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The overwhelming case against Brexit

On 23 June, British voters will go to the polls to decide whether the UK should remain in the European Union (EU) or leave it in a maneuver the press has termed “Brexit.” As of late April, public opinion polls showed the “remain” and “exit” sides running neck–and–neck, with a large share of the electorate still undecided.

The economic arguments for remaining in the EU are overwhelming. The fact that the polls are so close suggests that a substantial portion of the British electorate is being guided not by economic arguments, but by blind commitment to ideology. In this, the British are not so different from the many Americans who support the economy-killing presidential campaigns of Donald Trump and Bernie Sanders.

The main economic argument for remaining within the European Union is trade. The 28–member states of the EU constitute a single market, with free movement of goods, services, capital, and people. According to the UK government’s latest statistical release, nearly half of UK exports go to EU countries. Hence, a crucial question is what sort of relationship the UK would have with the EU if it decides to leave.

Supporters of Brexit argue that if Britain leaves the EU, it will be able to negotiate some sort of trade deal with its EU trading partners that would preserve the benefits of the single market. One option would be for Britain to negotiate entry into the European Economic Area (EEA), a group of non-EU European countries (e.g., Norway), which have negotiated access to the single market. Another option would be for Britain to negotiate a bilateral trade treaty with the European Union, much like Switzerland has done.

Concluding such an agreement is certainly possible, but it is unlikely that the EU would make a deal on terms that Britain would find as advantageous as full EU membership. After all, making it painless to leave the EU would encourage others to leave as well.

The UK Treasury released a report in mid-April analyzing the long-term consequences of leaving the EU, considering three alternative trading arrangements: (1) membership in EEA; (2) a negotiated bilateral trade arrangement; and (3) no particular agreement, but operating under World Trade Organization (WTO) rules which currently govern trade between countries that do not have a trade treaty. The Treasury’s analysis indicates that after 15 years, these three scenarios would leave the average British household worse off by an estimated annual £2600 (EEA scenario), £4300 (bilateral arrangement), or £6200 (WTO rules).

The trade-based argument in favor of remaining within the EU is powerful, and explains why it commands such widespread support among policy savvy individuals. The list of supporters for continued membership in the EU includes Prime Minister David Cameron, who was reelected last year with an increased majority (his Conservative Party, by contrast is split on the issue), the major opposition parties, including Labour, the Liberal Democrats, the Scottish Nationalists, and virtually all the minor opposition parties.

The Governor of the Bank of England, Mark Carney, has said that the threat of the UK leaving the EU is the “biggest domestic risk to financial stability.” And a Financial Times poll of 100-plus economists found that more than three quarters thought that leaving would hurt the British economy; only 8% thought it would help.

 If Brexiters succeed in pushing the UK out of the EU, they will have shut an important door to the rest of the world and endangered Britain’s economic future.

Support for remaining in the EU comes from outside the UK as well. The leaders of Germany, France, Ireland, and Spain, among others, have strongly backed Britain’s continued membership. US President Barack Obama similarly encouraged a vote in favor of the EU during a late April visit to the UK, arguing that a separate UK– US bilateral trade deal (favored by the Brexiters) would take at least 10 years to negotiate and implement, leaving the UK out of the current US-EU free trade negotiations. And eight former US Treasury secretaries—Republicans and Democrats alike—warned that leaving the EU would lead to a “smaller, slower-growing British economy for years to come.”

What ammunition do the Brexiters have?

Surprisingly little.

Brexiters complain about the burden of EU regulations. However, if the UK were to negotiate a Norway-style trade relationship with the EU, it would have to maintain many of the most costly regulations associated with EU membership. Brexiters also complain about the magnitude of Britain’s contribution to the EU budget. However, Britain’s net contribution of £6.5 billion is equivalent to less than 0.9% of the UK’s budget.

The most popular objection to continued EU membership is that Britain will be flooded by EU and non-EU immigrants, especially refugees. Here too, the economic argument is weak. Although Britain saw substantial net immigration last year, much of it from EU countries, the Conservative government has limited EU immigrants’ access to economic assistance, reducing any burden that they might place on British taxpayers. Further, foreign-born individuals in Britain are far more likely to have a college education than native born Brits, and so, in fact, are probably on average more productive than natives. As to concerns about non-EU immigrants, because the UK is not part of Europe’s passport-free Schengen area, Britain retains the right to stem any inflow of non-EU immigrants at its borders.

Brexiters’ objections to immigration sound very much like the scare-mongering over the arrival of foreign people that characterizes the Trump campaigns, and the scare-mongering over the arrival of foreign goods by the anti-trade Sanders campaign.

The US and UK economies are more prosperous when they are open to the rest of the world. If Brexiters succeed in pushing the UK out of the EU, they will have shut an important door to the rest of the world and endangered Britain’s economic future.

Featured image credit: European Union Flags 2 by Thijs ter Haar. CC-BY-2.0 via Flickr.

Recent Comments

  1. Owen PaY

    There is one overwhelming reason for Brexit and that is TTIP

  2. Chris G

    “…commands such widespread support among policy savvy individuals”. Maybe that’s why Brexit has widespread support. Obama’s Seagul Diplomacy & Professors opining that Brexit is a stupid idea and the UK can’t manage its own affairs. That and foreign individuals who think our self determination is something you discard like the wrapper around a McDonalds hamburger.

    Since records began in 1996, the UK has not managed to prevent a single proposal placed in front of the Council of Ministers from becoming European law. This amounts to 72 measures that the UK opposed that have since become British law. Since 1973 the UK’s voting power in the Council of Ministers has decreased from 17% to 8%, in the European Parliament it has decreased from 20% to 9.7% and in the European Commission it has decreased from 15% to 4% (the same as Luxembourg). The UK has about 12.5% of the EU’s population, it provides only 5% of the EU’s staff and the situation is set to get worse. More than four in 10 British officials will be enjoying their retirement by 2020 and, based on the number of applicants in recent years, most of them will not be replaced (junior roles have only a 2.4% UK entrance rate) – this matters because legislation unlike in a democracy is drafted by unelected civil servants in the Berlaymont building, the EU Parliament is merely a rubber stamp with amending rights. Over the last European Parliamentary term (2009-14),a majority of British MEPs (across UK party lines) opposed 576 motions out of a total 1,936 that were put before the European Parliament. Of those 576 motions, 485 were nonetheless approved by the rest of the Parliament despite the opposition of a majority of British MEPs. This is a failure rate of 84%. This rises to 89% in Economic & Monetary affairs & 98% loss in Budget votes. We are the 2nd worst represented in the EU parliament after France with 839,194 inhabitants per MEP (Lux 76,667 per MEP, Ireland 350,750, Italy 816,000). “British Influence”, we’ve seen British Influence in the laughable failure to compromise from the EU – a Red Card we can’t use, a hand brake on migration we can’t pull, and an opt out of “Ever Closer Union” that will be overturned the 1st time the EU Kangaroo Court (CJEU) decides to challenge it.

    And since Professor Grossman is an Economics professor perhaps he can explain why the UK should join a political union with the only continent other than Antarctica to fail to grow since the 2008 crash.

  3. Tim Collingwood

    Which we can veto, so there is absolutely no need to Brexit .see:https://fullfact.org/europe/does-ttip-mean-privatisation-nhs/

  4. SDG

    “but it is unlikely that the EU would make a deal on terms that Britain would find as advantageous as full EU membership”. Are you therefore concluding that we would allow EU goods to come in to the UK at non tariff EU rates and we would pay WTO tariffs? Or perhaps a touch more realistically it’s in both sides interests to get a deal done.

    Exports to EU are 13% of gdp. Are you saying they would all be wiped out under WTO if worst come worst or as most economists think there might be a small hit?
    If we lost even 10% that’s only 1.3% of GDP in return for sovereignty, which is not very different from our net contributions.

    As for the treasury document, it is well known and well discussed how biased it is only taking into account (possible) negatives without discussing the equivalent positives.

    “The US and UK economies are more prosperous when they are open to the rest of the world”. Exactly. That’s the whole point rather than remaining isolted ina monolithic trading block which does not suit our economic strengths with huge barriers with the rest of the world.

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