Brexit: A Bad Idea Hard to Defeat

Well beyond many of the challenges being debated currently on both sides of the English Channel, such as how to deal with the refugee issue as well as intra-EU immigration, there are indeed some fundamental causes for division which fuel the movement for separation.

The crux of the matter is that many in Britain never fully signed up to the continental concept of the social market economy, which is also enshrined in EU treaties.

And rather than moving away from that idea, there actually are quite a few people on the continent who believe that, owing to the vagaries and spillover effects of globalization, there is too much “market” in the European economy.

As a consequence, the political impetus in many countries certainly is not to lessen the “social” dimension of Europe’s market economy.

The problem of different visions across the Channel is not new. It goes back to the time when Margaret Thatcher restructured the British economy and the welfare system.

While Jacques Delors, the EU Commission president at the time, strived to strengthen the social dimension of the single market, Thatcher was keen to weaken trade union power as well as income redistribution. With his stance, Delors won over the British left, but the EU definitely lost support among the British conservatives.

Euroskepticism

British Euro-scepticism has been reinvigorated in recent times by the fallout from the creation of the single currency. Even if the UK has an opt-out in this regard, and no one would want to force the UK to give up sterling, the gulf between Britain and the continent has been widened by the launch of the monetary union.

Today, it is not so much the existence of the euro, which fuels euroskepticism in the UK, but its actual functioning and performance. The fact that Europe, as opposed to the United States, was unable to avoid a second recession in 2011-13, definitely contributed to the popularity of UKIP.

That has made the case of those, including in the British business community, who argue for the UK to remain in the EU correspondingly harder. To some degree, the recent EU recovery, however weak and uneven, may not be sufficient to diminish anti-EU feelings in England, but at least it will no longer be a factor in strengthening them further.

The way in which eurozone finance ministers treated Greece in recent months also provided water on the mills of those in Britain who have doubts about the EU enterprise.

At the core, people now wonder whether, with all the stresses the EU now faces for its internal coherence, this really is the community Britain should belong to.

It has also become that much harder to argue against the notion that floating exchange rates are more compatible with democracy than fixed exchange rate systems (or monetary unions among countries that are de iure sovereign). But the doubters of the European cause are by no means restricted to the UK.

Since the UK’s economic performance in recent years (both with regard to the growth of GDP and the fall in unemployment) has been better than in the eurozone, some draw the conclusion that economic regulation in the EU should actually converge further on the UK. For Downing Street, this is also among the negotiating chips.

Despite all this, it would be a mistake to believe in the superiority of the British business model.

Misconceptions about Britain’s success

Anybody in the eurozone who does believe that should urgently realize that Britain’s success is not a product of microeconomic structures, but rather a function of greater macroeconomic independence and elbow-room.

It is these factors – and nothing about the UK’s internal regulatory mix – that allowed the UK to grow faster. Comparing the UK trade deficit to the German surplus gives everyone a better idea about relative competitiveness.

It is therefore not only for southern European countries, but also for the UK to take inspiration from the core pillars of German competitiveness: the so-called Mittelstand, dual vocational training and the ongoing social dialogue.

The idea to “cut red tape” in order to enhance economic performance, while tempting to some, is certainly too broad a tool and often a misleading one.

At the level of the EU, the effort to keep legislation within reasonable limits and up to date already serves the purpose of “smart regulation.”

The UK can, and indeed should, make the point about transparency and accountability of EU institutions. And it could certainly spread its influence easily by boosting its representation among EU staff.

In contrast, by continuing to marginalize itself, or even exiting the EU, the UK would lose much of these channels to influence the management and decision making in Brussels and Strasbourg.

Worst idea of the century?

Some actors, like major hedge funds, may appear in favor of Brexit in order to take advantage of instability, while those in favor of continued membership, like universities, appreciate the EU’s capacity to promote research and human capital investment.

Therefore, those in the EU institutions working for a constructive negotiation and a positive outcome, act right, if they look beyond tactical considerations, and avoid offering measures that would risk losing some in the pro-EU camp but turn out to be insufficient to win over the skeptics.

At the end of the day, if Brexit is not just an instrument to influence EU reform, but an actual policy plank in itself, it can be counted as among the worst ideas of the century. But beyond arguments, experience is also needed to defeat it.

It is for British politicians to explain what is the actual balance of costs and benefits of the EU for the UK, and it is for the EU as a whole to ensure that the British, together with all other member states, continue to see it as a win-win game.

In the meantime, one cannot escape the feeling that the anti-EU spirit that has seeped into many corners of the UK serves various interests more as a tool to deflect from homespun problems than anything else.

It is always much more painful and politically troublesome to reconsider one’s domestic formula, not least because that would require tackling improperly vested interests at home.

The danger for the UK thus is to focus too much on the EU as a (presumed) source of its problems, rather than to check the home front first and foremost.