Avoiding Brexit The Costs of Making a Deal

The draft deal struck between the European Union and Great Britain about their future together has met with a lukewarm reception on all sides. It now hinges on an E.U. leaders' summit later this month.
Donald Tusk and David Cameron reached a deal, but will it fly?

It seems that the only two people are truly happy with the deal.

British Prime Minister David Cameron and European Council President Donald Tusk have been singing the praises of their 16-page draft declaration, revealed on Tuesday, that is aimed at keeping the United Kingdom in the European Union.

Mr. Cameron said the deal, which was reached after weeks of intense negotiations, meant that Britain could have “the best of both worlds” if it opted to stay in a reformed European Union.

Meanwhile, Mr. Tusk, in his letter announcing the details of the agreement, wrote: "To my mind it goes really far in addressing all the concerns raised by Prime Minister Cameron."

Yet the reception in the British press was lukewarm to hostile and the final agreement still hinges on the support of the other E.U. states at a summit later this month. Furthermore, it remains to be seen if the reforms that Mr. Cameron has secured will be enough to persuade the British people to back continued membership of the 28-member bloc in a national referendum likely to be set for the summer.

The European Union wants to keep Great Britain in the fold, yet, it seems that both sides are worried that the price for achieving that will be extremely high. The draft declaration, which will be considered by E.U. leaders at a summit on February 18, shows that Mr. Tusk has offered the British prime minister concessions which go further than anyone on the European continent expected; and yet not as far as many in Great Britain had wanted.

This is nothing less than the turning away of E.U. citizens. Sven Giegold, German Green MEP

In one area in particular, Mr. Tusk has gone a long way to meet Mr. Cameron's demands. The British wanted a provision that European Union citizens arriving in the United Kingdom could be excluded from in-work benefits, such as tax credits, for up to four years. Mr. Tusk is going to grant Mr. Cameron's wish – to an extent.

The London government would have to apply to the European Commission for an exception to be made, a so-called "emergency break," if it can prove that the British social and welfare system has become overburdened by a high rate of immigration. The application will then have to be approved by the E.U. Council of Ministers. That shouldn't be hard. The European Commission has already promised in writing that they will approve the British application.

Moreover, the European Union is to allow member states to cut child allowances for E.U. foreigners, especially if their children are still living in another country where prices and wages are lower. The host country of the parents would then have the option to adjust any benefits to the living standards of the member state in which the child lives, according to the draft proposal presented by Mr. Tusk.

There is also to be an amendment to E.U. law. According to the draft declaration, the existing E.U. legislation on free movement of workers is to be subject to much stricter interpretation than previously. For example, E.U. foreigners deemed to be dangerous may be expelled even if they have committed no crime.

These concessions have been especially controversial for E.U. supporters on the continent. Some German members of the European Parliament reacted unenthusiastically to the impending deal with London. The planned exclusion of in-work benefits to E.U. members was “nothing but a crystal clear discrimination against E.U. citizens,” complained Alexander Graf Lambsdorff, a member of the pro-business Free Democratic Party.

“This is nothing less than the turning away of E.U. citizens,” said Sven Giegold, a German Green MEP.

Mr. Cameron announced that the deal was a good one, and that he would campaign for a "yes" vote in the forthcoming referendum as long as the proposals were not altered hugely. “I can say, hand on heart, I have delivered the commitments that I made in my manifesto,” he said, calling the draft deal a “very strong and powerful package.” He said there was more work to be done but added that “strong, determined and patient negotiation has achieved a good outcome for Britain.”

I can say, hand on heart, I have delivered the commitments that I made in my manifesto. David Cameron, British Prime Minister

Mr. Cameron will now take the deal to his own party, where he is likely to find mixed support. It was unlikely that any deal was going to persuade the hardline euroskeptics in Mr. Cameron's Conservative Party to back E.U. membership. A leading proponent of leaving the E.U, former defense minister Liam Fox, said that the deal did not "come close" to the reforms the prime minister had promised voters. And on Wednesday, Mr. Fox said he expects up to five members of the British cabinet may vote to leave.

Nigel Farage, the leader of the euroskeptic United Kingdom Independence Party, described the deal as "hardly worth waiting for." Speaking on the BBC, he said: "It is truly pathetic. No treaty change, no repatriation of powers, no ability to control our own laws, our money or our borders. Now let's get on with the referendum."

On the other side of the Channel, reactions have been equally mixed. It's too soon to know if all other 27 European Union heads of state can live with the deal, and there could still be changes. At the E.U. summit, there has to be unanimous approval.

If there is agreement at the summit in February or at a later special summit in March, then the British referendum on European Union membership could take place as soon as the end of June.

The draft declaration which Mr. Tusk has put forward contains further guarantees to the United Kingdom, including exceptional guarantees of sovereignty, such as no further commitment to political integration into the European Union.

Mr. Cameron wanted an assurance that it would be easier for national parliaments to block unwanted European legislation. He was partially successful, in that he got a pledge that if 55 percent of European national parliaments objected to a tabled piece of legislation, then the E.U. Ministers' Council has to debate the legislation and decide to amend it or drop it altogether.

The declaration strikes compromises on currency and banking, too. It states that Britain does not have to join the euro, and that it can't be discriminated against for not joining, nor can it be asked to pick up the tab if euro-zone banks need to be rescued. The European Central Bank may only take decisions explicitly affecting banks in the euro zone. But the United Kingdom does not have the right to veto euro-zone decisions, as it had initially demanded.

The European Union has also assured the United Kingdom that it will promote the international economic competitiveness by further reducing the bureaucracy burden on businesses.

Ruth Berschens is Handelsblatt's Brussels bureau chief. Katharina Slodczyk reports from London. Siobhán Dowling, an editor with Handelsblatt Global Edition, contributed to this article. To contact the authors: berschens@handelsblatt.com, slodczyk@handelsblatt.com

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