One of the few certain statements one can make about Friday’s agreement between European leaders and David Cameron is that it will have little impact on the June 23 referendum on British membership of the EU. It is far too technical to sway many voters.

Even those who have made an effort to understand its nuances cannot be sure of exactly how much would unravel in the legislative and judicial processes that will follow. It is, after all, the first such agreement of its kind.

My pro-European friends in Britain tend to look at it in a pragmatic way. It was good enough for the British prime minister to launch the referendum with a recommendation that the UK should remain an EU member. It did the job.

From the perspective of the rest of the EU, the deal is awkward. EU leaders calculated, rightly in my view, that the cost of Brexit — a British exit from the EU — would be too high at a time when the future of the EU itself is in doubt. They were ready to pay ransom money to prevent a calamity. The question is: did they pay too much?

Their single most important concession is their agreement, for the first time, to a two-tier Europe. This is not an opt-out, an exemption or a derogation. This is not a Europe of variable speeds or variable geometry — expressions that have been used in the past to denote different degrees of integration. This is a formal exemption from the goal of ever-closer union. I am not sure whether this has any legal significance but it matters as a political statement.

How can the EU pursue ever-closer union when one of its most important EU members enjoys a permanent exemption? Core-Europe projects — those pursued by only a subset of members — cannot be the answer. They did not work well in the past. The EU has a legal mechanism in place that would allow a minimum of nine countries to seek deeper integration among each other. If you divide a union you end up with disunion. You cannot have it both ways.

The latest such project is the financial transactions tax. It started out with 11 member states. Then Estonia dropped out. And now Belgium has doubts. It is theoretically still possible for the remaining nine countries to go ahead but some doubt whether they should do this. The fewer countries that participate, the greater the chances that this tax might simply drive their banks into EU countries without such a tax.

This agreement adds to economic policy fragmentation. It recognises that eurozone and non-eurozone countries might have different needs to secure financial stability. Much of the debate in the European Council has been whether Britain should have its own rule book: ground rules for the financial sector such as capital rules and procedures for bank resolution. In the end, the EU managed to keep up the appearance of a single EU-wide rule book with some special provisions for Britain.

But how could different regulatory regimes for the financial sector work for a monetary union whose main financial centre — London — is geographically outside its own borders? According to this text, the European Central Bank and other institutions involved in financial regulation should apply supervisory decisions “in a more uniform manner than corresponding rules to be applied by national authorities of member states that do not take part in the banking union”.

This is probably the most hilarious euphemism of the text. European banks are in a bad state. The banking union was supposed to be the answer, but is incomplete because it lacks a fiscal support and joint deposit insurance.

Britain is not part of it but it is part of the EU’s single market for financial services. This exemption is hardto justify.

What about the social benefits, the big political issue in the UK? The provision that allows the UK government to restrict in-work benefits for non-British EU employees for a period of up to four years will make it marginally harder for some to move across borders.

This is not going to be the end of free movement of labour. But one would have thought that if the EU really took the concept of an ever-closer union seriously, policy should encourage cross-border labour movements, not do the opposite. Other countries will no doubt ask for - and get - similar exemptions.

There is a risk that following a vote to remain in the EU, the deal may not be implemented in full, prompting conspiracy theories about how the EU deliberately misled the British electorate.

If the deal is implemented in full, it will end the idea of ever-closer union. And if the British vote to leave, the deal will become null and void. Britain would enter a long process negotiating its exit from the EU. I struggle to see any good outcomes.


— Financial Times


Wolfgang Munchau is an associate editor of the Financial Times.