19 July 2012

Still unsure where we’re going

From a post here last month about the UK’s future inside or outside the EU:
A debate on the viability of a “mid-Atlantic” United Kingdom (with or without Scotland) is probably overdue. Are we trapped in the invidious position, primarily in population terms, of being too large to occupy a niche, but too small to be a player? Or are there ways in which the UK could make itself too big to ignore?
The issue hasn’t gone away and some big beasts have had their say since. Tony Blair in his Financial Times interview on 30 June said:
“The rationale for Europe today is not peace; it is power. The rationale for Europe today is that [we are] in a geopolitical landscape that is rapidly changing, in which even a country the size of Germany, let alone France or the UK or Italy, is a fraction of the size of what are going to be the main geopolitical players. We can’t afford to be left on our own. We need the collective strength to advance individual interests.”
Soon afterwards the Eurosceptic Liam Fox gave his first public speech since resigning as Defence Secretary on the subject of Britain and the EU which included:
On trade we are told that we are inextricably bound to the EU because of our export relationships. Yet the European Union countries export more to Britain than we export to them and, since the time that we joined, WTO rules have increasingly meant that the free trade arrangements that we have with our European partners are guaranteed by international law and not simply by virtue of our EU membership. Perhaps the most telling statistic set out by those who argue that Britain could not manage economically outside the current structures is that Britain exports more to the Republic of Ireland than to China and Russia combined. I would turn this argument on its head. What does it tell us about our horizons that we still export more to a country with a population of 4.6 million than we do to Russia with a population of 139 million or China with a population over 1000 million, one of the world’s fastest-growing consumer markets. It only re-emphasises that our lack of focus on the growing global markets, especially in Asia-Pacific, has caused us to be more economically affected by the woes of Europe than the rapid growth in global wealth beyond the continent.
For my own part, life outside the EU holds no terror as I believe globalisation will increasingly force countries to cooperate more closely on the basis of functional commonality rather than geographical proximity. It would, though, given our economic interdependence be to the advantage of all to create a more stable and mutually agreed compromise.
Last week David Miliband guest-edited the New Statesman and interviewed José Manuel Barroso, president of the European Commission, thus:
DM: The debate inside the Conservative Party is now in some ways framed by the former defence minister Liam Fox, who said there should be “no terror” for Britain in leaving the European Union. What do you think life would be like for Britain outside the EU?  
JMB: I will not comment on internal political matters, partisan matters of Britain. If and when there is a kind of revision, that’s up to the British to decide. What I can see from Brussels is that, and also from a European perspective, I find it a little bit ironic that some people are suggesting for Britain a role comparable to that of say Norway or Switzerland. Norway or Switzerland are two marvellous countries, I very much admire, the most advanced countries in the world in fact with great qualities of life. But I think Britain is expecting a bigger role in the world than small countries. The fact that some are suggesting for Britain a role that is smaller than the one Britain already has today seems to me a little bit curious. When the prime minister of Britain meets the president of the United States, or the president of China, he has much stronger status and much stronger leverage because everybody knows that Britain is a country that is very influential in the shaping of European policy. The biggest integrated market in the world, the first economy in the world, the biggest donor of development assistance in the world . . .  
DM: So in your estimation, the leaders in China have an enhanced relationship with Britain because they’re in the European Union?  
JMB: I’ll put it frankly – Britain has more influence in China than Norway or Switzerland, with all respect for the other countries. And one of the reasons being that everyone in China knows that Britain is a decisive voice in the European policy and that its influence and its leverage, it is much bigger because of that.
Now Robert Winnett has reported an interview David Cameron gave the Daily Telegraph:
… Mr Cameron will not countenance leaving the EU and says he would never campaign for an “out” vote in a referendum. “I think it would be bad for Britain,” he says. “When I look at what is in our national interest, we are not some country that looks in on ourself or retreats from the world. Britain’s interest – trading a vast share of our GDP – is to be in those markets. Not just buying, selling, investing, receiving investment but also helping to write the rules. If we were outside, we wouldn’t be able to do that.”  
He adds: “It comes back to this, who are going to be the winning nations for the 21st century? If your vision of Britain was that we should just withdraw and become a sort of greater Switzerland, I think that would be a complete denial of our national interests.”
So we have a commonality of view among Blair, Barroso and Cameron that the UK gains collective strength from belonging to the EU and the only alternative is a role like Switzerland’s. All we have in the way of evidence to support this view is their judgement. At least Fox supports his views by reference to trade, arguing that we have become too Europe-focussed when global growth is taking place elsewhere. This is more like evidence than opinion, and has been reinforced by data recently published by the CEBR:
For years those trying to make the case for the UK’s continued EU membership have drawn attention to the fact that the other EU member states have been the UK’s main export market. Actually the claim was exaggerated because it only related to exports of goods. Exports of services, which are arguably more important for the UK economy, have always been more heavily based on the non‐EU markets.  ISO trade figures for goods with the EU are distorted by entrepot trade. About 20% of UK goods ‘exports’ to Ireland are reexports from other countries imported through Belfast Harbour. And UK ‘exports’ to Belgium and the Netherlands are implausibly high and clearly distorted by Rotterdam and Antwerp port activities, though many of these exports probably go on to other parts of the EU. But in the last 3 months a revolution in the orientation of British trade has taken place, with non EU exports of goods exceeding EU exports of goods (by 1.5%). This is the first three month period for which this has been so since the 1970s we believe, though comparable data no longer exists.
Cameron started off by framing Britain’s interest in terms of trade but seemed to move off towards being a “21st century winning nation” and “visions of Britain”, perhaps because the trade data doesn’t help his argument as much as he would like. And if by a “greater Switzerland” he meant a UK economy scaled up to the same GDP per head as Switzerland’s (US$81,161 as opposed to US$38,592) who exactly would object to that, or more realistically, significant movement in that direction?

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