Showing posts with label europe. Show all posts
Showing posts with label europe. Show all posts

Saturday 16 April 2016

Mythbusters: Brexit Edition

People have been clouded by scaremongering that has prevented us from getting to the real debate of Britain's EU membership, says Matt Walton. Today, he seeks to set the record straight on this key issue.


The debate surrounding the economic implications of Britain leaving the EU has so far been dominated by both sides trying to outdo each other in terms of scaremongering. “Brexit could cost £100bn and nearly 1m jobs” say the EU-funded CBI one week. “EU policies threaten to cost Britain £9,265” says the IEA the next. It is perhaps no wonder that many voters feel a little bit unsure about who to trust. The announcement this week that the government would spend £9.3 million on a pro-EU leaflet to every household meant that they had another organisation to add to that list of scaremongers. In this piece, I will attempt to draw together the economic arguments for Britain to leave the EU while rebutting some of the outlandish claims of the ‘In’ side. Before starting, however, I have a slight admission: My main motivation for wanting to leave the EU is not economic, but rather democratic. I fundamentally believe that we must leave so that we can hold those who make our laws accountable. However, given that this is an economics blog site, I will focus on the potential economic benefits which this country could enjoy.

Naturally most of the economic arguments surrounding the debate concern Britain’s trading relationship with the EU if we vote to leave. Trade is what the EU is all about after all, isn’t it? Campaigners on the Remain side have said that Britain would struggle to negotiate a favourable trading arrangement if we leave. That Britain is a relatively insignificant market for the EU and it would therefore be the EU which dictates the conditions of the deal, not the UK. This is incredibly misleading. Firstly, on the day that we vote to leave the EU, we become the EU’s largest export market for goods. Moreover, we currently export goods and services to the EU to the value of £228.9 billion per year whereas we import £290.6 billion of their goods and services (2014 figures). This means that we have a trade deficit with the EU of £61.7 billion. At a time when the EU struggles to shake off the remnants of the Euro crisis and when growth is still sluggish, can you imagine any desire on the EU’s part to forfeit this huge source of income?

Let’s suppose, however, that Britain does not reach a trade deal with the EU. A worst-case scenario, where the EU member states close ranks and say: “We won’t give you a trade deal, if you’re out you’re out.” Aside from being a particularly unlikely outcome, it’s also not a particularly damaging one for the UK. In this situation, the UK would revert to the rules of the World Trade Organisation (WTO). WTO rules dictate that tariffs on most goods must be between 1% and 3%. Let it be reminded that this is the minimum standard. In other words, almost negligible. The only areas where this is not the case is a) cars and b) agricultural products. 

But any tariffs the EU imposes on Britain will be matched by equivalent UK tariffs on EU products. Who makes wine and cars? Answer: the Germans and the French – the two countries who dictate EU policy more than any others. The German car industry alone, would be at risk of facing reciprocal UK tariffs on the £16 billion market for German cars in the UK. Almost 1/3 of the new cars sold in Britain come from Germany. You can be sure that, if we vote to leave, the heads of BMW, Mercedes, Volkswagen and the rest of the hugely successful German car manufacturers will be in Angela Merkel’s office the next morning saying “We need tariff-free access to the lucrative British market.” It is inconceivable, therefore, that a trade arrangement between the UK and the EU would not be reached.

If countries like Norway and Switzerland can prosper outside
of the EU, why not Britain?
“But”, cry those who want to stay in, “you won’t have access to the Single Market.” This is a valid point as far as the Single Market in terms of goods is concerned, yet our economy is not primarily goods-focused. David Cameron, in a column urging people to vote ‘In’, has claimed that 80% of our economy is made up of services. Though as he well knows, there is currently no Single Market for services. So the Single Market argument which he and others perpetuate cannot be relevant to the UK’s situation. Non-EU Switzerland, which supposedly doesn’t have access to the EU’s services market, exports five times per capita more to the EU than we do. If countries like Norway and Switzerland, two of the world’s richest and happiest nations, can prosper outside of the EU, maintaining friendly relations and trading with the bloc, without being subject to its constant over regulation, why not Britain?

Another argument peddled by the Remain camp is that British jobs would be at risk if we voted to leave. Their favourite figure to use on this comes from a report compiled by the National Institute of Economic and Social Research (NIESR) in 2000 which suggested that around 3 million jobs in the UK are linked to our trade with the EU. The methodology behind this is fairly simple to understand.  The UK’s exports to the EU are equivalent to 13% of our GDP. Thus, claim the researchers, it is logical to assume that 13% (3 million) of British jobs are linked to our trade with the EU. The operative word here is linked, however. The NIESR explicitly acknowledged that "there is no a priori reason to suppose that many of these [jobs], if any, would be lost permanently if Britain were to leave the EU." Plus, if you use the same back-of-the-envelope-type calculations for the EU, you find that between 5 and 6.5 million jobs on the continent are linked to their trade with the UK. Thus a trade deal with the UK would be imperative for job security in both countries.

I want to move away, however, from criticising the arguments of the ‘In’ side. Instead, let me spell out a more positive vision for Britain’s economy after we leave. After the 2 year negotiation period set out in the Lisbon treaty, and Britain is freed from the EU’s Common External Tariff, we will have access to world prices. These are typically 8% lower than prices in the EU. As a nation with a particular preponderance for imported goods, this will be a noticeable shift. The move from EU prices to world prices will mean that the cost of food and household goods will fall. Furthermore, this means that British firms will have access to cheaper factor inputs. The only result of cheaper inputs is that we, as a nation, become more globally competitive.

A departure from the EU’s protectionist external tariff wall will not just help the UK though. Currently African farmers, some of the most impoverished businesspeople on the planet face EU tariffs of 7.5% on roasted coffee and 30% on processed cocoa products, two of the continent’s major exports. Think what the removal of this barrier, at least on the UK’s part, will do for those same farmers. Tariff-free access to the UK market, the 5th biggest economy on the planet, can only make them richer.
 

One of the most frustrating things which I am hearing as the referendum approaches is that people “don’t know the facts” or that “they haven’t been told enough about it” – the inevitable result of media and government hysteria most likely. You each have, at your fingertips, possibly the most useful research tool in the history of humanity: the internet. If you are undecided or wanting more information about the referendum, it can be as simple as watching a YouTube video, reading a newspaper column or watching Question Time on Thursday evenings. 

If you want to find out more about the case for Leave, I would recommend listening to Dan Hannan or Tony Benn, or perhaps even reading Michael Gove’s piece on why he is voting to leave. From the Remain side, David Cameron and Alan Johnson are the ones making the case most prominently. 

Ultimately, however, it will be your choice on June 23rd. The outcome will fundamentally alter the course of British politics. 

Whether we vote to leave or stay, there is uncertainty. Yet it is my strongly-held belief that leaving the EU is not a ‘leap into the dark’ but rather a ‘step into the light’, towards a more prosperous, more democratic United Kingdom.

What is your opinion on this issue? Should Britain stay in the EU or vote to leave? Put your opinions in the comments below!

Tuesday 8 March 2016

'Brexit': Liberation or Suicide?

On Thursday the 23rd of June, a referendum will be held on whether Britain should remain a part of the European Union. This referendum will not only be one of the most significant events in British history, but also in Europe - James Rosanwo examines the key knock on effects of a potential vote in favour of Britain's exit.




The result of this impending vote could shape the future of the United Kingdom, as Scotland and Northern Ireland are heavily invested in Britain’s membership of the EU and will no doubt bring their own membership of the UK into question. The departure of a heavyweight member would certainly have negative effects on it’s the European Union’s dwindling economic stability.

The referendum was called after Mr Cameron completed his supposed renegotiation of Britain’s stance in the EU at the European Summit in Brussels, where he claims he has won concessions on behalf of Great Britain. However, many doubt it may do little to sway the result of the referendum in his favour. Soon after the announcement, many government ministers stated their intention to either back Mr Cameron’s campaign to remain in the EU or do the opposite, with high profile MPs, the likes of justice secretary Michael Gove and London mayor Boris Johnson, boldly reinforcing their discontent with remaining an EU member, pledging their allegiance to the “out” campaign.
The question of Britain's membership of the EU has created
a rift between key figures in the Conservative Party.

At the start of the year, the chances of “Brexit” seemed unlikely. However, recent events such as the European migration crisis and the incessant euro decline, seems to have many Britons favouring an exit. Whether, however, this is a good enough reason to opt for total economic uncertainty instead is debatable.

Mr Cameron has confirmed that if the British people decide to leave the EU, the UK would apply for withdrawal under Article 50 of the Lisbon treaty. Article 50 states that the EU countries’ would negotiate a new agreement with the withdrawing nation over a period of 2 years. It also specifies that the withdrawing state cannot participate in these discussions, so in essence the terms of the deal are established only By the EU. Hence it will be a process that will most likely not be quick or pleasant; neither will it yield results that would be favourable to Britain. One thing guaranteed is that the EU will be desperate to show that a decision to leave will not have a painless outcome.
Many opposed to remaining in the EU still maintain that Britain is being hindered by Europe, believing that  as a country free from the EU it would have an open Economy that would continue to trade with Europe and the rest of the world. Many have offered the Swiss and Norwegian models as  potential solutions:

The Swiss Model: Britain would emulate Switzerland and would negotiate trade treaties sector by sector.
The Norwegian Model: Britain leaves the EU but joins the European Economic Area, giving it access to the single market, with the exception of financial services but exempting it from EU rules on agriculture, fisheries and home affairs.

In practice, however, these models would be very difficult to implement. At the bare minimum, the EU would only allow access to the single market in return for obedience to rules Eurosceptics are so eager to escape, meaning they would still most likely demand free movement of people and big payments to its budget before permitting access to the market. Nonetheless, to these “Brexit” campaigners these hardships would be worth it, if it meant regaining independence from Europe and British sovereignty. 

Yet again, this supposed liberation is not as advantageous as it seems. In essence, Britain would be trading a greater power for a lesser one; in exchange for their newfound independence it would be relinquishing its ability to have any real influence in global issues. What is even more alarming is the threat posed to the EU and the West as a whole. Both Britain and the European Union would be significantly weaker, and less of an ally as separate entities. The strength of the EU is crucial to the West’s duty of maintaining global stability, an ordeal which is becoming more and more challenging given the ever persistent issues involving Russia, Syria, and North Africa etc. There’s no surprise why Russia’s Prime Minister Vladimir Putin would have no objection to ‘Brexit’, whereas America’s president Barack Obama has already urged the British people to vote to remain in the European Union.  

Britain's exit from the EU could further empower the already
dominant Germany.
Germany’s dominance in the EU would also monumentally increase, making them even more of an influence not just in Europe but on a global scale. Britain, on the other hand, would be on the sidelines outside the EU, free from but still in fact constrained by many rules it would have no role in formulating. We would be an independent Britain, still dependent on Europe.

The immediate effect of a vote in favour of 'Brexit' could also be devastating in further ways. Prolonged uncertainty over the UK’s new relationship with the EU would discourage investment, particularly foreign direct investment given Britain’s status as the financial capital of the world and the effects of these fears are already being identified; for instance, the recent fall of the value of the pound.

Above all, one question remains: will Britons be enticed by the illusion of a sovereign and liberal Britain, or will they see reason in the idea that there will always be safety in numbers? One thing is certain however, If the UK separates from the European Union, the decline of the pound will be the least of their worries.