Brexit, the Euro, and European Integration

The debate over Brexit in Britain, which has been acrimonious and divisive, has focussed mostly on a steady-state picture of Britain’s relationship to the EU, considering pros and cons of Britain being in the common market in the short to medium term. The debate has largely assumed that Britain’s current relationship with the EU can continue indefinitely. A study of the origins and nature of Europe’s monetary union shows that this assumption is doubtful. Monetary union was conceived by EU leaders as a catalyst for political union. The decision to create the Economic and Monetary Union (EMU) in the Maastricht Treaty in 1992 was made primarily for political reasons. Leaders thought that the need to keep the monetary union together would bring about political union, and on that basis were willing to adopt EMU in an incomplete form. The prospect for further integration seemed good until the financial crisis of 2007-08, which led to economic divergences in the Eurozone and to the sovereign debt crisis of 2010-12. The euro has been temporarily saved by extraordinary interventions of the European Central Bank of questionable legality. The euro’s long-term survival depends on greater political and economic integration in the EU. Such integration, however, faces strong, political, legal, and constitutional barriers. Before Brexit, those barriers included the broad, cross-party euroscepticism that has characterised British politics since Maastricht, and that resulted in Britain negotiating an opt-in regarding the euro. Lacking the euro, Britain not only lacked the incentive to integrate but stood in a position to block political union. All other EU countries (except Denmark) are obligated to join the euro. The dynamic equilibrium of future EU integration should have played a larger role in the Brexit referendum campaign, and can still inform ongoing debates. An eventual Brexit (if not in 2016, then some later date) probably became inevitable after Britain’s decision not to join the euro in 2003, the wisdom of which was confirmed by the financial crisis. Brexit is good for the prospects of the political integration in the EU that is necessary to save the euro, and it does not prevent Britain from re-joining the common market at a later date—possibly on healthier and more stable terms than before.