Brexit: Johnson Defection and Cameron’s Deal

Published on February 25, 2016

The dramatic announcement by London’s Conservative Lord Mayor Boris Johnson on Monday that he is supporting the “Leave” camp in the June 23 Brexit referendum on EU membership is being seen as a major blow to fellow Tory UK Prime Minister David Cameron’s efforts to keep Britain within the EU.

But while certainly not welcome, Johnson’s decision came not entirely as a surprise to the Conservative leadership and, for now at least, has had little impact so far on the polls, despite the mayor’s popularity.

*** It is indeed widely believed within Tory ranks that Johnson is betting that the UK will ultimately remain in the EU even with his opposition. His decision to back the Leave campaign is clearly driven by a desire to appeal to the party’s Euro-skeptic grass roots with an eye on garnering their support in a Cameron succession. But that succession and leadership transition would go far more smoothly without the enormous political and economic upheaval that would be certain to accompany an actual victory for the Leave campaign and defeat of Cameron in the June referendum. ***

*** Indeed the Mayor’s refusal to head the Leave camp and his half-hearted commitment to campaign for Brexit leave him vulnerable to charges of political opportunism, charges Cameron’s backers have already been quick to make. Furthermore, Tory sources warn, a Brexit would not only be a threat to the unity of the Conservative Party, it could also open a pathway to power by the Labour Party, even under the enormously polarizing leadership of the left-leaning Jeremy Corbyn. Labour, the Tories fear, would only need to prevent a Conservative majority and not an outright victory in the next general election, as they could potentially team up with the Scottish National Party. ***

*** And with the stakes on EU membership as high as they are, there is certainly still good reason for caution for the Stay campaign, and for the markets. The campaign and referendum will clearly be highly charged affairs, with feelings running deep – far deeper on the Leave side. Yet for all the skepticism and negative press coverage, we believe Cameron did wrangle some reasonably significant concessions from Brussels (see SGH 1/12/16, “UK Brexit: EU Near Deal with Cameron”) – at least by EU standards – concessions that he will now have to start aggressively selling at home. ***

Cameron’s Deal and the Polls

Most important of the concessions Cameron will claim to have won is the crucial – and politically imperative – agreement to curb in-work benefits for EU nationals for the next seven years, plus what is actually a rather major red line on further EU integration.

Indeed the deal Cameron secured acknowledges that EU powers can be repatriated to national governments, an unprecedented turn that if anything could have negative reverberations across the rest of the EU (see details below).

And for now at least, despite the heightened nervousness in markets that has propelled Sterling to seven-year lows, the polls are still showing a comfortable lead for the “Stay” camp (or at least in the polls conducted by telephone, whose results have been historically more accurate than the online polls.

Stay camp sources also expect the status quo, with the benefit of the concessions from the EU side once they are properly communicated to the public, will when push comes carry the day with the undecideds of the electorate.

But while that polling supports a sense of cautious optimism in the Stay camp and more moderate wing of the Conservative Party, they do not expect to have any real clarity on the numbers until the beginning of June.

Until then, perhaps more ┬áthreatening to the EU vote than the challenge from Johnson is the brutal coverage Cameron’s deal has received even in traditionally friendly press outlets, a harbinger of the enormous uphill battle he will be facing in selling his Brussels “victory” to the electorate back home.

The Deal Details, in EU-Speak

The deal reached between Cameron and the EU simply stretches some of the limitations to EU power that already exist in the Treaty and secondary EU legislation, but also proposes changes to EU secondary legislation that are significant and go as far as framing a new relationship between London and Brussels.

The most significant of those is the indexation of child benefits to the “conditions” of the country of origin, which will also be possible, starting in 2020, even in case of previously acquired rights.

Cameron did not manage to avoid EU Commission (read Brussels) control on the benefits suspension requests as a general clause as he had sought. However, in the specific case of the UK, the Commission leadership has repeatedly said it is prepared to advise the European Council to authorize Cameron to adopt the limitations he seeks starting as soon as the day after the referendum.

The deal grants the UK the right to suspend and then gradually reinstate benefits within a four-year time frame, and allows for the extraordinary measures to be in place for a maximum of seven years.

And while many Euro-skeptics will say this is still not nearly enough, and that most importantly Cameron did not obtain the right for the UK to unilaterally close its borders, the Commission and Council have de facto already granted the power to limit immigration to Cameron to use without delay the day after the referendum. At a minimum it gives the Prime Minister the chance to kick another showdown down the road for as many as seven years – a geological era in political terms.

Cameron also did obtain, as we expected he would a specific commitment to include the deal as it is in a new Treaty to be negotiated sometime in the near future. Skeptics say that date could be as far as two years away, but the agreement already is structured as a Protocol annexed to the Treaties, and therefore already has constitutional status. This, if it can be successfully communicated, is a very significant victory against continued accusations that Cameron will never be able to secure a durable, irrevocable deal from Brussels.

Cameron also obtained a commitment in writing that non-Eurozone Member States will never be required to bail out a Eurozone Member State or its banks. That enshrined what was in reality already de facto policy since Britain demanded and was given reimbursement by the Eurozone for its participation in the emergency bridge loan given to Greece in July 2015.

And while the deal only reiterates the existing rule that participation in any future Banking Union will be voluntary for countries outside the Eurozone, it also includes a revolutionary – at least by EU standards – provision that the Single Rule-Book that includes all EU financial regulation could be amended for financial institutions that are based in countries whose currency is not the Euro.

Last but not least, the “Ever Closer Union” concept (ironically negotiated by former UK Prime Minister Margaret Thatcher in 1991) will be emptied of any significance and will probably be substituted with an even lighter reference to Union in the next Treaty change.

Member states will never again be “forced” on the path to new integration. In fact this agreement certifies that the EU could actually even be deprived at times of competences that can be then assigned back to Member States. At least that is the theory – since in reality devolvement cannot be accomplished unilaterally.

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