Britain's political relationship with Europe may have taken a lurch downwards – or at best sideways – over the weekend, but from an economic viewpoint the outcome looks like being marginally positive. This is no thanks to British diplomacy. Rather it is thanks to the way in which the different parts of the eurozone have responded to the reform agenda that Britain, along with Germany and Scandinavia, has been advocating for some time. The reformers are at last seen to be winning.
This is clear from the latest data. In a nutshell, the fringe countries that were forced to adopt fierce austerity have more or less completed their course of treatment. The screw does not have to be tightened further. Recovery, albeit scruffy and uneven, can begin. Italy remains a problem but Spain, not formally needing to be rescued but facing severe austerity nonetheless, is starting to recover too, thanks in part to substantial reforms to its labour market. By contrast France, the country most resistant to market reforms, seems to have stopped growing and may even be heading back to recession. Unemployment is rising and more companies expect contraction than growth. Not good.
Given the drag of France and Italy, plus somewhat cautious signals from German business in the latest survey by think tank Ifo, it looks as though the eurozone will have a disappointing year, more disappointing than seemed likely even a month ago. By contrast, the UK economy is bounding along at around 3 per cent a year, and the new revisions to our GDP figures confirm that the expansion may be better balanced than the "wrong sort of growth" lobby feared.
So, for the next year at least, the UK will appear a clear success story, while the eurozone will remain a mixed one. The Government, however, should refrain from swaggering. Whatever happens we are likely to grow more swiftly than the eurozone. But what matters for Europe is whether the present reform agenda is sustained. What matters for the UK is whether our present outpacing of Europe is sustainable. We still have a lot of problems (including a larger fiscal deficit than any core European country) and we need several years of solid growth to fix them.
That leads into the great medium-term debate about EU membership, that awkward word "Brexit". If there is a wide spectrum of views about David Cameron's tactics, there is an even wider one about the economic consequences for the UK of leaving the EU. For example, the new Finnish Prime Minister, Alexander Stubb, said: "It's very important that the program that [Jean-Claude] Juncker puts forward is very market-oriented …. In the UK, some people need to very seriously wake up and smell the coffee; the European Union is a very good thing for the United Kingdom."
On the other hand, the think tank Civitas has just produced a report arguing that the EU single market has brought no lasting benefit to foreign investment in Britain. Non-EU European countries, notably Norway and Switzerland, have done better.
This debate will go on and on. So what should we think? Here is a suggestion. It is quite clear that the UK will have a semi-detached relationship with the EU. We are not going to join the euro and we will continue to try to negotiate various opt-outs of EU policy. It is also clear that the UK and European economies will remain closely integrated for the foreseeable future. So the question is: would it be better to be just in, or just out?
The just-in argument is that this would be administratively much easier. There will be continuing tussles, as we are seeing now, but we have strong allies within Europe and having a dissenting voice will not be unwelcome. Our bargaining position is very strong as we are still, just, the eurozone's largest export market. But if we remain in we have to accept that there will be continuing arguments, some of which will be rancorous, and the calls for Brexit would continue.
The just-out argument is that this would end what is and will continue to be a running sore. The exit negotiation would be difficult and there would be some resentment. But the export market card noted above would be our ace of trumps. Once the exit negotiation was over, and we rejoined an enlarged European Free Trade Association, along with Norway and Switzerland (and Iceland and Liechtenstein), relations with the EU would be calmer and cleaner.
This surely is the sensible debate to have and you can make a decent argument either way. My instinct is that the longer we delay making a decision the better, as much will depend on how the EU evolves and our own economy develops. But "events, my dear boy, events" as Harold Macmillan is supposed to have said, may take over.