Shortly after UK Prime Minister Theresa May’s decision to call an unexpected “Brexit election,” I wrote that pro-Europeans in Britain might yet snatch victory from the jaws of defeat. But the timescale I had in mind was five years, not five weeks.

Ηow long May will survive as prime minister is impossible to predict. Her fate will depend on personal vendettas and Byzantine political rivalries, not only in London, but also in Edinburgh and Belfast. But in trying to anticipate the outcome of the Brexit negotiations, the questions that matter no longer have much to do with May’s political survival.

Are Britain’s parliamentary arithmetic and public opinion moving in favor of or against the “hard Brexit” – a drastic clampdown on immigration and withdrawal from the European Union’s customs union, single market, and legal jurisdiction – planned by May before the election? And if Britons are turning against May’s agenda, will EU leaders offer them a face-saving compromise similar to that offered to Norway, which remains outside the EU’s institutional structures, but accepts most of the obligations and costs of EU membership in exchange for the commercial benefits of the single market?

An EU relationship similar to Norway’s is the only model that could attract public and political support in Britain, without threatening EU principles or inflicting serious economic costs on either side. The institutional arrangements for this option already exist, in the form of the European Economic Area (EEA), a sort of anteroom to full EU membership, currently occupied by three small but prosperous European countries: Norway, Iceland, and Liechtenstein.

These countries considered EU membership in the late 1980s, but for various reasons decided not to join. All wanted to integrate their economies and labor markets with Europe, and, after the Brexit vote, Britain was widely expected to try to negotiate a Norwegian-style EEA arrangement, rather than the rupture proposed by May.

It was only last September, three months after becoming prime minister, that May surprised the world by effectively ruling out the EEA option, telling the Conservative Party’s annual conference that those who call themselves “citizens of the world” are really “citizens of nowhere,” and that the free movement of people required by EEA membership was therefore unacceptable. In January, she officially announced that Britain would not seek membership of the EU single market, because this would require free movement, a position confirmed in the Tories’ election manifesto.

But is May’s aversion to immigrants still relevant, now that the election on June 8 has made her a lame duck and unstable parliamentary alignments and the shifting balance of public opinion will drive the Brexit negotiations?

Public opinion on immigration will be the most important determinant of Britain’s European policy in the months ahead. And the unexpected election outcome, backed by strong evidence from polling, suggests that public attitudes concerning the free movement of people are more nuanced and less hostile than May’s rhetoric and the Conservative manifesto had assumed.

In fact, British voters mostly support free movement, if it is presented not as an anti-democratic imposition by foreign bureaucrats, but rather as a right that British and EU citizens reciprocally enjoy. In May, YouGov, the British polling company that came closest to predicting the election result, added to their final pre-election poll of 1,875 voters the following question: “In negotiating Britain’s departure from the European Union, do you think our government should offer EU citizens the right to travel, work, study, or retire in Britain, in exchange for EU countries giving British citizens the same rights?” (Full disclosure, this question was suggested by Best for Britain, an organization I helped to establish and chair.)

The answers defied conventional wisdom. Voters in this carefully weighted sample favored free movement by four to one. Sixty-two percent said “yes,” 17% “no,” and 21% answered, “don’t know.” Moreover, there were clear majorities in favor of free movement in every sub-group of the sample, whether categorized by age, region, or political-party support, with one exception: the small minority of voters who supported the anti-immigrant EU Independence Party.

The upshot is that a new relationship based on the EEA model, allowing Britain to keep most of the benefits of the EU customs union and single market alongside free movement of people, would not only be economically less painful than a hard Brexit; it would also be supported by a large majority of voters. The combination of single-market membership and free movement would be particularly popular with the large cohort of young people who turned out to vote last week for the first time and who consider the ability to live, work, or study anywhere in Europe a major benefit of EU membership, not a cost.

From the standpoint of British politics, it is possible that EEA membership will become the lodestar steering Brexit negotiations in the months ahead. But how would the EU respond?

For other EU countries, a Brexit negotiation based on EEA membership should be a perfectly acceptable, even welcome, outcome. EEA membership would not amount to British “cherry picking” of EU benefits, which other countries have understandably refused to accept.

This is because, by almost any standard, EEA membership is clearly inferior to full EU membership. In addition to accepting free movement of people, EEA members must follow EU commercial rules and accept decisions by the European Court of Justice, without any formal role in making these rules and decisions.

For these reasons, when the EEA was established in 1994, it was intended only as a temporary transitional arrangement for countries – such as Austria, Sweden, Finland, and Norway – which planned to become EU members, but were not ready to join. For Austria, Sweden, and Finland, full membership came as intended. But in Norway, voters rejected EU membership in a referendum and still do. Norway’s “temporary” EEA membership has now stretched to 23 years. Could this be a precedent for Britain?


[Source: The Project Syndicate]


* Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of Capitalism 4.0, The Birth of a New Economy, which anticipated many of the post-crisis transformations of the global economy. His 1985 book, Costs of Default, became an influential primer for Latin American and Asian governments negotiating debt defaults and restructurings with banks and the IMF.