LONDON – Last week’s U.K. Treasury report and the recent IMF report are the latest in a long line of predictions suggesting doom and gloom if the United Kingdom leaves the European Union. Are they right?
Economists are far more split on the consequences of a U.K. exit than the conventional view suggests. While a number of global investment banks have given dire warnings of negative fallout, just as many reports from respected economists or independent City firms — including Capital Economics, Toscafund and Peel Hunt — have concluded that the “Brexit” threat is overblown.
Even the recent report by PwC predicts financial services would continue to grow strongly outside the EU, after some short-term uncertainty.
The “remain” campaign stresses the benefits of being in a large market and the disruption of leaving it. Brexit would be a leap into the dark, they say. And yet what matters in today’s fast-moving age is having the right set of policies in place to ensure growth and investment. Thus little Switzerland is rich, as is medium-sized Canada, while Brazil remains relatively poor. Size is irrelevant.
This is especially true when the larger block is struggling. The EU has been the world’s slowest growing region for a generation now. Business is voting with its feet: Twenty years ago over 60 percent of U.K. trade went to the EU; it is 44 percent today and declining. Unemployment in the eurozone is on average over 10 percent, compared to 5.1 percent in the U.K. Growth has stalled and levels of public debt, especially in Italy, Spain and France, have soared. On any sensible analysis it is absurd to tie our regulation, laws and growth prospects to a block that seems unable to promote economic growth and financial stability.
Despite this, many in Brussels want to double the bet with the creation of a banking union and tighter central control over welfare, taxation and fiscal policy — all with very little democratic accountability.
It is no surprise that large companies have defended EU membership. The heavy regulatory burden imposed by Brussels enables multinationals and large companies to squeeze out smaller competitors, but this is not in the interest of the consumer, who ultimately pays for higher regulatory compliance costs. Meanwhile, the young and low-paid lose out through higher levels of intra-EU migration, which depresses wages and makes access to housing more difficult, feeding inequalities that undermine our social harmony.
Britain is an outward-looking and cosmopolitan nation with much to offer the world. We have world-class universities, a thriving technology sector and a legal tradition based on stability and the rule of law. Britain specializes in industries with high barriers to entry, whether finance, media, biotech or creative industries. All of these areas will thrive outside the EU.
So too would the City of London, Europe’s largest financial center. In fact, the EU poses more of a threat to the City than an opportunity. Proposals for a financial transaction tax, MiFID2 (which changes how trillions of euros worth of securities are traded, cleared and reported) and bonus caps all came from Brussels and all are measures that the U.K. has tried to resist or water down. It is no coincidence that the three top financial centers in Europe are all outside either the EU or the eurozone — London, Geneva and Zurich.
On trade, average tariffs into the EU are now just over 1 percent, a level Britain could certainly live with. The World Trade Organization is a fine guarantor of trade. Australia has no trade agreement with the EU and trade flows and grows feely. The same is true of China and currently the U.S. Britain could still trade freely with its European neighbors, but with greater flexibility to tailor its laws and economic policies.
Perhaps in the technocratic world in the 1970s there was a case to tie our fortunes to the then common market. Not now. The EU will benefit from a British exit as it seeks to federalize to save its flawed currency. We can offer friendship, trade and support better as an independent country.
Nigel Griffiths has held a number of posts in the U.K. government, including minister for trade and industry, minister for enterprise, minister for competition policy and deputy leader of the House of Commons. He is head of strategy for the Labour Party campaign to leave the European Union.
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