Brexit and a Two-Union Europe

Because of the shock of Brexit, one may be forgiven for overlooking the fact that this week could rightfully be called “the week of trade bloc summits”.

In Europe, the 27 remaining leaders of the EU have gathered for two days in Brussels to adopt a common position concerning the upcoming withdrawal of Great Britain from the union.

On the North American continent, President Obama has met with his Canadian and Mexican counterparts in a last-ditch attempt to safeguard NAFTA against the relentless attacks it is facing from the Republican presidential candidate Donald Trump.

Last but not least, the leaders of the Pacific Alliance – the newest Latin American trade bloc made up of Chile, Peru, Colombia and Mexico – have held a two-day summit of their own to further cooperation in the areas of trade and investment.

The most important summit is by far the one which took place in Brussels, where political leaders were trying hard to reach a common position concerning the terms under which would take place the departure of Britain from the bloc. The initial anger generated by Brexit is slowly giving way to the realisation that the very existence of the world’s oldest trade bloc is now under threat.

With the future of the Union in doubt, federalization plans sold to the European public under the guise of an “ever-closer union” were stopped in their tracks by British voters. The project of a “United States of Europe” – as initially conceived by the CIA in the ‘fifties and advanced by stealth by like-minded European politicians over the span of decades – will in all likelihood have to be abandoned for good.

In order for readers to grasp the folly of such a project, let’s assume that the leaders of NAFTA decided to launch a trade bloc conceived only as a stepping stone to full monetary, fiscal and ultimately political union between the US, Mexico and Canada. To push our comparison further, let’s also imagine that the initial nucleus of NAFTA countries started expanding to Central and South America with the aim of eventually becoming a pan-American economic and political bloc dominating the entire Western hemisphere.

The Germans are currently trying to convince British conservative politicians that once outside the EU, the UK should adopt the Norwegian model. In other words, a country like Britain with a population of some 65 million and a 3-trillion dollar GDP is supposed to be treated like the small members of the European Economic Area (EEA), the latter of which comprises, beside Norway, geopolitically insignificant states like Liechtenstein, Andorra or San Marino.

So far, British Brexiters have called for informal negotiations with Brussels before invoking Article 50 of the Lisbon Treaty. What in fact they should be doing is having informal talks with the leaders of like-minded EU states that are most likely to follow Britain’s lead. Once these negotiations are concluded, the formation of a brand new, competing trade bloc should be announced to the European public.

The obvious candidates for such a trade bloc would first and foremost be the Nordic kingdoms of Sweden and Denmark, with a combined population of 15 million and an aggregate GDP of some 850 billion USD. The second group that could be persuaded to join would be the Visegrad-4, made up of Poland, Czechia, Slovakia and Hungary. The combined population of the latter is about 65 million, with an aggregate GDP of 1.9 trillion USD.

Together with Britain, the new trade bloc would thus have a total population of 145 million and an aggregate GDP of close to 6 trillion USD. It would be sure to have a much better bargaining position than the UK all by itself in negotiating trade agreements with what is going to be left of the European Union. This is in fact exactly what is happening on the Latin American continent, where the 5 year-old Pacific Alliance co-exists side by side with Mercosur, the older trade bloc which comprises the bulk of the countries in the region.

Our continent could certainly accommodate a two-union Europe and two competing trade blocs that could only improve the overall economic performance of both. With political integration now behind them, the remaining members of the EU could themselves start to concentrate their efforts more on improving trade and investment and less on geographic expansion.