Outside the EU, await Nike swoosh
Brexit makes economic as well as political sense
by Gerard Lyons in London
Wed 1 Jun 2016
There is a strong, positive economic case for Britain leaving the European Union. Two years ago, as economic adviser to the Mayor of London, I carried out a detailed report, ‘The Europe Report: A Win-Win Situation’, looking at the relationship between the UK and the EU. Although the focus was on London, its results could apply to the whole of the UK. It found that business attitudes towards the EU varied considerably, by size of firm, sector and according to their business model.
Many firms were unhappy with EU trade deals. These were too few and too slow to be implemented; UK demands were made as only one of 28 countries; services rarely featured.
The report analysed the economic outlook, based on four scenarios, over two business cycles. The best two scenarios, by some margin, were to be a member of a truly reformed EU, or to embrace a global trade outlook under ‘Brexit’. A distant third was remaining, as now, in an unreformed EU. The fourth, by some way, was to depart, but in an insular fashion, retaining tariffs and regulations.
In economic terms, what matters for Britain it is not just whether we are in or out, but the type of policies we adopt.
In the campaign ahead of the 23 June vote, something odd is happening. Every economic debate always has two sides to it. Yet this time the misleading impression has arisen that this issue only has one side to it: to remain in an unreformed EU. This is clearly wrong.
Three issues stand out. First, staying in brings considerable uncertainty. The UK would be tied to the slowest-growth region of the world economy. Moreover, the euro is as unstable now as it was at the time the UK decided not to join. It feeds a deflationary mentality within the EU, contributing to weak demand and high unemployment. Unfortunately, the EU seems unlikely to reform and instead appears focused on the aim of ever closer political union.
Second, leaving the EU generates great economic benefits. It will allow the UK to restore democratic accountability, trade freely, position itself globally, raise living standards, adopt a non-discriminatory migration policy, better spend the money now absorbed by its EU contribution, safeguard the City of London, and become more innovative and attractive for future investment and jobs.
Third, the ‘groupthink’ that has gripped the economics profession on this topic doesn’t mean the consensus is right. The consensus was wrong over the financial crisis, the euro, and sterling's exit from the European Exchange Rate Mechanism. Moreover, most of the major forecasting groups appear to use the same trade model and make the same misplaced assumptions about policy after Brexit.
The EU is a customs union. It is anti-consumer and protects certain industries, favouring big business. This results in higher prices within the EU in the protected areas, the clearest example of which is agriculture, leading to high food prices.
After Brexit, nothing immediately changes with trade for the first two years. But then there are many options. These include trading without tariffs under World Trade Organisation rules, being part of the free trade area that stretches across the whole of western Europe, or following in the footsteps of others and creating the UK’s own trade deals.
The reality is that a country doesn’t need a trade deal to trade. Britain doesn’t need to be in the EU and its single market to sell into it.
In economic terms there could be some sort of temporary shock from leaving. I have described this as a ‘tick’ or ‘Nike swoosh’; after some initial setback, the economy recovers well. So economics is on the side of Brexit. And this backs up the main argument for leaving, which is political: to restore democracy and complete accountability to Westminster and power to UK voters.
Gerard Lyons is a Member of OMFIF's Advisory Board and former Economic Adviser to Boris Johnson, the Mayor of London. He is the author of the ebook The UK Referendum: An Easy Guide to Leaving the EU, available for download from Amazon as a Kindle Single. This is No.76 in the series – the 100th article will appear on 23 June.
OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.
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