Dominic Hannigan (Meath East, Labour)
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I remind members to ensure their mobile phones are switched off. It is not sufficient to leave them in silent mode as they interfere with the broadcasting equipment. I welcome viewers on UPC and Sky channels, on which the meeting is being broadcast live.

The joint committee is continuing its series of meetings on what would happen in Ireland if the United Kingdom were to decide to exit from the European Union. A referendum on this question has been promised by the Prime Minister, Mr. David Cameron, if he is returned to power in the forthcoming elections in the United Kingdom, which are scheduled to take place in May. The committee has decided to examine this issue now because of the potential impact on Ireland and the many Irish citizens living in the United Kingdom. Today we will hear from Mr. Fabian Zuleeg, chief executive of the European Policy Centre, and Mr. Roland Freudenstein, deputy director and head of research at the Centre for European Studies in Brussels on the impact on EU decision making should the United Kingdom exit from the European Union. I welcome both gentlemen.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

Mr. Roland Freudenstein:

I thank the Chairman for inviting me for a second time. The first time cannot have been that bad. Today I will talk about the possibility, not probability, of the United Kingdom exiting from the European Union. A Brexit would be a very bad idea for Ireland, the rest of the European Union and Britain. For Ireland, it would entail economic costs, hinder the free movement of labour and goods and complicate bilateral relations with the United Kingdom. The UK-Ireland border might well regress to an earlier state. In the European Council voting powers might shift to larger states, the eurozone would become more powerful, while Germany might find itself more isolated. On content, issues such as free trade, completing the Single Market and a strong transatlantic partnership would receive less attention. The European Union's budget might come under severe strain. Efforts to reform traditional areas of spending such as regional funds and agriculture would suffer. Mr. Fabian Zuleeg will go into more detail on this aspect. Strategically, the European Union would become much weaker in its global outreach and the eyes of partners. This is important to all of us. That is particularly true for diplomacy but also for security and defence policies whereby France would become the dominant power.

I will outline why Brexit matters to Ireland. As members know, the United Kingdom is Ireland’s most important economic partner. Some 34% of Irish imports and 16% of Irish exports come from or go to the UK market. The Republic of Ireland has long enjoyed special status for its citizens in the United Kingdom, including the freedom to travel and work without restriction in Britain. Anglo-Irish political, economic, social and cultural linkages are well established, stable and of great importance to both states. I am afraid there would be a risk of a detrimental development in this regard.

As for the decision-making mechanisms of the European Union, voting powers in the European Council would probably have to be redefined. The qualified majority voting procedure would have to be redefined owing to the loss of 29 votes, 8.5% of the weighted votes, which would have a considerable effect on the balance of power. A Brexit would increase the power of larger states in the Council. This would happen since the average population size of the remaining EU member states would fall, while the individual power of the larger member states, including France and Germany, would increase. Germany has very often formed ad hoccoalitions with the United Kingdom on particular issues such as trade and the EU budget. Given that this would no longer be possible, Germany would be deprived of an important classical ally. With the coming into force of the new qualified majority vote, QMV, in November 2014, the euro-19 will, in theory, be able to impose rules relating to the EU Single Market on other member states outside the eurozone, making the eurozone much more powerful.

Areas that have always been close to Ireland's interests would suffer as a result of a Brexit. I refer to trade, completing the Single Market, business conditions and the transatlantic economic relationship, specifically TTIP. These areas would find fewer supporters if Britain were to exit from the European Union. Strategically, a Brexit would be a huge blow to the European Union's global standing. France would be left as the only medium-sized European power with a global outreach and aspiration.

The British parliamentary delegation is the third largest group in the European Parliament and these seats would need to be reallocated or eliminated. The socialists and democrats group would be weakened, given that the British Labour Party is such an important delegation within it. While the European People's Party would not lose any member, it would lose a potential partner for ad hocvoting coalitions, given that the European conservatives and reformists in the European Parliament have often voted alongside it. If the British Conservatives were to leave the European Parliament, there would be one less potential ally for the European People's Party.

The proportion of UK citizens in EU institutions has been decreasing for some time. In the event of a Brexit, there would be no new employment of British citizens and those who retire would not be replaced by Britons. Therefore, after some time there would be no British citizens in European institutions. One consequences of this is that the Irish people would be the last remaining native English speakers in the European institutions.

Dominic Hannigan (Meath East, Labour)
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English would remain an official language, no doubt.

Mr. Roland Freudenstein:

It certainly would because the new member states are much more Anglophone than Francophone, not to talk about Germanophone. In Brussels our pidgin English would get worse and there would be a renewed push to place more importance on French in the dealings of the European institutions, depending on the Commissioner and the Director General. In summary, Irish interests would be affected, largely negatively, by a Brexit.

Mr. Fabian Zuleeg:

I thank the joint committee for inviting me. The European Policy Centre, EPC, which I represent is an independent multi-stakeholder think tank which is pro-European Union and supports the European integration process, although it has no particular political affiliation. It will not come as a surprise that my general view on Brexit is that it would be detrimental to the United Kingdom and the rest of the European Union. The costs would be economic and political and the balance of costs would fall much more strongly on the United Kingdom than on the rest of the European Union. While the European Union could survive a Brexit, it would be costly, particularly for the United Kingdom. A Brexit is a significant probability.

The referendum will happen at some point in time. It is a question of timing rather than whether it happens at all. It might not happen after the general election, depending on the outcome, but we already have a commitment on the table from the Labour Party that if there is another significant step in European integration, there would be a referendum in the United Kingdom. The two major parties have committed to a referendum at some point in time and I believe we will see some further steps in European integration in the coming years, including potentially treaty changes.

It is difficult in this kind of session to be very precise about the impact of Brexit because there are a number of uncertainties, not least the question of where Britain would stand after a Brexit, what would be the access to the Single Market, the implications for freedom of movement, etc. We cannot say what those would be at the moment because they would depend on an exit negotiation between the UK and the rest of the European Union.

If a Brexit happens, there is a chance that it will have a contagious effect on other countries but I would think that contagion would be relatively small. I do not see that there are other countries where it is likely that there might be an exit, not least because we are generally talking about smaller countries which would find it very difficult to survive on their own outside the EU. What we would also see in the case of a Brexit is significant pressure within the UK. The question of what would happen to Scotland and Northern Ireland is also relevant at EU level, not least because if Scotland became independent, it would apply immediately to come into the EU. Brexit and the future of the UK, therefore, are directly linked.

On the question of whether there will be more or less support for European integration with a Brexit, there can be two scenarios in that regard. The optimistic scenario is where the EU, without the sometimes awkward partner of the UK, manages to define a common vision, to move forward much more decisively and to be able to make progress on the many construction sites we have at the moment. There is also a more pessimistic scenario that we will go down the route of euro sclerosis, with very little change and progress. This is a personal view but my tendency would be more towards the pessimistic scenario because regardless of whether the UK is within the EU or outside, I do not believe we have a consensus about the way forward in the EU. In the past it has been very easy for member states at times to hide behind the attitude of the EU, be it on a number of different issues such as budget, further market integration or liberalisation. A number of countries have been very happy to have the UK in front but when the UK is no longer part of the EU, it still does not remove the fundamental conflict between different political directions. There would be a number of direct impacts of a Brexit on Ireland, many of which have been mentioned already.

On the EU budget, clearly the UK is still a net payer into the budget so an exit of the UK would immediately mean we would have some form of renegotiation of the budget. This opens up a huge political can of worms because as I said, there is no real agreement on the way forward. A number of countries would see this as an opportunity to reduce the overall size of the budget. A number of countries would believe the money which is then missing from the budget should be compensated by the existing net payers. There would be also a great deal of political conflict within the EU.

The question on what will happen to trade and investment is an interesting one. I generally would agree that we will have a negative impact but there is also a specific question for Ireland. Ireland might well become a more attractive place with an exit of the UK, particularly for foreign direct investment. Having a place in the Single Market which is English speaking and also has the euro could well be attractive for a number of outside investors.

I was also asked about social policy direction. In looking at social policy we must examine the question of the process we would go through to get to the Brexit stage because what we have on the table, at least at the moment, is the expectation that there would be some kind of reform package. That reform package would be heavily weighted in the interest of the UK and my expectation would be that some social policy changes would be in such a reform package, which would be offered to the British people to try to convince them to stay within the EU.

Overall, what we would see is that in some of the traditional areas of the UK interest would lose momentum. They have already been mentioned, namely, trade, the Single Market, the transatlantic trade and investment partnership, TTIP, and such areas. The eurozone would be strengthened but, overall, we are in a position where the EU is not moving forward decisively in any area. I am not saying it would be a significant change to the situation we are in. What we have seen with the eurozone crisis is a situation where most member states only want to do what is absolutely necessary at the European level and are not very interested in driving forward integration in any area, regardless of the countries that might have an interest.

In terms of the decision-making process, it is also important to consider the question of whether the UK is an effective player currently in terms of advancing its interest. What we have seen in recent years is a significant loss of influence of the UK. To put it simply, if a country is no longer willing to make compromises at the European level it is very difficult for it to get its national interest to be heard. A country cannot get its national interest through by putting a gun to the head and asking everyone to jump in the direction it wants to go.

Brexit is seen far too much as a domestic issue, a British issue. For me, Brexit is a European issue. It is something we should be thinking about far more at the European level. We should be making contingency plans for a possible referendum and the kind of reform package we might be wiling to put on the table. Such a reform package should be in the interest of the 28 member states, not in the interest of one member state. We should also do contingency planning for a potential Brexit and decide the kind of deal that would be on the table for a UK outside the European Union and the kind of future of differentiated integration we are envisaging for the whole of the European Union.

We should not forget that we are not only talking about the UK but a number of countries in the neighbourhood, the friends and neighbours we have around us, and where we have a pressing need to redefine our relationship. How far can we have them integrated into the EU, even if they are outside the EU? What does this imply in terms of market access and the free movement provisions for people? We are playing some of these discussions through with Switzerland.

These are the kinds of discussions and considerations we should be looking at to a far greater extent in respect of Brexit. I will stop there because I do not wish to go on for too long but I am happy to return to any of these issues.

Dominic Hannigan (Meath East, Labour)
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I thank the witnesses and was glad to hear Mr. Zuleeg's comments about the need for a debate across Europe. One reason the joint committee is having this debate now is that if the Conservatives win in May, one of the first items on that party's agenda will be discussions across Europe on how Europe can be changed and how the Conservatives can put some proposals to the people in advance of the referendum. Should that come about in May, we in Ireland certainly would wish to be part of any negotiation. The witnesses undoubtedly are aware of Cameron's Bloomberg speech a couple of years ago in which he outlined the type of changes he sought across Europe. All of us are in favour of most of those changes and there is nothing there that is too controversial or with which we could find disagreement. The witnesses are also probably aware of the review exercise undertaken by the Government of the United Kingdom on the balance of competences. The review considered what powers might be better transferred back to the national parliaments and my understanding is that after going through a fairly exhaustive exercise across various departments, a limited number of items were found where powers perhaps could be returned to the national government. In many ways, this was a tribute to the fine scrutiny work the Houses of Commons and Lords do and the joint committee receives reports from their scrutiny committees on a regular basis. They are extremely thorough and well researched and ensure adherence to the principles of subsidiarity and proportionality.

As for the type of requests one could expect to see from the United Kingdom should the Conservatives win the next election, much of the content of Cameron's speeches over the past 12 months focuses on matters such as the freedoms and, in particular, the freedom for movement. From the witnesses' discussions across member states and from their perspective, what appetite do they believe exists for some sort of deal to be done with regard to the freedom of movement? I acknowledge it is perceived to be a central pillar to the European Union. Do they perceive any leeway or scope for a compromise in this regard? Mr. Zuleeg mentioned that to date, he has not seen much discussion at a European level. Are many other countries carrying out exercises similar to what the joint committee is doing here? Obviously, Ireland is greatly affected because of its unique position with regard to the United Kingdom. However, as he noted, other countries will also be affected, should the United Kingdom leave. At what stage is the debate in other European countries?

I will ask a couple of other members to come in, the first of them being Deputy Crowe.

Seán Crowe (Dublin South West, Sinn Fein)
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Some of my questions will complement those of the Chairman. I had intended to ask how much concern there is in Europe. Professor McCarthy appeared before the joint committee earlier in the week and mentioned how the bookies are suggesting it is unlikely they will leave. While we certainly are waking up to the possibility of such an exit, is the position similar across the European capitals? In the worst-case scenario in which Britain decides to leave, what would be a reasonable timeframe for it actually to leave? How long would it then take to negotiate new trading agreements? While these are huge questions, I seek ballpark figures. Mr. Zuleeg mentioned the European Union budget and losing the amount contributed by the British State. How does he reckon this will work out? He suggested the possibility that the shortfall would be made up by other countries and so on. While this certainly would cause major problems right across Europe, the difficulty appears to be that we never really have been in this position previously and, therefore, the question is what to do. While members certainly have a fair idea of the impact it would have on Ireland, what country is next in line in this regard? I would describe a British exit as being disastrous for Ireland because of the Border in respect of the North and so on. One also could talk about the impact, were the referendum in the North to go against, or about Scotland going against and the impact it would have on Britain itself. Where will it go from there?

The British seek reforms and Professor McCarthy spoke about pre-negotiations and post-negotiations. Have those pre-negotiations already started? How strong is the hand they have to play? Mr. Zuleeg spoke of the impression that they have almost disengaged from the process in the context of the lack of compromise and so on. Has this weakened or strengthened their position for these negotiations? The view is that if the Conservatives can deliver on some changes, it would have an impact on the referendum itself. In the context of the referendum, there is talk of what the Labour Party will do. I note the latest poster produced by the Tories has put the Labour Party leader together with Alex Salmond. It suggests that if one thinks the Labour Party leader is bad, this would be twice as bad and so on. The Tories already are hyping it up to secure the support of 5% or 7% of the electorate, which is where the shifts appear to be. As for the debate on austerity, what impact will this have on austerity within Europe from the perspective of the pro-austerity and pro-stimulus camps? What future effect do the witnesses think it will have in this?

I have already mentioned the impact on the Border but it also will have an impact on the all-Ireland economy, including the all-Ireland tourism sector. While it would change the entire dynamic for Ireland, I would be interested to hear what changes will happen. Mr. Zuleeg also mentioned the transatlantic trade and investment partnership, TTIP, as did Professor McCarthy, who envisaged a move away by Britain towards the United States. He indicated that it would not have the same impact, as, for example, GM foods would not raise the same concerns in Britain as they would for the rest of us and possibly in Europe as well. What impact does Mr. Zuleeg think this will have on the TTIP negotiations themselves?

Bernard Durkan (Kildare North, Fine Gael)
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I apologise for my absence at the outset of the meeting but I was obliged to speak in the Chamber. While I am working on bilocation as best I can, it does not always work.

I agree entirely with the paper produced by the witnesses. If anything, they under-emphasise the importance of the issues facing Europe, the United Kingdom and Ireland in the event of a British exit. There a number of reasons, including geopolitical reasons that generally are accepted and recognisable from the outset. It also gives a peculiar and confusing message to the wider world and the global economy. In so far as possible, a Single Market has been established and the benefits accruing to all member states, and to smaller member states in particular, from having access to a Single Market are known. While anyone can have individual trade agreements with other small countries and larger countries, there has always been a tendency whereby the smaller operators do not necessarily have the greatest of influence in such company.

As a result of all this, it is utterly ridiculous to find ourselves in a Europe that now is looking around at alternatives. I do not rule out the possibility of all this happening. I do not dismiss it at all and believe it could happen. What one should remember is that over the centuries, the people of Europe have done some very strange things and have taken some very strange decisions, usually culminating in a war, at regular intervals throughout history. As for the tendency for this to happen again, while people will tell one this cannot and will not happen again, it can and as sure as Murphy's Law prevails, it will. This is because once we begin to fragment and go in opposite directions, the full implications of what is likely to happen will become known to everybody. It must be realised that such possibilities exist at this point in the debate as there will be no point in realising it afterwards when it will be too late.

I sincerely hope it does not happen for the sake of this country, Northern Ireland, the UK and the European Union. It would be like Texas seceding from the United States. I know they spoke about that a long time ago, as did other states, but it was deemed not the right thing to do. They fought a civil war over it, which was not the right thing to do either. Other issues were involved.

We are about to achieve the biggest single trading block of 500 million people in a single market, and it has potential to grow even further. Somebody has had the brainy idea of deciding to go back to the old ways with a loose arrangement of trade agreements which would be better for one or the other as the occasion arises, but I do not accept this concept. I cannot understand how anybody can justify it.

With regard to negotiations between the UK and the European Union that may take place, there is a limit to what we can do as a third party and this has been pointed out by other speakers. Interference in the internal affairs of a sovereign state does not go down too well at the best of times in any event. We do not like it ourselves.

Dominic Hannigan (Meath East, Labour)
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We should not comment on whether it is sensible for another country to have a referendum. We are concentrating today on the impact-----

Bernard Durkan (Kildare North, Fine Gael)
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That is correct.

Dominic Hannigan (Meath East, Labour)
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-----that an exit would have on us.

Bernard Durkan (Kildare North, Fine Gael)
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The impact would be disastrous from the point of view of the European Union, the UK and world trade. We always say we want to exercise maximum influence in the area of trade. We export 90% of what we produce. We export almost everything produced in the agricultural sector, and the IT sector has huge exports. Access to the single market would be questionable, unless we start going down the road of individual arrangements and agreements, and we know about this from before. It is a long time since I first studied the concept of a united Europe, and in so far as we have one it has shown one big advantage. We have had 50 years of comparative peace on the Continent of Europe as a result of the coming together of major powers alongside smaller powers in mutual recognition of each other's position and with the concept of helping each other.

Dominic Hannigan (Meath East, Labour)
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We will take answers at this stage and then come back for another round of questions.

Mr. Roland Freudenstein:

I will begin with the Bloomberg speech. Even though it negated upfront the principle of ever-closer union, another important element which was hardly noticed, even in Britain, was that for the first time a British Head of Government accepted the principle that European integration is an anti-war measure and is geared towards peace among the participating countries. Politically speaking, this is progress, because the Conservatives in Great Britain had never accepted this as a rationale for integration.

The Bloomberg speech itself still held out the prospect of a very constructive approach as far as reforming the Union is concerned. Most of the other member states got very nervous when the British Government started questioning mobility. It has backtracked since then, and has gone from questioning the principle of free movement of people to discussing preventing the abuse of social benefits. We know that in practice there is an overlap between these two areas, but the line of the other big member states, most of all Germany, in this debate has always been that one can do much more at national level to fight the misuse of benefits without ever coming into conflict with European Union legislation or the principles of European integration. This is no problem. For the time being at least this has been understood, and the discourse in Great Britain has moved from questioning the principle of mobility, which is unacceptable, to stating it will do this and that to promote fairness for all the citizens of our countries.

As long as the debate continues in this way, I do not see a major political problem, but there is no guarantee this will happen in the upcoming election campaign in Great Britain. Knowing UKIP, it may make this topic a fundamental question for the future of Great Britain or it may make EU membership, or rather in this case Brexit, a main campaign issue. So far this has not happened and the campaign has been all about economics, the National Health Service and education, but the risk is that over the coming months we will see these European questions of mobility on the one hand and EU membership on the other having a much more prominent role.

We cannot say we have any idea at present what the timescale for Brexit would be. The entry into force of the Lisbon treaty means that for the first time we have a provision for a country to leave, but it is completely impossible to say how long it would take to renegotiate a different status, either along the lines of the European Economic Area or the European Free Trade Association, the Norwegian model and Swiss model as they are called. It is also impossible to say what would be the outcome. It would be very important to negotiate some type of status for both sides.

With regard to the impact on the austerity debate, I see fiscal consolidation losing friends to say it strategically. People would say the European Union would become more southern, which is an oversimplification, but the very principle of solidifying public finances would be weakened through a British exit, which is why Germany would be particularly sad to see it happen.

With regard to the psychological element of British-Irish relations, I am an outsider but my impression is that was extremely important for Ireland to enter the European integration process at the same time and under the same conditions as Great Britain. If this changes there is a risk that for the first time in a very long time British-Irish relations could regress. I absolutely agree this is something we need to prevent.

Mr. Fabian Zuleeg:

Many questions were asked. I fully agree that the impact would be disastrous. I must apologise, because I did not provide a written briefing before the session. We were asked to focus on the decision-making processes, but to speak more generally-----

Dominic Hannigan (Meath East, Labour)
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Mr. Zuleeg's article was circulated beforehand and we had sight of that.

Mr. Fabian Zuleeg:

The problem with regard to influencing the debate is significant. Predominantly this is a domestic UK debate, which is very difficult to influence from outside. A major question for me which has not been answered in the debate in the UK is what does "out" mean. What does it mean to state a country will leave the European Union, because very often I hear that "out" means no political integration but maintaining access to the Single Market.

That underestimates the political negotiations that would have to occur, some of the legal problems and, crucially, the underlying deal. A Single Market is not a pick-and-choose menu from which one can take some competitiveness measures and exclude some social and environmental policy measures. These are all part of the Single Market.

This point leads to freedom of movement. One of the key points that is not debated in the United Kingdom at present is that freedom of movement of people is not simply a right under the treaties, which I believe is worth defending very strongly, but also a crucial element of the four freedoms of the Single Market. Arguing against the free movement of people is ultimately arguing against the Single Market, and not for it.

I am quite sceptical about what could be achieved in any reform package because I do not envisage how meaningful change could be achieved in a relatively short timescale. If there is an election victory by the Conservatives in May and then a reform package agreed by 28 member states, perhaps with elements ratified by 28 member states, as early as 2017-----

Dominic Hannigan (Meath East, Labour)
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Earlier.

Mr. Fabian Zuleeg:

Perhaps earlier, and some people are saying 2016. That is not a timescale that works particularly well in Europe. We would have major difficulties in doing anything significant in that kind of timescale. Admittedly, one could produce certain declarations emphasising certain issues but we should not forget that if this touches on some of the fundamental legal provisions of the European Union, there could well be court cases, or a legal challenge to some of the reforms. With regard to freedom of movement of people, for example, it would depend on what is exactly is in the package.

There is a more fundamental issue to be considered regarding any reform package. What is happening in the United Kingdom at present is not simply about the content itself but also about who makes decisions on particular issues. That is far more difficult to address. I do agree that with issues such as the abuse of social security, be it a real issue or not, one can find European compromises. What one cannot do is give the right to make decisions about EU mobility back to the national level. The moment one does that, one is setting the treaty aside, which is not possible. This is very much going to be the political debate in the United Kingdom. It is not about the detail of the kinds of reforms that are emerging but about the fact that the United Kingdom cannot independently make decisions on the free movement of EU citizens because it is an EU competence. This is a far more difficult matter to address.

How concerned is the rest of Europe? I still believe we are in circumstances in which most people in Europe believe the exit cannot happen because they cannot seriously believe the United Kingdom would vote for it. If I were to be very unkind, I would say this is wishful thinking. It is a case of saying we are not going to think about it because it is not allowed to happen. I do not envisage any serious consideration anywhere. I am very glad that the committee is engaging in this process because it is high time that many more places, including the EU institutions, started to think seriously about the possibilities. At present, this is not happening.

This is of concern also because I have very much noticed on the EU side that the mood has changed. It is changed in two very different ways, both of which are important. First, the eurozone crisis dominates everything so whatever happens with Brexit is secondary to the euro crisis. If five or six years ago there had been a debate on Brexit as we are having now, it would have been the biggest issue on the European agenda, without a doubt. Now, without a doubt, it is not. Therefore, the question of what needs to be done to fix the problems with EMU comes first. If the United Kingdom is seen as a hindrance to that process, it has an implication in terms of how people regard Brexit.

The second point is that, for the first time, people can imagine having the United Kingdom outside the Union. It is very much because of the negotiation tactic of the UK Government. Imagining the exit was a taboo a few years ago, at which time one would not even consider the possibility. Now, I hear increasingly often the statement that if the United Kingdom is not going to be constructive or try to find compromise at European level, the Union might be better off at some point without it. I am not saying this is a majority view but this is the first time I am actually hearing views of this kind, which represents quite a sea change in how Brussels thinks about this.

On the question of the timescale if it comes to Brexit, it is impossible to predict. The difficulty would very much be on the UK side. Domestically in the United Kingdom, an enormous number of legal changes would be required. Independent regulators would have to be set up, in addition to competition authorities. There are a number of these institutions already but they have different legal functions. One would have to change a vast part of the legal system within the United Kingdom or, in essence, accept all the EU law without further scrutiny, which seems to defeat the purpose of Brexit at little. The pressure would very much be on the United Kingdom and UK Government to deliver Brexit. I do not believe a UK Government could negotiate an arrangement and go back to the people to ask for another vote. It will be final and there would be an expectation that the process would happen in a reasonable timescale. It would be a matter of deciding what reasonable meant at that point.

I will address a few of the specific points on the austerity debate. It will not have much of an impact, predominantly because it is a eurozone debate. The United Kingdom is not involved in decision making at that kind of level. I agree on the general point but, ultimately, it will not make much difference.

I do not believe TTIP will make so much difference. Other trends are having a much greater impact on the likelihood of TTIP happening. The attitude in Germany towards TTIP is far more important to TTIP than whether the United Kingdom is inside the European Union. The importance of the UK voice in some of these areas is overestimated in the United Kingdom.

With regard to the question on the impact of a UK exit on Ireland's economy and tourism, it is impossible to predict if one does not know what kind of regime will exist in terms of exchanges. The key point is that I would expect relatively little to change in terms of trade, especially in terms of manufactured trade. Most of the latter is WTO related rather than EU related. It could have an impact on services, and on investment in particular. The far greater longer-term impact would be on investment.

On the budget, I hope I have covered everything. I ask members to revert to me if there is something missing. Brexit would be opening a can of worms with regard to the budget. We noted the difficulties we had negotiating the long-term budget of the European Union the last time around. It was not solely down to the United Kingdom.

It played a prominent role in there but it was a much more fundamental conflict between some countries who believed the budget should increase and those who believed it should decrease. There were different spending and political priorities. The immediate effect of a Brexit whenever that would happen would be to reopen that debate. One would need to renegotiate the entire multi-annual financial framework. That comes second only to treaty change as a nightmare scenario in Brussels. We would have a major problem trying to find a compromise between the 27 countries. I would expect that any compromise would have to be along the lines of some of the net payers paying a bit more and some of the net recipients receiving a bit less. At the margin, it could turn some net recipients into net payers because of the arithmetic involved. All of that would need to be negotiated and it would be a very difficult negotiation.

The additional difficulty here would be that there is now a mechanism for dealing with a breakdown in negotiations but the mechanism for a breakdown in EU budget negotiations relies on continuing the previous budgets. You cannot do that if a major net player is missing so you could have a complete breakdown in the budget negotiations which would be very detrimental to the functioning of the EU but it is possible.

Dominic Hannigan (Meath East, Labour)
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I thank Mr. Zuleeg. We will have a few more questions from our panel beginning with Deputy Kyne.

Seán Kyne (Galway West, Fine Gael)
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I welcome the two speakers and apologise for missing the start of the meeting. I had other things to attend to, including speaking in the Chamber. I have read the briefings we received and the earlier reports. There were some very interesting points. If the UK does leave, will this lead to instability in the EU and increased tensions in other countries regarding exit? If the UK stays and certain reforms were initiated to sweeten the deal to keep it inside the EU, would this lead to other countries requesting changes in certain areas they might not be happy with? Would this pressure arise?

Mr. Zuleeg mentioned the fact that the UK is our English-speaking ally and an exit would increase the role of Germany and language issues because French and German would be more to the fore. Is that realistic in terms of a change? Mr. Zuleeg also mentioned the fact that an exit would mean one less net payer to the budget and mentioned the impact on the budget and oversight. How would it affect oversight in terms of how the money is spent? We have the Court of Auditors and various methods to ensure that money is spent correctly.

Mr. Freudenstein mentioned the EU civil service in terms of the British population and that the British population makes up about 12% of the EU population. In 2004, they made up 9.6% of the people working in the Commission. This has dropped to 5.3%. Does Mr. Freudenstein think that this had an impact in terms of taking in the views of the British people or some of the things they might be more concerned about because they do not have as many senior people working within the Commission?

Mr. Zuleeg mentioned that he has heard the view that countries will not believe that life will end if the UK leaves. Does he believe that if the UK was of the part of the euro, the consequences would be far more dire?

Aideen Hayden (Labour)
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I thank the witnesses for attending here today. As a number of other people have said, it is of major importance to Ireland not just from a practical point of view but also from an emotional point of view in that the UK is our closest neighbour and we have a very significant and extensive shared history. Let us say the euro continues to be under severe pressure and eventually collapses following the exit of the UK. Might this scenario suit Ireland better? Might it suit Ireland to move with the UK out of the EU?

In the paper furnished by Mr. Zuleeg, he said that there is a high level of distrust of the EU among British policy makers and a tendency for disengagement, they are inflexible and their demands are unilateral and are constantly backed by the threat of exit. Even if the Brexit referendum does not pass, to what extent will the UK effectively continue with one foot in and one foot out of the EU? To what extent can this process be reversed even if a referendum is not successful?

Who cares? Who among the member states really actively wants the UK to remain given that the speakers make the point that it will actually weaken German power within the EU? Many countries might not find that to be such a disadvantage.

In respect of contagion, the UK is a significant player in the European economy. It is my understanding, although I may be wrong, that a significant portion of European countries trade mostly within Europe unlike Ireland which has more trade outside the EU. Who needs who more here? Does the UK economy need Europe or does Europe need the UK economy as a market? If the UK economy is more important to Europe than the other way around, might we end up in a situation where the UK has all the access to the market but none of the costs? If that was to happen, what impact might it have on the future of the Union as a free trade union, which was one of the founding principles of the EU?

The speakers mentioned that a British exit would strengthen the power of the euro countries. Might that not strengthen the euro and be more beneficial in the longer run? A question was posed about whether a reform package could be positive for all 28 members. Why did we not do it before now? It leads to the question that a reform package that would be negotiated by the UK would be more likely to be negative around matters such as social protection and ideas like a common European minimum wage and be more negative towards a social Europe than towards an economic Europe. Perhaps I am wrong here.

Do the speakers think a British exit would move the UK more towards an Atlantic axis in terms of foreign policy? I know they said it would weaken overall EU political strength in the world as a whole but is there any way in which it might encourage Europe to move more strongly towards a common foreign policy platform?

Mr. Roland Freudenstein:

In respect of contagion and the reform process, there is the fear that if we think of this in terms of British opt-out, other member states would then demand their opt-outs.

Other member states would then demand their opt-outs. Obvious candidates would be the Czech Republic, Hungary and, possibly, Denmark. One of the strong arguments in the Brussels institutions and member state capitals against a fundamental renegotiation of Britain’s status in the European Union has always been that it would not be Britain alone, but that the whole edifice would unravel. This would result not only in a multi-speed but multi-status European Union. That has had a very limiting effect on the number of issues that Britain’s partners would be ready to discuss.

As much as Great Britain has already distanced itself in the Union, it has always had one leg in, one leg out. It was never as involved in the European integration process as some of the continental countries for fundamentally political reasons. On topics such as the EU budget and completing the Single Market, however, Britain has always been an ally of Germany. Even though it was outside the eurozone, on overall topics of economic governance, as well as recently on issues of subsidiarity and bringing decision-making procedures closer to the citizens, there was some kind of German-British alliance in the European Union, spoken or not spoken. There has been a certain closeness in that regard. I can say with some confidence that the German Chancellor, Angela Merkel, would personally consider a Brexit a detrimental event for Germany. As I said in my opening statement, Germany would get numerically more powerful but, at the same time, become more isolated in the European Union by losing an important ally on some very crucial issues.

Why has the reform process not happened before? It is because some of the demands that the British Prime Minister, David Cameron, made in his Bloomberg speech go beyond Great Britain, striking a chord with political forces and citizens in other member states. Germany is not the only one. The Dutch Government has produced a list of issues on which there should be no further transfer of competences to the European institutions in the future. It is not the same as a renegotiation bid by the British Government but there are other member states in which the rise of populism and popular discontent with the way politics is made in Europe and in the European Union has led to some rethinking and re-evaluation of the principle of subsidiarity. That is not to talk about the southern tier where, as a consequence of the euro crisis, there is a strong anti-EU sentiment in the population. There is a feeling, however, in member states such as the Netherlands, Germany and some of the Scandinavian countries that if the British Government did not dramatise this issue so much, they would have something in common about which to talk. The desire to rethink some decision-making procedures is not isolated to Britain. That is why it is happening now and, to a certain degree, some of the British demands sound reasonable to other governments and certainly to some of centre-right parties in the European Union.

Would a Brexit be beneficial for Ireland? Would it lead to happier faces on the Continent? This is all speculation and I certainly do not want to answer the question about Ireland as that is for members to contemplate. As Fabian Zuleeg already said, some people in European institutions, continental member states and French-speaking countries would be actually happy about a British exit. That is not secret. That is not true, however, for the majority of citizens of the European Union. It has been increasingly difficult to make progress in European integration in every respect with a Britain that feels more disaffected. It must be remembered, however, British public opinion has been going up and down when it comes to Europe. In 1975, 67% of British citizens voted in favour of continued membership of the European Economic Community, shortly after its entry. There was a strong majority against EU membership, 70% or so, in the 1980s. The most pro-European moment in British public opinion was in 1991 when Margaret Thatcher left office. Since then, it has been going downhill. Britain has always been a difficult partner. However, when it comes to issues such as completing the Single Market, being an advocate of free trade and strong transatlantic relations, Britain has and continues to play a positive role. It depends on which areas are important to one, which country on the Continent to which one belongs, as well as political affiliation, if one considers a Brexit a more positive or more negative development. In the final account, a Brexit is considered vastly more negative than positively.

Regarding the eurozone versus the other currencies, on the surface it might look that decision-making will be easier after a Brexit. The rest of the currencies would become weaker. Sooner or later, Poland will also join the euro. Sweden and Denmark then will still remain outside the euro and probably not for long.

Dominic Hannigan (Meath East, Labour)
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One out of every three EU citizens is outside the euro. With a Brexit, that would change to one out of every four.

Mr. Roland Freudenstein:

This then, paradoxically, might have a centrifugal effect on some smaller member states, for example Hungary and the Czech Republic, and speed up their debates on leaving the European Union. Whether there is any economic rationality to these countries leaving the European Union is a big question. I do not see it happening but there would be an emotional and psychological push.

What would be the effect on social Europe? Even the British Labour Party has been playing a rather cautious role in advocating social Europe. Within the Socialist and Democrats Group in the European Parliament, British Labour has been a free trader as a party. If Britain drops out, then one can imagine the logical consequences.

Would the UK become more Atlanticist in its foreign policy? To put it cynically, it may well try but it takes two to tango. The United States has made it abundantly clear - this goes far beyond the US President, Barack Obama, and the Democrats - that Britain is of value to the United States only if it is a strong part of the European Union, not outside it. There are some fringe elements in the Republican Party that might dream of a renewal of special relationship outside of Britain’s EU membership.

These are nothing more than fringe elements. As someone who works in the think tank that is affiliated to the European People's Party, the centre right group in the European Parliament, I am especially familiar with debates taking place in the Republican Party in the United States. I know for certain that conservative Americans who think in international and transatlantic terms are not interested in a Britain outside the European Union - they want Britain in the European Union - and that is without speaking about the Democrats and President Obama. Some conservative politicians in Britain may not be fully aware of this, but they are missing reality if they do not take it into account. It is a pipedream to believe Britain would be of any value to the United States outside the European Union.

Mr. Fabian Zuleeg:

I fully agree with the Mr. Freudenstein's final point which also applies in the trade sphere. A number of countries have made it abundantly clear that a country of the size of the United Kingdom, with its economic weight, would have a very different negotiating position from that of the European Union in international trade negotiations. To put the matter simply, the United Kingdom would be a price taker in such negotiations. There have been clear signs from the United States signalling strongly that a transatlantic trade and investment partnership, TTIP, is a far more attractive proposition if it is with the whole of the European Union, including the United Kingdom, and the United States is more willing to negotiate on that basis.

Unfortunately, I do not believe a UK exit from the European Union would strengthen the Common Foreign and Security Policy because the differences between countries in this area are too great. If we were thinking about longer term horizons, we might imagine changes in this area. However, the kinds of foreign policy position being taken by France and Germany, the other two big countries, are very far apart. It is difficult, therefore, to see how one would get more than co-ordination of foreign policy, which is what we have.

I will pick up on a couple of the points made concerning tensions in other countries. It is true that there could be difficulties in some smaller countries in terms of increased anti-European sentiment. In general, however, albeit not necessarily in every single case, there is a significant difference between the attitude to the European Union in the United Kingdom and attitudes in other countries. Most people outside the United Kingdom cannot imagine being outside the European Union, even in countries where there is considerable dissatisfaction. While they may have many grievances and want many changes made in certain areas, the idea of being completely outside the European Union is unimaginable for most. This is not the case in the United Kingdom where there is much more of an accounting view of the European Union, by which I mean that people ask what are the costs and benefits of membership. If the former outweigh the latter, they take the view that perhaps it would be better for the country to be outside the European Union. I do not believe the costs outweigh the benefits. On the contrary, the benefits of being inside the Union far outweigh the costs. A discussion of the benefits must form part of the debate around a British exit. We should emphasise that these are political as well as economic benefits.

One issue that must be taken into account is that a vote to leave the European Union in a referendum could have a very destabilising effect on Britain. For example, if different constituent parts of the United Kingdom were to vote differently in such a referendum, it could well result in its disintegration. The political costs and uncertainty arising from such a vote would be high.

On the issue of trade, the European Union does not need the United Kingdom more than the United Kingdom needs the European Union. When we consider the logic of markets, it is clear that the European Union is the big market and that the United Kingdom the small one. The small market needs access to the big one. It would be a disaster for the United Kingdom if it could not sell its manufacturing products in the rest of the European Union. For example, most of the UK car industry, one of its major industries, and the pharmaceutical industry are based on exports. All these types of industry would have major problems if market access were to become a problem. The balance of the economic weight is clearly in favour of the European Union. As I stated, however, a British exit from the European Union would cost both sides and is not, therefore, a positive scenario. In terms of negotiations, the United Kingdom would be in a weaker position.

On the effect of a British exit on decision making, we would clearly move towards a scenario, at least in the medium term, in which the European Union and the eurozone became the same. While one or two countries could hold out, economically, they would have very little autonomy of movement if one had major blocs. In terms of monetary policy decisions, Denmark, for example, must watch extremely closely what the European Central Bank is doing. If only some small countries which do not have economic weight remain outside the eurozone, a cohesive eurozone will emerge, although this does not mean that it would be any better at making decisions because making decisions on the way forward implies agreement on what should be the way forward. There is nothing to indicate that the eurozone is cohesive in terms of its opinions.

On the question of who wants the United Kingdom to remain in the European Union and who wants it to leave it, while one could discuss in some detail whether a British exit would be in the interests of certain countries, the general tenor which still comes through from all member states is that none of them wants the United Kingdom to leave the Union. Despite the fact that in some cases one could argue it might be in the interests of certain players to have the United Kingdom outside the European Union, none of the institutions or member states wants the United Kingdom to leave. Notwithstanding that the United Kingdom sometimes appears to believe the European Parliament should not exist, the Parliament also believes the United Kingdom should stay in the European Union.

Aideen Hayden (Labour)
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If that is the case, the question is not "Who cares?" but "Who cares more?"

Mr. Fabian Zuleeg:

A UK exit would result in a rebalancing of the system, but it is clear that some of the major problems in the European Union are related to a lack of trust between member states. A UK exit would not change anything in that respect, as we would still be stuck in a number of areas of decision making. That issue will not be resolved either by the United Kingdom leaving or staying in the European Union.

There is an important lesson to be learned from the Scottish referendum. Simply arguing that people should fear uncertainty and the economic impact of being outside a union is not enough to change hearts and minds. While it may win the vote in the immediate term, the longer term issues will remain. I expect we would still have the same issues in the case of a UK exit from the European Union. This is not just a UK issue but a question of what kind of future we foresee for the European Union and what we want to do together at European level and in which areas it is absolutely necessary for the European Union to work together. This is one of the reasons we have not seen the types of reform which might be presented as a package for the United Kingdom. Part of the reason is that the United Kingdom has always been a special case. Some countries are more equal than others and the fact that the United Kingdom has always had the threat of exit has meant that it has been far more easily accommodated in terms of opt-outs, etc.

The larger question is that we do not have agreement across Europe on the direction the European Union should take. We do not have a common vision on a way forward for 27 or 28 countries. Unfortunately, whether the United Kingdom is in or out, this is not going to change, but it is something we must address. Perhaps not in a particularly positive way, but the debate on a Brexit might finally force us to face some of the questions about what kind of European Union we want for the future.

Dominic Hannigan (Meath East, Labour)
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On behalf of the committee, I thank Mr. Zuleeg and Mr. Freudenstein for travelling to Ireland today and for being so generous in their contributions. The committee will meet again on Tuesday to hear from a number of guests on the issue of the free movement of goods, services, capital and people and how it might be affected if the United Kingdom were to withdraw from the European Union.