Oh, it’s EU again

(This is an incomplete blog I wrote at a time when I was losing stuff on the web, so never posted. I’ve kept it to see whether I was right or wrong or just irrelevant)

On June 23rd June the UK voters will go to the polls to decide by referendum whether we shall remain a member of the European Union or not.  The calling of the referendum has been prompted mostly by a split in the Conservative Party between those who wish to stay in the EU, and those who want to leave: in this respect, it mirrors the 1974 vote, which was designed to pacify the Labour members who never wanted the UK to join the Common Market.  It is striking that estimates of the way that the Conservative MPs will vote often suggest that they are pretty evenly split.  The other driver is the antipathy to immigration, which has reached substantial levels in the UK, and has led to considerable support for UKIP.  About half of immigrants to the UK come from other EU members, attracted by an economy which can provide jobs and a language that is an international lingua franca.  I think language matters, but it is rarely mentioned.  It’s a factor that is, I believe, rather more powerful than the imagined generosity of the UK welfare system; it is striking that some Iraqi refugees have decided to go home rather than learn Finnish.

This is not going to be a simple decision; there is no right answer.  Least of all should we believe that one camp or the other are brainless idiots – a good point made here by John Harris in the Guardian.  One would hope that the decision will be made by voters who have carefully balanced the issues and weighed them against their preferences and values.  Are the gains from trade outweighed by the weight of EU regulation ?  Is our influence in the world increased by being a leading EU member, or diminished because our Parliament cannot defy EU rules.  I doubt that it will.  I think there will be a lot of instinctive voting, with worries about migration and regulation will probably be outweighed by fears of the economic consequences of leaving.  Whether David Cameron’s concessions will make any difference to their calculus – well, make up your own mind.

However, we are seeing the beginning of a reasonable debate. There are some wonderful graphics of London being stalked by zombies or Godzilla if we leave, but mercifully the ‘Project Fear’ stuff is limited and obvious.  Luckily we have advocates from both sides willing to make decent points (OK, as well as some stupid ones).  I thought it might be useful to put together a compendium for the passing reader.  A really good overall source is the BBC Reality Check, which you can get via Twitter.  I’ll try, however, to keep the list below up to date.

Issue: Has the EU made a positive contribution to the UK and Europe ?

One can ask, Monty Python style, what has the EU ever done for us ?  This is the title of a powerfulletter from Simon Sweeney of the University of York here – you can read it and the rebuttals beneath.  Environmentalists see the EU actions on air and water as positive.  I can certainly remember taking my kids out of a foul sea at Redcar before the EU Blue Flag initiative.  Trade unions value the work that has been done to secure greater rights for workers – as the TUC points out here.  Cynics wonder whether the ‘red tape’ that business wants removed is in fact necessary protection for workers, the environment and consumers.

There’s a particular issue, though, about innovation.  The EU falls behind the USA and Asian nations in its response to innovation, which is a key driver of prosperity in the modern economy.  It is for this reason that Matt Ridley calls leaving the EU a ‘leap in the light’, and his Times article is available here, outside the paywall, to read.

Some commentators have brought in the issue of peace and democracy in Europe, which they claim has been a major benefit of closer working by the states involved.  The original EEC came about from cooperation between France and Germany, after three disastrous wars in 70 years.  The benefits of peace and cooperation outweigh almost any conceivable cost.

Issue: what will be the overall economic effect of leaving the EU ?

Here’s a balanced article from the Financial Times.  The LSE has come out with a well-argued economic case for staying in here.  Woodford, the investment fund, include some telling graphics in their discussion about how investors should vote.

A particular issue comes from a change in the sterling exchange rate, which fell nearly 2% on the day that Boris Johnson said he’d campaign to leave.  A falling exchange rate helps exports by making them cheaper, but raises the price of imports to the UK.  This might help employment and growth, but would hit living standards.  Pantheon Macroeconomics tell us that a 15% fall in sterling adds 1% to inflation, we’re told, though this seems very low to me – surely if 30% of GNP is imported, inflation would go up by .3 of 15%, which is 4.5%.  However, the Bank Of England might choose to hold sterling up with higher interest rates.

Issue: but won’t we benefit from stopping payments to the EU ?

Yes, we will.  Under the formulas worked out over the years, the UK pays in more than it gets out.  The effects vary according to where you are – farmers and depressed areas get more than southern towns and service industries – but overall we pay £23m per day into the EU.  You could see this as a rip-off or a membership fee, according to your preference.

Issue: will we be able to trade with the EU after leaving on something like the current terms ?

The debate here is usually between those who say the EU has a positive current balance with the UK, and so would be foolish to deny a deal on roughly the same grounds after Brexit as before.  There are two arguments against this apparently commonsense view (assuming you start with the idea that politics is motivated by logic, rather than pique and malice).  First, the EU’s market is much more important to the UK than the UK is to the EU – as you will see in this article by a German academic, and here by the NIESR.  Secondly, we make a deficit in manufactures and visible goods, sue, but we make a fat surplus on services (insurance, banking etc); a crafty EU might agree to keep visible trade going on current terms, but undertake long and tedious arguments about the trade in services.

The key issue is the barriers to trade that exist.  In fact, the tariffs (import duties) on manufactures in the industrialized world are relatively low at the moment, as a visit to the World Bank website will tell you.  The industrial goods tariff the EU applies to imports from non-members is 1.3%, which would hardly seem to be a deterrent to buying a car or a radio. When the £ moves by 2% in a day (see above), this seems inconsequential.

Issue: what will be the effect on the UK of leaving ?

Here we face the unfortunate division of the UK into countries that vote differently on different issues.  The Scots and Welsh have had Conservative governments, but never voted for them.  Ditto England, which never produces a Labour majority.  One consequence of the referendum might be a thumping majority to stay by the Scots being outweighed by the English who want to go – and Tony Blair is not the only one who thinks that threatens the existence of a United Kingdom.

Issue: will we lose sovereignty if we remain in the EU ?

Because the EU can make regulations that over-ride the UK Parliament (and courts), it is argued that the organisation is anti-democratic, and that to be a free, independent nation where the voters can decide what happens in the country of which they are citizens, we will have to leave.  This case was made by the Justice Secretary Michael Gove as he announced his decision to campaign for withdrawal.   His article was initially praised, but then the flaws in his case began to be exposed – as here.  The opposite view on sovereignty – expressed here in The Economist –  is that the world is now so interconnected – globalised – that no country is independent in the sense of doing precisely what it wants about everything.  Outside the EU, we would be bound by regulations that we have no part in making, as Jonathan Freedland points out here.  One article cheekily said that only North Korea is sovereign in the sense that the Out campaign mean.

Issue: can we stop migration if we leave EU ?

Well, we could stop half our migrants right now by excluding non-EU nationals.  We would lose a lot of Filipino nurses and Australian bar-staff, but it is possible. It’s pretty clear, though, that we can’t prevent the entry of EU workers if we stay in the EU, and would probably need to allow them in if we were outside and wanted to have free trade.  The idea that non-EU migrants would swarm from the Calais jungle is not true: this is covered by a non-EU treaty. Anyway, if they did (France is, after all, a sovereign nation in non-EU matters and could give two years notice), we could deal with it: the numbers are less than a Chesterfield home crowd.

The arguments here would be more convincing if the government took powerful steps to meet the costs of migration in the towns where it happens, funding local government for more schools and houses.

Issue: is the EU over-bureaucratic ?

We have all heard stories of EU bureaucracy – straight bananas and all that.  Before delving into this debate, it’s worth making two points.  Firstly, many of the stories are not true.  The joke that compares the economy of expression in the Ten Commandments or the Gettysburg Address with the 27,000 words in the EU directive on trade on cabbages falls when you find out there is no EU directive on trade in cabbages – the whole story is a copy of a US Republican complaint that wasn’t true there either.

The fact is that a common market needs common regulations.  Otherwise an (e.g.) Czech Government could refuse to allow (e.g.) British lawnmowers in on the grounds that they did not meet local electrical safety standards.  Remember the French attitude to British beef as an example.  If it can be pointed out that a good (or service) meets the criteria that has been agreed, then it cannot be excluded from export sales. Similarly, common regulations are needed on transport like lorries that travel across the EU.  Boris Johnson has said that the EU prevents safeguarding cyclists from them: hmm – his views are crushed here.

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