Sunday, 6 March 2016

EU membership: An agnostic’s guide



The UK’s referendum on membership of the EU is set for June 23. ‘In or out?’ is an important question, and it is unlikely to be asked of the UK public again for some time.

To maintain a semblance of neutrality, I thought it would be best to set out a quick guide to what I see as the main points in favour of each camp, divided between economic and political arguments. No doubt I’ll miss some.

I’ll include a brief note on which route I think the UK should take at the bottom.

Economics


Broadly speaking, I believe the economic debate to be eclipsed by the political. Nevertheless, there are some important points to consider.

In

1. Trade and economic integration – the largest chunk of the UK’s trade goes to the EU (about 44%), so the lack of tariff barriers brings significant benefits. There is no guarantee we could re-negotiate something similar after leaving.

2. Migration – being outside the EU would likely reduce inward migration. Migrants to the UK tend to be highly skilled, and although gauging the impact on the economy is difficult, research (see e.g. this from UCL) tends to point to net financial benefits. Economic theory offers a similar story. The argument that they “come here and take all our jobs” is a plain fallacy (both theoretically and empirically), and there is little evidence of ‘benefits tourism’ either. High levels of migration may put downward pressure on wages, however, particularly for low-skilled jobs.

Where I work, for a while on our bank of eight desks, EU immigrants outnumbered those from the UK (5-3). The reason the company presumably hired these immigrants was for their superior skills, though they also happen to be really nice people. Did UK workers lose out? Possibly, but a) they too can seek work elsewhere in Europe and b) do we really want to force our companies to hire inferior workers?

3. Instability caused by exit – uncertainty around the vote is already creating turbulence in financial markets and causing companies to put off investment. This would likely be magnified if the UK votes to leave, which could tip the economy into recession. Re-negotiation could take years, but ultimately the instability will pass.

4. The fallacy of Norway – Norway and the other members of the EEA and EFTA (see point 6) are often held up as examples of what the UK could be like outside the EU. What the Out campaign tends to fail to mention is members of the EEA must abide by many EU rules without having a say in setting them, and also pay their dues to the EU in much the same way the UK does now (see point 7).

Out

5. Trade – trade creates close links between the UK and the eurozone, so when the euro is in crisis (i.e. always) we feel it here. Cutting our ties might reduce this impact. In the long run we are likely to be able to maintain a close economic relationship with Europe, if we want that.

6. Norway – Norway is the poster-child of the Out campaign, since its economy hums along nicely, supported by the European Free Trade Association (Iceland, Liechtenstein and Switzerland are also members). Furthermore, as a member of the European Economic Area (along with Iceland and Liechtenstein but not Switzerland), Norway has an EU-lite relationship going on, subject to some but not all EU legislation. We could maybe get the best of both worlds in this way, or go the way of Switzerland and have the free trade without the rules. But having aligned regulation helps boost trade.

7. Membership fee – The UK puts in about £13bn a year a gets back about £4.5bn in EU spending, leading to a net cost of about £8.5bn (note these calculations are messy). The UK government’s total spending was around £750bn in fiscal 2014/15, so the ‘membership fee’ is a meaningful but not a huge proportion of the budget (about 1.1%).

8. Wasteful bureaucracy – the EU is a big beast, but not that big. Contrast its spending in 2014 of €142.6bn (£110bn), spread across the whole of Europe, with the UK’s £750bn figure. About 6% of the EU figure goes on admin (€8.4bn), while the rest goes to various other places – see pie chart below, taken from the EU website. The UK spent about £10.4bn on admin (see table 1.7 here) in 2014/15, which is around 1.4% of total spending. There will be some economies of scale, but the figures do make the European bureaucracy look more wasteful than that of the UK.



9. The euro – the euro has been something of a disaster for Europe, but the UK has an opt-out anyway. More important is the problem of how banking regulation works for those in the eurozone and those outside. The UK is a much larger financial centre than anywhere else in Europe, and there have already been clashes over rules that have too much of a eurozone flavour, namely bonus caps. Being out of the EU would end this tension.

The only way to make the euro into a sustainable prospect is to centralise more fiscal powers in the eurozone, but this risks creating an awkward ‘two-speed’ Europe where the eurozone takes priority. It could be messy and inefficient.

Politics


There are some weightier arguments here.

In

10. The club and influence – inside the EU, the UK has significant influence over EU legislation. Outside, it has very little, but we may still end up having to comply with EU regulations (see point 4). It is hard to tell how being outside the EU would change our relationship with other countries, such as the US.

11. War – the EU formed out of the rubble of the Second World War, backed in part by the idea that ‘ever closer union’ would put an end to centuries of near-ceaseless violence. The fact that war within the borders of the EU is becoming a distant memory is a sign of how successful the EU has been in this aim. Obviously a UK exit would not see armies marshalling on either side of the Channel, but we would be chipping away at the foundations of one of the EU’s greatest successes.

It should be noted that the failure of the euro is also undermining peace in Europe, as far right groups gain support. Perhaps the UK can lean against this movement by staying in, or at least not add fuel to the flames by leaving.

12. Checks and balances – the UK’s constitution is a complex, amorphous creature since it’s not really written down anywhere, but one of its vital organs is the Human Rights Act, which is the UK transposition of the European Convention on Human Rights. It is an essential piece of legislation, particularly for minority groups, and successive governments have sought to undermine it. The European Court of Justice has blocked many of the UK government’s more egregious violations. More here.

Furthermore, many years of European integration has left our legal system almost inextricably intertwined with Europe’s – every time we transpose European law, it mingles with our own. It seems unlikely we could separate it fully, so we will continue to be semi-governed by the EU for a long time, in or out.

13. Identity – do people in the UK want to be seen as Europeans, or as outsiders? This is largely a question of taste, but I would argue there is much to like about European culture. Being seen as the grumpy outsider will do nothing for diplomatic relations with continental Europe, which are already cool.

14. Migration – free flows of people within the borders of the eurozone benefit the UK by bringing new skills, ideas, perspectives, languages, art, music, food, and more. Restricting movements of people restricts all of the above.

15. The question of Scotland and Northern Ireland – Scotland and Northern Ireland have both indicated there could be trouble if the UK as a whole votes to leave but they individually vote to stay. If England is the only part of the UK that wants to leave, it is unclear how this will be resolved, but it would likely trigger a fresh Scottish referendum, and could cast a shadow over the Northern Irish peace process.

Donald Tusk is enjoying himself. Photo credit: Number 10
Out

16. Self-determination – exit would free the UK from (some) meddling by eurocrats (again, see point 4 for caveats). Some legislation coming from Europe is arguably badly designed and often brings a host of unintended consequences. Controversial examples include the Common Agricultural Policy and rules on fisheries. This is a simple enough point but the Out campaign is right to argue it carries great weight; the question is whether we are willing to cede some of our independence for more collegiate decision-making. It is not an easy question to answer.

17. Migration – the UK is not part of the Schengen zone, meaning we do not have open borders. Nevertheless, we are legally obliged to take in EU citizens that want to live and work here. Being outside the EU would give us more control of our borders; at least under the current government, this would likely mean tighter border controls.

18. Cameron’s fudge – David Cameron’s attempt to redefine the UK’s relationship with the EU was always going to be a fudge. Little substantive has changed. Whether this matters depends largely on your views of all of the above.

Overall…

It seems to me the Out campaign hinges on it being possible to roughly maintain the economic benefits we already derive from Europe and save a bit on the membership fee, while gaining greater autonomy over our laws.

Points 7 and 8 above shed light on this important point: being a member of the EU really does not make a significant dent in our budget. Michael Gove, a prominent member of the Out campaign, is wise therefore to zero in on legislative sovereignty, arguing the government is thwarted at every turn by a thicket of EU laws. His statement for the Out campaign is more cogent than Boris Johnson’s rambling and wrongheaded offering, though it still attacks various straw targets and makes irrelevant pleas to patriotism.

Sovereignty, then, is the fulcrum on which this debate must turn. But how do you measure sovereignty? Even if you can assess how much of UK law is made in Europe (and that’s pretty hard), many of the laws passed in the EU would be ones we want to implement anyway. To the extent that our culture is a good fit with the rest of Europe, having some laws determined in Brussels should be no bad thing – indeed it means we can influence laws throughout Europe. The UK wields significant political clout, even as one of 28.

Exit therefore seems to me to be rather a paltry prize, and we must sacrifice a lot to obtain it – the friendship of our peers, short-run economic stability, free flows of people and culture and ideas, the Human Rights Act, judicial review by the European Court of Justice, and influence over EU legislation. Exit would set us on an uncertain and lonely road for many years, and would send a message of support to Europe’s far right.

I will be voting to stay on June 23.

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