Forget the politics of leaving Europe. What is the economic case?

The EU summit is said to have pushed Britain closer to the exit. It might be better to be just-in, or just-out

Share

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.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Geography Teacher

£85 - £120 per day: Randstad Education Cheshire: randstad education are curre...

Teaching Assistant

Negotiable: Randstad Education Group: You must:- Speak English as a first lang...

SEN Teaching Assistant

£17000 - £18000 per annum: Randstad Education Group: If you are a committed Te...

Day In a Page

Read Next
 

i Editor's Letter: There's a crackle in the Brum air

Oliver Duff Oliver Duff
Obama has admitted that his administration underestimated the threat posed by Isis  

Syrian air-strikes: Does the US have the foggiest idea who their enemy is?

Kim Sengupta
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
Witches: A history of misogyny

Witches: A history of misogyny

The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
Shona Rhimes interview: Meet the most powerful woman in US television

Meet the most powerful woman in US television

Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

Endangered communities photographed 'like Kate Moss'

Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style