How the EU's Leaders Should Think About Brexit

(Bloomberg View) -- Europe's leaders are gathering in the Slovakian capital of Bratislava on Friday for an unusually significant summit. Their subject: the future of a European Union that will no longer include the United Kingdom.

This first big meeting of the EU without Britain should have two main goals. First, governments need a plan for dealing with the secessionists. Second, they need a plan for reforming the union. In both cases the aim should be to ensure that, in the end, Britain's departure strengthens the European project.

Formal exit negotiations will begin early next year. The most contentious issue is already apparent: the clash between the U.K.'s desire for preferential access to Europe's single market and the EU's insistence that this requires free movement of workers into the U.K.

As it approaches this debate, the EU should be guided by a hard-headed calculation of its own best interests. This means, among other things, discouraging further exits. Yet it also means recognizing the gains from close economic, diplomatic and defense cooperation with Britain. The EU's leaders should therefore keep the desire to punish under control.

In particular, they should be willing to bend a little on the link between the single market and free movement. Britain is leaving the EU partly to regain control of immigration, but its new immigration rules can be liberal or illiberal, and could favor EU citizens or not. A fair and productive deal might give EU citizens preferential access to jobs in the U.K. and U.K. citizens preferential access to jobs in the EU.

What might the implications be for single-market access? The U.K. has a particular interest in maintaining the ability of banks and other financial-services firms in the City of London to do business in the EU. It will want any new trade agreement to allow U.K.-based firms to continue supplying financial services in the EU, and vice versa. Here's the crucial point: It would be in Europe's interests to agree.

London's value to Europe as a global financial-services hub can continue whether the U.K. is inside or outside the union. In the long term, crippling London's ability to provide services to the EU in order to encourage the growth of new financial centers in Europe would be a gamble; in the short term, like any other kind of import barrier, it would harm the European businesses and consumers that buy those services. EU leaders should ask themselves: If barriers like that make sense, what was the point of the single market in the first place?

At any rate, Europe's leaders needn't worry that Britain will pay no price for Brexit. In selling goods and financial services to Europe, the U.K. will be subject to rules it will no longer have a say in designing. In restricting immigration from the EU, it must expect comparable restrictions on its own citizens' freedom of movement. Still, it would be foolish for the EU to maintain that any deviation from the principle of free movement must automatically raise trade barriers to both sides' disadvantage.

The same spirit of enlightened self-interest would be no less valuable when the conversation in Bratislava turns to the EU's unfinished reform agenda. Europe's great challenge is to bring its political integration into better alignment with its economic integration. Making a success of the monetary union will require steps toward fiscal and political union -- but not all EU members are ready or willing to take those steps.

Whether it's making a success of Brexit or strengthening the ongoing European project, Europe needs to get better at flexibility, pragmatism and looking beyond the end of its nose. The settlement Europe reaches with Britain won't provide a template for an EU that works well for all its members. But it certainly affords the opportunity to test some practical strategies.

--Editors: Clive Crook, Michael Newman

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