Brexit: a stand for sovereignty or an economic catastrophe?

Image source: telegraph.co.uk

On June 23rd the UK will hold a referendum deciding whether to leave or stay in the European Union. Over the last few years Brussels (the unofficial capital of the EU) has come under criticism in the UK for its democratic deficit, over-regulation and threat to British sovereignty. At the same time Europe is Britain’s largest trade partner and military ally. So is the UK gaining more than it is losing as a member of the EU? Should the UK vote to leave or stay?

Post WW2 there was a general consensus that a closely knit European community must be created in order to prevent the reemergence of ultra nationalist parties. As a result, economists and other theorists proposed that trade was the answer. They hoped trade would help improve Europe’s crumbling economy and create solidarity between European nations on the basis of common interest. The European Union, as we know it today, was the result of a series of treaties that were implemented in order to facilitate this trade.

Amongst the most significant of these treaties was the establishment of the European Coal and Steel Community that created a common market for coal and steel between the six member nations. As a result of the success of the ECSC, the six member nations decided to expand the treaty to form the European Economic Community. The EEC created a common market and a customs union between the six nations that allowed for free movement of goods, services and people. Over the next few decades more European countries joined the EEC, this led the EEC to expand into the European Community. In 1992, Members of the European Community signed the Maastricht Treaty to form the European Union. In 2002, 19 of the 28 members of the EU adopted the euro as their common currency. The UK chose not to adopt the euro after an investigative report found that the proposal to adopt the euro failed four of the five economic tests put forward by Prime Minister Tony Blair.

As of today, the EU accounts for 44.6% of the UK’s exports and 52.2% of the UK’s imports. Exports from the UK to the EU have been growing 3.6% annually as of 2014. 73% of the UK’s farming exports go to EU. Every day the UK receives 66 million pounds in investment from Europe and about three million jobs in the UK are dependent on trade with the EU. Currently the UK is more dependent on the EU for trade than the EU is on the UK. Most big businesses support staying in the EU as it makes it easier for them to move money, people and products. It is evident that trade with the EU is essential for the UK economy, thus, the stay campaign warns that a Brexit would cause an economic shock that would slow growth in Britain.

Every week the UK pays £350 million as membership fees to Brussels. The UK is one of the 10 member countries that pay more in to the EU than they receive. The leave campaign argues that the UK could spend this money on public services like the NHS. However, the stay campaign argues that the UK would still need to pay this membership fee to remain in the common market.

The UK receives about 300,000 immigrants a years, David Camron’s government promised to reduce the number of immigrants to 100,000 a year. About half the UK’s immigrants come from other EU countries. Due to the common market regulations the UK cannot limit the number of immigrants coming into the country from the EU. With five new countries joining the EU that have less favorable economic conditions than the UK, the number of immigrants coming into the UK from the EU is expected to rise. Anti-immigrant parties like UKIP claim that immigration puts a strain on public services and drives wages down. David Camron has negotiated a new deal that limits public service deals for immigrants in their first four years in the UK; however leave campaigners are adamant that more has to be done. The leave campaign claims that the UK must leave the EU so they can control their own immigration policy.

A 2010 House of Commons study estimates that 14% to 17% of UK law is derived from EU membership. Majority of these laws determine labor, environment and industry standards. Many small and medium size businesses believe that most of these laws are petty regulations that act as red tape. A recent row over a tampon tax imposed by Brussels has convinced many Brits that the UK should be able to set their own VAT.

In conclusion I would support the UK remaining in the EU. Trade with EU is vital for the UK economy; a Brexit would have an adverse impact on trade and would therefore slow economic growth in the UK. As for the argument for UK to leave the EU in order to control immigration; it is grounded more in xenophobia than in fact. Immigrants, especially those from the EU, pay more in taxes than they receive in public services. Immigration is good for the economy as it fuels aggregate demand and increases the size of the labor force. Finally, while the UK does lose some sovereignty as a member of the EU, I believe it is a worthwhile trade off.