World

Why Brexit wouldn't be an economic disaster

Those who want to stay in need to base their arguments on more than economics

June 22, 2015
However David Cameron's renegotiation goes, Britain's economy may well be OK. © Markus Schreiber/AP/Press Association Images
However David Cameron's renegotiation goes, Britain's economy may well be OK. © Markus Schreiber/AP/Press Association Images
Read Wolfgang Münchau's full piece on the economics of Brexit

Those who want Britain to stay in the EU need to look further than the numbers—there is no compelling economic case against Brexit. 

Or so Wolfgang Münchau reckons, writing in the latest issue of Prospect. He concedes that leaving would present risks, but none compelling enough to make the case for a vote to stay in. 

You'll need to subscribe to read the full piece, along with most of the issue and our digital archive, but below we've run through his treatment of some common economic arguments for staying in. Prospect starts from a strong predisposition that Britain should stay in Europe, but relying on insecure arguments serves nobody—Münchau's piece, along with Peter Kellner's exclusive polling, should be a wake up call to those who think we can coast to a Yes vote. 

Out of the club

"The really big job the EU will have to accomplish over the next five years is to make the eurozone work," writes Münchau. That's going to require some political changes, which may not be in the UK's interest—even if we stay in, we might end up increasingly distant from our EU partners. "If the current EU is a hybrid between a state and an international treaty organisation, the eurozone will shift the balance in the direction of a state. If the eurozone turns itself into a political and economic union—which it must do to survive in the long run—what would be the UK’s interest in remaining in a union with such a large bloc?" Münchau's argument runs as follows: the changes to fix the eurozone will require treaty change. The treaty change will also offer Britain a chance to negotiate a deal, based on its status as a permanent outsider. The danger is that the eventual deal is ultimately indistinguishable from the status a British government could negotiate with the EU after a “no” vote. No matter what happens, Britain’s future relationship with the EU is going to be one of semi-detachment.

Going it alone?

"The single market," writes Münchau, "has a certain 'motherhood and apple pie' quality—it is very hard to be against it." If we leave the EU, our access to the market would be in doubt, which is, as Münchau puts it, "the ultimate 'gotcha' argument for pro-Europeans." But how much is the single market really worth? Münchau points out that EU-wide productivity has been in decline since the official start date of the single market in 1992. If the single market hadn't been there, that decline may have been worse but, he says, "that assertion is impossible to prove. My point is that the single market is not visible in the macro statistics."

Nothing to declare

"The EU that France or Germany belong to is very different from Britain’s EU," writes Münchau. We're not a member of the eurozone or of the group of EU countries which allows passport-free travel. But one formal institution which we would have to leave in the event of a Brexit is the customs union. "The customs union was a much bigger deal in the smokestack economies of the 1950s and 1960s than it is today," says  Münchau. The main group which might be effected by British departure from the customs union is non-British businesses who have chosen the UK as a production location. But, says Münchau, it's hard to tell how many of these would leave, especially as a non-EU UK might be able to offer them a more favourable regulatory environment to offset any negative impacts.

Friends like these

If Britain leaves the EU, we will lose our access to EU trade agreements with third parties—we'd have to renegotiate them all ourselves, Münchau concedes. But "'Brexit' would be subject to a detailed technical agreement that would foresee transition times and rules and privileges that continue after departure, either permanently or temporarily," he writes. "It could, for example, allow the UK to maintain the EU’s trade agreements over a period during which the UK negotiates its own version of these agreements." It would all be terribly boring and the lawyers and consultants would have a feeding frenzy, but, Münchau thinks, it would be perfectly manageable.

In the city

The City of London might lose its status as Europe's financial centre if we parted company with the EU, many pro-Europeans argue. In all likelihood they're correct, says Münchau, but he questions how much of a problem that would be. First, he argues, even if we stay in, the City may gradually lose this status anyway as the eurozone realises it would benefit from having a financial centre within its borders. And, Münchau points out: "If the single market is a zero-sum game, other sectors might benefit. Smart graduates from British universities might find more useful employment in different sectors, thereby boosting the British economy in other, and possibly better, ways."

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