Lose-lose

Europe has as much to lose from Brexit as the UK. David Cameron looks set to secure limited concessions from the European Union (EU), Reuters reported on February 2. The European Union has grounds to offer thin gruel - it knows Brexit would hit member states' budget and trade unevenly. But given what it might unleash politically, a subpar deal is risky for Brussels as well as for Britain.

Cameron's proposed deal sounds like a classic European fudge. The idea is for a reformed European Union to feature a break for national parliaments to block European laws. Yet even though this "red card" could - unlike previous safeguards - be legally binding, it would require 55 per cent of EU parliaments to agree. That looks high.
 
If Europe faced certain catastrophe post-Brexit, the threshold would have been lower. But while member states would face higher individual budget costs, these sums are only euro 4.9 billion on average, Citi reckons. And while states that do lots of trade with the UK - like Holland, Ireland and Belgium - could see between three per cent and six per cent of their jobs being put at risk, that figure falls to around one per cent for Spain, France, Italy and Portugal, ING estimates.

Some states may even see Brexit as an opportunity. Between 2000 and 2014 the UK snapped up a fifth of European foreign investment, some of which could relocate. The financial services sector looks particularly vulnerable: the UK's might not be protected by trade deals, such as the one Switzerland has with Europe.

Yet the EU authorities still could be shooting themselves in the foot. Britain's departure would galvanise other populist movements in France, Italy and Germany. And, if Scotland were to leave the UK, secessionist movements in Spain and Italy might thrive.

Lastly, the loss of the UK would make a big difference to the balance of power within Europe. Countries that have historically supported free markets would no longer hold a blocking minority under Europe's qualified majority voting system, according to Open Europe, a think tank. Ideological differences between member states would become more acute.

The balance of power probably still lies with Europe, as the UK has more to lose, and its negotiating position after Brexit would be weak. However, the long-term consequences mean that both sides have an incentive to find a deal. Brexit should be an avoidable accident.