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Brexit fear will dissipate – we can form a meaningful relationship with the EU

by Hamish McRae

The UK will leave the EU. But it would suit both sides to create a new legal status, some form of halfway house that the UK would be comfortable with and which would work for the EU.

The weekend gives a chance to try and think beyond the turmoil of the financial markets, the knee-jerk reactions of the European establishment, and the little question as to who might be the next prime minister. So here is one thought that I believe will resonate more in the coming weeks and months – it is that Brexit may turn out to be a less sharp and divisive issue than it appears right now.

The thought runs like this. From a UK perspective, though 52 per cent of voters want out, 48 per cent want to remain. Any future government must take into account the views of the 48 per cent. It must also acknowledge that there are three groups that voted heavily against the majority: London, Scotland and the young. From a European perspective, the complete loss of the region’s second largest and fastest-growing large economy is something to be avoided if at all possible, as is the loss of access to the largest global capital market in the European time zone.

So there are powerful practical reasons for both sides to step back from ugly rhetoric and start to think through a new relationship that might actually work better for both sides than the present one.

So how could there be a Brexit that isn’t a full Brexit? Legally there is no question. The UK will leave the EU. But it would suit both sides to create a new legal status, some form of halfway house that the UK would be comfortable with and which would work for the EU. Actually the UK is already in that position in practical terms, being outside the eurozone and unlike other members, having no prospect of ever joining it. It is also outside the Schengen agreement on borderless travel. And it will now be outside the aim of political union. So the new legal position could in several ways reflect more accurately the present semi-detached reality.

So the focus should be on the nature of that association. That should not be difficult. One of the depressing things of the past two days has been the way in which the “experts” who advised against Brexit have sought to play up how hard it will be, but that surely reflects the fact that their views have been rejected. There are several possible models, none of them perfect, that could be a basis for negotiation. One would be the EU relationship with Switzerland through the European Free Trade Association (EFTA). Another could be the arrangement between Canada and the US through the North American Free Trade Agreement. Still another would be a modified version of the European Economic Area, which overlaps the EU and EFTA, which we are a member of at the moment.

But as I say, none of these work perfectly. So the challenge is create a new status, legally and politically outside the EU, but integrated in economic and trading terms for both goods and services. The huge stumbling block is free movement of labour. Had David Cameron been able to get more movement from the EU in his renegotiation earlier this year, the vote might have gone the other way. So somewhere in the future status there has to be some provision for reasonably free movement of labour, but without the total freedom that applies at present.

All this is in the future. Realistically nothing can happen until the UK has new leadership. It is unrealistic of European leaders to suggest otherwise. But this does not mean that the conversation, both here and in Europe, about a new status cannot start. Actually having a new Prime Minister and cabinet not yet in place may make that conversation less formal and more reflective. What do Europeans really want from their relationship with the UK, and what do we really want from our relationship with Europe? I think as we chew over those questions, both sides will begin to see the outline of the deal. I would like to think that the deal, as and when it is made, will be acceptable to most of the 48 per cent as well as the 52 per cent.

Meanwhile there will be a lot of pressure on the UK to look outwards beyond Europe, and that is something we should think about over the summer too. The European continent has steadily become a less important trading partner over the past couple of decades, because it has become a smaller part of the world economy. That is the result of its slow growth. So whatever happened in that vote, we would have to be looking overseas more and more. If the referendum gives us a push towards the rest of the world, that may give us a better economic outcome in the medium term than the “experts” projected. But we do need a deal with Europe.

Article published in The Independent - Saturday 25th June 2016