Thursday, June 25, 2009

Britain’s eurosceptics need to come clean

by Simon Tilford

Britain’s media and political class have a right to be sceptical about the EU, even hostile to it. But they also have an obligation to be honest about the economic implications of a retreat from full membership of the Union. Their failure to do so is dishonest and poses a serious risk to Britain’s prosperity. A newly ‘emancipated’ Britain would not remain part of the EU’s single market, at least not on the terms the eurosceptics claim. In fact, a retreat would achieve nothing but impotence. It would not reduce the regulatory and compliance costs facing UK business and it would end our ability to shape the EU’s single market.

Those calling for a renegotiation of the EU’s Lisbon treaty, or of the UK’s relationship with the EU more generally, ignore that this would inevitably lead to at best semi-detached membership of the EU, and more probably divorce. Eurosceptics appear to believe that a Britain outside the EU would remain part of the single market, but that it would be freed from the need to abide by EU regulation. In short, Britain could enjoy all the benefits of access to the single market but none of the costs.

This is incoherent. To remain a full member of the single market, British firms would have to abide by all its rules and regulations. A Britain that opted to withdraw from the EU would have no say over the drawing up of those rules and regulations. British interests would not be represented in Brussels and Britain would not be able to stymie regulatory drives that threaten UK prosperity. In short, British business would experience the worst of all worlds.

British manufacturers might not suffer too badly. Britain would have no say over EU product standards, which British firms would nevertheless have to comply with in order to sell their products in the EU. Nor would the costs of producing for the UK market fall – it would make no sense for British firms to make one set of products for the British market and another for the rest of Europe. But merchandise markets are at least already open. The real threat for the UK lies elsewhere.

Britain is by far the biggest exporter of commercial services in the EU. As such, it has a very strong interest in opening markets for those services. But a Britain that has no say over the future of the single market will not be able to use its influence to push for service sector liberalisation. It will not be able to challenge the self-serving idea put forward by other member-states that a single market in merchandise goods is one thing, but open markets in services are somehow beyond the pale. Nor will it be able to ensure that regulation of service industries is not inimical to the interests of British business. This would be a major own-goal.

One only has to look at the financial services industry to see the risks. If British-based providers of financial services wanted to do business in the single market, they would have to abide by whatever regulations the rest of the EU dreamt up. These would certainly be more restrictive in the absence of British involvement. At a time when other EU governments see an opportunity to cut London down to size, would it really make sense to be a bystander? How would Britain thwart the rather heavy-handed attack on the private equity and hedge fund industries operating in the EU if it had no seat at the table?

Britain needs to step up its involvement in the EU, not leave the playing field in a huff. It needs to strive to ensure that EU financial regulation is – as far as possible – proportionate and reconcilable with the UK approach. More generally, it needs to make common cause with other economically liberal member-states to ensure that the EU evolves in a direction that serves British interests.

Britain’s conversation about its relationship with the EU is devoid of the pragmatism and empiricism with which it is traditionally associated. Some British eurosceptics genuinely believe that the UK can have its cake and eat it. That it could reduce the cost of EU membership while retaining all the existing and potential benefits. Others know exactly what they are doing. Their ultimate objective is for Britain to withdraw from the EU. This is a perfectly defensible aim, but those for whom this is the objective need to explain how it would be in the UK’s strategic and commercial interests.

Simon Tilford is chief economist at the Centre for European Reform.


John Harmer said...

Let those who propose we leave the EU set out the terms of the exit treaty that would be acceptable.
Let them also promise we should have a referendum on the proposed exit treaty.

Liam said...

This argument tends to hover at the level of policy, whose influence on and by nationality is incidental and oppositional. It may seem rather petty and vulgar for the Centre for European Reform - 'improving the quality of debate', whatever that means - but the question of nationality and state interest is, of course, at the heart of the debate. So the question is assumed to be, how can Britain assert its own national interests at the European level.

This post criticises Britain's self-interest in withdrawing from the European Union ('the UK [believes it] can have its cake and eat it'), whilst arguing Britain can be best served by further asserting its national interests within the future European market. Perhaps Britain's traditionally associated pragmatism and empiricism has lead it to the conclusion of relinquishment of EU membership. Perhaps, conversely, this will force it to support EU membership and assert its national interests in an ever-extending politico-economic forum. Either way, appealing to national interest cannot be the panacea for Britain’s troubled relationship with the EU: one scenario necessarily excludes the other.

It is wrong and divisive for pro-Europeans (and Eurosceptics) to argue for enlightened national interest without the ‘obligation to be honest about the economic implications’ of a deepening and widening of the Union, which precludes any influence of a national interest in a future Europe. The debate should thus begin, not from the assumption of opposition and difference, but by setting out the benefits of the EU project beyond the narrow benefits, economic or otherwise, to individual member states.

To quote J. Derrida and J. Habermas’s article ‘After the War: the Rebirth of Europe’ (31 May 2003, Frankfurter Allgemeine Zeitung): ‘All of us imagine a peaceful, cooperative Europe that is open to other cultures and capable of dialogue. We remind ourselves that in the second half of the 20th century, Europe has found prototypical solutions for two problems. The EU presents itself as a form of “governing beyond the national state,” that could serve as an example as a post-national constellation. [...] At the level of the national state, however, it has been forced into the defensive. But the level of social justice that the welfare state has attained should not be abandoned in any future politics of the taming of capitalism. Why shouldn’t a Europe that has solved such enormous problems also take on the challenge of developing and defending a cosmopolitan order on the basis of international law?’ The real decision Britain must make is whether it wants, in the future, 'governing beyond the national state'.