Opinion

Hugo Dixon

Brexit would be bad for Britain

By Hugo Dixon
May 13, 2013

Quitting the European Union would be bad for Britain. Membership of even an unreformed EU is better than “Brexit”. Quitting would mean either not having access to the single market – at a huge cost to the economy – or second-tier membership.

The debate over Brexit has moved into high gear in the past 10 days, after the UK Independence Party – which wants Britain to pull out of the EU – performed well in English local elections. The Conservative party, which rules in coalition with the pro-European Liberal Democrats, has been thrown into turmoil because UKIP has been winning votes largely from the Tories.

What’s more, many Conservatives would like Britain to quit the EU too. Last week Nigel Lawson, one of Margaret Thatcher’s finance ministers, argued the case for Brexit. Boris Johnson, the mayor of London who is the Conservatives’ most popular politician, also shuffled a little further in a eurosceptic direction – although he stopped short of calling for an exit.

David Cameron himself has not shifted his position. He wants to hold a referendum in 2017 after he has had a chance to renegotiate Britain’s relationship with the EU in so far unspecified ways. But he may be tempted to tacitly support legislation to call a plebiscite in an attempt to embarrass the opposition Labour party which has so far refused to back such a vote.

Despite the increasingly anti-European tone of the debate, the overall likelihood of Britain quitting the EU hasn’t really changed since the local elections. True, the probability of the British people voting in favour of staying in the EU in a referendum has fallen. But the chance of such a plebiscite taking place has also probably dropped – because UKIP’s rise makes it less likely that Cameron will be reelected in 2015.

It is, of course, possible that the pro-European Labour party will match Cameron’s promise to hold a referendum. But that would probably be against its interests. A future Labour government would find it hard to win a referendum – as the Conservative party, unconstrained by government, as well as its allies in the media would mount a vociferous anti-European campaign. After such a defeat, Labour would be left reeling.

If Labour felt the only way to win the next election was to promise a referendum now, it might still take the risk. But its chances of winning have risen in the past 10 days. And any attempt by the Tories to embarrass Labour for not backing a plebiscite is more likely to backfire by further exposing the divisions in its own ranks.

Pro-Europeans, though, can’t just calculate the political probabilities. They need to make the case for staying in the EU.

Anti-Europeans often fudge the question of whether they would like Britain to quit the single market as well as the EU. They should be invited to clarify precisely what they mean.

Quitting the single market would be extremely bad for the economy, since about half of Britain’s trade is with the EU. This wouldn’t all vanish. But all sorts of barriers would make it much harder for companies to do business across frontiers, leading to a big rise in unemployment.

Britain has the world’s third-largest stock of foreign direct investment after the United States and China. But multinational companies, which have used Britain as a hub in part because it has access to the single market, would curtail their investment if that was no longer so. The City of London, the UK’s most successful industry, would also suffer if it was cut off from its European hinterland.

Not surprisingly, many eurosceptics don’t want to quit the single market. They think they can have unfettered access to this market without the rules and regulations that irritate them.

The idea that Britain can have its cake and eat it is naĂŻve. The rest of the EU might well allow it access to the single market – and even then not on an unfettered basis – but only if the UK abided by its rules. What’s more, it wouldn’t then have a vote on those rules, putting its business at a disadvantage.

That’s the position Norway, which is not in the EU, finds itself in. It also has to pay almost as much on a per capita basis as Britain for the privilege of such second-class status.

The anti-Europeans are fond of lambasting Brussels bureaucracy. They also point to misguided policies such as the Common Fisheries Policy, which results in dead fish being thrown back into the sea, or the planned Tobin Tax, which will gum up financial markets.

These attacks are fair, even if they don’t snuff out the case for staying in. But Britain has a golden opportunity to help reform the EU. This is because the main solution to the euro zone’s crisis is to make it more competitive. It’s a misconception to suppose that the euro zone is charging towards political, fiscal and banking union – as Germany is just not willing to pay for it.

Instead, the single market needs to be properly extended to services. Free trade needs to be promoted with other blocs such as America. And capital markets should be boosted as a solution to Europe’s banking malaise.

Cameron needs to start pushing this agenda now. Achieving it would not just be good for Britain. It would increase the chance of persuading the electorate to vote yes in any referendum.

Comments
4 comments so far | RSS Comments RSS

The main business of ‘the city’ is finance, and that finance is based on access to the EU. 90% of major EU financial transactions pass through London – leaving the zone would cut that number to nil. With financier about out business, the UK would be finished utterly and completely. It already seems likely that Scotland and perhaps even Wales will get independence within 20 years. UK is in trouble and they are grasping at straws to stop the fall, but pulling all the wrong ones…

Posted by CDN_Rebel | Report as abusive
 

Brexit would be very good for the European Union.
The Euro financial center will move to Frankfurt and there will be no more sabotage from an ungrateful member.
The EU should organize a referendum to expel the UK before it implodes and the EU has to bail it out.

Posted by phoen2011 | Report as abusive
 

Hugo, CDN_Rebel and phoen2011,

This is the biggest load of rubbish that I have read in a while!!

The UK finished? Just take a good look at the EU and Eurozone if you want to see what the word finished means!

1. UK trade with the EU is moving in the right direction. It was c50% and and is nearing 40% of UK trade. The EU have to be careful with the UK as they earn more from the UK than the UK earns from them.

2. As for promises and Gentleman’s Agreements : The UK and Germany were not to touch French agriculture, the UK and French were not to touch German manufacturing and the French and Germans were meant to not touch our financial services industry. The Germans and French want to blame the UK for their own incompetent Eurozone project so have broken the Gentleman’s Agreement. The financial regulation hitting us here (and hitting the US too) is nothing more than a spiteful and childish trade war. Will the markets be safer, will the investor experience be better, will markets be more efficient – NO. This is not regulation.

3. JosĂ© Manuel Barroso (the President of the European Commission) is an ex-communist. The EU’s policies of late are near Marxist. Law after law and regulation after regulation means that no company wants to produce in the EU. Believe it or not they regulated against straight bananas and hedgehog flavour crisps (and no, there was no hedgehog in them!).

4. Look at the EU’s decision making on financial matters since 2008. I have laughed so much that my sides hurt. As for the financial centre moving to Frankfurt, would YOU honestly move your money into the Eurozone seeing how they run bank ‘stress’ tests? See how they change the law and market convention whenever it suits the Germans? Who ever heard of bank depositors being hit before equity and bond holders?! Investors will never trust them completely again and I do not blame them.

5. The EU has not managed to audit its own accounts for 19 years! Yes, 19 years. Please show me another global company or institution that is still allowed to operate with 19 years of unaudited accounts? The largest EU budget (agriculture and Eastern European redevelopment) of EUR35Bn p.a. has a fraud level of over 30%, which is c.EUR10Bn p.a. going missing every year on one budget alone! My point is this is how they run finance.

6. Nobody under the age of 55 years in the UK has had a vote or Referendum on the EU. It was supposed to be a free trade area and now it seems that they can block many sovereign decisions that our own elected government UK government makes. Does that sound right to you? We can vote UK governments out when they are incompetent but we CANNOT vote the EU management/commnission out.

7. Many sovereign states in the EU/Eurozone area are just ‘mice’. They surrendered their democracy and freedom to the European Commission without even a vote. The EU represents a coup d’etat by the political elite in Europe. We will not have that here in the UK.

8. The French have been leading the EU off of an economic cliff for the last 2-3 decades. France is finished and all of the rich are leaving for (funny enough) – London. I live in the UK’s number 1 hot spot for immigration in West London and can assure you that the levels of immigration here are synonymous with a disaster. An earthquake, a tidal wave or war, you ask? No – it is the Eurozone melting down.

9. Hugo – it is not up to corporates or Obama as to whether or not the UK stays in the EU. The UK public just want to be allowed a referendum on the subject. What on earth is the matter with you? The UK will exit this disgraceful club of fools and will, once again, save Europe in the process.

Please can you write with more balance as your articles on the EU and the UK’s relationship with the EU are just plain mis-leading? I expect better from Reuters.

Posted by SCSCSCSC | Report as abusive
 

@ SCSCSC: you seem to have forgotten the run on Northern Rock, the nationalization of RBS and Lloyd, the Libor fraud, HSBC laundering the drug money, the triple dip, the inflation out of control, the pound debased, the riots in 2011, the debt in percent of GDP higher than Greece, the loss of the triple A, etc,etc,etc.
Next year Scotland will become indipendent and regain full sovereignity. So the pound as a currency union cannot survive.
I repeat: Europe must organize a referendum to kick out the disUnited Kingdom and claim the Euro financial center asap

Posted by phoen2011 | Report as abusive
 

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