there. The question, though, is how much would the British government tolerate a decline in global HNWIs choosing to settle in the UK, preferring instead another location in the EU.  Perhaps it’s not an issue for the mainly Kensington-dwelling and Eton-educated Brexit political class who’ve been somewhat reportedly pushed out of their traditional wealthy central London neighbourhoods and elite public schools, in recent years, by the overseas nouveaux riche?  But in the end, Brexit is not just about keeping out Europeans, it’s also going to deter wealthy non-Europeans settling here and doing their bit in flying the flag for the Johnson government’s “Global Britain” enterprise. 

In any case, let’s see how Johnson et al fare in coming months.  At the beginning of the so-called Brexit government’s tenure in office, I had suspected it could well fall by the end of this year, given the likelihood it was not going to effectively manage the coronavirus pandemic which looked set to befall the UK. I had monitored in great detail the pandemic’s deadly proliferation in China, back in January, and subsequent contagion in neighbouring Asia.  Unfortunately, with great sadness, Covid-19’s impact on Britain – suffering the highest number of deaths in Europe – was even worse than I actually anticipated! Needless to say, the political backlash to this government’s frequent mishandling of the crisis, has probably only just started.  By Autumn, following a likely summer lull, as weary Britain takes the opportunity to soak in a bit of outdoors sun, mainly in their backgardens and public parks, the ensuing political furore is likely to gain traction.  It’s now only a short matter of time before the populace realise that “England Alone” simply isn’t going to make it in a world where interconnectedness, especially regional, is of paramount importance in the face of a deadly and globally-mobile virus alongside its economically-debilitating consequences.  

In the meantime, here’s a link to an article I recently wrote and which was published with The Diplomat (based in Washington DC, it is a highly-regarded online publication read by global business, academia and government on Asia-Pacific) where I argue that food security alongside strong national and intergovernmental support, in this vital sector, is one reason to maintain close regional interdependence.  This food supply interdependence was severely tested among the 10 states of the Association of Southeast Asian Nations “ASEAN” and China, during the COVID-19 pandemic there, yet, even in the face of powerful forces urging national governments to fall back on themselves, the region’s governments still managed to weather the storm for their collective wellbeing – a lesson this government should take on board if we are to secure our own future within a region we are inextricably a part of.

Brexit, Transition and Ireland

by Brendan Donnelly
Director, The Federal Trust

6th May 2020

Eight months before the end of the transition period the British government seems intent upon two courses of action which will exacerbate the inevitable political and economic damage to the United Kingdom when it finally withdraws from the European treaties. The government has, first, made clear that it will not seek in any circumstances an extension to the transition period; and, second, its self-serving and implausible interpretation of the Withdrawal Agreement relating to Northern Ireland has created well-founded doubts in the EU’s collective mind about its good faith on this and related issues.

Continue reading Brexit, Transition and Ireland

How will COVID-19 impact Brexit?

by John Stevens
Chairman of the Federal Trust; Former Member of the European Parliament (1989 – 1999)

4th May 2020

In the latest iteration of the unempathetic essence of their cause a debate is emerging amongst the supporters of Brexit over whether the crisis created by the COVID-19 virus will prove politically to be a help or a hindrance. It is most apparent in the issue of whether the United Kingdom should accept an extension of the transition period for leaving the European Union beyond the present deadline of the end of this year. But it also infuses discussion (or lack of it) over the appropriate exit strategy from the on-going lock-down and even impinges on collateral controversies as varied as those over the Government’s procurement of protective equipment for health and care workers and our future relations with China.

Continue reading How will COVID-19 impact Brexit?

Scotland, the UK and Brexit: Changing Politics at a Time of Crisis

by Dr Kirsty Hughes
Director, Scottish Centre on European Relations

6th April 2020

This comment was first published by Scottish Centre on European Relations

Covid-19 has put much of the debate, and the talks, on the future UK-EU relationship on pause. But the political debate will return – not least with the question of whether the UK government will ask to extend transition by the end of June, and too with the resumption of intensive negotiations, whenever the development of the corona crisis allows.

There is much speculation and argument already about the impact of the crisis on UK, European and wider politics. Whether that new context would allow for a ‘softer’ Brexit rather than the hard, basic free trade deal that Boris Johnson has aspired to until now is perhaps an open question. But it is probably not seen as an open one right now by a UK government still tied to its pre-crisis mantra of freedom from EU regulations and its myth of a renewed global Britain.

Renewed Debate on the UK-EU Relationship?

If, though, there is a longer transition with the UK still in the EU’s single market and customs union until the end of 2021 or even 2022 then this debate would surely recur. And, if so, it will recur in a changed and changing politics both in the UK and in the European Union. In the EU, debate is intensifying, and divisions are deep, over the nature of support for the inevitable and crucial sharp increase in debt needed to recover from the crisis. How the EU resolves that question is fundamental for its future politics and solidarity – or lack thereof.

In the UK, there is much debate to come over how the crisis has, and will have, been handled: how to fund the NHS after a decade of damaging austerity, how to tackle inequality and low pay. The Conservative government may have a majority of 80 but that will not mean it can simply stay on track with its pre-crisis policies of a hard, gung-ho Brexit plus a bit of infrastructure spending for the north of England. The scale of the health and economic challenges and policy responses will ensure that.

New Labour leader, Keir Starmer, faces big challenges and, too, opportunities in this time of crisis and flux. The language of national unity he is choosing to employ may seem statesmanlike to some but is unlikely to cut it for long if these political opportunities are to be grasped. And the EU and Brexit questions are not going to disappear nor be any easier, quite likely, than they have been for Labour in the last four years. And the political and constitutional challenge of Labour’s weak support in Scotland, and the independence debate post-Brexit, will not disappear off the agenda either.

Extending Brexit Transition

The SNP’s Westminster leader, Ian Blackford, has called on Labour to join the SNP in demanding an extension to transition. It would surely be hard for Labour not to do this – imposing a second major shock on the existing and developing one from the corona crisis is something that needs to be left as the choice of the Tory government alone, if that is their choice.

But Keir Starmer might be forgiven for not entirely welcoming the prospect of an extended transition. It would be easier, in many ways, to critique and oppose a basic and damaging UK-EU free trade deal or even, as is still possible, a no deal Brexit, than it will be to develop strategic new policies on managing Brexit. As Brexit shadow, Starmer presided over a policy that argued the UK should stay in the EU’s customs union and close to, but not in, its single market (with more fudge over whether and when to back a second referendum). The relationship to the single market was never clearly explained – all part of the tortuous Labour Brexit fudge.

If the Brexit transition is extended into 2021, then Labour will not be able to avoid the question of what its Brexit policy now is: does it still want to be in the customs union but not in the single market (a policy that was always remarkably close to Theresa May’s deal)? Or does it have a new Brexit vision? This would be easier to avoid as a question, fudge some more even, if Johnson was tying up a basic, bad deal by October this year.

Scotland, Brexit Transition and the 2021 Elections

And in Scotland, while the focus for now is on managing the corona crisis – and with the fall-out from the Salmond trial only just beginning – the question of the UK and Scotland’s future relationship with the EU will not go away. The SNP back an extension of transition. Their policy of a ‘soft’ Brexit as a compromise – staying in the EU’s single market and customs union – is straightforward (despite the democratic deficit it entails). And UK business – in the face of a transition extension and a deep recession – may well make more noise about that option too.

But an extension of transition potentially opens up a bigger prize for the SNP: of having a second independence referendum before the end of transition. This assumes the May 2021 Holyrood elections are held on time and that there is an SNP majority. And it leaves open the crucial process question of London-Edinburgh agreement on holding another vote. But the corona crisis and a potential extension of transition nonetheless would change the debate around an independent Scotland in the EU.

Pre-corona, it looked clear that Scotland, having left the EU with the rest of the UK, would diverge to some extent from the EU and face an accession process that could be fairly quick but certainly not seamless. But a possible ‘yes’ vote before the UK had left the EU’s single market and customs union, could bring back discussion of a possible ‘holding pen’ for Scotland.

Certainly, the extension of transition would not be long enough for there to be an independence referendum and a negotiated split from the UK. But if Scotland voted ‘yes’ before the end of an extended transition – perhaps even before the end of UK-EU talks – then how Scotland’s transition to the EU should be handled would look rather different and potentially smoother.

Of course, the UK government will be well aware of this. And Johnson may not give up on his rapid and basic Brexit deal mantra yet. But this question will go up the political agenda in the coming weeks.

Meanwhile, Keir Starmer has already said that in opposition he wants to hold a constitutional convention that will apply a “principle of federalism and a new settlement for the UK.” But how fast will this convention happen and would the outcome simply be offered as part of Labour’s manifesto at the next election? There would be a strong argument for any new settlement to be tested in a referendum – and certainly in Scotland for there to be a choice between that new settlement and independence. Starmer may hope to kick all these questions down the road a year or two (or more). But in the face of the corona crisis, Brexit, and Scotland’s upcoming elections, these questions will surely be asked and need answering much more swiftly than that.

Where Will the Crisis Go Next?

The corona crisis is likely to turn UK and EU politics upside down much more than it has so far. The core questions and debates may change deeply – for better and for worse. But what sort of UK, Scotland, and EU, socially, democratically and economically, we are likely to see and want to see will surely be amongst the questions being asked.

How well or badly the EU comes through the crisis is a crucial question. A fragmented and divided EU will not be set fair to lead the European recovery that will be needed, let alone ensure it is a green one designed to tackle climate change (and show international leadership) while underpinning economic recovery. But an EU that manages to find its solidarity and step up to the crisis will be in a much stronger position – at home and globally. Either way, though in different circumstances, there is likely to be increased debate about what the future EU should do, how it should develop, what its role at home and internationally needs to be.

A UK not set on a hard Brexit might want to be part of that European debate. Thinking anew about how the UK fits in a reviving or restructuring European scene could, perhaps, be constructive, strategic even. This is a challenge for political parties across the UK. Alternatively, a UK continuing down a hard Brexit route might look like a more familiar sight – but in the face of a deep recession or deeper depression, that would not be politics as usual either. In a different political and economic landscape, the UK will still not be able to avoid questions of its relationship to the rest of Europe.

How the Scottish independence debate will change, including its relationship to the EU, and to the rest of the UK, is also an open question. It is not about to go away as an issue. But the context of the debate looks set to change as Scotland, the UK, the EU and the rest of the world navigate their way through this extraordinary crisis. Where the future UK-EU relationship goes, and where UK politics and economics goes in the next few years will be key questions here.

And one fact will remain for now – the UK has already left the European Union. So however much politics changes in the coming months and years, the UK and Scotland will have to navigate their future relationship with the EU. The question of an extension of the Brexit transition may look like a pre-corona crisis question. But in fact its a question emerging from the crisis. And how this next Brexit question is answered will be one important part of how UK and Scottish politics unfolds through this crisis.

Coronavirus Crisis, Brexit and Scottish Independence

by Dr Kirsty Hughes
Director, Scottish Centre on European Relations

20th March 2020

This comment was first published by Scottish Centre on European Relations

The UK is heading into the most difficult and intense months of the coronavirus crisis – both in terms of the pandemic itself and the major economic and social crisis it is unleashing. The Scottish government, so far, has worked closely with the UK government – despite the latter’s damagingly slow and misplaced initial response (now starting to speed up). Europe is now the centre of the crisis – although events are changing fast in the US, and globally, too.

How the EU and the UK – and the global economy and geopolitics – emerges from this crisis, and what the path of the crisis will be, is as yet unclear. But Brexit – with the two lead negotiators, Michel Barnier and David Frost, now each in isolation – is surely on the back burner. There is neither political, civil service nor public bandwidth to push the talks through in the short time available in this one year transition.

Extending Brexit Transition?

It is, from a rational point of view, extraordinary that the UK government is not yet asking for an extension of transition – as the withdrawal agreement allows for (for one or two years). But this is surely highly likely to come. Perhaps Johnson’s ideological government, struggling to rise to the coronavirus crisis, might irrationally decide that imposing more substantial Brexit damage on to a UK economy, that like other countries, is about to face a very major recession, probably deep depression, is all part of the necessary Brexit transformation. But already we see increasingly major, rapid and centralised government interventions are necessary to handle this crisis’ economic fall-out. And reality may soon start to bite and demand that extension of transition, with the UK staying in the EU’s single market and customs union for longer.

Scotland, Independence and the EU in the Crisis

How the evolving and deepening crisis will develop in the UK, in Scotland and in the EU, and globally, is an open question. A recent UK poll suggests more support for the UK government – that may or not continue. In Scotland, we will see whether the Scottish government differentiates its response – within its limited powers – in any way from that of the UK government. So far, it seems not.

And we will see what happens to public opinion in Scotland. Will support for independence continue on its upward trend visible since the UK left the EU at the end of January (an age away now it seems). Or will the deepening crisis , the lack of attention to Brexit and a quietening of the independence debate show up in a lessening of support for independence? Time will tell.

But if the UK government does follow the obvious rational path and agrees with the EU an extension of the transition period where the UK stays in the EU’s single market and customs union, this will be likely to re-open debates that had moved on – in terms of how, when and how easily (or not) an independent Scotland might re-join the EU if it had not diverged substantially from EU rules.

If the Brexit transition were to continue to the end of 2021 or even into 2022, then the UK would still be in the single market and customs union at the time of the Scottish elections in May 2021 (assuming these go ahead on time – depending on the path the crisis has taken). If these elections show clear majority support for the SNP – and for the pro-independence Scottish Greens – this will create substantial pressure for another independence referendum. And an extension of transition would open up the possibility that an independence referendum could take place by, for instance, the end of 2021 i.e. while the UK was still in the EU’s single market and customs union.

In a scenario of a ‘yes’ vote in an independence referendum while the UK was still in the EU’s single market and customs union, there would then have been no divergence in Scotland from EU rules and laws. Certainly, if the UK agreed a free trade deal with the EU to start from January 2022, then any divorce talks between the UK and Scotland would conclude at least two years after this.

But if at the time of a ‘yes’ vote, Scotland was still in the EU’s single market and customs union, there would be a strong argument for finding ways to keep it closely tied into the EU, during its rest of UK (rUK)-Scotland divorce talks, even while rUK moved into a free trade deal. This would need three-way discussion between rUK, Scotland and the EU, but it is a possible scenario.

Political Uncertainty Dominates

We are at the start not the end of an extraordinary crisis. Where UK, Scottish and European politics will go through the months ahead is unknown. If there were a strong push for an independence referendum in 2021, a ‘no’ from Westminster might still be the likely response. Arguments will doubtless continue or recur over whether to somehow treat the May 2021 elections as a quasi-referendum or to test in court the legality of Holyrood calling an advisory referendum.

But the EU, in a year or more’s time, will be picking up the pieces from this multi-faceted, profound crisis, planning social and economic recovery, continuing with systemic change demanded to tackle climate change (but from a new, changed position) and more. The EU will not be prioritising the future trade deal with the UK – it will, at best, want to get it out the way quickly. The EU, in whatever shape and state it emerges from the crisis, may well still be open to an independent Scotland joining the EU – if it has been a legally and constitutionally valid process. Or the EU may be so pre-occupied by the new world it will find itself in that accession may be the least of its interests – the EU could, for instance, choose to postpone or freeze existing accession processes with the Western Balkans; or alternatively it might consider a major re-think of its range of relationships across Europe.

But if, back in the UK, there is a political and constitutional stand-off between Westminster and Holyrood over an advisory referendum, the EU will stand well back. Even pre-crisis, the EU’s more open political mood music to an independent Scotland post-Brexit, depended on it being an agreed process as in 2014. These key EU political sensitivities will not disappear.

A Year is a Long Time

An extension of the Brexit transition will potentially change the contours of the debate around Scottish independence in the EU – perhaps offering up the prospect of a smoother transition for an independent Scotland from the UK to the EU. And the crisis, and an extension of transition, are also likely to change the context of the UK-EU talks on their future relationship – and perhaps the substance of that relationship as well, possibly in profound ways. And that too would impact on Scotland’s future choices.

But we know, too, that the upheaval ahead will surely change these potential political dynamics in major and myriad ways. The scenarios we come to face in a year’s time may yet look very different indeed.

The EU’s Fiscal Criteria: Debit, Deficit and Currency Questions

by David Gow
Editor of Sceptical.scot, Senior Adviser at Social Europe and Senior Adviser at Acumen Public Affairs. He is former European Business Editor of The Guardian and worked for The Scotsman and London Weekend Television.

17th March 2020

This article was first published by Scottish Centre on European Relations

Introduction

Such is the binary nature of political debate in Scotland that views on the economic prospects for an independent Scotland to join the European Union are overwhelmingly Manichean.

Either the country will sail through the accession process in a matter of months post-independence. Or the economic, fiscal and monetary obstacles will be so high it may never happen – and Scotland will forever be saddled with outsider status. A North Sea Belarus.

It should go without saying that neither of these extreme positions – ultra-independista and nec plus unionista – is based in reality. What matters is less the current state of the Scottish economy – hard to disentangle from a 313-year-old economic and monetary union – than what it might or could be x years from hence when or if Scotland is an independent country. And that is a big unknown.

One reason for this uncertainty is that (at the moment of writing) the UK government has published a negotiating mandate for the talks with the EU on future relations that puts the accent on divergence.

The more a post-Brexit UK, including willy nilly Scotland, pursues deliberate divergence the harder it will be for an independent Scotland to meet the criteria for (re)joining, although the Scottish government hopes to stay aligned to EU law in some devolved areas of policy including the environment. As a sub-state, albeit with devolved powers, Scotland has limited room for manoeuvre economically. It could easily be dragged down in any UK-wide recession.

And the longer this economic uncertainty goes on, and the lengthier the process of seeking and winning independence, it will become even more difficult to meet the specifically fiscal and monetary criteria for EU membership.

The State of Scotland

The Scottish Fiscal Commission delivered its latest 5-year forecasts for the Scottish economy in early February (post-Scottish budget, pre-UK budget), showing GDP growth a shade over 1% per annum. Tax revenues, however, show a much healthier upward trend, largely on the back of sustained wages growth bringing a higher income tax yield. But no forecast for the budget deficit is given. Equally, other neutral commentators such as the Fraser of Allander Institute are sceptical about the degree of wages growth forecast (3% a year roughly).

The budget deficit is a key number when it comes to accession to the EU but not as determinant as some commentators (disingenuously) suggest. In 2018-2019, the deficit, including a share of North Sea revenues, was 7% when the UK’s was 1.2%. The OBR forecasts it will hover around 6% up to 2023-24 – or the period when, on a generous time horizon, Scots might be waking up to being in an independent country. In comparison, the current eurozone government deficit is 0.7% and that of the EU28 0.9%, with the suggestion that this is an inappropriate straitjacket imposed by the Germans and other “frugals” when the eurozone economy faces recession. In Scotland, meanwhile, there is considerable debate over the true scale of the deficit upon independence and whether or how to bring it down to such low value.

The Scottish government, drawing on the report of the Sustainable Growth Commission, estimated[1] an inherited deficit in 2021-22 of 5.9% of GDP, assuming lower spending on defence, debt servicing and “some other services”. It says: “An independent Scotland would need tight public spending rules to bring the country’s deficit down from around 6% in 2021-22 to below 3% over a period of 10 years”. The 3% target is that set by the EU’s Stability & Growth Pact (SGP) aka Maastricht criteria. So far, there has been no credible indication of what policies, let alone concrete spending measures or cuts, would be put in place to achieve such an outcome. The Growth Commission proposed that total public spending should increase by 1% less than GDP for the first decade post-independence. As it assumed GDP growth of 1.5% a year, spending on public services and benefits would increase annually by just 0.5%. The Institute for Fiscal Studies observed: “Such an approach would see spending on public services and benefits fall by about 4% of GDP over that decade. Add on the growing amount the Scottish government would have to spend on servicing its increasing post-independence debt, and overall public spending and hence the deficit would fall by 3% of GDP. Together with some assumed but unspecified efficiency savings (0.3% of GDP), that brings the forecast deficit down to 2.6% of GDP one decade after Scottish independence.”[2] Of course, the Growth Commission is targeting 3% annual GDP growth which, if attainable (a big if), would imply a softer fiscal regime and easier path towards a sustainable deficit.

For the year to end-March 2019, UK government debt stood at 85.2% of GDP, a shade below that of the eurozone (EA19) at 86.1% in Q3 2019, and above that of the EU28 at 80.1% compared with the Maastricht reference value of 60%. Central government gross debt stood at £1.8 trillion at end-March 2019, but we have no idea what Scotland’s share of this would be. The 2013 Scottish government white paper, before the 2014 independence referendum, suggested this could be either via population share or aggregated fiscal deficit (starting arbitrarily at 1980-81 in that report or just prior to when North Sea oil revenues kicked in.)[3] Another suggestion[4] in that period was to follow the example of the Czechs and Slovaks during their ‘velvet divorce’ of 1993 and divide assets on a geographic basis (oil, say, in the Scottish case) and debt via the share of population. The Growth Commission suggests – somewhat airily – that national debt should “not increase” beyond 50% of GDP and stabilise at that level.

Meeting the criteria

Political commentators, often across the binary divide, confuse the criteria for joining the EU with those for adopting the single currency, the euro. There is no demand for an extant budget deficit of 3% or debt-to-GDP ratio of 60% for entry to the EU: these are, once again, the Stability and Growth Pact reference values, not a barrier as the Croatian case underlines and are more relevant (though not absolute) for adopting the euro. The Croats joined the EU in 2013 when their net government deficit was 5.3% after falling to as low as 2.4% in 2007 and rising to 7.9% in 2011 as the financial crisis and economic slump took their toll.

In other words, they had to show they were on a downward path and indeed the country registered a small surplus (0.2%) German-style in 2018, with similar ones projected for this year and next. The crucial point, however, is what happened post-accession. Croatia was rapidly, after its first 6 months only, put under the EU’s Excessive Deficit Procedure (EDP) and then carried out a fiscal squeeze to comply with the deficit conditions. So, an independent Scotland could ask for a transition period during which it would work towards meeting the Stability and Growth Pact targets, pointing out any progress already made but the Commission and the member states would decide whether progress towards the targets was adequate. And it and they could insist on a tight schedule.

Here the question is whether the Scottish polity, let alone populace, is aware of how severe the spending squeeze might have to be – coming not that long after a decade of austerity. Would an independent Scottish government and civil society be both able and willing to accept strict spending controls/cuts? The typical answer that independence will, by itself, trigger an entirely different set of (positive) economic outcomes may be wishful thinking. As matters stand, we simply have no way of knowing whether that’s likely or not.

Equally, there is no doubt that an independent Scotland would have to indicate its willingness to join the euro – at an unspecified point. Eight EU countries, including Denmark, which has an opt-out, and Sweden, which does not, are not in the single currency. In this case, the five convergence criteria – on inflation, deficit, borrowing costs – are stricter than for entering the EU per se.

What matters more is the currency question itself, arguably the one that undermined Alex Salmond in the 2014 independence referendum. His successor, Nicola Sturgeon, simply asserts that “… it is not true to say that we would have had to have established an independent currency before joining the European Union.” She abides by the Growth Commission process of ‘sterlingisation’ or sharing sterling before adopting an independent Scottish currency further down the line. That may be problematic. Initially, at least, the Scottish Central Bank (as proposed by the Growth Commission) would not set its own monetary policy, including interest rates – unlike, say, the Slovenes which set theirs up as early as 1991 in the break-up of Yugoslavia. Slovenia entered the EU on January 1 2004 and joined the euro exactly three years later. But, two decades later at least, a newly independent Scotland might face a different – and very political – interpretation of whether it met the economic criteria, including the key one of “macroeconomic stability (including adequate price stability as well as sustainable public finances and external accounts)”.

Conclusion

The national debate about an independent Scotland joining the EU, broken off to all extents and purposes in 2014, has been rebooted but at a low energy level within the Scottish government and Holyrood. If it is to be meaningful, there needs to be far more active engagement by both the political class and civil society. At the core of this national debate must be the economy and whether it can be brought to a position where Scotland can and will meet the criteria for accession if it so wishes. So far, it does not meet those economic criteria in their entirety – notably monetary policy as well as exchange rate, as set out in Chapter 17 – but the true state of the economy if and when the Scottish government embarks upon the EU accession process may be more favourable then.

Ultimately, this will be a political decision. And the EU holds many if not most of the cards. As the latest iteration of enlargement policy spells out: “The Union’s capacity to absorb new members, while maintaining the momentum of European integration, is also an important consideration. The EU reserves the right to decide when a candidate country has met these criteria and when the EU is ready to accept the new member.”


Notes

[1] https://www.gov.scot/binaries/content/documents/govscot/publications/foi-eir-release/2018/09/foi-18-02282/documents/foi-18-02282—summary-report/foi-18-02282—summary-report/govscot%3Adocument/FOI-18-02282%2B-%2Bsummary%2Breport.pdf

[2] https://www.ifs.org.uk/publications/13072

[3] https://www.centreonconstitutionalchange.ac.uk/opinions/scottish-independence-debt-and-assets

[4] https://www.centreonconstitutionalchange.ac.uk/opinions/scottish-independence-and-uks-debt-burden

Deals, deals, deals: who needs them?

Meeting of the “Frugal Four”, 20/02/20. Photo credit: European Union

by Professor Iain Begg
Professorial Research Fellow, European Institute, London School of Economics and Political Science; Academic co-Director of the Dahrendorf Forum

3rd March 2020

At a special meeting of the European Council on 20-21 February, EU leaders failed to reach an agreement on the organisation’s budget for 2021-27. The delicate process of negotiating the EU’s multi-annual financial framework (MFF) has been further complicated this time around by Brexit, with some states believing the loss of the UK’s budget contributions should result in a drop in aggregate spending, and others arguing the richest member states should fill the gap by contributing more.

Last week both sides set out their mandates for the negotiation of the future UK-EU relationship, and it is tempting to think it is the number one topic in Europe’s capitals. Tempting, but probably wrong: the EU is also struggling to agree its budget for the next seven years, and it is what has many in Brussels (from whence your correspondent has just returned) tearing their hair out.

The multi-annual financial framework (MFF) is invariably difficult and time-consuming to negotiate. It sets funding ceilings on broad categories of policies, such as subsidies for farmers, economic development, external action and administration. The usual sequence is for the European Commission to make initial proposals, triggering a lengthy period of sparring by the member states which then seek to reach a compromise. The Commission published its proposals for the 2021-27 MFF on 2 May 2018. Since then, the usual process of attrition has seen a gradual convergence towards an acceptable package, but the transition to a new Commission and a new European Parliament slowed progress. Formally, the European Parliament (EP) co-decides the MFF with the Council of Ministers, but once the member states reach agreement, past experience suggests the EP only makes marginal changes.

The MFF was the principal subject on the agenda of the special meeting of the European Council on 20-21 February 2020 at which its new President, Charles Michel, had hoped to secure a deal. As he emphasised in his letter of invitation to EU leaders, the ‘time has come to reach an agreement’. He also warned, with justification, that ‘postponement would create serious practical and political problems and jeopardise the continuation of current programs and policies as well as the launch of new ones’. In particular, regulations for some of the bigger pots of money can only be finalised once the deal is done, delaying the launch of programmes. They include research funds and money for Cohesion Policy, most of which goes to support economic development in poorer regions. The leaders did not heed his pleas and a chastened President Michel had to concede that ‘unfortunately, today we have observed that it was not possible to reach an agreement. We have observed that we need more time’. This can will now be kicked further down the road, and pessimists fear a deal will only be done under the German presidency in the second half of 2020.

Reaching agreement has invariably proved difficult, despite the overall budget being not only quite small as a proportion of GDP, at barely one percentage point, but also because the margins in dispute can be as little as one twentieth of a percentage point of EU GDP. To secure a deal, a mere few hundred million euros may have to shift from one heading of expenditure to another, or be allocated to a particularly obstinate member state at the expense of others. One reason is that there has to be unanimity, giving veto power to even the smallest member states. There is also competition among the politicians involved to be seen, domestically, to win, or to assign (or avoid) blame. In past MFF negotiations, the UK was often among the villains of the piece, objecting to attempts to increase the size of the budget and sticking resolutely, even when in a minority of one, to perpetuating the rebate first achieved by Margaret Thatcher as long ago as 1984.

This time, the finger of blame is being pointed mainly at the Dutch, ringleaders of a group of member states known as the ‘frugal four’ – also comprising Austria, Sweden and Denmark. They, essentially, want to hold down the size of the EU budget, curbing the ambitions of the Commission and the European Parliament – a stance not unwelcome in Berlin. The ‘frugals’ are pitted against the ‘friends of cohesion’ a larger group of sixteen countries keen to maintain EU spending on economic development. As they put it in a declaration on the MFF issued in early November 2019, it is ‘vital to safeguard the funding for the Cohesion Policy at the level of 2014-2020 MFF in real terms’. The trouble is that other voices are calling for more spending on the many policy areas deemed to need attention, from border security to the digital economy. A bit like the impossibility of simultaneously having no border In Ireland, no checks between Northern Ireland and leaving the customs union, the three demands on the MFF of more spending on new policies, no reduction in spending on old policies, yet spending less overall cannot be reconciled.

At least, this time they cannot pin the blame on the Brits…or can they? Here is what Charles Michel said: ‘we know that this European budget is a very difficult topic, it’s a very difficult negotiation, especially after Brexit and the gap between 60 and 75 billion euro’. The reason is the loss of the UK contribution, the flip side of the infamous £350 million per week. While, as has been shown time and again, the latter figure was a fiction, the UK was always a net payer into the EU budget – to the tune of €10-12 billion per year during the 2014-20 MFF – and the figure could well have increased had the UK stayed in the EU. For the ‘frugals’, the solution is simple: no UK contribution means aggregate spending has to fall. For net recipients, the answer is the rich must pay more.

Ironically, there is one facet of Brexit that helps, namely the ‘divorce’ bill included in the withdrawal agreement which led to the UK’s formal exit from the EU at the end of January 2020. Because of the successive extensions of the Article 50 process, during which the UK continued to pay its contributions fully, the headline total has shrunk, but it could nevertheless be equivalent to a good two years’ worth of past UK contributions. That could, just, ease the tensions around the MFF.

Will the EU27 thank the Brits and be more receptive to a good deal on the future relationship? Or will the imperative of a budget deal induce the EU to settle quickly with the UK to concentrate on the MFF? Do not hold your breath. The more worrying scenario would be if the in-fighting on the budget absorbed so much of the political ‘bandwith’ that a deal with the UK would be side-lined. Where would you put your money?