The European referendum campaign. Myths and Motivations, Fact and Fiction

By Madoc Batcup

Published Monday 20 June 2016

What freedom would we achieve were the UK to leave?

As Dickens said at the beginning of a Tale of Two Cities “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness…”  That is perhaps not an unfair description of the Brexit debate.  In an age of economic austerity and angst, Europe for some has come to symbolise all that is holding the UK back.  If only we could escape the deathly embrace of Europe the argument goes then in one bound Jack would be free.  Is it fair to characterise the UK’s relationship with Europe in this way?  In undertaking a referendum on Europe what is the problem that we are trying to solve?  We are living in a world of big trading blocks and those who would leave them must be conscious of the perils of doing so and of the difference between political sovereignty and economic sovereignty.  In leaving Europe what would we be freeing ourselves from?

1.            Freedom from immigration?  The UK is not in the Schengen agreement area and does not have a particularly high rate of unemployment.  Both the public and the private sector require the skills and the abilities of those who have come to the UK.  Indeed in his book ‘the Flat White economy’ the founder of the Centre of Economic and Business Research Doug McWilliams suggests that the digital economic sector, the fastest growing sector in the UK depends on the multicultural matrix created by young creative people coming from many different cultures and countries.  About half of our more than 300,000 immigration per annum comes from the EU and half from the rest of the world. There are about 1.2 million British citizens in the EU in total, and 3.3 million EU citizens living in the UK.  But while the UK has benefited from upwardly mobile, multilingual young Europeans, by contrast many of the some half million British citizens living in France and Spain, are retired, not economically very active and looking to the health services of those countries to provide immediate medical care.  The UK has done rather well out of the freedom of movement of labour.

We should not confuse freedom of movement with illegal immigration, or the refugee crisis on European borders which will certainly not go away whether we stay or go.  The UK has been spectacularly uncompassionate in taking in such refugees, despite arguably having, with the US, a considerable responsibility for causing the problem in the first place

2.            Freedom from regulation?  Much trade regulation is even wider than Europe in respect of major international industries, such as the automotive and aerospace industries.  On the one hand we complain that there is too much regulation from Europe and on the other that we ‘goldplate’ European legislation.  We cannot have it both ways.  We would need regulations inside the EU or outside, to standardise product specification and so on and tailored to the requirements of the markets into which we are trying to sell.  Despite EU legislation the UK still has one of the lowest level of product regulation of any G7country.  The application of the EU Working Time Directive is much complained about, but it has not prevented Germany or even France having higher productivity rates than the UK.  It is surely better to work more efficiently than to work more hours.

Some consider that human rights legislation and the direct jurisdiction of the European Court of Human Rights based in Strasbourg should be abolished, but this is often due to them confusing this court (which is nothing to do with the EU) with the European Court of Justice based in Luxembourg which deals with the European treaties, not the European Convention on Human Rights to which the UK only acceded in Tony Blair’s first term of office in 1998.

3.            Freedom to trade?  Germany seems more than capable of running a very large balance of payments surplus from within the EU, and no argument has been put forward as to what regulations need to be abolished to make the UK more export competitive to the rest of the world.  Germany’s success may be a problem for other Eurozone countries, but that issue does not affect the UK.  The UK does not seem significantly constrained from trading effectively with other countries as a result of EU trade restrictions or agreements.  On the contrary car manufacturers such as Nissan from outside the EU find the UK a good base to export to the EU.  The UK’s strength lies more in the services sector, such as banking, insurance, legal, accounting engineering and architectural advice etc.; these are not covered in international trade treaties, they are deemed to be too difficult but the EU treaties do allow service firms regulated in the UK to trade throughout the EU.  An advantage not only for UK firms but also for non EU firms who base their EU operations in the UK.

4.            Freedom from budgetary constraint?  The figures are large, but should be seen in context.  The UK international aid budget is about 0.7% of GDP some £11.7 billion. The UK’s net EU contribution for 2015 (which can fluctuate significantly) is £8.5 billion or about 0.5% of UK GDP.  The UK seems less concerned about the money we give away than the money we pay to belong to the largest trading block in the world, with many jobs dependent on continued access.  It would not take too much market uncertainty leading to lower growth rates,  before the benefits of not having to pay the cost of EU membership would be entirely wiped out and there would be no extra money to pay for additional services in the NHS etc.

5.            Political Freedom?  The UK government is very much in favour of the Transatlantic Trade and Investment Partnership, which has been negotiated in secret for some time through the European Commission.  The opposition of a number of other European governments has held up agreement.  If signed, however, it would allow companies to sue governments in courts not open to the public for the potential loss of profits that any legislation they pass might cause, and would require the mutual recognition of the standards of one trading block in that of the other, so GM foods for example could no longer be banned unless an exception were made.  If TTIP is passed then inside Europe or outside UK industry would have to abide by these standards if it wished to trade in Europe and North America.  Globalisation has reduced political freedom in fact if not in theory.

What is Europe for?

1.            We should remember that we are commemorating the battle of Jutland which took place on 31st May 2016.  At the same time the Battle of Verdun was also being fought from 21st February to 18th December 1916.  Earlier this year 75 years ago the centre of my home town Swansea was obliterated by the Luftwaffe, and a similar fate was suffered by many cities.  These are just some of the extraordinarily terrible events of European wars which should not be forgotten.

2.            We know that in the 1930s a period of austerity led to the rise of more extreme political movements in many countries.  We are currently in a period of austerity.  We have seen the extreme right wing only narrowly defeated in Austria, we have a right wing Prime Minister in Hungary, Poland is becoming more right wing, in Germany we have the Alternativ für Deutschland, in France the Front National, on the left wing there are movements such as Podemos in Spain and the five star movement in Italy.  In the US Donald Trump is the Republican candidate and Bernie Sanders the left wing Democrat is running Hillary Clinton a surprisingly close race.  Here in the UK the Conservative party is split and the Labour party is turning to the left while the reason we are having this referendum is the rise of UKIP.  It is precisely at these times that more international co-operation is necessary, not less.  The core raison d’être of the European Union, right back to the founding of the European Coal and Steel Community in 1951 was to protect Europe from itself.  NATO is to protect it from outsiders.

3.            The work of the Erasmus programme bringing European students closer together through student exchanges, and institutions such as the Wiener Anspach Foundation which arranges exchanges between Oxford Cambridge and the Université Libre de Belgique are likely to be significantly adversely affected if the UK were to leave the EU. 

What is the UK’s current position?

UK budget deficit:            3.8% anticipated

UK trade deficit: 7% annualised equivalent estimated for 2016

This is no time to be losing friends, either in the markets or in other countries.  The UK has not run a balance of payment surplus for over 30 years.  Its model is not sustainable.  I remember headlines in the 1970s asking the last person to leave Britain to turn out the light.  In the meantime we discovered North Sea oil and sold everything that we could lay our hands on.  This temporary reprieve is running out.

The UK is not in the Eurozone, which is a misconceived currency union, but we should be careful to criticise.  The sterling currency union has also been very bad for most of the UK.  London and the Home Counties are to the UK what Germany is to Europe.  But with a standardised tax rate and standard rates of public sector pay, the rest of the UK has struggled with an overvalued currency, and a crowded out private sector.

What would be the likely consequences of leaving?

Were we to leave there would very likely be a run on sterling and the Bank of England might have to, albeit reluctantly, increase interest rates to protect the currency.  In a very indebted country this could cause to considerable damage to people’s disposable incomes and also to the government’s own borrowing costs, further reducing the spend in the economy.

In addition renegotiating or at least revisiting the EU treaties, the EU legislation passed under them and treaties with other countries around the world would involve an enormous amount of civil service time.  Either the civil service would have to be rapidly expanded or it would be so focused on these matters that any new policy initiatives would be subject to severe delays.

And let no-one think that all these things can be negotiated quickly.  It is not in the EU’s interests to let our exit be an easy one, and even if it were, such treaties take a very long time to negotiate.  The EU treaty with Canada has taken 8 years and is still not ratified.  The business editor of the Evening Standard, Anthony Hilton commented that he was aware of only one trade treaty that had been negotiated in a two year period as envisaged by clause 50 of the Lisbon Treaty and that was between Iceland and China.

Given the short term uncertainties of leaving, the lack of any clear long term benefits, and the need to co-operate even more fully at a time of considerable political stress, there is little to recommend the UK leaving the European Union apart from the passion of those who propose this course of action.