Saturday, 20 February 2016

What no one can tell you about the EU Referendum

The public face of #Brexit Out campaign
I went out for a meal with friends last night. The subject of the EU referendum came up. I hadn't really given it much thought before, but as the conversation progressed it became clear that there is one aspect of the vote which no one has discussed. That is the fact that we are not being offered a choice on anything. The question on the face of it is quite simple. Do we want to remain in the EU or do we want to leave. On the face of it, that is a very simple question. But to give a meaningful answer, we really need to know what the answer means. Absolutely no one can tell us what an out vote actually means. With regards to an in vote, it is clearly business as usual, albiet with the new terms David Cameron has renogotiated.

Personally I think Cameron has missed a trick.  There is plenty wrong with the EU. It is a hugely inefficient bureaucracy, who have not had their accounts signed off for years. There is a massive democratic defecit and the whole organisation needs root to branch reform. There are al sorst of schemes which simply promote inefficiency and waste. When Europe is trying to compete with more dynamic up and coming economies, this is something which clearly needs addressing. Rather strangely this didn't appear on Camerons radar. I don't think the points he has negotiated are completely without value. What is a shame is that he's invested so much political capital purely to try and get a few of his own MP's onside. The reason the Europeans have signed up is because none of Camerons terms upset the applecart.

The first question, and perhaps the most important one is whether the EU works for the UK. Anyone who says "If we hadn't joined it we'd be this much better/worse off now" is talking nonsense. There is no way of knowing. People can speculate and guess, but that is all. And any guess is a wild guess. The EU has dozens of treaties in place both internally and with third parties to govern all manner of trade agreements. Had we not joined, then all of these would have to be replicated. Would the UK on its own have gotten better or worse terms? I'm not an economist, but I do know that a company such as ASDA can leverage a better deal than a local grocer can with suppliers. That isn't to say that he UK wouldn't have negotiated some better deals, but overall one has to assume that the terms wwouldf be the same or worse for the UK economy. The EU has armies of translators, lawyers and economists working on all of these treaties, whose job is to ensure the best deal for the EU as a bloc. The UK pays a substancial sum towards the cost of running this. If we pulled out, we'd have to employ a whole new army of them to pick through the debris of what a Brexit has left.

One of the arguments that Out supporting friends made was that EU will have to give us the same term on all of these deals, as it will be in their interest to do so.  The sad truth is that is not how trade agreements work. If for arguments sake, the EU has negotiated a trade deal with India to remove tarrifs from goods and allow greater access for people to move between the two areas, the UK can't simply say "Well we are out of the club, but we are still all bound by the same rules". Not least because India may not want to play ball. The Out camp will say "well they will probably give us the same deal or possibly a better deal". This may be true, but how long will it take to negotiate and what happens in the interim?

My guess is that in the event of an Out vote, the UK will have to set a date a couple of years in the future and then employ army of lawyers, civil servants, economists and experts to work out just exactly how the new relationship will look. All of this just to try and maintain some sort of status quo. Anyone who says "Well its in everyones interests to make it work", clearly has never seen what happens when a marriage breaks down, the lawyers get involved and the assetts get divvied up.  And this is not simply fighting over a car and a house. It is all about access to markets and tarrifs. Of course you may believe that if we leave, the French, the Greeks, the Germans and the Italians will not want to stiff us, freeze us out of export markets and attract the inwards investment the UK has worked so hard to build up.

It is a widely held belief in the Out camp that the UK will be no less attractive to foreign companies who wish to set up European operations and headquarters if we are outside of the EU. I'd advise anyone who is considering voting Out to go for a walk around the City of London. See how many Asian, African and American financial organisations have swanky offices. From these they control operations across Europe and empoy tens of thousands of UK employees. You may believe that  every single one of these will find the UK just as attractive if we are not an EU member, but is there any evidence to substanciate that. When the Scots had a referendum on leaving the UK, both Lloyds Bank and RBS announced that they were making contingency plans to move their head office operations from Edinburgh to London. This would have been a massive blow to the prestige of Scotland and its reputation as a major financial centre.

Every major corporation with a UK office has no choice but to spend a lot of money working out how a Brexit will affect their operation. At the moment, this will simply be a blank piece of paper as no one knows. I've asked several supporters of the Out campaign what they think the positives of a Brexit will be. The first answer is "less tax and regulation". There is a massive misreading of the situation in this answer. As no one knows what the state of the post Brexit UK public finances will be, it is impossible to say whether the taxes will be lower or higher. The one thing most financial institutions know for certain is that the sector is always clobbered when the UK government suddenly needs cash. As for regulation, in financial services, it is a myth the EU is massively overburdened with financial legislation and rules and regulations. If it was, London wouldn't be such a successful centre. In fact many large organisations have recently been locating to London rather than the USA, due to the perceived effects of many of the new regulations brought in post the 2008 financial crash in the USA. That is not to say that some global organisations won't prefer a post Brexit Britain, but one of the competetive advantages that they see in the UK, which is that there is an English speaking centre in the EU will disappear. The EU means that operations in the UK conform to EU laws and regulations. Post Brexit, they will need extra lawyers simply to navigate the two different sets of rules.

The one thing no one from the Bresxit camp can tell any of us is what the post Brexit Britain will look like. If you went to buy a car and the salesman said "I can sell you this BMW for this price or I can get you to sign a blank cheque and in two years time, we'll deliver you a car that we think will be much better" which offer would you take.

My Brexit supporting friends also offered the argument that the UK would do better as an economy if we were out of the EU. Their arguments were based on three things 1) Less people from Europe turning up and simply claiming benefits 2) More jobs for British workers, so less unemployment 3) The ability to trade freely with commonwealth partners and the rest of the world.

The first point about migrants turning up and going on the dole is one which has been shown to be a myth. There are far less EU migrants on benefits as a percentage of the population than for the indiginous population. Most people who come here from the EU come to work. The second point is again based in a fallacy. The rate of unemployment in the UK is comparatively low. There is a misconception that because there are job vacancies, locals can fill them. In many cases, this would not be the case and the posts would remain vacant. This would have a negative effect on the UK GDP. Sadly many jobs done by migrants, such as collecting seasonal vegetables and working on low wages in hotels and cafes is not the sort of work that British workers will do. The changes to the law on Indian restaurants employing offshore staff has resulted in a spate of closures of Indian restaurants. This is bad for the economy. The third point about trading with the rest of the world is again a difficult one to ssubstanciate. Not least because the UK makes very few products for export these days that are sought after. The economy in 2016 is very different to the one which Ted Heath took into the EU in the early 1970's. When I asked for an example of a product which we were not exporting to the Commonwealth because of the EU, no one was able to give a single example. That is not to say that over time such trade won't develop, but in the short term no arrangements will be in place.

There is no detail in any of the Brexit camps proposals and there can't be, because nothing is on the table. Maybe Donald Trump will welcome us into the USA as the 51st state, but personally I'd see this as a far greater loss of sovereignty than the EU. Maybe Norway, Switzerland and North Korea are all waiting to see new markets open up when we quit, but I can't see it mself. All I can really see is a proposition to sign up for a proposition of which we have no understanding. It is generally based on a dislike and a distrust of the EU, which is not completely unreasonable. The sad thing is that this dislike has not been backed up with a hard and tested plan. Today there were pictures on the internet of Nigel Farage and George Galloway at an "Out" meeting. I am sure pleny of people in Barnet will find a campaign lead by Galloway and Farage interesting, but I wouldn't buy a tub of whelks off the pair of them.

The emphasis is on the Brexit campaign to prove that the UK will be better off Out of the the EU. To do this they should be able to refute all of the economic arguments that have emerged, some of which I've mentioned above. I don't really think that a campaign that has George Galloway as one of its poster boys will ever demonstrate the economic competence to do this. 

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