DEBUG: blog_post
Are Rejoiners ready for today’s EU? Part 1 – the euro and the banking union
20 Mar, 2022

The European Movement UK has the stated aim of fighting to rejoin the EU “as soon as it is politically possible”, an aim which Kenneth MacArthur supports. However, he argues that the EU that the UK would be rejoining will be quite different to that which it has left.

Since Brexit happened, the EU has already moved on. Upon rejoining, the UK would almost certainly no longer enjoy its previous array of opt-outs. The only opt-out one can envisage the UK potentially re-obtaining is from the Schengen area - and then only because of Ireland’s opt-out and the need to keep the Irish border open. However, Ireland could instead choose to insist on the UK taking up Schengen membership as a condition for its accession.

In the economic arena in particular, the “European project” continues to move forward, with developments in three areas fundamentally changing the character of the EU membership which the UK left behind.

In Part 1 of this blog, I consider two of these three areas - the euro and the banking union. In Part 2, I conclude by considering the final area of “NextGenerationEU”.

The euro

The euro is of course not new: it existed for almost half of the time that the UK was an EU member. However, a rejoining UK would almost certainly no longer enjoy a legal opt-out from the treaty obligation to join the euro, nor from associated policies such as the Stability and Growth Pact. While some may be tempted to suggest that the UK could “do a Sweden or a Poland”, these countries are not in the situation of seeking to join the EU having previously left (and having left in some acrimony). It is not unreasonable to assume that the UK’s intentions vis-à-vis the single currency would be heavily scrutinised, particularly with the country’s behaviour in relation to the Northern Ireland Protocol still at the back of everyone’s mind. A well-publicised suggestion in the UK media is that the country could simply pretend it intended to join the euro but never actually do so. This would likely not wash.

In any case, suggesting that the UK could “do a Sweden” - commit in principle to joining the euro but never actually do so - to some extent misses the point. When Bulgaria, Croatia and Romania join sometime this decade, the euro area member states will once again represent more than 80% of the EU population, increasingly setting the agenda for the EU as a whole, as they must if their currency is to thrive. But they do so today in a rather awkward way, with institutions - the Eurogroup and Euro Summit - which are rather opaque and informal in nature, and which to some extent circumvent the EU’s normal institutional balance (there is no Euro Parliament, for example). The euro area member states squatting inside the institutions of the wider EU is suboptimal both for them and for the ‘outs’ (particularly countries like Denmark, Hungary, Poland and Sweden who have no intention of joining the euro for the foreseeable future, if ever). And so there is likely to be increasing pressure to recast the EU in ways which suit the majority of its members - those inside the euro area - at the expense of those outside the single currency tent.

If someone were to suggest that Northern Ireland or Scotland should leave the UK’s single currency but stay in the ‘UK single market', most would find that a rather odd proposition - the two are presumed to go together. In a similar vein, one can argue that the EU’s single currency is a necessary and fundamental step on the path towards completing the EU single market. In any case though, regardless of one’s view of the principle of a European single currency, its existence is our present-day reality - the success or otherwise of the European project is now increasingly bound up with that of the currency. It makes little sense to advocate the UK’s rejoining today’s EU if that prospectus does not also include - front and centre - joining the euro.

The banking union

The banking union is said to be the most significant EU integration step in the last 20 years, yet it has received rather little attention in the UK - either before or after Brexit. Designed to break the vicious circle between banks and sovereigns in euro area member states seen at the height of the financial crisis in the early 2010s, membership is mandatory for members of the euro and optional for other EU countries. On their path to joining the single currency, Bulgaria and Croatia joined the banking union in 2020, while in recent years Denmark and Sweden have at various times both flirted with the idea of joining. In the meantime, Nordea moved its headquarters from Sweden to Finland to be within the banking union.

There are substantive reasons for wanting to be inside the banking union - financial stability and to benefit from a consistent application of the single market’s so-called ‘single rulebook’ for banking regulation. But at least in financial services, the members of the banking union - the members of the euro area plus their closest economic partners - are increasingly setting the broader EU agenda. A Swedish government enquiry into whether Sweden should join the banking union reported in 2019:

“Even if Sweden can refer to its formal influence in negotiations about directives and regulations, it may be more difficult, in practice, for a Member State that does not participate in the banking union to make its voice heard. There is, in general, a risk that Member States that choose to remain outside areas of cooperation in the EU become marginalised in negotiations.”

The banking union is currently regarded as incomplete, yet slowly and inexorably it has been both broadening and deepening. Later in 2022, the so-called common backstop to the Single Resolution Fund is due to come into force. Meanwhile, discussions continue on an acceptable initial incarnation of a European deposit insurance scheme. Observing from the outside the increasing degree to which the banking union is becoming an integral component of the EU’s single market - the single market in financial services in particular - it would seem bizarre to advocate the UK rejoining the EU, yet stand aside from the banking union.

 Kenneth MacArthur

The author works in the tech industry, and previously helped found the London Pro-European Forum following the 2016 EU referendum.

London4Europe blogs are edited by Nick Hopkinson, Vice-Chair. Articles on this page reflect the views of the author and not necessarily of London4Europe. 

Showing 1 reaction

Andy Pye
published this page in Latest blogs 2022-03-20 19:55:23 +0000