12 May 2015

View on early EU referendum depends on end goals

Whether or not an early EU referendum is advisable – as opposed to one held in, say, late 2017 – depends primarily on which one of three potential end goals you subscribe to:

  1. An ‘In’, i.e. to get 51% or more of the vote in a referendum.
  2. An ‘out’ in the referendum.
  3. Change in Europe – a substantially better deal both for the UK and EU.

If one subscribes to the first aim, then there’s a strong argument for holding the referendum very soon, whilst Cameron has political momentum and the opinion polls show a majority for staying in. In addition, the “Out” campaign is all over the place at the moment. Strike while the iron is hot.

If one subscribes to the second aim, it’s less clear but one can argue that there needs to be time for the momentum behind an ‘Out’ vote to grow – as in Scotland  (unless the aim is to get a quick and dirty borderline ‘Yes’ vote and use that to campaign for Out down the road on the basis that EU reform is an illusion).

However, we’re firmly in the third camp. We think this is an absolutely unique and massively important opportunity to reform the EU. From that point of view, here are the potential upsides and downsides of an early referendum.

Potential upsides

  • Strong mandate – UK Prime Minister David Cameron has a fresh and strong mandate at home thanks to his unexpected outright election victory. This not only strengthens his domestic power base but also allows him to have a strong voice abroad. Between the election victory and the strong UK economy, Cameron is now up there with Merkel as one of the two strong leaders in Europe. He could well be in the best position to negotiate EU reform and to lead a campaign around a referendum.
  • Avoid a clash with the French and German elections in 2017 – As our detailed timeline for EU reform and an EU referendum highlights, a risk of the current approach is that it could clash with the French Presidential elections in spring 2017 and the German elections in autumn 2017. This is clearly a legitimate point.
  • Put any uncertainty to bed quickly – The logic being that an EU referendum will increase uncertainty around the UK’s economic and investment climate (though as we have pointed out, this is yet to materialise). The quicker it is all done and dusted with the better.

Potential downsides

  • Limits time for real EU reform – The biggest risk is that an early vote would leave too little time for sweeping EU reform to be negotiated, potentially wasting a huge opportunity.
  • 2016 is the year for EU reform – Next year’s EU agenda looks better than this years’ (though it can change quickly),which will be dominated by Greece and eurozone governance – as  our timeline shows. Furthermore, the mid-term review of the EU budget towards the end of 2016 will provide an opening to get some reform of EU spending. It may also be good to get the EU referendum bill through Parliament – including dealing with the SNP demand for a separate Scottish EU vote – before doing the bulk of the negotiation.
  • The EU is a moving target – One of the biggest uncertainties is how the EU will look once the medium-term response to the eurozone crisis becomes clearer, i.e. how much more eurozone integration? Moving too early could mean the issue resurfaces in the not too distant future.

Taken together, the risk of an early referendum is that it falls between two stools: It doesn’t leave enough time and momentum to achieve substantial reform in Europe and therefore may generate a referendum result too close to call (read this guest post from Open Europe advisory council member David Frost for more on this), whilst splitting the Tories right down the middle in the process. In other words, it delivers neither EU reform nor a UK democratic settlement.

On the other hand, if reform can be achieved in 2016 and a referendum held during that year, probably towards the end – then there’s no obvious argument against it. But the primary question must be: what’s the best way to achieve real and lasting reform of the EU.