Brexit ‘Domino’ Fears Resurface, Just When U.K. Needs It Least

(Bloomberg) -- Just as Brexit negotiations enter their critical final phase, the European Union is being reminded why it wanted to play hardball with the U.K. from the outset.

Fear that Britain’s withdrawal from the bloc could create a “domino effect” of countries following the U.K. out the door has returned, say diplomats in Brussels. The Italian government’s antagonism toward the EU, expected gains by nationalists in Sweden’s looming election, and the challenge to Europe’s democratic values in Poland and Hungary are driving a renewed determination that Britain can’t be seen to benefit from Brexit.

These reminders risk making it harder for Prime Minister Theresa May to extract concessions from the EU. While Europe’s leaders don’t consider it in their interests to see the Brexit talks fail, neither do they want to open the door to copy-cats, however slightly.

“If we don’t monitor Brexit properly, we can have a domino effect,” President Emmanuel Macron said in Copenhagen on Tuesday. With significant support in last year’s French election for the Brexit-welcoming National Front, Macron has reason to consistently take a hard line with the U.K.

Fear Dissipated

When Britain voted to leave the bloc in 2016, the fear that it would create a precedent across Europe was uppermost in the minds of EU leaders. That’s why they united around an approach considered unnecessarily tough and inflexible by the U.K., but which EU chiefs believe is the only way to keep the bloc intact.

Macron’s victory on a pro-EU ticket coupled with the re-election of Dutch Prime Minister Mark Rutte -- after seeing off euroskeptic, anti-Islam challenger Geert Wilders -- helped European fears of a Brexit knock-on effect to dissipate. The European economy responded to the Brexit shock better than predicted, the EU’s 27 governments showed rare unity in their approach to dealing with the U.K. and surveys showed renewed support across Europe for the EU. Meanwhile in Britain, an electoral flub and bitter divisions within May’s government laid bare the political cost of breaking away.

Now the fear is back in Brussels. And it comes with Brexit talks at an impasse over the U.K. and EU’s future relationship and how to maintain an invisible border between Northern Ireland and the Irish Republic. The U.K. wants more EU compromises, including the right to remain in part of the bloc’s single market. They need a deal by November at the latest, officials say.

“The fact that the EU is itself facing increasing challenges makes its position toward the U.K. even less flexible,” said Agata Gostynska-Jakubowska, senior research fellow at the Centre for European Reform think tank in London. “The situation in Poland, Hungary, also the possible result in Sweden, is only reinforcing this narrative.”

Orban, Salvini

The nationalist Sweden Democrats, which want a referendum on EU membership, are backed by a record 19 percent of voters, according to polls ahead of the Sept. 9. general election. The Polish and Hungarian governments have come in for frequent criticism from the EU mainstream for their increasing influence over judiciary and press freedom.

Italy’s populist government has meanwhile spent the summer railing against Brussels on policies from migration to infrastructure spending, and threatened to veto the EU’s next long-term budget. Italy’s deputy premier, Matteo Salvini, and Hungarian Prime Minister Viktor Orban are positioning themselves as leaders of an alliance against what they term the “illiberal” EU elite.

Those challenges to EU orthodoxy help explain why May will face a tough audience when she makes the case for concessions to show she’s made a success of Brexit, officials say. She is due to meet with her European counterparts in the Austrian city of Salzburg next month, then in Brussels in October and, possibly, once more in November.

“Brexit is a negative.” the EU’s chief negotiator Michel Barnier told Germany’s DLF radio on Thursday. “I don’t think we can speak about a success when speaking about Brexit.”

©2018 Bloomberg L.P.