Slings and Arrows

FMGD Pre-Course Assignment

MBA-BM 2015-17

The articles reviewed from the Economist, the first (Slings and Arrows, Feb 6th to 12th 2016) and the second (Next stop: Brexit?, March 12th to 18th 2016) give a take on issue of Britain’s exit from the European Union (EU) in a referendum scheduled for 23rd June. The first was written in the wake of a just renegotiated British membership of the EU and talks about the intricacies of the deal and its possible political fallout. The second on the other hand, is written in the midst of all the political wrangling within Britain, and is much more critical of the role of Prime Minister David Cameron and the deal he has clinched with the EU. However, before getting into the articles itself it would be deemed prudent to understand the basics of the EU relationship with its members, particularly the British relationship.

Kindly note – For the purpose of this review the words Britain and the United Kingdom will be used interchangeably and convey the same meaning.

There are four basic aspects to the European Union –

1. The European Union is a political and Economic partnership that has 28 members including the United Kingdom [1]. These countries are governed by common laws and institutions like the European Commission, the Council of Ministers and the European Parliament, which serve to enact and implement legislation in the EU states. These states have a common security, foreign policy and customs union.
2. The Eurozone is a collection of 19 states of the EU, which use a common currency and have a common central bank, the European Central Bank (ECB) [1]. As a result they have a common monetary policy but not a common fiscal policy and individual states are left to decide their levels of taxation and government debt. This was one of the factors widely responsible for the Eurozone sovereign debt crisis of 2009.
3. The Schengen Area comprises of 22 EU states and four non-EU states, which have relaxed border controls to allow free movement of people through their borders. Schengen allows residents to travel through and temporarily stay, but not settle in its constituent states.
4. The European Economic Area (EEA) consists of the EU plus Iceland, Liechtenstein and Norway, which allows them to be a part of a single market without being a part of the EU [2]. But these states have to conform to a majority of EU legislation without any say in the formation of said legislation, in order to access EU’s single market.

The United Kingdom is currently a part of the EU but not Schengen and Eurozone. Thus, it has its own currency and monetary policy.

Britain’s relationship with the EU has always been uneasy and this exemplified in the aftermath of the financial crisis with an estimated 52% British voting to leave the EU if polling were to be conducted in September 2011[3]. In January 2013, David Cameron promised voters that he would hold a referendum of British Membership to EU and before that renegotiate better terms for British membership of EU, if his Conservative Party was to win the 2015 general elections.

The article Slings and Arrows (The Economist, 6th Feb-12 Feb 2016), talks about the renegotiated draft deal and its four major proposals. The first is the proposed “Emergency Brake” that the British government would be able to exercise to deny migrants in-work benefits for up to 4 years from when they start working. Currently all EU citizens can work and live freely in any member country and are treated equally when it comes to social and tax benefits [4]. The emergency brake seeks to restrict this for reasons like excessive inflow, pressure on public services and unemployment [4].

The second is a red card mechanism, which will allows member countries to raise concerns on a proposed legislation if a minimum of 15 countries object to it. However, it is still not a veto as the Commission could accommodate the concerns and go ahead with the bill. Also, considering that a majority of the members are opposed to the bill it is unlikely to be passed anyway, hence the provision is made redundant.

The third is a legally binding agreement that the Eurozone countries will not steamroll decisions onto non-euro countries, which may put them at a disadvantage since as the Eurozone members outweigh the non-euro members in the group. However, this agreement again does not allow any veto by Britain, only a guarantee that a fair hearing will be given and a consensus attempted [5].

Lastly, the deal makes it clear the United Kingdom is exempted from an ever-closer union with the EU [6]. This however, is largely symbolic with little legal effect.

The second article (Next stop: Brexit? , Economist, 12th March -18th March) talks about the political situation post the renegotiation. PM Cameron’s deal has been seen as largely weak and insignificant. The Pro-EU campaign too has been seen as full of errors and ineffectual. Moreover, the Leave-EU campaign has found significant support within the PM’s own party. Media’s bashing over the allegedly weak deal too has swayed public pinion against EU. The other major political party, Labour, remains largely silent despite the leader being pro-Remain. The weak Euro and high influx of migrants into Britain are also said to be key factors affecting the voter’s decisions. However, the article does comment on the fact that the Vote Leave campaign too is highly divided and fails to mount a credible offense.