Options for Britain in Europe

I’ve written a series of posts on the EU in recent weeks, where I’ve tried to show the confidence of the pro-Europe argument is not backed by good evidence. There are downsides to Britain’s membership of the EU, free movement of labour is not necessarily a good thing, and the EU is not very democratic. Many people struggle to see an alternative to EU membership, but there are actually a number of alternatives to the current status quo that Britain could adopt. In their book “Moored to the Continent“, Baimbridge et al, discuss some of the following options that could be considered:

1. Renegotiation of EU membership obligations. This is the Conservative Party’s stated position, although it is not currently known what they want to renegotiate. Baimbridge et al suggest possible areas could be the reconstitution of the Common Agricultural and Fisheries Policies, Britain’s contribution to the EU budget and it’s involvement in EU foreign and defence policy. There is some skepticism as to what could be achieved through renegotiation, as each nation would probably desire to change different aspects of the rules, but such is the importance of Britain’s market for EU exports, the could be some scope for renegotiation if the alternative was full withdrawal.

2. Creation of an Associated European Area (AEA). This arrangement would create a kind of two-tier Europe, with one group of countries continuing the path towards further integration, and a second group continuing to cooperate on areas like trade and the environment, while keeping control of other areas like economic policy, currency and social and labour market policies. This option could be facilitated by an amendment to the Amsterdam Treaty, and would allow those countries who wish to integrate further to do so, while  allowing others favourable terms while maintaining a looser association. Win win?

3. Membership of the single market through EFTA and the EEA. This option would mean the UK would formally leave the EU and rejoin the European Free Trade Association (EFTA), that it was a founding member of over 40 years ago. That would make the UK eligible to join the European Economic Area (EEA). This would give the UK some of the benefits of full EU membership (but also some of the downsides), while allowing it autonomy over areas like agriculture and fisheries, and allowing it to trade frrely with nations outside the EU. As an EEA member, they could also veto EU law if they think it goes against their national interest. This is a similar situation to that of Norway.

4. Bilateral free-trade agreement between the UK and EU. This one means full UK withdrawal followed by a negotiation of a bilateral trade deal. The UK would retain greater freedom than under option 3 and create a relationship similar to that between the EU and Switzerland. The UK is such an important market for other EU states, it is highly likely that such an agreement could be negotiated without the EU engaging in discriminatory practises – they would have more to lose.

There are advantages and disadvantages to all these options, but all involve the UK maintaining some kind of relationship with the EU, while regaining certain powers it has given away. I favour option 4, but can see some advantages of option 2. There is scope for cooperation on areas like environmental protection and scientific research that could cross national boundaries. Most people agree the EU will need to change, but while some feel this change should be closer integration, others are less enthused. We already have something of a two-tier Europe with those within the Eurozone and those without. Something more formal could be an option worthy of consideration.

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The consequences of EU membership

This is the second in a series of posts on Britain’s membership of the EU. The first is here. As a companion to these posts, I’ll be referencing the book “Moored to the Continent” (MTTC) by Baimbridge, Burkitt and Wyman. This post will draw on chapter 4 of that book entitled “Consequences of EU Membership”. The authors write that:

“Successive governments claimed that the benefits of EU membership are ‘self-evident’, so that the UK must remain at the heart of Europe; otherwise it would lose crucial political influence and millions of jobs… Furthermore, the claim is repeatedly made that even a slight weakening in the trend towards greater unification would cost the UK jobs and influence, never mind what would occur if the UK voted to withdraw from EU membership. Yet, governments of all colours have been remarkably reticent to undertake an independent cost-benefit analysis of EU membership.

The reason for this apparent conundrum is that at least in purely economic terms, it is doubtful that the UK has received a net benefit from EU membership.”

So what are the consequences of Britain’s EU membership? MTTC outlines a number of consequences including:

Trade with the EU – It’s often said that the UK benefits massively from free trade with the EU, which might be lost were we to leave, but it’s a two way relationship. The UK has rather a large trade deficit with the rest of the EU, so all those countries desiring to sell their wares to the UK would probably suffer a lot more should a British withdrawal result in new trade barriers being thrown up. So the consequence of EU membership that we all benefit massively from preferential trade is somewhat overblown.

The Common Agricultural Policy (CAP) – In protecting EU agriculture by imposing an external tariff on food imports from outside the EU, consumers within the EU pay higher prices for foodstuffs. This exacerbates the ‘cost of living crisis’, but also encourages an inefficient transfer of resources into agriculture and away from manufacturing and services.

Single Internal Market (SIM) – The single internal market within the EU removes all trade barriers and allow free movement of capital, people, goods and services between members. Before it’s introduction it was claimed it would allow consumers to buy cheaper goods due to increased competition and the existence of greater economies of scale, creating 5 million jobs across the EU. The authors of MTTC argue however that although the removal of trade barriers between member states would have been attractive in the more protectionist 60s and 70s, by today, successive rounds of global trade talks have already drastically cut tariffs, and so the benefits of the SIM are now less clear cut.

MTTC makes a number of other arguments on the consequences of EU membership regarding the common fisheries policy, the historical costs of our membership of the ERM, and the consequences of the EU budget. Some of their arguments I find less convincing, but overall, I think they make the case rather well that the economic case for staying in the EU is anything but ‘self-evident’. At best there may be a neutral economic impact from being in the EU. At worst, EU membership is probably weakly negative. In economic terms, we are alright in and we’d be alright out. In my next post on this subject, I’ll look at some microeconomic and non-economic consequences of EU membership.