Counterparties: David Cameron’s perplexing ploy

By Ben Walsh
January 23, 2013

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David Cameron is definitely up to something. The weird thing is that no one, himself included, seems to know exactly what.

The UK Prime Minister promised, today, to give Britons a referendum on their EU membership by 2017 — if his Conservative party gets re-elected. It’s a perplexing ploy for many reasons.

The more the anti-Continental UK press talks about a British exit, or Brexit (yes, this is a thing now), the more the public wants to stay in the EU. 40% now favor the status quo, which was established with 67% approval in 1976. That’s up from 30% in November, 2012. Cameron’s own party isn’t fully on board, never a good sign in a parliamentary system, and particularly in one led by a coalition government. The referendum might not even happen: the Tories have to win the next election first, and at the moment Cameron’s party has an approval rating of just 32%.

Open Europe Blog has a great round-up of reactions from European politicians, who are blasting Cameron with an array of metaphors. French Foreign Minister Laurent Fabius described Cameron as someone who joined a soccer team, only to decide “let’s play rugby.” Less charitably, former EU trade commissioner Peter Mandelson called the speech “schizophrenic.” And France is ready to just call the UK’s bluff and let them leave. In the end, it’s very likely that Britain is simply bluffing, and all it will have to show from doing so is fewer allies.

The announcement of the referendum has also brought economic uncertainty back into British politics. Britain’s EU membership gives it essentially unfettered access to the world’s largest single market — along with an annual GDP boost of almost $40 billion, or about $640 per UK resident per year.

Even more uncertain is how these types of proposals play out once they are announced. As Joshua Tucker writes, the example of the dissolution of Czechoslovakia shows that simply proposing a referendum makes a UK exit from the EU much more likely. Even if Cameron decides to campaign for Britain to remain in the EU, “once these things get out of the box, they can acquire a life of their own.”

Perhaps Cameron, as the UK economy continues to struggle, just wants to score some populist points in a country where, despite inventive verbal invective being something of a national pastime, being called “European” remains an unanswerable insult. — Ben Walsh

On to today’s links:

The inside story of the surprising rise of Siri at Apple – Bianca Bosker

Tax Arcana
Raising taxes on every American could save the government as we know it – Eduardo Porter

Financial Arcana
The “Robin Hood” financial transaction tax is moving forward in Europe – NYT
The big bank exec at Davos who is actually pushing his bank to shrink – Bloomberg

McDonald’s financially satiated by reconstituted pork product, dollar menu – Bloomberg

The NFL has a 225% injury rate – Esquire

Old Normal
“Only 19% of people supported a tax cut” – Bruce Bartlett

In Russia, corruption worries about you…or something – Bloomberg
The party isn’t over — it’s just being downsized – Felix

Donald Trump exploring improbably ways of buying the NYT – NY Mag


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“Donald Trump exploring improbably ways of buying the NYT”

Mmm, no. It’s either :

“Donald Trump improbably exploring ways of buying the NYT”


“Donald Trump exploring improbable ways of buying the NYT”

Posted by Frwip | Report as abusive

David Cameron is a PR man. That’s what he trained and worked in (if anything) before becoming a politician; that’s why the Conservative Party elected him leader when Tony Blair was Prime Minister. so image is more important to him than substance.

When you look at his political substance, it is particularly lacking; he needed the 40 odd Liberal Democrats to form a coalition to be in power in the first place – and then spent the first year undermining everything they had done or asked for. But his own party is an even bigger coalition – it contains over 80 Eurosceptic MPs who are happy to vote against the Government if it means their dreams of a return of the British Empire is to return. Many of them have strong links with the right wing Transatlantic Alliance (or whatever it now calls itself) which seems more involved in trying to make the UK into the 52nd State of the US.

So, Cameron’s speech is all about self-preservation as leader of the Tory Party. It has little to do with European politics, or even what is best for Britain. He is merely pandering to the rabble rousing elements of the UK Press, and of his own party. As for saying he will campaign for a Yes vote for his “renegotiated” EU membership plan, if the Tabloids don’t like it you can bet by next week he will be saying something different. He is after all, not a leader, but a follower – whatever he thinks will get him re-elected, he will do.

Yes, his speech was cleverly worded, but it also contained a lot of inaccuracies about the EU and UK membership (they were for the Eurosceptics) and basically said nothing at all. However, as Lib Dem leader, Nick Clegg, said announcing the very fact that the UK might leave the EU is going to hurt inward investment into the UK. After all, who is going to base their new factory or project in the UK if they are not sure the UK will still be in the EU when the project is expected to start paying out.

In the 1970s the UK had a referendum on whether to join the EU or not; there was a 2:1 ‘yes’ vote because it was clear at the time that 1 million UK jobs depended on being in the EU. That has probably increased by now. But until now all we have heard is the twisted message of the Eurosceptics.

And anyone who says the EU or the Eurozone is a failure as Cameron implied is clearly not looking at Germany, the World’s Second Biggest Exporter (after Germany) which each year accumulates more value.

Posted by FifthDecade | Report as abusive

Of course, I meant Germany is the world’s second biggest exporter after China.

Posted by FifthDecade | Report as abusive

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Posted by CallUK | Report as abusive

I think to assume a prime minister isn’t actually sure what hes trying to achieve, risks underestimation. So if adopt the hypothesis that he might, then a decent article would examine whether his rationale is sound and he has a chance of succcess. Since this purports to be an economics blog, perhaps the economics of this decision is a good place to start. Say the “40bn” lost GDP, that remains sadly unreferenced above.

Posted by jonners | Report as abusive

Fifth Decade – actually, Germany’s relationship with the rest of the Eurozone is a pretty good argument that the Eurozone isn’t working very well.

Germany trade surplus with the rest of the Eurozone is unhealthily large – for Germany as well as the rest of the Eurozone. Unit labor costs in most of the other Eurozone countries – especially southern Europe and Ireland – grew much faster than German labor costs during the 2000′s. Those other countries by and large didn’t (and won’t) address that gap via structural reforms – the best solution – and can’t address that gap via the second best alternative of currency devaluation. A monetary policy in large measure focused on German economic conditions was too loose for places like Ireland and Spain during the boom years. A veneer of German creditworthiness and monetary policy credibility allowed Greece to run up a lot of government debt at interest rates that in retrospect were far too low – though the Greek government regularly lying about its finances certainly didn’t help matters. Efforts to require certain fiscal restrictions as conditions of Euro membership or partial debt mutualization have been greatly complicated by the fact that restrictions of the prior Stability and Growth Pact were waived when Germany and France violated them, making clear that any coordinated policy is in reality unenforceable against large countries in the EU.

As for Germany’s “value accumulation” each year, a great deal of these assets are in the form of claims of dubious value on other European debtors, both private and governmental. In essence, a lot of Germany’s manufactured goods are being sent to Southern Europe in exchange for pieces of paper with a good chance of ending up worth less than 100 cents on the dollars.

From a policy perspective, only so much can be done to combat these imbalances. In an ideal world, one adjustment mechanism would be migration of people to higher-productivity Germany, but language and culture make that unlikely to happen to a large degree. The EU’s failure to liberalize trade in services, where Germany does not enjoy the advantage that it does in the free-trade manufacturing sector, has worsened matters, however.

So, yes, Germany has many highly-productive companies and workers, especially across many high value-add manufacturing sectors. Some of Germany’s apparent success, however, is unsustainable because it is directly tied to imbalances that manifest as problems elsewhere in the Eurozone.

Posted by realist50 | Report as abusive

Jonners – good points.

I think Cameron’s goal vis-a-vis the rest of the EU is to move Britain to a spot where it is part of the single-market but retains substantial, if not complete, national level control of policy areas such as financial regulation and labor regulation. With respect to the EU, Cameron’s move is clearly a desperation play – or, I suppose, a bold stroke, if one thinks it will work and therefore wants to use a positive term to describe it. Britain is in an odd spot as a non-euro member in the EU, and it is set to get odder over time as more EU members adopt the euro. He decided to force this issue now rather than wait until Britain is in an even more isolated position, and I assume he thinks that upping the stakes with a referendum is the only way to cut a deal that meaningfully changes Britain’s relationship with the EU. There is certainly an argument that the euro members will inevitably coordinate and converge more policies over time and therefore Britain should move to a relationship with the EU more akin to that of Norway or Switzerland – even if for optical purposes Britain’s relationship is still formally called “EU Membership”. That said, I’m dubious that Cameron will get much in the way of concessions. I’m also skeptical that in the long-run Britain would like its deal – inevitably there will be tensions between France and Britain over various EU policies. Either Britain will still be a voting EU member with a host of opt-outs, which alienates other EU members, or Britain will have single-market access without a vote on at least some matters that do apply to Britain, which will be a problem for the British public.

I agree with Fifth Decade that creating doubt about whether Britain will remain part of the single market risks serious economic damage.

His domestic political goal is obviously to win the next election. He therefore must think that this move helps, or at a minimum doesn’t hurt, his chances.

Posted by realist50 | Report as abusive

I think some of what you say may be true, but German success is not down to the buying power of Southern Europe. Germany is a global exporter – 47% of German GDP comes from exports, while the UK only manages 30%. In terms of value though, German exports are worth three times those from Britain. Even if you discount ALL of Germany’s exports to the EU27 (including the UK) it still exports 22% more by value than Britain’s total exports including British exports to the EU.

Wages in Germany haven’t grown in years, and Germany restructured some years ago, which has resulted in a much more competitive economy – which is why they export so much to China for instance. When those miners were trapped underground in Chile the special drill they needed to get them out came from, you guessed it, Germany.

You’re right about wage growth in Southern Europe, but most Southern European economies are pretty small. Italy is probably the largest, and the problem there is more to do with avoiding paying tax, a problem that goes right to the top. Ordinary Italians are paid very low wages, do not have permanent jobs, and struggle to make a living.

But really, anyone who thinks that the EU will accept the UK into an arrangement akin to that which Switzerland has is dreaming. Not only is it most unlikely to be offered by the rest of the EU, when you actually look into the facts you soon see the “OUTs’ haven’t done their homework. Is this what they really aspire to?  /26/how-to-make-britain-more-like-switz erland/

Posted by FifthDecade | Report as abusive

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