Whether to vote for EU membership

Pro-European British citizens will face a major dilemma when the eventual referendum on EU membership takes place. On the one hand, they will wish to enhance British prosperity. But on the other, they will also be concerned to advance the future of the European ideal. The last time we were consulted, in 1975, the British people voted 67% for membership. At that time there was no perception of conflict between what was good for Britain and what was good for European integration; we took it for granted that British leaders would act in the interest of Europe, and that this would also advance British interests.

In the intervening years those of us who favored joining the EU have been sadly disappointed – not because of the failure of membership, but because of the anti-European attitudes of British Prime Ministers (let alone the Tory right-wing) ever since joining the EU. Suffice to recall the embarrassments of handbag diplomacy, the refusal to join the euro in favor of continuing to let the pound float (a disastrous policy that has to be blamed for the large twin deficits incurred in the years prior to the present crisis), or the current Prime Minister’s attempt to secure “repatriation” of powers from Brussels. It would be better to let the continental Europeans get on with constructing Europe free of the threat of continual sabotage by Britain.

It is overwhelmingly likely that Britain will be more prosperous inside the EU than as the Greater Switzerland that anti-Europeans seem to dream of. Judging by the experience of other non-members, we could not even count on saving the comparatively trivial sum of £9 billion per year  (about 0.06 percent of GDP) that presently represents the net British payment to the EU budget. Other non-members who have negotiated free trade with the EU and can afford to also make payments to the EU budget, in the Norwegian case of almost as much per capita as the UK. But offsetting any gain on this account would be the loss of much of the stimulus that membership of the wider European market can, and has, provided.

The anti-European lobby responds by arguing that Switzerland has negotiated free trade with the EU and therefore gets the best of both worlds. Apart from doubts as to whether a similar deal would be available to the UK, the fact is that such a deal would require the UK to accept many of the features that so antagonize the anti-Europeans, and without London having any say in designing those features.

Other than membership of Europe, how else does one account for the reversal of fortunes in post-EU Britain compared to Switzerland? The relative growth rates of the two countries are shown below (for which I am grateful to Edwin Truman and Allie Bagnall):

Average GDP Change, in percent

                          UK                               Switzerland
1960-1969

3.14

4.80

1970-1979

2.42

1.63

1980-1989

2.45

2.31

1990-1999

2.27

1.10

2000-2011

1.91

1.92

Source: IMF, International Financial Statistics

The result has been an increase over 1980-2011 of British per capita GDP (measured at PPP) as a share of Swiss per capita GDP from 56% to 82%. Over the same period, the Swiss share of global GDP has declined by 43% as compared to a British decline of only 27% (on a similar basis).

A  comparison of the development of the Swiss versus the British share of foreign exchange transactions is also instructive:

 

YEAR

Swiss Share

(percent)

UK Share

(percent)

1989

8

26

1992

6

27

1995

6

30

1998

4

33

2001

4

32

2004

3

32

2007

6

35

2010

5

37

Source: triennial surveys of foreign exchange activity by the Bank for International Settlements

Switzerland has always been a rival to London in terms of foreign exchange activity, but since the UK decided to join the EU, Switzerland has been out-competed by London. When Britain declined to join the euro, there were fears that this would produce an immediate decline in the earnings of the City. These fears proved misplaced: London has remained the financial capital of Europe. Whether that will survive indefinitely with the UK outside the euro is anyone’s guess. That it would survive a British decision to embrace the role of offshore island outside the EU seems quite improbable.

For that is the fate that will follow UK withdrawal from the EU. Britain will not find an alternative role: an offshore island will be no use to the United States, so the hyped “special relationship” will truly be at en end. The idea of making the old “white Commonwealth” into a major force in the world runs into the difficulty that most of its members find themselves more at home in the Commonwealth as it exists today, which is a body that is dominated by its newer (and non-white) members. Even if British membership of the G20 survives (which cannot be taken for granted), it may well become like Swiss membership of the G10 is today—a reflection of a more influential past. But at least Europe will be able to get on with the business of forging an ever-closer union without the albatross of continual British threats of vetoes.

This entry was posted in EU. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s