Britain is better off staying in Europe

June 16, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Britain is better off staying in the European Union. The alternatives are dismal. But a vote to “remain” in June 23’s referendum should be an ultimatum for reform, not a capitulation to the status quo. If Britons vote to stay in the economic bloc, the clock starts ticking for the UK government to make some fundamental changes, without which the in-or-out question will return with a vengeance. For harmony to endure, Europe will need to change – and the euro may have to go.

European bureaucracy inspires no love. But there are reasons to stick with it. A united Europe is a good defence against war, extremism and capture by corporate interests. The UK’s feeble attempt to claw back unpaid taxes from Alphabet’s Google shows how a company can effectively hold a single country to ransom more easily than a 28-member union. The biggest risks to global stability, from Russia to China to Islamic State, are harder to influence as an isolated country. Britain is not even as populous as China’s seventh-largest province. The “leave” campaign’s refrain of “taking back control” is nonsensical.

There are economic arguments for staying, too. Almost every Brexit forecast suggests a fall in GDP compared with the base case that could last for well over a decade. And the chance of achieving access to the single market without also accepting free movement of people is slim – albeit not impossible. These “what if” arguments, though, have failed to resonate with the electorate. The biggest miscalculation among the “remain” camp has been to assume that numbers and facts win hearts and minds. Emotions matter, too.

If voters do choose to stay, it is imperative to address the problems that led to anti-European sentiment in the first place, such as stagnant real wage growth and high house prices. Some 40 percent of people aged 18 to 35 worry they will never be able to secure a suitable home, according to Ipsos Mori. Years of bad policy have resulted in Britain building 140,000 houses a year, when twice that many is needed. Europe has not created these problems, but nor has it alleviated them, and migrants from the bloc’s periphery make easy scapegoats.

Another big challenge will be to close the divide between London and the rest of Britain. Brexit isn’t just about UK versus Europe – it’s about the capital versus the rest. The “remain” camp simply hasn’t got that message. Take Hull, the port city in the northeast. London’s gross value-added per citizen was double Hull’s in 1997. Now official data shows it is 1.2 times as large. London, where finance, information and communications industries dominate, had 17 percent more jobs in 2013 than it did a decade earlier, according to the Centre for Cities; Hull had 8 percent fewer, despite a growing population. The gains from EU membership haven’t been spread evenly.

A vote to stay put is an ultimatum for Europe too, which remains vulnerable to future mutinies. A perceived lack of democracy is overstated. But the dysfunction of individual EU states is real. Italy’s bad debts, France’s inflexible workers, Germany’s artificially weak exchange rate, Bulgaria’s corruption and Poland’s religious conservatism are among factors contributing to a powerful centrifugal force. No one has grasped these nettles convincingly. Without social and market reforms, the urge to detach will remain ever present, and not just in Britain.

The euro, awkwardly stuck halfway along the road to becoming a tool of genuine fiscal union, is also not fit for purpose. In another recession or financial crisis, it may well implode. Britons don’t have to take part directly in bailouts of profligate European states and their banking sectors, but being shackled to a sick animal is anything but attractive.

Conversely, if the euro zone grows closer, and its financial and banking sectors become more joined up, Britain could find itself sidelined. In light of that fear, the best scenario is that the euro zone sheds some of its weaker members – or disappears altogether.

In two decades, the UK is likely to be the biggest country in Europe by GDP. In a little more than three, it will be the most populous. In a Europe without the euro, or with a downsized currency union, Britain could be the logical leader, economically and culturally. That should appeal to Brexiteers keen to “take back control.” For European countries to voluntarily dismantle the common currency seems unthinkable. Yet it costs nothing to stick around and see if it can be done. In the meantime if Britain wants a shot at real influence, this is no moment to throw in the towel.

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