Britain and Europe: What Ways Forward?

Wincott Lecture, October 2016

Harold James, Princeton University

It is a great honor to offer a lecture in memory of the great financial journalist Harold Wincott. Thinking of his legacy goes beyond a simple excavation of past issues. The book that puts together some of his remarkable commentaries is stunningly relevant to our contemporary discussions. The first essay is entitled “On cutting off your nose to spite your face,” and the final one – as it were Wincott’s last word – is called “The devaluation of democracy.” What better ways of approaching the dilemmas created by Brexit both for the UK and for Europe? The last essay concludes, quite topically and quite correctly, that “politicians funk tackling the problem at its roots – fiscal policy – and put altogether too much strain on monetary policy.” That is indeed what is happening. Now forced to think about not just the devaluation of the pound but also the devaluation of democracy. Why?

The simple answer is that the Brexit vote on June 23 was a revolution in a country with little experience of revolutions. As with many revolutions, the outcome is not at all clear. It won’t be clear for some time. Zhou Enlai is supposed to have told Henry Kissinger that it was still too early to assess the impact of the French Revolution, though the anecdote actually relates to a misunderstanding and Zhou thought Kissinger was asking for an assessment of the aftermath of the Paris student revolt of 1968.

A revolution always begins with a very broad but diverse and fragile coalition against the old order (in the case of the UK, the elites’ commitment to a semi-attachment to Europe’s integration project). Both at the level of the political elites, and for voters, there was a deep uncertainty. Lawrence Olivier’s Hamlet starts with a non-Shakespearian interpolation by the director, presenting “the tragedy of a man who could not make up his mind.” Brexit is the tragedy of a Britain that could not make up its mind about Europe, under leaders – whether Cameron, Johnson, May or for that matter Corbyn – who are profoundly ambivalent.

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The reasons for voting Brexit were quite diverse. They ranged from a hostility to migration; to worry about the effects of trade agreements concluded by the EU (such as TTIP and CETA); to critique of over-regulation and over-intervention; to concern about the defense of sovereignty, the raison d’être of the modern nation-state. The anxiety about migration came quite often from the political right, the attack on trade agreements more from the left, and economic liberals took up the anti-regulation cause; and both right and left, and both economic planners and economic liberals, emphasized sovereignty.

What almost no one thought they were voting for was old-fashioned continental-style Christian Democracy, but within days of the referendum, without any further consultation of voters, the UK found itself with a new Prime Minister who was not an economic liberal, decidedly not a socialist, but who devoted her first major policy speech not to the details of Brexit but on an exposition of the principles of the German social market economy, with worker directors, and an extension of apprenticeships. In her party congress speech, Theresa May explained that “there is more to life than individualism and self-interest.” “And when one among us falters, our most basic human instinct is to put our own self-interest aside, to reach out our hand and help them over the line.”1

Some attempts have been made to correlate Brexit support with income or education. One of the most interesting studies is a comparative Eurobarometer survey, asking about beliefs as to whether the country of the respondent would be better off outside the EU.2 In all except two of the survey countries, the higher the self-described class, the less inclined the respondents are to see exit as beneficial. The exceptions are of course Britain, where both the self-described lower class and the higher class are sympathetic to leaving, and Italy – which for structural or geo-political reasons has a similar mindset. In both cases, Europe looks dominated by a Franco-German duo, although Italy and Britain are also obviously large states. The Paris-Berlin axis sometimes looks exclusive. In 1997, France’s Finance Minister Dominique Strauss-Kahn put the point in a slightly peculiar way when he said that “People who are married do not want others in the bedroom.”3

1 Speech of October 5, 2016: http://blogs.spectator.co.uk/2016/10/full-text-theresa-mays-conference-speech/.2 Eurobarometer, November 2015.3 Youssef M. Ibrahim, Britain getting that left-out feeling, New York Times, December 27, 1997.

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What happens after exit? Asserting sovereignty is like a revolution in that it is not clear what choices will follow from the exercise of sovereignty. Taking back control – just like that – often unleashes a violent struggle about who is to define sovereignty, and in what way: in short, about how control should operate. It will tear apart parties, and fundamentally change the logic of political life.

Indeed, that struggle for control is the stuff of hundreds of years of European history. France, when it overthrew the ancient regime and instituted popular sovereignty, proceeded to tear itself apart in a cycle of violence that went on for at least a century, from the Bastille to the Dreyfus Affair. There are also destructive precedents in British history, though they lie further back, with Henry VIII’s breach with Rome, where again it was not clear what would follow: a national Catholicism, akin to the official Gallicanism of the French church, Martin Luther’s version of Protestantism, or more radical versions, millenarian Anabaptism and chiliastic revolution.

Cultural Divides

Migration and cultural difference were at the center of the emotional drive to Brexit, but not really at the core of the political debate. There is a clear statistical inference, which was downplayed for a long time, but perhaps has been upplayed too much recently, that unskilled migration depresses working class incomes. Migrants offer a direct competition for low-skilled jobs. But there is a complication. The argument misses the way in which technical change makes some jobs obsolete or a location uncompetitive – coal-mining has disappeared, and now a great part of the British steel industry has followed. Workers who lose their employment are often quite skilled, and should not really be expected to fit easily into much less skilled and less attractive service sector jobs. And some of those jobs, in hospitality, in care, demand an enthusiasm and an attention to personality that younger people (and immigrants) often find easier that their older competitors.

The migration case is also about cultural identity, and bizarrely paradoxical examples remind us how identity is challenged and then defended. Working class (traditionally of Irish origin) Catholic communities complained that an inflow of Poles into their churches was bringing disorientation. The descendants of previous generations of immigrants also sometimes think that enough is enough, that after them the drawbridge should be raised.

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Because migration is so complex and its consequences so divisive, the adherents of Remain made a poor case in dealing with the arguments. It was not that they did not realize what was happening, but they found it difficult to confront the victims of economic displacement, or of cultural change. An indicative, although perhaps not decisive moment, was the final defense of Remain by Prime Minister David Cameron in front of a television studio audience on the last Sunday before the vote. The audience was visibly agitated, even angered, by the patrician and chummily superior manner, but also by the specific character of the government’s position. A health service worker asked about whether the demand for health benefits by migrants was overburdening the NHS. Cameron could have replied that the NHS depended on immigrants at all levels, doctors from Germany and Poland, technicians, nurses, cleaning staff. But he didn’t make that case, because it has an obvious implication for the labor bargaining position of existing NHS workers. Deprived of the most powerful argument, his defense of continued openness to the EU inevitably looked unconvincing.

The campaign and its outcome is the consequence of a failure of an elite. The points presented by the brilliant French medieval historian, Marc Bloch, in explaining the debacle, the “strange defeat” of 1940, look as if they might be directly translated to the UK in 2016.4 The elites groused about democracy, populism, and ignorance, but they could not give any convincing rationale for the Europe that they claimed to favor.

Why was the UK semi-detached from the European project? I will examine briefly three different types of explanation, drawn from political science, political psychology, and from history.

Political Science

The most common political science way of understanding the EU is as an exercise in the extension of a particular kind of national politics. Alan Milward famously described the beginnings of the European Economic Community as the “rescue of the nation-state.” Andrew Moravcsik has extended this argument, and made the claim that the EU has from the beginning been consistently about finding a framework – a rather limited one – for satisfying domestic constituents by using a supranational framework.5 4 Marc Bloch (translated by Gerard Hopkins), Strange defeat; a statement of evidence written in 1940, London, Oxford University press, 1949.5 Alan S. Milward, with the assistance of George Brennan and Federico Romero, The European rescue of the nation-state, London: Routledge, 1992; Andrew Moravcsik, The choice for Europe : social purpose and state power from Messina to Maastricht, Ithaca, N.Y. : Cornell University Press, 1998.

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In particular, the most important of these mechanisms was the management of the decline of agriculture. Globalization and technical change together mean the erosion of the living standards of whole groups of people – classes, to use an old-fashioned term. In the interwar period, farmers suffered across the world from a collapse of their incomes as new areas started to produce. Food prices, and then farm prices, collapsed. Over-indebted farmers lost their farms, and the banks to whom they owned money cut credits. The answers of the interwar period – trade protection through tariffs and quotas – were not effective. Instead, the EEC’s prime fiscal mechanism, the Common Agricultural Policy, set prices for farmers, and offered an elaborate system of subsidies. Managing rural decline proved the most important political payoff of the European process.

For France, agriculture accounted for 42.2 percent of employment in 1900, and was still, at the beginning of the EEC in 1958 22.0 percent. It is today 2.8 percent (2010). For Germany, the equivalent figures are 33.8, 16.1, and 1.6; and for Italy 58.7, 32.9 and 4.0. But the UK did not really need this system of management of the peasant class, with only 9.2 percent of employment in agriculture in 1900 and 4.1 in 1958.6 “Peasant” is a term that does not really have a meaning for most parts of the modern UK (it does for Ireland, and that fact explains quite a lot of the constitutional history of the nineteenth century, up to Irish independence).

A similar argument applies to the idea of formal institutions that made for greater social peace, a political demand that also came very much out of the interwar era and the sharp polarization driven by redistributional conflict in continental Europe. That provision has – like agricultural policy – been Europeanized, in this case in the 1996 Social Charter, which provided not only for objectives guaranteed by existing British law (employment protection; prohibition of gender discrimination) but also some areas which no one in the UK (until recently) considered desirable, such as rights of workers’ representatives in enterprises. As in the case of the CAP, the UK sees no logic why such provisions should be needed.

The UK consequently never felt the need, arising out of national politics, for a European mechanism for compensating the losers of economic modernization.

6 Asger Moll Wingender, Structural transformation in the 20th century:A new database on agricultural employment around the world, Discussion PapersDepartment of Economics, University of Copenhagen No. 14-28 (2014).

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Psychology

The second explanation is concerned with the political psychology of the European process. It is also historical, but it relates to the catastrophes of the twentieth century. The EU, and especially its French-German core, was at its deepest level a mechanism for dealing with the legacy of the collapse of democracy in the mid-twentieth century, in both countries and in most of continental Europe. In Germany, the failure is that of the fragile democracy of the Weimar Republic, destroyed by a radicalization of the far right and the far left, mobilized by opposition to liberal economics (capitalism), but also to the international system of the postwar treaties. In France, there was a military failure in 1940, but then the self-abnegation of the Third Republic.

For some, especially a few generations ago, Europe was a metaphysical concept, that dissolves and resolves the problems of the past: a dispenser of forgiveness and redemption. Charles de Gaulle saw Europe as focused on a French-German psychodrama. He depicted the relations of the two countries in a narrative of betrayal and decadence. He thought that in the path of constructing Europe, France needed to make the first step because “in western Europe, France suffered most. […] France suffered most because France was more betrayed than the others. That is why it is she who must make the gesture of pardon. Germany is a great people that triumphed, and then was crushed. France is a great people that was crushed and then associated itself [in Vichy] with the triumph of another. It is only I can reconcile France and Germany, because only I can raise Germany from her decadence.”7

De Gaulle’s concept seems completely remote from the interactions of Angela Merkel and François Hollande, yet the story of 1940 that de Gaulle told, of German triumph and French self-defeat is being reenacted in contemporary Europe. What is the connection between the vision and the economic drama, in which betrayal of elites and incapacity to reform are bringing Europe back to a bitter past?

The basis for departure is the perception of Germany as a political dwarf but an economic giant. The threat of German economic power loomed over every discussion – even long before 1989. The veteran commentator Elizabeth Wiskemann in 1956 had commented, at a moment of tension in Eastern Europe, “Nothing might do greater harm to German-Slav 7 Alain Peyrefitte, C’était de Gaulle, Paris: Gallimard, 2002, 76-77.

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relationships than for Poles and Czechs to feel that, no sooner they are free of the communist yoke than they must go into German economic harness.”8 After 1989, there was a temporary weakening of the German giant, as the country absorbed the costs of unification; by the 2000s the strong Germany emerged again.

Germany also presented itself as a model for Europe. Back in the first major postwar economic crisis, in the aftermath of the first oil shock, during the election campaign of 1976, Chancellor Helmut Schmidt spoke of a “Modell Deutschland.” That exemplary character is more in evidence now. Its labor relations, its labor market reforms, its apprenticeship scheme, its approach to monetary stability and budgetary orthodoxy (so that Schuldenbremse is one of those words like Angst and Kindergarten and Schadenfreude that exist outside the German language). The (sub)conscious message is that other Europeans need to be more German – but the Germans will still define what is right. And they will benefit from it.

The UK finds the continental psychology of trying to find a way of accommodating Germans bewildering and utterly alien. The UK, like Switzerland (outside the EU) or Sweden (in the EU but not in the Eurozone), was not defeated and occupied in the 1940s. There was no fundamental compromise of the old elites (though the Swiss and Swedish governing class did make such a compact as part of the exercise of maintaining neutrality). Hence, in the British case there is no need for the dialectic of reconciliation that de Gaulle laid out.

Prepositions

The third explanation of Britain’s semi-detached status is even more deeply historical. The heart of the problem is a long-standing issue of how Britain – and more particularly England – conceptualizes its relationship with continental Europe. It is a fundamental exercise in the grammar of prepositions, a language that is deeply embedded in the human psyche. Richard Wagner wrote a whole opera dedicated to the exploration of the word “und”: Tristan und Isolde hinges around the antagonists’ characterization of “dies süsses Wörtlein und”. They declaim “Nicht mehr Tristan, nicht mehr Isolde, sondern Tristan und Isolde”. That sentiment

8 Elizabeth Wiskemann, Eastern Neighbours: Problems Relating to the Oder-Neisse Line and the Czech Frontier Regions, London: OUP, 1956, p. 295; Timothy Garton Ash, In Europe’s Name: Germany and the Divided Continent, London: Jonathan Cape, 1993, p. 403.

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prepares for Freud’s discussion of eros as the transcendence of the spacial distance between I and the loved object („Aufhebung der Raumgrenzen zwischen ich und geliebtem Objekt“).

Language is very peculiar. One of the sources of constant misunderstanding in Europe has been that words and concepts do not translate easily. And prepositions are the worst. Generations of English-language philosophers have struggled with Kant’s and Hegel’s usage of “an und für sich.” But British political language has its own quite mysterious rhetoric.

For Britain and Europe the key prepositions that are at the center of the contemporary conflict are „in“ “with,” and „of“. In the modern language of politics as applied in Britain of the twenty-first century, “in” is bad, “with” is good. “In” seems the simplest because it might be reduced to geographical fact. “Of” raises deep problems as it carries the implication of belonging or even ownership, in a world in which sovereignty is divided. And “and” – as in “Britain and Europe” - does not mean “in” but rather “out”.

The fundamental problem is that Britain is obviously in a geographic sense a part of Europe. But even pro-European politicians such as the Prime Minister who led the “yes” campaign found it impossible to think this thought straightforwardly and consequently had to make the point that he also is campaigning against ever-closer union and for distinctive British rights.

The Foreign Minister, the former mayor of London, the charismatic ex-future Prime Minister, Boris Johnson prefaced his delayed statement in favor of Brexit with the comment that Europe is “the home of the greatest and richest culture in the world, to which Britain is and will be an eternal contributor.” He proposed to borrow from Winston Churchill: “interested, associated, but not absorbed; with Europe – but not comprised.”

This was a reference to Churchill’s House of Commons speech of May 11, 1953, when Britain’s greatest twentieth century politician stated: "Where do we stand? We are not members of the European Defence Community, nor do we intend to be merged in a Federal European system. We feel we have a special relation to both. This can be expressed by prepositions, by the preposition ‘with’ but not ‘of’—we are with them, but not of them. We have our own Commonwealth and Empire."

Churchill was a masterly politician, by instinct, but also by his command of the English language. He was drawing on the deepest roots of English

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identity – Shakespeare and the early seventeenth century English translation of the bible.

First, Shakespeare. The discussion of “of” and “in” comes from one of Shakespeare’s very last and most peculiar plays. Imogen in Cymbeline is often regarded as Shakespeare’s noblest heroine. Romantics loved the play, and rationalists hated it. The poet Alfred Tennyson insisted on being buried with a copy of the play. Dr. Johnson, the embodiment of English Enlightenment by contrast called the play “unresisting imbecility.” The play is fundamentally about the relationship of England (more accurately Ancient Britain) and Europe (more accurately Rome).

The King of Britain, Cymbeline, urged on by his evil queen and her idiotically posturing son, defy the Roman demand for tribute. The Romans are shown as behaving with thorough dastardy. A wily Italian sneaks into Imogen’s bedroom and steals a peak at the sleeping heroine that convinces her banished husband that he has seduced the wife, and she then questions his loyalty: “That drug-damn'd Italy hath out-craftied him, and he's at some hard point.” A Roman army is sent to invade Britain, and is defeated by the heroic Britons – including Imogen’s banished husband. But then at the happy ending, there is a surprise turn and the British give in to Rome and pay the tribute.

It is easy – politically tempting - to imagine a contemporary updating of the play in which King David Cameron defies the Roman emissary Jean-Claude Juncker appears to win but then gives in.

Imogen is clearly for Shakespeare the incarnation of the best British virtues. She is Britannia. And she announces it, and starts Britain on the prepositional of/in distinction, but in a surprising way, the opposite of Churchill’s insistence that Britain was not “of” (owned by) Europe. “I' the world's volumeOur Britain seems as of it, but not in 't;In a great pool a swan's nest.”

A swan’s nest is a symbol of eternity. Hans Christian Andersen used it in the same way, in one of his most poetic fairy tales, as a place somewhere between the Baltic and the North Sea where “swans are born and have been born that shall never die.”

Shakespeare’s heroine is clearly drawing on the bible, where other-worldly transcendence is opposed to this worldly politics. Religion is definitely not

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“of”. In particular, St John’s rather mystic gospel repeatedly emphasizes how Christ is not “of the world”, in the sense that he does not belong to it (is not subsumed by its values), though as incarnate man he is clearly in it. The point is most explicit in John 8:23: “And he said unto them, Ye are from beneath; I am from above: ye are of this world; I am not of this world.”

The “in” and “of” discussion that Shakespeare’s heroine is putting forward also comes from the world of medieval diplomacy. In the long-standing disputes and wars between England and France, the English king for long periods of time held territory on the continent, in France. But what was France? The French king wanted to assert the superiority of the French claim by arguing that Gascony in the southwest was “of” and “in” France, and that term was inserted into the Treaty of Paris in 1259 that ended over fifty years of fighting by leaving the English in Gascony but subject to a loosely defined “of” claim about French suzerainty that derived from being “in” – but the treaty then gave rise to the Hundred Years’ War.

The modern version of “of” but not “in” also rests on a concept of a Britain that holds the balance of power in Europe. “Of” also means holding a fulcrum position, arbitrating differences and gaining from the ability to tip the balance of power. That belief also has its early modern origins, when England balanced precariously between Spanish Habsburgs and French Valois. But it reached its highpoint in the formulation of nineteenth century diplomacy, when Lord Palmerston defined the fundamental objective of British policy as avoiding permanent entanglements. As he famously put it in a speech to the House of Commons on March 1, 1848, as the continent was engulfed in revolution, “We have no eternal allies, and we have no perpetual enemies.”

That thought is still at the heart of the Whitehall calculus. In modern EU politics the idea of a European equilibrium means permanently balancing France against Germany, flirting with Mrs Merkel and then cozying up to Chancellor Hollande. That is the world of rational deal-making politics. It exacerbated tensions in the French-German dialogue. But it sent peculiar and confusing signals to other Europeans.

Precipitants

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Confusing signals do not matter too much in normal times, but they can be devastating in moments of deep crisis. Brexit was born out of a twin crisis, of globalization and of the Euro.

The precipitant of the structural break was the drama produced by the so-called Euro crisis, that set an intellectual divide alongside the physical one of the English Channel. The events of the recent years have been a remarkable contrast with the story of the EMS crisis in the early 1990s, when the UK also played an important part, but where in the final showdown between France and Germany in July 1993, when the German Bundesbank refused to extend intervention to keep the French franc in the exchange rate mechanism, and the European governments had given up on a hope of finding a new set of exchange rates, the British Chancellor of the Exchequer (Kenneth Clarke) proposed the idea of more flexibility: much wider margins of movement around the central exchange rate. There are also other moments in the past when Britain played a necessary and constructive role: above all, perhaps, with the Single European Act in 1986, when – at the beginning of the process that would lead to monetary union – Margaret Thatcher insisted on including more market elements in the European settlement.

But the events after the Global Financial Crisis, and after the debt crisis emerged in Greece in 2009-10, are different. The United Kingdom, like the United States, was an outsider in the euro drama, both distanced by a different tradition of thinking about economics as well as by competing interests and the range of their geopolitical calculations. With differences of interest, there can always be trade-offs and bargains: indeed, that is the essence of diplomatic negotiation.

The same kind of compromising does not work with fundamental differences of view, and discussion often produces escalation rather than solution. Suspicions on both sides of the intellectual divide grew. In the increasingly acrimonious debate, Europeans detected what they held to be a fundamental lack of understanding of the European project as well as a self-oriented defense of a different interest. Americans wanted the Europeans to have more fiscal stimulus, more capacity to deal with problem banks, more currency flexibility, and more debt forgiveness—in short, a rather conventional old-style Keynesian solution. Europeans denounced this approach as “hyper- Keynesianism.”

The British approach was the consequence not simply of a long history of separation from European power dynamics but also from a central paradox

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of political economy: the recognition that monetary unions need fiscal unions to work, but at the same time a profound conviction that Great Britain did not want to participate in further European integration. So Great Britain alternately pushed Europe to do more; and then stood back and opposed integration initiatives. Consequently, British policy seemed to combine preachiness (“simple steps to solve the euro crisis”) with “I told you so” arrogance (“it was never going to work”). On occasions, the United Kingdom reenacted an old British sitcom (Dad’s Army) set during World War II in which a gloomy Scotsman ran around repeating, “We’re all doomed.” The effects of the British stance were amplified because it was not just a matter of the government’s position, but of beliefs deeply held by almost all the thinking and commenting classes, from left to right.

The modern obstacles to a coordinated European response to the debt and financial crisis, along Keynesian lines, were in part organizational and institutional: to act decisively, Europe needed some capacity for effectively coordinated state action. The fundamental difference of vision from across the Atlantic, or across the English Channel, can be boiled down to Europe’s lack of “statiness”: Europeans had often liked to present their achievement as the practical realization of postmodern politics, in which the traditional idea of national sovereignty (which they thought had produced so much trouble in the European past) was dissipated and diffused. “Europe” as a framework was designed to supplant the traditional nation-state. A state as traditionally conceived, on the other hand, had sovereignty in economic policy: it could control a currency, adjust an exchange rate, deliver a fiscal stimulus, or recapitalize banks. The Europeans could do none of these things, and as a result, they were hopelessly stuck. They seemed obsessed with rules that had been deliberately devised to restrain national sovereignty by “tying their hands” (in the metaphor that many European economists frequently deployed).

The issue of European fiscal capacity surfaced already during the Greek rescue package in 2015, when Prime Minister David Cameron refused to participate in the financing via the EFSM, and Chancellor George Osborne emphasized that “the euro area needs to foot its own bill.”

Cameron had deeply internalized the lesson of Margaret Thatcher: Great Britain needed to defend itself against budgetary claims from Europe. He and George Osborne were also impressed by American economists who told them that a monetary union without a full fiscal union was inherently unstable, and, as a consequence, Europe could only save itself by going

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ahead quickly with a real fiscal union. Unfortunately, this position made for an increasingly apparent policy incoherence that highlighted the anomaly of the British position. As signatories of the Maastricht Treaty, and as later accessories, all EU members without an opt-out (the United Kingdom and Denmark had obtained an exemption) had an obligation to eventually join the monetary union. The euro area itself had no fiscal capacity at all—only the European Union did. Thus, in pushing for an approach modeled on that carried out by Alexander Hamilton in the early years of the American Republic, the United Kingdom was setting itself up for a potential existential choice about whether it should really be part of the ever-closer union on Hamiltonian lines.

In consequence, the relationship between the United Kingdom and the Continent looked more and more strained, and two gloomy summit meetings, both in Brussels, both in a gray and chilly December, drove Great Britain to contemplate something that even under Margaret Thatcher would have been quite unthinkable: a British exit from the European Union.

It all started optimistically and even cheerfully. On November 18, 2011, David Cameron went on what he believed was a successful trip to Berlin to negotiate a special deal for the United Kingdom. He had picked up from the United States the idea that a “big bazooka” was needed to deal with a big financial crisis and joked to the press: “My German isn’t that good; I think a bazooka is a Superwaffe, am I right?” Angela Merkel could not have been more forthcoming to the British plea for some economic reform, and her enthusiasm led Cameron to believe that Germany really needed Great Britain as the only reliable partner she could find in Europe: “Tell me what you want and I will find a way.” “What about France?” inquired Cameron cautiously. “Nicolas will agree,” the German chancellor emphatically retorted.

But in fact, on December 8, 2011, at a meeting of the European People’s Party (the center-right party grouping) in Marseilles, the day before the decisive European summit in Brussels, Merkel and Sarkozy struck a deal. Cameron was quite literally left out in the cold, with no European allies. Geithner was also present, and the appearance of an Anglo-American front pushed Sarkozy and Merkel to express their frustration with American “hectoring.”

The tone in Brussels turned sharply against Cameron. In addition, he was tired and, though relatively young, lacked the iron constitution and perseverance of Angela Merkel. In the early hours of Friday, December 9,

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Cameron “defiantly vetoed the proposed EU treaty changes, because, as he claimed, they did not contain his required ‘safeguards’ for the City of London.” That was waving a red flag in front of Merkel. Wasn’t finance, and particularly its New York and London variety, at the root cause of the crisis, and why then should it be specially protected?

The drama reached a new highpoint in the December 2012 negotiations for a treaty-based fiscal compact. Again, Cameron started with an optimistic spin that the proposed banking union would “lead to opportunities for the United Kingdom to make changes in our relationship with the EU.” But for the first time, he raised the possibility of a British exit. “All futures for Britain are imaginable. We are in charge of [our] own destiny, we can make our own choices,” he replied, adding that a British departure is “not my preference.”

The pre-Brexit discussion set a poisonous precedent for Europe, that brought dangers for the UK as well. We might think of the current stalemate, the deep uncertainty, in terms of a number of well-known games. Negotiations about special deals are like a game of pick-up sticks (or Mikado). Players hope that they can pull a stick out of the pile without disturbing it; but some sticks are in a crucial position, and their removal destroys the stability of the whole system. Have British voters pulled out the stick that keeps Europe’s precarious pile together?

There are elements of another, dangerous, game: a game of chicken. Before the referendum, and afterwards, the argument was often made that a UK exit would hurt Europe more than it would hurt the UK. Hence Europe needed to make more concessions to the UK. This game is still continuing: it is legally impossible for the UK to negotiate independent trade agreements while it is a member of the EU, but everyone is afraid of the events that might unfold when Article 50 is triggered. Now, as in a bad divorce, there is a danger that a competition will develop as to which side can hurt the other more. The UK is probably the most vulnerable. Britain if it is to develop as a successful offshore financial center needs to recognize that it will only do so if it has good relations with its large neighbor, just as Singapore and Hong Kong can scarcely have an independent policy from the People’s Republic.

There is also a danger that the EU 27 will be needlessly cruel: early on Angela Merkel warned against being “horrid” (garstig). The argument is simply that the EU is worried about more defections, Swexit, Nexit, Danexit and so on. That too could lead to bad policy, and indeed an EU that looks vindictive might lead to increased support for Geert Wilders or Marine Le

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Pen. On the other hand, compromising the basic principle of the “four freedoms” in Europe would constitute a refutation of the economic evidence that makes it clear that labor mobility as well as trade is a vital part of a singe market.

Great Britain’s position on most of the Euro economic debates was intellectually close to that of the United States rather than to the European vision. But the United States is big and a long way from Europe; and the United States also consistently pushed for the United Kingdom to play a constructively engaged role in Europe. The more the United Kingdom was willing to raise an existential challenge to Europe, the more distanced the United States became. With the Brexit referendum, the United States has to look for a different main strategic partner within the European Union. Germany is in the pole position for economic issues, while for security and military aspects France might play a more important role. And the UK is really on its own, without either the United States or continental Europe.

The Options

Like Britain, after June 23, the EU faces a multiplicity of choices. It may be that Brexit makes the solution of old problems easier. In particular, it makes some measure of fiscal integration easier. It also has generated a new crisis – in addition to the security crisis in Ukraine and in the Middle East, and to the refugee crisis – to which Europe needs to respond.

In the mindset of the modern European Union establishment, tradition of European integration as laid out by Jean Monnet, crises are simply opportunities for a central bureaucracy to produce a new tweaking of a technocratic plan. In another sense – one that was familiar in the pre-1914 Habsburg empire – a crisis simply is a constant sense of hopelessness and the impossibility of effective reform. Neither of these approaches to crisis is constructive or helpful.

The management by crisis approach adopted by the European elite led to a perception that the broader rationale is being hidden; and that in turn produces suspicions that the crisis, when it arises, is being used instrumentally. The more the crisis management is combined with a mantra like repetition of a general message of the “Europe brings peace” variety, the more skepticism swells up. The linkage between the assertion of the interests of the particular and the ritual invocation of the very general

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sometimes takes extreme forms. A fine instance was the insistence of Finance Minister Giulio Tremonti in the dying days of the Berlusconi government in 2011 that “If I fall, then Italy falls. If Italy falls, then so falls the euro. It is a chain.” 9 Angela Merkel had offered another version of the same logic, to which Tremonti was clearly alluding, with her famous and often repeated claim that “If the Euro fails, Europe fails.”10 These statements inevitably invite the question: really?

Is there a better way forward now that there is no longer a third partner in the Franco-German bedroom? There are two alternatives in fixing a shaky marriage. In the first, each partner should aim to understand the other better. France and Germany need to bring together quite contrasting views of how the economy should be managed. Can effective state interventions be sufficiently controlled and monitored so as to ensure that they are not simply the breeding ground of new corruption and inefficiency? In what ways can the private sector be brought in? There are clearly important public goods that could be realized, and gains that could be reaped. One obvious one is the integration of the flow of refugees, where too the precedents lie in moments of deep crisis, Germany in the aftermath of 1945, or France in the wake of decolonization, when millions of newcomers generated prosperity and dynamism. Another genuinely European project would lie in the building of infrastructure to connect local and national energy systems with what are at present incompatible pricing structures. But there are clear gains from integration. The greater the diversity of supply, and the more market alternatives exist (including different forms of energy), the more resilient the energy economy becomes against unanticipated events, including attempts to blackmail energy users.

Europe – rather than individual nation-states - has to look as if it can work. It certainly needs a vision, but equally importantly evidence that the vision produces results. Without those results, ordinary Europeans will lose the story and lose themselves.

The UK has a different problem. The revolt against the EU was driven by the generally prevalent discourse of a backlash against globalization – against immigration but also trade and capital links. But this sentiment is a poor guide to making policy in an inter-connected world, founded on an institutional basis of trade and investment treaties developed over a long period of time, rules for managing globalization. The argument that most 9 “Weakened Italian government fears market attacks,” Financial Times, July 10, 2011. 10 „Scheitert der Euro, scheitert Europa,“ Die Welt, September 7, 2011.

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British critics of the Euro and most British policy makers raised before June 23 was a very different kind of case to that of the anti-globalization discourse: not for tearing up the rule book, but for making better rules for managing globalization. Indeed Britain consistently wanted to extend the European system conceived of as an open liberal international order, and British politicians (especially Margaret Thatcher) have been the most resolute advocates of enlargement. The clash between these two world views – between backlash and reform - will throw Britain back into a problematic discussion of an uncertain identity.

The divide is likely to produce a reshaping of the party political landscape. The same problem – how to confront globalization – are destroying of twentieth century parties everywhere, European Christian Democrats and Social Democrats, or the Republican Party in the United States. The Labor Party has already disintegrated; the Conservative Party will be torn apart as Brexit becomes imminent. The development is analogous to two of the great transformations of British life: the aftermath of the 1688 Revolution, when the modern party system polarized around Whigs and Tories; or the legacy of Robert Peel’s conversion to repeal of the Corn Laws in 1846, in a debate that was also centered around the clash of commercial interests with the “territorial constitution” of Britain. The only way of holding off the disintegration is to extend, extemporize and equivocate. Or to repeat that “Brexit means Brexit.”

Harold Wincott worried about this kind of debate, because “we, the British people, are so eaten up with envy, hatred, malice and all uncharitableness that we shall proceed in the fullness of time to cut off the 5 per cent which represents our nose to spite the 95 per cent which represents our face.”11

Identity politics are often built around a negative image. In the modern Brexit debate, both global London with its big financial industry and the anti-global rest of the country saw Europe as an external force that constitutes a deep threat, but there isn’t anything else apart from that external threat to unite them. When King Henry VIII’s legislation declared that “this realm of England is an empire” (the Statute in Restraint of Appeals 1533) – the first clear assertion of the idea of national sovereignty – there followed a brutal campaign to stamp out the old religion and build a new identity.

11 Harold Wincott, The Business Of Capitalism, Institute of Economic Affairs, London, p. 21.

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