Slouching Toward Brexit

Arguments for Britain to leave the EU don’t make much sense, but that doesn’t mean the Euroskeptics won’t win.

A bag decorated with the British flag is seen as people prepare to board a bus to London via Germany and France on January 2, 2014 at the central bus station in Sofia. Romanians and Bulgarians have the right to work in any of the European Union's 28 countries starting January 1, 2014 but "no major increase" in emigration is expected, the European Commission said on the same day. AFP PHOTO / NIKOLAY DOYCHINOV        (Photo credit should read NIKOLAY DOYCHINOV/AFP/Getty Images)
A bag decorated with the British flag is seen as people prepare to board a bus to London via Germany and France on January 2, 2014 at the central bus station in Sofia. Romanians and Bulgarians have the right to work in any of the European Union's 28 countries starting January 1, 2014 but "no major increase" in emigration is expected, the European Commission said on the same day. AFP PHOTO / NIKOLAY DOYCHINOV (Photo credit should read NIKOLAY DOYCHINOV/AFP/Getty Images)

Pro-Brexit campaigners could scarcely have chosen a more auspicious backdrop for the referendum on whether Britain should remain a member of the European Union, which is due by the end of 2017 and perhaps as early as next year. The eurozone remains an economic disaster and has become an anti-democratic monstrosity. EU leaders are at each other’s throats over the fate of Greece, unwanted refugees, and much else. Many Britons feel overrun by EU migrants, besieged by asylum-seekers from Calais, and threatened by the refugee chaos across the continent. And with capital controls imposed in Greece and Cyprus, a razor-wire fence erected between Hungary and Croatia, border controls re-imposed by Germany and its neighbors, and trade and people flows disrupted, the EU is fast unravelling. Leaving has seldom seemed more seductive.

Many people think Brexit remains unlikely; Open Europe, a free-market and EU-skeptical think-tank, put the chances at less than one in five in its last update this summer. But I reckon the risk is much higher than that. Not because the case for leaving is convincing; it isn’t. But because political leaders, starting with Prime Minister David Cameron, are failing to make the case for EU membership, creating a political vacuum that fired-up anti-EU campaigners are filling. And because referendums tend to be decided by emotion, not reason. The Out campaign’s pitch is beguiling — freedom from Brussels, regaining control over Britain’s destiny — whereas the In camp is tarred by the reality of the EU, warts and all. Of course, most voters are risk-averse, but it is being complacent to assume that the status-quo option of remaining in the EU will inevitably triumph. Brexit risk is very real.

The embattled EU has many longstanding flaws, notably grotesque subsidies for farmers and rural landowners, a bureaucratic tendency to meddle too much, and not enough democracy. Sound priorities — such as helping poorer regions catch up, boosting innovation, and tackling climate change — are often poorly executed. Laudable aims, notably a single market in energy and all services, remain incomplete. So the EU urgently needs reform. On top of that, Britain’s net contribution to the EU budget costs £8.4 billion ($12.9 billion) a year. But that still works out to only 36 pence ($0.55) per person per day – less than the price of a pint of milk. And for all its costs, even an unreformed, crisis-ridden EU provides benefits to Britain — economic gains, political influence, and greater individual freedom — that outweigh them.

The UK enjoys the best of both worlds: a permanent opt-out from the economic and democratic strictures of the mismanaged eurozone, together with access to a £10.6 trillion ($16.3 trillion) EU single market of 508 million consumers. That boosts trade and lures foreign investment to Britain, raising productivity and pay. Britain’s foreign-owned car industry, for instance, exports most of its output, largely to the EU.

Membership also gives Britain a say in setting the rules that govern its economic relationship with the EU, the destination for nearly half of UK exports, along with greater influence globally. Whereas the EU negotiates as an equal with the United States in the Transatlantic Trade and Investment Partnership (TTIP) talks, Britain would have much less leverage on its own.

Britons also enjoy the freedom to study in France, work in Germany, and retire in Spain with free healthcare, while also benefiting from EU citizens coming to work hard and pay taxes in Britain. (And while it would be morally right and economically beneficial for Britain to admit more refugees, the UK has an opt-out from EU asylum policy, so Germany cannot force it to do so.)

None of the feasible alternatives to the EU can offer all that. Outside the EU, Britain would have no say in setting its rules. Yet it would still need to comply with most of them in order to access the single market, while also paying into the EU budget, as Norway does. Switzerland has negotiated a panoply of bilateral trade deals with the EU, but these take time, require continual updating, involve a contribution to the EU budget, and don’t cover financial services, in which Britain specializes. While Brexit would enable Britain to limit EU migration, this would be economically harmful and the EU would scarcely agree to trade freely with the UK if it erected labor-market barriers to EU citizens.

Anti-EU campaigners claim that Britain could negotiate a better deal than Norway, Switzerland, the United States, or indeed any other non-EU country. In their view, Britain’s trump card is that the EU exports more to the UK than vice-versa, so the EU needs the UK more. But the United States also has a trade deficit with the EU and that hardly gives it carte blanche in the TTIP negotiations. And since exports to the EU account for 14 percent of the UK economy, but exports to the UK account for only 2.3 percent of the EU’s, the UK actually needs the EU more. Above all, EU leaders would likely be tough with a country that had plunged the EU into even greater turmoil through an acrimonious divorce, not least to discourage others.

Nor do the purported benefits of Brexit stack up. Contrary to what anti-EU campaigners claim, EU membership is not an obstacle to trading globally. Witness Germany’s success in exporting to China, or the investment deals signed during the recent visit of China’s president, Xi Jinping, to Britain. On the contrary, EU membership can be a platform for global engagement. Brexit would require the UK to renegotiate 52 bilateral trade deals that the EU has agreed on, most likely on worse terms. Indeed, U.S. Trade Representative Michael Froman even says the United States is “not particularly in the market” to negotiate a bilateral trade deal with Britain, were it to leave the EU. The UK’s close partners outside the EU — the United States, Canada, Australia, New Zealand, and now China — would all prefer Britain to remain in the EU.

Undeniably, some EU regulation is excessive. In a post-EU future, Britain might improve or scrap some of it. But pernicious EU regulation is often the result of lobbies that are powerful domestically too. The thicket of protectionist rules and lavish subsidies that cosset farmers might be replicated in a post-EU Britain, given the political sway of rural landowners, farming lobbies, and localist eco-romantics. In general, EU regulation is not a huge burden: the OECD, an international research institute, finds that UK labor markets are the least regulated in the EU and its product markets the second-least, and Britain fares well in global comparisons too. Its most costly regulations, notably unduly restrictive planning laws, are domestic.

Since the benefits of EU membership outweigh the costs, the rational case for remaining in is clear. But the argument is being lost by default. Prime Minister Cameron has pledged to secure better membership terms for Britain before the referendum. While he will doubtless ultimately campaign for Britain to stay in, maintaining the pretense that he might back Brexit if the renegotiation fails to achieve enough prevents him from making the case for EU membership now. The opposition Labour Party is officially in favor of EU membership, but its new hard-left leader, Jeremy Corbyn, is a longstanding opponent, so Labour is largely quiet too. The most pro-EU party, the Liberal Democrats, are still licking their wounds after their disastrous showing in May’s general election.

For now, then, anti-EU campaigners, for whom the referendum is a once-in-a-generation opportunity to leave the hated union, are dominating the debate. By the time the renegotiation is complete and the official campaign begins, the well-funded Out camp, which enjoys powerful media backing, may have the advantage. Cameron’s full-throated support may come too late to swing the vote.

Last year’s referendum on Scottish independence is a warning. Scotland is hardly an oppressed colony, yet the Scottish National Party managed to convince angry Scots that all their problems were due to remote Westminster politicians, for which the solution was a blank slate called independence. Scaremongering by the Unionist camp about the potential consequences of independence failed to prove decisive. When a poll suggested the pro-independence camp would win, UK politicians scrambled at the last minute to bribe Scots to remain in Britain with promises of extra devolved powers.

The In camp starts with a much narrower poll lead than Unionists did in the Scottish referendum. And at a time of anti-establishment rage and EU crisis, the Out camp’s strategy of blaming everything that people dislike about their life and modern Britain on Brussels bureaucrats and EU migration has obvious appeal. Out voters can then project their personal ideal country on to a post-EU future. Free-marketeers fantasize about a global, liberal Britain stripped free of regulation. Leftists dream of building socialism in one country. Xenophobes and reactionaries have visions of pulling up the drawbridge, turning the clock back to the 1950s, and stamping on difference.

Since few Brits have a heartfelt connection to the EU, the In camp’s main emotional card is fear of what an uncertain future outside the EU may bring and of the economic cost and political isolation this may entail. But scaremongering about the potential loss of the 3 million jobs linked to trade with the EU is scarcely credible. Nor do fears of a loss of influence for British officials necessarily resonate with voters. Wheeling out business leaders, financiers, and party grandees to make the case for EU membership may repel as many voters as it convinces. And the EU is too unwieldy for it to make last-minute concessions to win over skeptics.

The Brexit battle between perceived freedom and exaggerated fear looks likely to be a close-run thing.

Photo credit: NIKOLAY DOYCHINOV/AFP/Getty Images

Philippe Legrain is the founder of OPEN, an international think tank on openness issues, and a senior visiting fellow at the London School of Economics' European Institute. Previously economic advisor to the president of the European Commission from 2011 to 2014, he is the author of four critically acclaimed books, including Immigrants: Your Country Needs Them and European Spring: Why Our Economies and Politics Are in a Mess—and How to Put Them Right. Twitter: @plegrain

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