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Outward-looking beyond Europe

Outward-looking beyond Europe

UK needs to think globally

by Gerard Lyons in London

Tue 21 Jun 2016

Just prior to the start of the referendum campaign, I decided to back British departure from the European Union. Like every economic debate, there are arguments on both sides. I think, unlike the consensus, there are some strong economic arguments for voting to leave. But this is primarily a political decision.

At its heart, the EU is a political project, aimed at much closer political union; it could become a United States of Europe. This is despite the EU having a democratic deficit. In contrast to the other 27 members, in the UK we see the issues largely through an economic and financial lens.

In 2014, I produced a detailed report for Boris Johnson, then mayor of London, looking at the economic and financial issues of our EU relationship – 'The Europe Report: A Win-Win Situation'. It set out different scenarios, depending on policies chosen. For the UK, by far the two best options were to be in a truly reformed EU, or to be global outside the EU following ‘Brexit’. Both were far better than staying in an unreformed EU.

The report looked 20 years ahead, over a couple of business cycles. If one looks a couple of years ahead only, as is often the temptation, forecasts may be heavily influenced by the economic and political disruption of leaving.

The report showed business opinion was divided, by size of firm, sector and business model.

At the start of researching the report, I believed that, because of its size, the EU would be good for trade – yet the business representatives I consulted demurred. The EU was seen as being slow at trade deals. The UK's demands were simply one of 28 countries. Services rarely figured.

The referendum campaign has focused my thoughts. To vote Remain is not to back the status quo. In political terms the EU will move towards ever closer union. I don't think the EU will reform in the way it needs to. At its core is the unstable euro. A deflationary mentality drives the EU's thinking, with high rates of youth unemployment and pockets of depression. This, in turn, has fed the rise of extremist parties.

All major forecasting groups expect the EU to be the world’s slow growth region in coming decades. Tying Britain to this system is a high-risk strategy. Instead the UK needs to embrace free trade outside the EU and think globally. After Brexit the UK can focus on pro-growth policies driven by increased investment, infrastructure and innovation. Services, the City and manufacturing can all play their part.

The referendum campaign has highlighted the need for a sensible migration policy. Migration is good for an economy, but the scale of current migration highlights the problems in the present approach. Two wrongs do not make a right. The first wrong is the inability to limit the numbers from the rest of the EU. The second wrong is that we then try to control this by discriminating against those from outside the EU.

The UK cannot blame all its economic problems on the EU. The UK has a large current deficit. We have not built enough houses for 40 years. We borrow too much and have not invested enough. These issues still need to be addressed.

In the modern era, talk of marriage and divorce is wide of the mark. It may not be a conscious uncoupling or an amicable split, but we would strive in our exit negotiations to have an open relationship with the EU, and a polyamorous one with other countries across the world.

Outside the EU the UK will be outward-looking. Through globalisation, technological change and urbanisation, economics knows ever fewer borders. Brexit can open the door for the UK to use its innate ability to adapt to new circumstances. By leaving the EU we can control and enhance our destiny in a world economy changing as never before.

Gerard Lyons is an international economist and a member of the OMFIF Advisory Board. His ebook can be downloaded from Amazon: The UK Referendum: An Easy Guide to Leaving the EU.

This is No.98a 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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