Britain’s chancellor starts a tilt towards Europe

Rachel Reeves has announced a new diplomatic push to drive Britain closer to the European Union. “I have today fired the starting gun of where we want to go next, and that is closer alignment,” Britain’s chancellor told The Economist on March 17th. Earlier in the day, in the annual Mais lecture at the Bayes Business School in London, she called time on the era of a globetrotting post-Brexit Britain that could do without Europe. The country’s vital national interest lay with its continental neighbours, she said. On March 18th she made her case at a meeting in Madrid with Carlos Cuerpo, the Spanish economy minister. Her European counterparts, she claims, are listening keenly.

Since coming to office Labour has embarked on a cautious rapprochement with the EU. A diplomatic “reset” has been followed by negotiations for de facto participation in the single market in energy and agricultural products. In recent months the government has indicated it wants to go further. Yet Ms Reeves’s interview marks an escalation—the clearest indication of the scope of the government’s new ambition. With it, she has put to the sword the orthodoxies about Britain’s place in the world that have underpinned the policy of both Conservative and Labour governments since David Cameron’s referendum of 2016. And yet the limits on the push to return to Europe, familiar after ten years of perma-negotiations, can already be seen.

Orthodoxy one: the economy. Tory governments dismissed Brexit’s impact as a rounding error. Until recently Labour dismissed it as an intellectual “warm bath” and a distraction from domestic economic reform. Now the cost has become intolerable. Ms Reeves cites a study that suggests the hit to GDP may be as high as 8%. “It would be foolish to just carry on as we are,” she says. Many businesses have given up trade with Europe entirely, she adds. It is a statement of fact; for years, it has also been heretical in government to say this.

Trade deals beyond Europe were meant to be the glittering prize of Brexit. But combined they make less impact on growth than her government’s planned agricultural deal with the EU alone, Ms Reeves says. Liam Fox, a Tory trade secretary, claimed that Brexit was the start of a “post-geography trading world” in which distance didn’t matter. Now geography is back. “Despite all the barriers that have been put in place, Europe remains our biggest trading partner,” says Ms Reeves.

Orthodoxy two: geopolitics. After Brexit, governments declared that a “nimble” Britain could leap between the rival blocs of Europe, America and China. Now, Ms Reeves suggests, it is time to choose a side. “We risk being stranded between powerful trading blocs,” she says. “We have to decide where our national interest lies.”

Rather than ducking the crossfire of rising protectionism, an exposed Britain finds itself “at risk of protectionist policies from those blocs”. (Britain already is on the sharp end of European efforts to reshore its car industry.) Ms Reeves refers to a speech by Mark Carney, the Canadian prime minister, at the World Economic Forum calling for middle powers to club together. The Iran crisis has sent gas prices spiking, presenting the Treasury with the prospect of another expensive bail-out of households (see chart). Britain has opted for Europe over America and Israel in refusing to take part in the war directly.

The result is that Britain’s negotiating ask with the EU is much wider, aspiring to reach beyond energy and food to include more areas of the single market. The government would rather that alignment with EU law should be the norm and divergence the exception. Ms Reeves set out some principles on where to align—that it is good for the economy, and good for national security—that are so broad as to be a blank cheque. The quest of the Tory years to break free of what they called the “tractor-beam pull” of European regulation is over. From now on the economic gravity that demands alignment takes its course.

What has changed above all is the politics. Britons would vote to rejoin the EU by a margin of 52% to 29%, according to YouGov, a pollster. In opposition, Labour was ice-cold, and none colder than Ms Reeves, who insisted that Labour could not alienate Eurosceptic working-class voters by reopening the issue. Now Labour is bleeding votes to the progressive Greens and Liberal Democrats, and Europe has gone from being a drag to a lifeboat.

The reason that this overture may falter is that an awful lot remains the same. Labour remains opposed to rejoining the single market in toto, or forming a new customs union with the bloc. It still opposes free movement of people. Nor will it countenance a referendum to rejoin, on the grounds that it split the country in two. “I wish that we had voted to remain, but we can’t go back in time,” Ms Reeves says. (In fact, as her political rivals know, the option for Britain to apply to join under the EU’s treaties remains right there.)

And in a funny way, the policy looks familiar, too. Before Britain embarked on a rock-hard Brexit under Boris Johnson, the government of Theresa May sought a deal not so different to the vision Ms Reeves sketches out, based on lockstep alignment with swathes of single-market law. Attitudes to Britain are now warmer, but many in the EU remain determined to resist “cherry picking”: give Britain the market access it wishes without the obligations, they fear, and the whole project unravels. Ms Reeves suggests that opposition is softening, given that the EU has already agreed to deals “at a sectoral level”.

Also unchanged is a certain British vagueness. Lord Cameron, Lady May and Mr Johnson too negotiated by declarations of mutual interest and overtures that nodded to a direction of travel, in the hope that the EU would take the lead and do the intellectual heavy lifting. Alignment across the board is an intriguing declaration of intent; it is not yet a negotiating position for an EU that likes defined proposals written in black ink. The reply to Ms Reeves may be the same as that which greeted her predecessors: charming sentiment, now please tell us what you really want. ■