Is It Time to Jump off the European Express?

By Hogg, Sarah | The Independent (London, England), February 28, 2000 | Go to article overview
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Is It Time to Jump off the European Express?

Hogg, Sarah, The Independent (London, England)

BRITAIN IN Europe's embarrassment from the over-spinning of research was bad enough. Then came the Prime Minister's speech in Ghent, an attempt to reinvent Thatcherism as a kind of muscular Europhilia, and some misguided interventions by big business beasts. This surge of activity has missed its mark. By raising the spectre of exit from the EU, it has actually left more people in an increasingly sceptical country wondering whether this is not the only real alternative to EMU.

Time to go back to what the National Institute, and others', research actually says, for a reality check on arguments for three states of economic life: in the EU, in Euroland, and outside both altogether. The integrationists' argument is stiff with train metaphors. We are on a journey. The longer we are in the European Union, the more integrated we become. Disembarking becomes more unthinkable, while the EMU express becomes more attractive. It's always the same, they say, at each station on our Euroroute. Disdain, obstruction, then grudging application too late to have a say on the ticket price.

Well, the National Institute makes clear that we have indeed been travelling. Over 40 years, our export focus has shifted steadily towards Europe. Other recent work, by Michael Artis, (see table), shows we are still less EU-centric than some countries, but not off the map. Intra-EU trade today makes up a higher proportion of Britain's national income than of Germany's, for example.

Some 2.7 million British people, according to the National Institute, are producing goods and services sold in the rest of the European Union, with perhaps another half-million working for firms which might not exist if European markets were closed. But - and this is where the row began - it is of course nonsense to suppose those jobs would simply be lost if we left the EU.

Put crudely, either we would continue to sell the same goods and services into the rest of the EU for less money, absorbing the cost of trade barriers. Or we would divert these resources to other production, from which - assuming we currently deploy these efficiently - we would also earn less. So the main effect is on income, not employment, which explains the National Institute's extreme irritation with the spin-doctors. After building in the impact of reclaiming our budget contribution, detaching from the CAP, and adjusting monetary policy to smooth the transition, the National Institute's conclusion is that employment would recover - but the value of UK output would be about two percentage points lower (nearly pounds 20bn, in today's money) if we left the EU.

Such analysis cannot tell us what our economic growth would be, since this depends on all sorts of other factors. What it can do, however, is to highlight the sensitivity of these estimates to two variables: the height of EU trade barriers, and the pull of membership on direct investment.

Even as we have been becoming more integrated, the walls of fortress Europe have been coming down. In that sense, membership has become less valuable. But not much less, because these barriers are still relatively high compared with other trading blocks: an average tariff of 7.7 per cent, weighted by production, in the late 1990s, compared with 5.2 per cent in the United States and 3.4 per cent in Japan. Allowing for our mix of exports, and for non-tariff barriers, the National Institute reckons Britain's exit would add 8.7 per cent to the cost of exporting to the EU. (And that assumes we were not subjected to extra obstruction on departure, pour encourager les autres.)

Painful - although, to put it in context, less than the cost pressure British exporters have felt from the past year's sterling appreciation against the euro.

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