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Tuesday, 8 July 2014

Will the possible (voluntary) dissociation from the European Union of ‘bad boy’ United Kingdom make team ‘EU’ stronger or weaker?! About a Europe with or without the handbrake on…

"Fog in Channel; Continent Cut Off"

A few months ago, the Mrs and I made a weekend trip to the London city, which we enjoyed to the fullest. Our respective acquaintance (she) and reunion with London reminded us that - until today - we neglected the United Kingdom as a beautiful and inspiring place to spend our summer holidays.

We really couldn’t think of a good reason – except for the climate, the landscape, the sea and the delicious food and drinks – why we always visited the Southern European countries and not our western neighbour, with its many monuments, its traditions and its rugged and beautiful landscape.

Nevertheless, I couldn’t help but rediscover that time seemed to have stood still since 1992 – the year of the deployment of the Schengen agreement – when we stood in line for the British customs service in Calais, France.

Where the 340 km drive from Utrecht (The Netherlands) to Calais happened without any interference from governmental bodies, in spite of passing two borders, we discovered that things went a little different, while we entered England.

Of course, one can argue that a country must always have an undisputed choice of its own,  between keeping its customs and its own currency or abolishing it. Nevertheless, it is hard to overlook that the rest of continental Europe has moved far beyond this choice, since 1992 and especially 2002, when the beloved / hated euro was introduced.

These and many other small, but unmistakable differences between the United Kingdom and the large majority of continental Europe, Ireland and Malta, emphasize this: the (tiny amount of) enthusiasm in the United Kingdom for the European project, is merely based on a corporate-driven ‘marriage of convencience’, instead of a passionate ‘love at first sight’.

The British people generally think:
  • Yes, the UK profits from the EU’s open markets and open borders, for its imports and exports and for its employment – from Brittons in continental Europe, as well as from continental workers in the UK itself; 
  • Yes, the EU offers access to over 500 million potential customers for British goods and especially (commercial / financial ) services;
  • But no, please don’t ask us to love Europe and the European project, because we – the common Britton in the street – simply don’t do that.

And the continental Europeans? They usually respect the British ‘desire-to-be-different’ and even envy the British for their style, humour and creativity.

Still, they cannot help to laugh or curse sometimes at those stubborn Brittons with their radical different world views and (occasionally) their bloated self-confidence, emerging from times when ‘Brittania ruled the waves’. Jeremy Clarkson, the utterly British presenter of Top Gear, must be the epitomy of everything that we adore AND hate about the British.

It is an understatement, when I state that PM David Cameron – although personally a moderate endorser of the institute EU – did not do much to rejuvenate the love and understanding between the United Kingdom and the rest of the EU during the past years – at least from a continental European point-of-view.

First, he started in 2011 – apparently on behalf of the London City – with his alleviation (you could also call it obstruction) of the process to rescue the Eurozone from falling apart and in 2013, Cameron hit the spotlights with his doomed plan for a referendum on the future of (the British participation in) the European Union.

The latest source for mounting animosity, between the United Kingdom and the other members of the European Union, has been the election of Jean Claude Juncker as Chairman of the European Commission.

The vast majority of the EU member states wanted to honour the selection of the European Parliament’s leading candidate Jean Claude Juncker, in spite of the fact that he was perhaps not the most charismatic candidate and (worse for some parties) an avid sponsor of further European integration. However, this was clearly one bridge too far for David Cameron, who went to great lenghts to avoid Juncker from being chosen as the successor of José Manual Barroso.

Where in earlier years such an outright ‘veto’ of Juncker would have made his candidacy impossible, this time the European Council stood tall for their main candidate and pushed it through anyway; undoubtedly under pressure from the European Parliament, which would not like to see its main candidate being shipwrecked by ‘them from the European Council’.

The reactions in the Dutch media – after this event - ranged from ‘my God, what have we done’ to ‘That will teach the UK, with their past blockades of necessary legislation and rescue arrangements on behalf of the Euro and their general anti-European stance’.

There is perhaps a good reason for these mixed feelings in The Netherlands and – without a doubt – in the other European countries.

The United Kingdom is definitely a European country with a centuries-long, shared European history AND a future that will be just as interconnected with the European continent, as it has always been.

The whole problem is, however, that the country feels itself more connected with especially the United States and the countries of its commonwealth, than with its direct neighbours France, The Netherlands, Germany and the Scandinavian countries; except for Ireland, of course.

Even more than for instance The Netherlands, the United Kingdom cherishes its special relation and close friendship with the White House and the United States as a whole and their cooperation – in war and peacetime – is much more intense than with any other country in Europe.

The European Union, however, is more or less seen as a mother-in-law; an annoying ‘busybody’, with too much ‘hustle-and-bustle’, that constantly interferes with the British economic, political and legislative processes itself. In the eyes of the British, the EU should accomodate the laws and political/economic ambitions and desires of the United Kingdom, instead of confining those. A European Union, which cannot achieve these desires and ambitions, is worse than useless for the British.

On top of that, the country is so dependent on the London City for its national prosperity, that every new European financial ruling poses a direct threat to the financial wellbeing of the United Kingdom as a whole.

In other words: the European Union has an enormous image-problem in the eyes of the British, as ‘London’ only wants the free trade zone, the whole free trade zone and nothing but the free trade zone.

British expatriate knowledge workers – of which there are thousands and thousands – should be welcomed with open arms all over the European Union, for their knowledge and skills.  Foreign knowledge workers, however, and especially suppliers of cheap, hands-on labour must be allowed to the United Kingdom at the government’s discretion alone.

For the United Kingdom, the EU is seemingly only functional at British terms and conditions.  Consequently, as the EU more and more refuses to listen to these very conditions, it is becoming increasingly useless. This is perhaps a quite hyperbolical statement from me, but it undoubtedly contains some truth.

Still, the million dollar question remains: ‘Would it be a big loss for the European Union, when the United Kingdom would indeed do its Brexit?’ I am almost ashamed to admit that I  really don’t think so!

Also the savvy journalist and macro-economist from Dutch newspaper Het Financieele Dagblad, Marcel de Boer, was not too worried that the events concerning Jean-Claude Juncker could lead to the UK leaving the European Union:

The question is of course, whether a Brexit from the European Union means, that the UK would also leave the European Economic Zone. Probably not. The country would get a similar status as Norway or Switzerland. However? The country will not have any influence anymore on the common regulation of the internal market, and it is not too obvious that the country would play such a marginal role.

Holger Schmieding of Bergenberg Bank thinks this about it: ‘Nobody knows the extent to which the common market would unravel for the UK. But the mere risk that the UK would no longer be a base for free access to more than 500 million European consumers could divert investment and trade away from the UK. History does hold lessons worth heeding.’

In order to answer the question about the economic importance of the United Kingdom for the European Union, I took the statistical data regarding imports and exports of goods and services from the British statistical bureau ONS. The following charts contain the summarized data for 2013:

British exports and imports of goods and services
Chart created by: Ernst's Economy for You
Data courtesy of: British statistical bureau ONS
Click to enlarge
What immediately struck me is the considerable imbalance between imports and exports of goods and services. The United Kingdom is a massive net importer of goods, with a negative balance of almost £65 billion pounds.

At the other hand, Britain is a enormous net exporter of (financial and commercial) services with a staggering positive balance of £81 billion pounds.

This emphasizes not only the enormous importance of the financial and commercial services industry for the UK, but also the importance of especially the London City for the whole country: when London sneezes, the UK has definitely caught a fever.

The fact that the UK can almost be considered as a ‘post-industrial’ country, becomes even more clear when the imports and exports of goods are revealed in relation with the other EU countries:

British exports and imports of goods per EU country
Chart created by: Ernst's Economy for You
Data courtesy of: British statistical bureau ONS
Click to enlarge
From the 26 mentioned countries of the EU (Belgium and Luxembourg are treated as one country in in the ONS stat, which they obviously aren’t), 20 countries export more goods to the United Kingdom, than they import from the UK.

Bluntly speaking, the UK is the country where many other European countries can send their ‘excess’ goods and produce. Especially for Germany, France, Italy, Spain, The Netherlands and Belgium/Luxembourg, the United Kingdom is one of their most important trading partners, to which they all export goods well in excess of £10 billion pounds. Germany is (of course) the European champion of the exporters, with The Netherlands as an honourable second.

For Ireland – on the other hand – the UK is a very important partner for the import of goods; probably because Ireland lacks an automobile industry of its own and the UK builds cars with steering wheels at the right side, which the Irish need.

Do these data identify the United Kingdom as an indispensable EU partner for the other European countries? Hard to say, but I guess not.

In its current form as ‘post-industrial’ country, the UK would still need the imports from the other EU countries, even after it would leave the EU. The country itself cannot become self-supporting overnight and – in my humble opinion - neither the US nor the Far Eastern countries could fill in the void that abolished imports from the other EU countries would leave; especially when it comes to agricultural produce.

Except for Ireland, the role of the UK as a net exporting country of goods seems almost irrelevant in Europe. Although the country itself still exports a substantial amount of goods to the aforementioned seven countries (Germany, France etc.), this amount pales in comparison with the amount of imports from these same countries. I wonder whether these imports from the UK are really indispensable, or being done out of courtesy and import balancing?!

It is a whole different story when it comes to the export of (financial and commercial) services. London is one of the two most important financial centres in the world and plays a pivotal role in the European financial industry. However, it is my guess that leaving the European Union could strike an enormous blow to London’s ambitions as financial centre, as Frankfurt, Paris and even Amsterdam are ready and willing to replace their part.

In my humble opinion, there is no other conclusion possible: leaving the EU would hurt the United Kingdom much more, than it would hurt the countries of the EU itself. Without the UK, the political processes within the EU would be settled easier and with less delay, caused by the hampering influence of PM David Cameron. In other words: the handbrake would be turned off!

The UK, however, would feel itself being even more ‘on an island’ than it already is, as it would lose an underestimated, yet very important ally in the EU. Besides that, I would not be surprised when a Brexit would leave the UK begging for the same favorable conditions for imports and exports, that it now takes for granted. 

These are things that David Cameron, Nigel Farage and the whole British population should consider very well, before they stride on their path to a Brexit.

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