Two important European figures have warned of dire political and economic consequences for the European Union and therefore the UK if June’s referendum leads to Britain leaving the EU.
The Italian finance minister, Pier Carlo Padoan, said that Britain’s departure could cause a domino effect in which Eurosceptic parties and electorates feel emboldened, while the German finance minister, Wolfgang Schäuble, claimed an out vote would be “poison” to the British, EU and world economies.
In an interview with the Guardian, Padoan predicted a British departure might even lead to pressure for France to leave the EU in the 2017 presidential elections, saying: “We are already seeing a domino effect with anti-European parties gaining a lot of support, starting in France.”
Like Schäuble, Padoan warned Britain would find it complicated to negotiate free-trade deals with Brussels from outside the EU. He said: “Whenever you break an agreement you know what you are going to lose, you do not know what you are going to gain in the next agreement.”
Schäuble told BBC1’s Andrew Marr Show: “We would have years of the most difficult negotiations, which would be very difficult for the EU as well. And for years we would have such insecurity that would be a poison to the economy in the UK, the European continent and for the global economy as well.”
Padoan also used the interview to set out a radical agenda for far greater EU integration, including a European finance minister to build a growth-oriented Eurozone economy that puts as much focus on creating jobs as on controlling inflation.
He also proposed an immigration fund financed by bonds; a deeper single market; a European unemployment insurance fund; a common banking insurance fund; and revised common fiscal rules that are as tough on countries like Germany that run persistent trade surpluses as those running excessive budget deficits.
His plans, set out in a major paper issued by the Italian finance ministry, suggest that the UK, if it does vote to stay in the EU, faces a renewed battle to hold back the demand for closer union as centre-left governments call for greater integration and growth oriented policies.
Padoan’s roadmap, now subject to a big Italian diplomatic push, is likely to be cited by leave campaigners as proof there is no status quo option available in future UK relations with Europe.
Padoan, after two years in post, is gradually becoming the ideological counterpoint to Schäuble and says many of his reforms could be achieved without treaty change. He also calls on the European commission to do more to press Germany to increase investment and reduce its current account trade surplus, saying the German focus on inflation has held back the rest of Europe by creating low growth and unemployment.
But he suggests this reform programme will be threatened by a British departure. “From a political perspective, Brexit would be the demonstration that if you have an anti-European programme you can implement that programme,” he said. “It would be a message sent to many anti-European parties all across Europe and to some anti-European governments. It would have especially in the medium term quite dramatic implications.”
He also suggested that any domino effect might make the terms of a British departure more difficult to negotiate. “Some other countries might want to take another Brexit option and then the political landscape in Europe would be changing and so it all becomes more difficult to control.
“If there was a Front National victory in France for instance next year, given what the Front National programme is, I am not sure where France would stand in the event of a Brexit vote in the UK. It makes everything more complicated.”
On Sunday, Boris Johnson argued that the UK would be able to negotiate a better trading deal with the EU from outside. “I want to campaign for free trade with the EU. That is what we need and what we will get,” he said on the BBC’s Andrew Marr programme.
“I want us to be able to trade freely with that zone. But I don’t want us to be subject to more and more top down legislation and regulation.”
He said he thought most UK citizens did not want greater political integration: “The idea is that we have created a single country, that’s what we are being told. I think most people in this country don’t believe that they are part of a single country called Europe.”
But Padoan warned that renegotiating new trading arrangements with the EU would not be easy. “Either you embark yourself on a series of bilateral agreements – and that can be very costly and not beneficial – or you renegotiate with the EU as a whole. But it would not just be a matter of negotiating tariffs, but new rules.”
Italy, under the two-year-old premiership of Matteo Renzi, has become an increasingly assertive force inside the EU – repeatedly demanding greater commission flexibility over how Italy meets the deficit rules.
Padoan also insists the reform-minded Renzi government has earned a right to lead a debate about Europe’s future, since it has scaled back public spending, imposed tax cuts, seen a return to modest growth and, in a major turning point, forecast a decline in its debt to GDP ratio this year. “Whatever the perceptions, Italy respects all the rules. We are very disciplined.
“We need a higher level of debate about the future of the eurozone and Europe. For several years unemployment has been very high, especially youth unemployment. Growth has been very sluggish and we are not getting out of this. A more vocal Italy is not about national interest only but is also looking for a different European project.”
Padoan argues a Europe-wide employment insurance fund would reduce the impact of cyclical unemployment because imbalances in a monetary union land too heavily on employment. Equally an immigration fund financed by bonds would strengthen the policing of the EU’s borders and stabilise neighbouring poor countries in a bid to slow the flow of refugees. “If we accept the immigration issue is not going to go away next year but is a permanent challenge then we need a strategic response and European resources – if the challenge continues for another five years we need a structural response.”
The EU’s current fiscal rules, he insists are “flawed technically and ill-conceived” since the commission underestimates the potential output of economies, so requiring countries to implement tighter-than-needed fiscal policies.
Equally Padoan says the commission is not applying its rules to countries running a trade surplus, a potential role for a European finance minister. “If you are not respecting the rules they need to take corrective action. I would recommend Germany take corrective action and undertake more investment. Germany may say it has a historical problem with inflation – well, we would say we have a historical problem with too much unemployment.”
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