Blog post

The Continental Partnership proposal: a reply to five main criticisms

The proposal for a Continental Partnership (CP) has received a great deal of attention. Two of the authors, André Sapir and Guntram Wolff, clarify som

Publishing date
27 September 2016

As Europe comes to terms with the UK electorate’s decision to leave the EU, there is great debate about the future of EU-UK relations. In this context, together with three colleagues, we recently proposed the creation of a Continental Partnership (CP) to structure the relationship between the UK and the EU after Brexit. The CP offers a relationship considerably less deep than EU membership but much closer than a free-trade agreement (FTA). So far, a FTA has been considered the default option for post-Brexit relations, even though it would also require considerable negotiation. We argued that deep economic integration between the EU and the UK could continue even without the full freedom of movement of workers, as long as a single set of rules and laws was respected and enforced in the other three dimensions of the EU single market (the free movement of goods, services and capital). We also proposed that the UK should be given a consultative role in single-market policymaking, although the EU would keep ultimate authority over the law-making process.

The CP would therefore consist of two groups of countries. On the one side are the EU member states, which share supranational institutions and participate fully in all EU policies, including the single market’s four freedoms. On the other side are those outside the EU, like the UK and possibly other European countries such as Norway, Switzerland, Turkey or Ukraine, which would not join supranational institutions and would not participate in all EU policies, especially the freedom of movement for workers. The CP would be governed by a new inter-governmental system. Its aim would be to seek not only deep economic integration (with limited labour mobility) between all the participating countries, but also potentially close cooperation in matters of foreign policy, security and defence.

Our proposal should be viewed as dealing not just with the EU-UK relationship, but with the organisation of Europe over a longer time horizon.

Thus, although motivated by Brexit in the short term, our proposal should be viewed as dealing not just with the EU-UK relationship, but with the organisation of Europe over a longer time horizon. In the next 15-20 years, the balance of economic and geopolitical power in the world will alter significantly in favour of countries outside Europe. If our part of the world is to keep a seat at the new top table, it will have to find ways to create a partnership between the EU and non-EU states.

Our proposal for a two-tier or two-circle Europe - with the EU as the inner circle and the other European countries as the outer one - has generated a lot of interest throughout Europe. Reactions have generally been either strongly positive or strongly negative.  Among our defenders, some saw a possibility to transform the inner circle, the EU, into a closer grouping of countries sharing a political project. Meanwhile, others saw the possibility to dissociate economic integration, to which they generally subscribe, from political integration, which they reject. Many also saw our proposal as useful for dealing with countries like Turkey and Ukraine, which do not belong to the EU but are seeking deeper economic ties with it. There is widespread recognition that EU enlargement has largely run its course and that another approach will be needed to deal with the EU’s neighbours.

We believe that the EU and the UK share common interests, in particular in the longer term. The two sides need to define a common vision at the start of a negotiation.

There was, however, much less consensus when it comes to the idea of applying this looser organisation of Europe to the relationship between the EU and the UK. On the EU side there are basically two objections to our proposal as far as applying it to the UK is concerned. One is mainly tactical: the timing of our proposal is considered to be wrong. By offering the UK access to the single market on terms that reflect some of the red lines of those who voted for Brexit, it is argued that we weaken the hand of the EU side at the start of a difficult negotiation. We will not discuss this issue in this blog post. Suffice it to say that our intention was not tactical but strategic: we believe that the EU and the UK share common interests, in particular in the longer term. The two sides need to define a common vision at the start of a negotiation which risks being not only difficult but also acrimonious if there is no such shared perspective.

The other, more fundamental objection concerns the substance of our proposal. Commentators on the EU side worried that its two core principles could be perilous for the functioning of the EU. These are:

  1. allowing countries in the outer circle not to participate in the freedom of movement of workers while enjoying the other three single market freedoms
  2. giving non-EU members a voice, though not a final say, in single-market policymaking

The four freedoms are at the core of the EU political project and are not negotiable for countries wanting to be part of the EU.

Before we respond to five main arguments against our proposal, we will first make one overarching clarification. We are not suggesting that EU members could be given the possibility to opt out of freedom of movement for workers - one of the four single market freedoms. This is a misunderstanding of our proposal, in which all the countries belonging to the EU would continue to be bound by the entire acquis. Thus they would still have to abide by all four freedoms without any restrictions, including the free mobility of workers. The four freedoms are at the core of the EU political project and are not negotiable for countries wanting to be part of the EU. In addition, the free movement of workers is economically indispensable for countries in the euro area, where the exchange rate is no longer available as an adjustment mechanism.

Besides this misunderstanding, there are five main criticisms which have been directed towards our proposal from the EU perspective. (This blog does not deal with reactions on the UK side.)

1. Does a soft Brexit risk political contagion?

Some commentators have feared that our proposal would lead to “political contagion”, with some EU countries demanding the same treatment as those in the outer circle. For example, Guy Verhofstadt, the leader of the ALDE group in the European Parliament (EP) who was recently appointed as EP negotiator on Brexit, has said that the UK cannot get a deal on free movement  because other EU countries may follow. (Please note this was not said in reaction to our proposal.) Likewise, the official position of the European Commission, endorsed by EU heads of state or government in Bratislava last week (without the UK), is also that the four freedoms are inseparable. So, since the UK seems unwilling to accept completely unrestricted labour mobility, the “political contagion” argument is de facto driving the UK to a hard Brexit.

We disagree with this “political contagion” view about a compromise on freedom of movement. It seems to ignore the fact that limits on the free movement of workers would only be an option for countries that are outside the EU, as explained above. Thus our proposal does not offer a way for the UK to first negotiate with its EU partners the right to limit the free circulation of workers and then to decide to remain a member of the EU. This is a legitimate concern on the EU side, but it would not be possible within the Continental Partnership framework.

There is no question in our mind that the UK would only be able to give up on the complete adherence to the four freedoms by losing its status as an EU member. This would mean losing the right to vote on EU laws but having to obey them, and also an obligation to continue paying into the EU budget. This situation of having to leave the EU to be able to limit labour mobility does not strike us as particularly attractive for most current EU members.

We believe that few, if any, EU countries would want to follow the UK’s lead.

The crucial point is the difference between belonging to the inner circle of the CP (the EU)  and being in the outer circle of the CP (outside the EU). This is not just about whether countries have to abide by all four freedoms or can introduce limits on the free circulation of labour. The countries in the outer circle also have fewer rights than those inside the EU since they cannot vote on EU legislation which applies to all CP countries. We believe that few, if any, EU countries would want to follow the UK’s lead and lose their member of the European Commission, where EU legislation originates, and their seats at the Council and the European Parliament, where EU legislation is adopted, simply because they would want to limit labour mobility with other EU countries. Therefore, in our view the risk of “political contagion” is small.

Consider the 27 current EU members besides the UK. Nineteen already belong to the euro area, which is a clear sign of their commitment to the EU as a political project. Among the remaining eight countries, all but one (Denmark) are committed to joining the euro when they can and the vast majority seem to be committed to the EU as a political project.  It is therefore difficult to see how they would benefit from a status where they have less access to EU labour markets and no decision-making power. Nonetheless, there may be a few non-euro area countries which, like the UK, are only interested in economic integration and in fact reject the EU as a political project and the free movement of workers. Perhaps these countries joined the EU only because there was no alternative way to participate in the EU single market at the time. If an alternative like the CP were to exist, these countries may prefer to leave the EU and join its outer circle. However, in our view this would not amount to “political contagion” but instead to “political clarification”.

We do not see the negotiation with the UK as a substitute for reforming the EU to make it more attractive and resilient.

More profoundly, we disagree with the view that pushing for a deal that is very disadvantageous for the UK will be a way to guarantee political consensus for political integration in the remainder of the EU. On the contrary, a political union needs to be based on the free choice of its member nations to stay. It needs shared political goals and clear benefits from membership. To put it another way, we do not see the negotiation with the UK as a substitute for reforming the EU to make it more attractive and resilient.

2. Would the UK gain at some EU members’ expense?

Many workers from Central and Eastern Europe have moved to other EU countries, including the UK, to take up employment. For these countries, the deal we propose may entail a cost. They might understandably consider it a bad deal to continue granting the UK free access to their markets for goods, services and capital while their citizens lose free access to the UK labour market. This is one of the reasons why our proposal indicated that participation in the EU budget would be vital for countries in the outer circle.

As far as the UK is concerned, it would be perfectly legitimate that it made a special budgetary contribution earmarked for low-income EU countries as a compensation for their reduced emigration possibilities and the entailed loss in economic wellbeing. Such a contribution could sway the Visegrad Four (the Czech Republic, Hungary, Poland and Slovakia), whose governments have recently declared their opposition to allowing the UK access to the single market without free labour mobility. In addition, these and other EU countries from Central and Eastern Europe would probably wish to maintain close ties with the UK on security grounds.

3. Could the UK engage in regulatory and social dumping?

Some critics feared that the UK and other countries belonging to the outer circle of the CP would gain free access to the EU market for goods, services and capital without being bound by EU regulation. Could they therefore undertake regulatory competition? Again this is a misunderstanding of our proposal. All countries in the CP, whether they are inside or outside the EU, would have to abide by all existing EU single market regulation. We also discussed the need to enforce regulation throughout the entire area in a homogenous way.

All countries in the CP, whether they are inside or outside the EU, would have to abide by all existing EU single market regulation.

We would argue that for the EU it is actually beneficial that the UK remains inside the EU’s regulatory framework. If that was not the case, the possibilities for “dumping” policies may actually be larger, which could come at the expense of some EU countries. Regulatory competition could, however, take place in areas where there is no EU regulation (as is already the case for all EU countries).

This raises questions about the possibility of future EU regulation in areas that are not currently subject to EU rules, or future regulation that is stricter than current regulation. How would the UK would react to such a possibility as a CP member? In keeping with the spirit of our CP proposal, we would envisage that upon leaving the EU the UK remains in the integrated market, except as far as the free movement of workers is concerned. This means that it would retain all EU single market legislation. Over time, as the EU and the euro area deepen and additional single market legislation is introduced, the UK would have to make a decision. Does it want to retain its CP status and apply all EU legislation, or does it want a looser relationship with the EU? If it decided to depart, the UK would lose all its privileged access to the EU single market.

4. Does the Continental Partnership offer a viable governance structure?

Other criticisms of our proposal worried about its governance. We admit that our envisaged CP council, where the UK and other non-EU CP members would be consulted on EU legislation, creates a new layer in the EU legislative process, which is already cumbersome.  We are open to other forms of organisation but would insist that some form of a relatively close consultation is necessary among CP countries. However, this right to consultation should never mean having voting rights in the EU legislative process.

5. Do we believe that Brexit will really happen?

A final criticism is that we do not seem to believe that this divorce is actually happening. On the contrary, we take Brexit as a given. But we argue for a soft rather than a hard Brexit, for partnership rather than mutual ignorance.  The immediate reaction when a partner tells you that he or she wants to leave is usually denial and anger. With time, the focus normally shift to finding an arrangement that limits the damage for the children. After Brexit as well, the focus should be on establishing a framework to manage mutual interests between the EU and the UK, and possibly other non-EU countries in Europe.

We take Brexit as a given. But we argue for a soft rather than a hard Brexit, for partnership rather than mutual ignorance.

We believe that our CP proposal provides such a framework. The UK would need to continue to pay into the EU budget and it would need to accept all EU laws concerning the economy without having a vote on them. Both are necessary. Without contributing to the budget, no access to the single market can be granted and without a fair application of all laws, an integrated market cannot function. Reduced political influence is the price to be paid for being outside of the core club. In our view, it makes more sense to define the price in this sense than through an approach to economic access that would hurt the economy on both sides.

Finally, our proposal should not be read as meaning that we rejoice at Brexit or at limiting the free movement of workers. It is the British voters who have made this choice. They have effectively called for a new relationship between the UK and the EU, though they were not asked whether they wanted a soft or hard Brexit. This is the choice that the UK Government and its EU partners are now facing.

About the authors

  • André Sapir

    André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

    Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

    André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.

  • Guntram B. Wolff

    Guntram Wolff is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

    An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. From 2012-16, he was a member of the French prime minister’s Conseil d’Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and  advisory board of Elcano.

    Guntram joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media. 

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