The UK is still not ready for real rapprochement with the European Union

A summit between the European Union and the United Kingdom might or might not take place in July. Uncertainty over whether it will happen reflects a lack of strategic boldness in ongoing EU-UK talks. If it does, items for discussion will likely be limited: a veterinary (sanitary and phytosanitary) agreement, electricity market integration, linking the UK and EU emissions trading systems and a limited ‘Youth Experience Scheme’ (YES).

Agreement on these items would in fact be the biggest accord since Brexit, yet it would not even bring the UK into the EU SAFE (Security Action for Europe) defence procurement programme, on which financial terms have not been agreed. Several UK ministers have floated ideas on joining the EU single market for goods, but such proposals stop short of firm commitments. What’s more, they offer no path around the UK’s hard opposition to free movement and the full single market.

How should this state of play be viewed? Current and former UK ministers are increasingly willing to make pro-EU statements and even call Brexit a “catastrophic mistake”, but there still seems to be some way to go to convince the Labour party and British voters to cross any of the country’s vaunted red lines.

Even the idea of UK participation in the EU’s single market for goods suggests that the lessons of past negotiations have not been fully absorbed. The UK still seems to believe it can persuade the EU to accept cherry picking, though this overlooks the EU’s priorities and its firm commitment to the four freedoms: goods, services, capital and people. London also overstates Brussels’ appetite for closer ties. The EU has other, more pressing priorities. There is little case for offering a preferential deal while the UK remains unwilling to reconsider its red lines.

Limiting alignment to goods only would also run into two major obstacles. First, goods and services are increasingly intertwined and artificial intelligence is deepening these connections. For example, much of the value in electric vehicles now comes from licensed software, data and AI. Any agreement on goods would have to somehow account for restrictions on the services associated with the goods.

Second, granting the UK partial access to the single market could be unfair to European Economic Area members (EEA; EU countries plus Iceland, Liechtenstein and Norway), and could also undermine agreements between the EU and Switzerland if the UK is given a special deal. It would also risk encouraging disgruntled EU countries to seek their own similarly favourable arrangements. 

It might serve UK interests to join the single market via the EEA, accepting the four freedoms while opting out of the common agricultural and fisheries policies. But there is no clear path to that outcome and the UK would become a rule-taker. Such an arrangement could also undermine the EEA’s institutional equilibrium, with the UK economy much larger than those of non-EU EEA members. An arrangement modelled on EU-Swiss bilateral agreements, which avoids rules alignment in all sectors at the cost of considerable complexity, might be more realistic.

Given that the UK has consistently refused to adopt clear goals for its relationship with the EU, it might be better to focus first on where closer ties are possible. Some of the Brexit damage – possibly 6% to 8% of UK GDP – could be reversed with better EU links. Free movement of services would open the EU market to the UK’s financial services sector, which has a comparative advantage and already largely offsets the UK’s goods-trade deficit with the EU. In turn, the EU would gain from the City of London’s expertise and networks to help develop its Savings and Investments Union – essential if the EU is to close the economic gap with the United States.

Greater EU-UK rapprochement might even help on immigration. EU and UK voters appear more incensed by illegal migrants than by workers seeking jobs across borders. Tackling illegal immigration more effectively requires closer cooperation. In the meantime, growth in countries such as Poland and Romania means workers from there no longer have incentives to move to the UK.

Deeper integration of the UK with the EU thus has the potential for benefits for both sides, though given current UK political instability and the risk that a future government could reverse any rapprochement, the EU is cautious about reaching agreements that might unravel. Instead of debating how much to reduce the scope of reintegration, UK politicians should show greater willingness to cooperate and define clearly what they want.