Brexit: Let's not sleepwalk into economic and geopolitical catastrophe; why I'm voting to remain
If Europe’s political leaders awake on Friday June 24 to find that Britain has voted to leave the European Union – which judging by the polls is looking ever more likely – they will know who to blame most: themselves.
For many citizens, there are much greater issues of principle and interest at stake in this referendum than the economy. But for me, economic and political stability are the prime consideration, which is why, as regular readers of my columns will already have guessed, I will be voting to remain.
Yet I do so with a deep sense of foreboding, for despite the benefits Britain has enjoyed in its 43 years of membership, the EU has become a dysfunctional Byzantium of paralysing political and economic complexity. It has not been possible for a long time now to be an enthusiastic European. Much of what was good about the EU as a force for peace through trade and economic advancement has long since ceased to be true.
Over the last eight years, the EU has faced two distinct but related, existential crises – the eurozone debt meltdown and the challenge of mass, cross border migration. On both counts it has failed miserably.
Though very different in their characteristics, these crises essentially have the same genesis. Both result from the attempt to crunch together economies of widely different income, wealth and welfare support.
Give Greece, Spain, Portugal and Italy the ability to borrow at a German interest rate, and they were always bound to be enveloped by an unsustainable credit boom. Denied both the natural market adjustment mechanism of free floating exchange rates, and the policy flexibility to mount a nationally-determined response, these debt crises have been left festering and unresolved, with devastating consequences for growth and jobs.
Similarly, if the inhabitants of a low income, developing country are given the right to live and work in a much richer one with far superior public services and social welfare, then nobody should be surprised by both the reality of mass migration and the now all too evident backlash against it. In this regard too, the single European market, with its founding “four freedoms”, has proved incapable of responding.
Open borders are a noble aspiration, which for countries only quite recently liberated from isolationist, communist rule, goes to the heart of what it means to be free. Yet if free movement causes nations to quit the EU altogether to address its sometimes corrosive social effects, then it destroys the very thing it is meant to promote. Nowhere does the Brexit campaign’s central message – "Vote Leave, Take Control” – resonate as powerfully as with immigration.
So if the EU is a disaster area incapable of reform, why am I arguing the economic case for remain? The answer lies in part with the fact that the UK is already in significant respects outside the main body of the EU. It is not a member of the euro, it is not part of Schengen, and it has secured an opt out from “more Europe”.
Monetary and fiscal sovereignty have been maintained, allowing the UK the freedom to respond to economic shocks in a way denied to members of the euro; Britain still operates border controls, and in theory at least, it is protected from the further integration needed to secure the future of the single currency.
The problem the Leave campaign has had all along is in articulating what the world might look like once completely divorced. Nobody knows, but if it is harmful to the country’s trade with the EU, or the City’s position as Europe’s de facto financial centre, it will be at a cost that will be difficult (if not impossible) to claw back from enhanced trading with other parts of the world.
We can swiftly discount any offsetting dividend from deregulation. The most economically harmful regulation, such as highly restrictive planning laws, is home grown, and in any case, much EU regulation would no doubt be duplicated in the event of an exit. Even if all EU regulation was abandoned, the economic growth thus generated would be negligible, according to most mainstream economists.
Here’s an analogy that helps the argument: your current employer has served you reasonably well, but you are unhappy with your lot for a number of well-founded reasons. When someone phones with an alternative job offer, it therefore sounds like a godsend.
But on inquiring about the pay, conditions, job security and what’s expected of you, he’s unable to give any answers at all. All of a sudden, the devil you know doesn’t look so bad. Few would take the risk of moving on the basis of zero information about what they might be getting themselves into.
And as it turns out, membership of the EU has actually been remarkably good for the UK. With help from the OECD and Eurostat, here’s what the raw data looks like.
Since 1998, just before the euro was launched in synthetic form, the UK economy has grown by 38pc in real terms. Among richer European nations, only Sweden, which is also outside monetary union, comes anywhere close. The Netherlands, France and Germany recorded 28pc, 27pc and 24pc respectively. At 1.3pc per annum on average, annual growth in GDP per capita has also been much better than other “rich” European countries bar Germany and Sweden.
Maybe Britain would have done even better outside the EU; yet neither Canada nor the US have grown any faster in per capita terms, so it is hard to argue that the UK has been held back by the EU . To the contrary, it seems eminently plausible, given the UK’s poor relative performance before joining the common market, that there has been a positive benefit.
Good government is about the maintenance of economic, political and geopolitical stability; I don’t see how these aims are furthered by quitting the EU. The world is a messy and complicated place. It won’t get any less so for leaving. Indeed, the strong likelihood is that it will get a great deal worse.
I see no good outcomes from this referendum. Whatever the result, there is a high chance it will spell the end of the Cameron Government, which for all its faults has managed the post financial crisis economy relatively competently and sensitively.
We know not what turmoil might replace it, or what nonsense might be unleashed on the Continent once British influence is removed. Large parts of it are already essentially ungovernable. Europe is just one more crisis away from economic and geopolitical catastrophe.
I hope I’m wrong, and that in the event of a vote to leave, a sensible, negotiated exit on good terms can be agreed. But my strong suspicion is that it won’t. With no macro-economic levers left to pull if things go wrong, this is not the time to be further upsetting the apple cart.