Report Influence

  • First ever simulated negotiations of UK-EU negotiations, involving key politicians from across Europe.
  • Under the media spotlight, including trending on social media, Open Europe played out two scenarios over day-long negotiations: the UK renegotiating EU reform from within and the UK seeking a new deal after having left the EU.

19 December 2013

Trade in Services (£bn) Trade in Goods (£bn)
2002 £-2.1bn £-22.4bn
2003 £-6.1bn £-26.7bn
2004 £0bn £-31.7bn
2005 £2.3bn £-37.7bn
2006 £4.1bn £-31.6bn
2007 £8.1bn £-42.4bn
2008 £11.8bn £-40bn
2009 £11.2bn £-37.9bn
2010 £10.6bn £-44.1bn
2011 £14.5bn £-43.2bn
2012 £11.8bn £-56.2bn

Diverging UK trade balance with EU-27 in services and goods (2002-12) (£bn)

While the UK is net importer of goods from the EU (with a deficit of £56.2bn in 2012), it is a net exporter of services (with a surplus of £11.8bn). Open Europe’s simulated Brexit negotiations showed that if the UK left the EU, it could be difficult for the UK to strike a deal on services with other member states.Source: ONS Pink Book 2013.

EU wargame 1: The renegotiation scenario – All the play for

It will not be easy, but Open Europe’s EU wargame shows that once the political posturing is out of the way, there was support for reform in several areas including trade liberalisation, limiting EU structural funds to only the poorer member states, boosting the role of national parliaments, safeguards against the eurozone writing the rules for all 28 member states and, to some extent, reforming the rules on EU migrants’ access to benefit.

Bringing our simulation back to reality, it is hard not to conclude that, since his Bloomberg speech in January 2013, David Cameron had as of December 2013 fallen behind the curve in Europe.

The lessons from our simulation include the need to strike the right tone, make sure proposed changes appeal to an EU-wide audience, understand the needs of partners, carefully sequence demands and make sure the mediator of the discussions – most likely the European Council President – is interested in a deal.

We strongly recommend the UK Government develop a far more coherent plan on EU reform, including appointing a lead negotiator or an EU reform task force, charged with coordinating work across all departments and touring national capitals to test reform ideas.

EU wargame 2: The ‘Brexit’ scenario – a deal is possible but market access will be an issue

Britain is unlikely to face the ‘worst case’ scenario of having to fall back on World Trade Organisation trading rules. However, the initial new deal would likely fail to replicate the full access to the EU single market currently offered by full membership:

While a reciprocal trade agreement for goods would be relatively easy to strike, access to the EU’s services market – where the UK has a trade surplus – will be far more difficult. Perhaps, over time, further bilateral deals on market access could rectify this but the political resistance from France and some others could be high.

The only formal way of leaving the EU, via Article 50 of the EU treaties, is a one way street:

  • Once it is triggered, there is no way back into the EU unless by unanimous consent from all other member states.
  • While it is a guaranteed way of starting negotiations about a new post-exit relationship, the remainder EU would be in charge of the timetable.
  • In addition, the European Parliament has a veto over any new agreement, which it would not over a treaty change the UK might be able to negotiate from within the EU.

With the UK outside, protectionist-minded member states could have greater influence on the final qualified majority vote on the new UK-EU deal, potentially reducing the degree of market access the UK could secure post-exit.

Ultimately, though, while a high transaction cost is undeniable, the big question is if there is a point – and if so when – at which the high one-off cost of Brexit would be outweighed by the long-term benefits of more economic and political independence over areas such as financial regulation, agricultural policy or criminal justice.

Our unique simulation holds good news and bad news for David Cameron. The good: sweeping EU reform is fully possible. The bad: it will take a lot more than the UK government has displayed so far to achieve it.  Downing Street must seriously raise its game, and must set as much reform as possible in motion before the 2015 election.

Mats Persson, Director, Open Europe

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