Thursday, June 16, 2016

Will Brexit revive EFTA?

23 June will tell us whether the UK will choose to leave the EU. Such a Brexit would likely lead to the UK rejoining EFTA, which it had left in 1973 to join the EEC, the precursor to the EU. The EFTA still survives today, but is overshadowed by the EU.

After a positive referendum outcome the UK will need to renegotiate its agreements with its trading partners. The easiest and least painful way for all involved is for the UK to simply rejoin EFTA. Access to the European Economic Area (EEA) is restricted to EFTA and EU members and as such joining EFTA would be the only way for the UK to remain in the EEA. Such would allow a smooth transition for both the UK and its trading partners.

Consequently this move could shift EFTA out of the EUs shadow. More states aspiring to gain access to the EEA could attempt to join EFTA. This idea has already been discussed with respect to a number of countries, including Turkey, Morocco and Israel. With the UK joining EFTA it would be much more attractive for these countries to join EFTA.

As the EU seems to be in shambles, new member admission has been halted. That may lead potential EU members to join EFTA, especially since EFTA membership would not hinder countries from joining the EU at a later point in time. Such countries include Bosnia, Serbia and Montenegro. Finally as Moldova and Ukraine are trying to tie closer relations to the EU they may consider the EFTA road to the EEA as well.

Further growth for EFTA could come as the EU might continue to dissolve. With one of its net-contributors leaving, other countries would have to bear more of the weight of the EU on their shoulders. Countries like the Netherlands, Finland, Denmark, Germany and Austria can simply decide that enough is enough and leave the ship before it sinks. This may be especially true if it turns out that the UK leaving the EU will not be as disastrous for the UK as some politicians would like us to think.

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