Wednesday

20th Feb 2019

Opinion

What is fate of non-euro EU states after Brexit?

  • European Central Bank chief Mario Draghi (centre left), flanked by eurozone finance ministers, to celebrate the 20th anniversary of the single currency (Photo: Council of the European Union)

Despite the United Kingdom never having adopted the euro, the upcoming Brexit will have consequences for EU monetary integration.

The UK's withdrawal from the EU will heighten fears of marginalisation among the 'euro-outs', that is, the eight member states that have not adopted the euro.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Britain's departure from the EU could compel non-euro EU countries to reconsider their ties with the euro area.

The eight euro-outs (Bulgaria, Denmark, Croatia, Poland, Romania, Sweden, the Czech Republic and Hungary) are a heterogeneous group of countries, with different EU priorities and different relationships to the euro and the eurozone.

This makes it difficult for the group to cooperate politically with one another within the EU.

The UK's withdrawal represents a political power shift within the EU, as a major non-euro state will leave European decision-making processes, increasing the voting power of the EU-19.

The impact of the superior weight of euro area countries on voting procedures in the council will be limited, if the body maintains its tendency to take decisions by consensus or in areas, where unanimity is required (eg EU multi-annual fiinancial framework, MFF, or social issues).

The UK's strength in the EU has, however, not only been formally reflected through its weight and population in legislative processes, but has also made itself felt at an informal level.

London has strongly supported the deepening of the single market in services, digitalisation and energy, an attitude that was in line with that of all EU members outside the euro, in particular the central and eastern European countries.

EU-19 vs EU-8?

Although there is currently little potential for conflicts of interest between the EU-19 and the EU-8, further integration, particularly in the field of financial markets, may lead to increasing dissent.

Conflicts between the euro-ins and the euro-outs do occur, as demonstrated during the discussions on the banking union in 2012.

In this conflict the UK feared that the interests of the euro area would prevail at the European Banking Authority (EBA), which is responsible for setting common supervisory standards in the banking sector of the single market.

Under pressure from London, a special voting system was agreed for the EBA: a double simple majority of EU states inside and outside the euro area.

Fearing marginalisation in the post-Brexit EU, some countries recently met in a new format.

The New Hanseatic League, initially included the euro states Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and the two euro-outs Denmark and Sweden.

The group stands for rules compliance, economic self-responsibility and inclusiveness of the EMU reforms to the euro-outs.

In June 2018, the Netherlands, an informal spokesperson for the group, protested against the Franco-German proposal to set up a separate Eurozone budget.

The group now comprises ten countries following the accession of the Czech Republic and Slovakia and it is an example of how successful joint representation of euro-ins and euro-outs can be on the issue of Eurozone reforms.

Although all EU countries, except Denmark and the UK, have a legal obligation to participate in the monetary union, this obligation is not linked to any timetable.

Who's next?

The most likely candidates to introduce the euro are the EU's three poorest countries: Bulgaria, Romania, and Croatia.

However, their structural problems, institutional weakness and economic conditions need to be significantly improved before Eurozone accession.

Another important aspect for adopting the euro is public support for the single currency.

According to Eurobarometer surveys from May 2018, it seems that only Romania, Hungary and Bulgaria seem supportive to the euro.

The new realities in the EU after Brexit are likely to persuade the euro-outs to revise their links with the euro area.

The first test of the political weight of the euro-outs will be the distribution of key EU positions after the European parliamentary elections in May 2019.

The appointment of some candidates from eurozone countries such as Slovakia, Slovenia or the Baltic States to key EU positions could convey the message that the political and financial risk of joining the euro is one worth taking.

Besides, the euro-outs should be encouraged to strengthen their links with the euro area by participating in the single supervisory mechanism (SS).

The recent case of massive money-laundering at Danske Bank shows that banking supervision needs to be strengthened, not only in the euro area but throughout the single market as a whole.

This could intensify pressure on Copenhagen to join the SSM. Sweden, whose banking sector is dominant in the Baltic states, should also be encouraged to join the SSM for the same reasons.

More generous financial support for those countries about to adopt the euro in order to strengthen institutional convergence in the MFF for 2021-2027 should be advanced.

This facility must be substantial enough to tackle huge structural challenges in the most likely euro candidate countries (Bulgaria, Romania, Croatia).

Further eurozone enlargement is in the interest of the EU.

This could reduce both the problems associated with the dual nature of economic governance in the EU and the risk of fragmentation of the internal market. However, the most important condition for further accessions to the euro is the lasting stabilisation of the euro area itself.

A longer version of this article, in German, appeared in the journal of the German Institute for International and Security Affairs.

Dr Pawel Tokarski is a senior associate at the German Institute for International and Security Affairs (SWP), Serafina Funk is a scholarship holder at the French National Assembly.

Agenda

Aachen treaty and Brexit endgame This WEEK

Germany and France are set to reinforce their alliance as the engine-house of European integration, while Britain continues to struggle to leave the EU.

Brexit vs Grexit: The six stages of losing to the EU

Theresa May's venture seems very similar to the attempt by Alexis Tsipras in 2015 to persuade Brussels to accept his terms for the bail out - a huge negotiation failure, presented to the public as the best possible deal.

News in Brief

  1. Estonia kicks out Danske Bank over money laundering scandal
  2. May and Juncker meet over Brexit on Wednesday
  3. EU promises to open up advisory groups
  4. EU agrees to limit CO2 emissions by trucks
  5. Juncker under attack in Hungary government ad
  6. EU would not oppose extending Brexit talks, Juncker said
  7. Juncker expects Trump not to impose new car tariffs
  8. Former EU official sentenced for office rape

What does Poland want from the EU?

We propose several changes to the EU, derived from the political philosophy behind the current Polish government, and what Poles expect from the EU - this could be seen as a manifesto Poland wants the next European Commission to tackle.

Migration and May elections - time to get facts right

If misinformation in the field of migration can bring a government down, as in the recent case of Belgium following the country's adoption of the UN migration pact, then it can doubtless produce a populist majority in the European parliament.

Stakeholders' Highlights

  1. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  2. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  3. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  4. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  5. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  6. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  7. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  8. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  9. Nordic Council of MinistersSeminar on disability and user involvement
  10. Nordic Council of MinistersInternational appetite for Nordic food policies
  11. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  12. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups

Latest News

  1. College of Europe alumni ask rector to cut Saudi ties
  2. EU says Hungary's anti-Juncker campaign is fake news
  3. Trump right for once: Europe should take back foreign fighters
  4. EU should clarify rules for plant burgers and lab meat
  5. Italian populists could be second biggest force in EU parliament
  6. Merkel defends Russia ties, ridicules Trump on cars
  7. British MPs condemn Facebook CEO's misrule
  8. EU's chance to step up on Hungary and Poland

Stakeholders' Highlights

  1. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  2. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  3. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  4. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  5. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  6. Nordic Council of MinistersThe Nordic gender effect goes international
  7. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  8. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  9. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  10. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  11. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  12. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Mission of China to the EUChina: Work Together for a Better Globalisation
  8. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  9. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  10. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  11. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  12. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future

Join EUobserver

Support quality EU news

Join us