As we prepare to leave the European Union those seeking to reverse the UK’s historic decision continue to present the political institution as beyond criticism. It is as if the EU is some form of enlightened deity, the highest form of co-operation and economic prosperity that man has ever known, as indeed the current Archbishop of Canterbury once claimed. Its adherents talk as if it is the very basis of British prosperity and a shining liberal beacon of co-operation against an especially adversarial and illiberal winner takes all UK.
The reality is sadly quite different; the EU is now a dysfunctional bloc held up by an untested monetary policy and still lagging behind global growth. It suffers from growing fiscal imbalances and very high levels of unemployment, with many member states experiencing outward migration – all as a direct result of the EU’s suboptimal policy.
The Remain campaign initially presented the case that if the UK voted to leave the wheels would fall off the British economy. The Treasury suggested an immediate 5% fall in GDP and 500,000 jobs lost. Now that scare has morphed into an even more alarmist prediction following a no deal departure, with the Bank of England suggesting an 8% GDP fall and unemployment nearly doubling, rising unbelievably from 4% to 7.5%. Their central case is that only the EU institutions enable trade, medical supplies and even aeroplanes to fly – and that therefore leaving the without the EU’s agreement must mean catastrophe. Such analysis is not supported by the facts
The official data from the UK’s ONS and the EU’s own Eurostat shows on almost every matrix that the EU performance has been dismally underperforming against almost every corner of the globe – be it advanced or developing nations – for a very long period of time.
Far from facilitating economic success the EU has caused genuine economic hardship in large parts of the European continent directly through policy primarily designed to hold the Euro together. Likewise the impact of its regulations on energy intensive industries such as aluminium and steel have devastated towns such as Lynemouth and Redcar. The resulting economic hardship and socially damaging levels of unemployment have led directly to people leaving their countries of birth to seek better economic opportunity elsewhere – and a consequent rise in more radical politics.
Moreover, the underperformance of the Eurozone has held the UK’s own performance back. In 1994 the economies of the US and the countries that would form the Eurozone were of broadly similar size – worth 24.9% and 24.5% of global GDP respectively. Today the US economy is 30% larger than the Eurozone. Had the Eurozone grown as fast as the US then the UK could have expected to have sold a staggering £82bn more in exports due to greater economic demand.
Fortunately, the UK economy has outperformed all the major EU economies including Germany since the financial crisis. Overall it has grown 19% over that period compared with a 13% rise in the Eurozone. That 6% has been vital for it amounts to £120bn, equivalent to just less than the entire NHS budget.
On any measure be it employment creation, GDP growth, monetary normalisation, political demos, fiscal transfers and migration the UK has materially out-performed the EU over the short and longer term. While regulation has undoubtedly played its part in EU under-performance, the common factor has without doubt been the Euro.
Most critically the one-size-fits-all monetary policy, largely designed to re-float the southern economies, is far from an optimal currency area. Worse, the inability to devalue takes away that critical mechanism for making those economies competitive again. This leaves wage deflation as the only effective route out for many EU nations, which has led to severe social consequences.
Unfortunately, despite strongly negative real interest rates and European Central Bank support for questionable Italian and Spanish banking debt, the Eurozone continues to flirt with recession. Last quarter both Germany and Italy recorded GDP of -0.2%. Italy’s economy is smaller today than 14 years ago. Will, for example, Italians put up with another 14 years of negligible growth and their banking sector on life support? Can Germany really continue to finance the Eurozone?
The problem is structural not cyclical. While the process of underperformance is likely to continue to be gradual, without very major reform for which there is little support, the Euro’s flaws almost certainly ensure continuing social pain. There is no democratic solidarity across the nations to create the necessary fiscal transfers and central treasury that the Euro desperately requires. Popular demand for such an outcome is negligible.
For Britain our opportunity is different. We did not join the Euro and the people have voted to leave the EU all together. As a result, with political will, exiting the EU should have been and could still be relatively straightforward. We now need to hold our nerve and be willing to trade with or without a transition agreement. The key to future success must come from being free to arrange lucrative trade deals with the emerging economic nations.
While many are introspective about the imagined cost of “no deal” perhaps a greater understanding of the risks of remaining in such a dysfunctional EU would be more appropriate.
The EU’s failure has directly resulted in significant migration into the UK, lost the UK export opportunity estimated at £82bn – and sustained a substantial trade deficit into the bargain. While we must remain close friends with our neighbours, the EU’s ever closer union has failed Europe. The correct choice for Britain is to re-emerge as a truly global trading nation.
