Does Britain deserve to be so arrogant?

Not only were they better educated than their British counterparts, but they were prepared to work for less money
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The Independent Online

Chris Patten does have a telling turn of phrase. On Monday he characterised Gordon Brown's attitude to continental Europeans as treating them as though they had "to depend on food parcels in comparison with the great economic miracle in the UK".

Chris Patten does have a telling turn of phrase. On Monday he characterised Gordon Brown's attitude to continental Europeans as treating them as though they had "to depend on food parcels in comparison with the great economic miracle in the UK". The phrase works not just because of the Treasury's evident hauteur towards the economic under-performance of the eurozone vis-à-vis the UK. It works because there is just enough evidence of young Europeans' eagerness to work in London or New York, rather than Paris, Frankfurt or Milan, to underpin the proposition that many young Europeans see their future outside the Continent.

To those hundreds of thousands of Britons who have homes in France or Spain, this will seem a bit odd. People seem to be doing pretty well. The streets are clean and the public transport seems to work. This, however, reflects the condition of the established middle class, not the new immigrants or the professional young. To generalise, we go to the Continent to spend money; young Europeans come here to earn it.

I had a worm's eye view of this phenomenon the other day from a conversation with managers at a European financial service company. It employed a lot of continentals in London. Not only were they frequently better educated than their British counterparts - particularly in maths - but they were prepared to work for less money. Why so? Because even if their salaries were lower than the Brits, it was still more than they would be paid in Paris or Amsterdam.

Now that, you could say, was a phenomenon of the financial service industry. London pays New York salaries, while continental cities pay on the European scale. Outside of finance the differentials are much narrower. We are, as an economy, very uneven. Overall living standards in the UK are only a little higher than France, Germany or Italy and, on paper at least, lower than much of Scandinavia.

Nevertheless, core Europe does have a problem retaining its most talented young. In the last few months I have had conversations with Italian academics who bemoaned the fact that their best students go to the US to do their post-graduate degrees, with French businesspeople fretting about the brain drain to the States, and with a Danish high-tech company concerned it could not attract non-Danish techies to work in Copenhagen.

These concerns do not justify British arrogance of course - nothing ever justifies that - but they give a veneer of justification to Gordon Brown's propensity to lecture them continentals on how to run an economy. But are we really doing so much better? True, we have grown faster and more consistently over the past five years, but has that been at the cost of building up unsustainable debts, not least among home-owners?

I think you have to distinguish between the cyclical and the structural. We have come through the cycle well, but so we should, given the huge boost to demand from additional public and private borrowing. By contrast the eurozone big three - Germany, France and Italy - have stagnated, although now of the three France is making the best recovery. If over the rest of the cycle, say the next three years, the UK continues to outperform, then our policy will have been shown to be right. But it really is too early to judge.

On the structural side, the case is clearer. Having roughly half the level of unemployment of the big three is a social as well as an economic good. Societies are not only richer but happier too when they have low unemployment. That alone would be a strong justification for UK structural policy. And you don't have to listen very hard to continental businesspeople to catch the sense of despair about the slow pace of economic reform in France, Germany and Italy - and a certain envy about UK achievements.

But you cannot go on from that and justify a lecture to continental Europe. The problem is not one of analysis; it is one of implementation. Everyone knows what needs to be done. Doing it is tougher.

Germany is a good example. Its Agenda 2010 comprises a series of reforms, including labour market changes, cuts in income tax, tougher pension provisions, higher charges for medical care and so on. Some pieces have already been put in place; others have been watered down or postponed. As a package it has been criticised as inadequate but it is at the limits of what Germany seems prepared to accept.

Chiding by our Chancellor seems pointless. German folk are not going to listen to a British politician any more than we listen to a German one, rather the reverse. I seem to recall than when Chancellor Gerhard Schröder called on Britain to join the euro, opposition shot up a few points in the opinion polls - or was it President Jacques Chirac?

We do have an interest in Europe making economic reforms, for it remains our largest export market - the US is larger as a single country but the eurozone as a whole is bigger. One of the reasons for growth of the present current account deficit is slow growth of the eurozone economies and hence our exports to them. But we cannot do anything about it and while in the short run this is a problem, it may be less damaging in the longer term.

I suspect that this is the real worry of the Chancellor: that the UK economy will be held back by the poor performance of its big three neighbours. That is why he goes into "food parcel" mode. There is, however, little real evidence of this so far, and while this may sound counter-intuitive, it may even be that slow growth on the Continent will work to our advantage.

The key driver of growth nowadays is access to talent: the ability to develop, attract and retain human capital. This goes for every developed economy. The only way we can hope to compete against people in China and India who are well educated but have far lower wages is to race further up the talent league. At the moment we are very lucky to have access to the EU talent pool; we are a huge net importer of young, energetic, clever people.

The more the US shuts itself off from the rest of the world, by for example making it more difficult for non-nationals to get visas, the greater the relative attraction of Britain. Foreign applications to US business schools are falling fast. If we play our hand cleverly we can pitch for those disappointed students. With luck, some may stay and start their businesses here instead of California.

Insofar as lack of reform in the eurozone forces the cleverest and most energetic EU citizens to make at least part of their careers in Britain rather than France, Germany, Italy or Spain that is surely to our advantage. If they are really better than our own young people, then so be it.

The plain fact is that even if the eurozone does lift its economic performance somewhat, as I expect it will, it will still be a relatively slow growth region. Demography will see to that. The big growth markets of the next half-century, aside from the US, will be China and India. The trick for the UK is to play from the strength of the huge (if slow-growing) "home" market of the EU, to garner a larger share of the currently smaller (but fast-growing) markets of Asia. The smart thing to do is to be pleasant to the other EU members, stop lecturing them, recognise and respect their political resistance to reform ... and try to grab their best people at every level. That includes helping us run a football team.