Damage Control in the European Union

(Bloomberg View) -- Resolving the crisis over Britain's vote to leave the European Union will require flexibility on both sides -- something there's little sign of so far. Whatever happens, it's in the EU's interests as well as Britain's to work together to minimize the economic fallout.

A workable deal should aim to keep the U.K.'s economy as closely integrated with Europe's as possible, while restoring a degree of control over immigration to the Westminster government. The EU's leaders are saying any such bargain is unthinkable. They should think again.

QuickTakeWhy Britain Is Leaving the European Union

The EU has enshrined free movement of people inside the union as one of its “four freedoms” -- alongside free trade in goods, services and capital. In economic terms, it's enormously valuable as a spur to trade. It's also intended as a political symbol -- a commitment to the goal of a perfectly integrated Europe.

The problem is that many of Europe's nations -- not just Britain -- aren't ready for that commitment. A strong democratic consensus is needed to support the EU's dissolving of internal borders, and in many countries it doesn't yet exist. Many voters believe that nations must retain the right to control their borders, a reasonable belief that democratic governments aren't entitled to set aside. The pressures introduced by the refugee crisis have only strengthened feelings on the point.

What's to be done? The EU can't countenance a result that looks like a victory for Britain. But this needn't worry EU leaders unduly. There's little chance of any such perceived victory for the U.K.: The crisis has already cut a swath through Britain's political leadership, and the country's economic prospects look bleak, at least in the short term.

A concession to Britain on the fourth freedom is the best way forward. It's unlikely to encourage other defections from the union, especially if accompanied by political costs, such as having to accept most of the EU's single-market rules without being able to vote on them. The new British government, once it's in place, might be inclined to accept such a deal, and could probably sell it to the country.

The alternative of a Norway-style arrangement, offering the U.K. full access to the single market but no right to impose new immigration controls, would be more appealing to the EU's leaders; they've already made such a bargain. But it is far less palatable to Britain, and risks a more radical separation that could forever poison EU-British relations.

Europe's leaders are worried that giving ground on the fourth freedom might spur similar demands elsewhere. They might want to consider the case for responding to such demands rather than ignoring them. Allowing limited restrictions on free movement may make sense not just for Britain post-Brexit but also for countries committed to remaining in the EU.

This dispensation, which not all countries would want, could be packaged as part of a formally recognized associate-member status. More broadly, it's a possible solution to one of the EU's biggest future problems after Brexit -- namely, what to do about Turkey.

The EU has led Turkey to hope that it will one day be accepted as a member, but so long as the fourth freedom remains sacrosanct, it's not going to happen. (Any EU member can veto Turkey's membership.) A second tier of membership, allowing countries limited curbs on migration and fewer rights and obligations, might help the EU to spread the economic benefits of the other three freedoms much more quickly -- to Turkey and beyond.

Granted, all this is a long way off. The immediate priority is to arrange the friendliest possible departure of Britain from the EU, with the maximum remaining economic integration. But if the shock of Brexit also provokes some deeper thinking about where Europe is headed, that would be a good thing. Allowing some new flexibility for other members might boost the project's diminishing popularity, strengthen its democratic foundations, and even help bind the union more securely together.

--Editors: Clive Crook, Michael Newman

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.

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