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Saturday, 01 November 2014

Say NO to Brexit

Hugo Dixon: Brexit would be bad for Britain

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 naïve. 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.

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