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16 October 2015

Financial Times: Britain stumbles into long EU-referendum campaign

The Out campaign makes an impression but the 'In' side has the best economic arguments; being one of the strongest that quitting the EU would be a leap into the unknown, says Hugo Dixon.

Vote Leave Take Control, one of the main Out groups, enjoyed a stronger start. While it has been criticised for making unfounded allegations (including that its rivals are funded by the EU), it has campaigned with gusto.

Britain Stronger In Europe, the principal In group, had a lacklustre launch. Lord Rose, the former Marks and Spencer boss who is the campaign’s chairman, gave a speech in which he fumbled his lines. He then left without taking questions. Did his other engagements really take priority over keeping Britain in the EU? [...]

But one good week will not be enough for the Out campaign to win a battle that could last until 2017. The In side has the best economic arguments. One of the strongest is that quitting the EU would be a leap into the unknown.

Given that this will be a critical battleground, Vote Leave and its allies are trying to knock the idea that the In option is the safe status quo and argue instead that it commits Britain to membership of a project that will ultimately end in a United States of Europe. Lord Lawson, the former chancellor of the exchequer who is president of Conservatives for Britain, the Out campaign for Tories, recently made this point. “The truly risky option in this referendum will be to stay in an unreformed EU,” he wrote in The Times, “handing over ever more control of our economy and our borders to political bureaucrats.” In support of this contention, he argued that monetary union would have to be buttressed by fiscal and political union.


Part of the problem is that different governments have different visions for fiscal union. The French and many southern countries are keen on transfers from rich to poor. Some also want eurozone states to guarantee each others’ debt. But this is anathema to the Germans. Their dream of fiscal union is yet more budgetary discipline imposed on wayward states by Brussels — something that sounds to the southerners like a nightmare of perpetual austerity.

Even if the political leaders could thrash out a deal, it is hard to see how they could foist what would be a big transfer of sovereignty on to their increasingly eurosceptic publics.

But does monetary union not require fiscal union to survive? And, if so, is it not just a matter of time before the politicians and people come round to it?

Although this is conventional wisdom, it is not necessarily true. The euro crisis was caused by two problems — lack of competitiveness and a build-up of debt — that can be solved without creating a superstate. The best answer to poor productivity and high unemployment is to liberalise product and labour markets. Countries such as Spain, Italy, Portugal and even Greece have been doing precisely this out of necessity.

Completing the EU’s single market — which is patchy in the internet, services, energy and capital markets — is also part of the answer. [...]

The good news is that all these items are on the commission’s priority action list. They would not help only the eurozone. Since these are all areas in which the UK excels, they would boost the British economy, too — provided the country stayed in the EU. [...]

So Europe is not heading towards the creation of a superstate. But even if it did, what would emerge would be, at most, the United States of the Eurozone, not the United States of Europe. Nobody is calling for Britain to be roped into such political and fiscal union.

That said, the UK needs to be vigilant in case the 19 euro countries gang up against non-euro countries. It should, for example, insist on observer status at meetings of eurozone finance ministers and press for stronger measures to protect non-eurozone countries from discrimination. The latter is one of the reforms David Cameron, prime minister, rightly wants as part of his renegotiation of Britain’s relationship with the EU. It will be part of the wishlist he has just reluctantly announced that he will reveal next month.

In other words, while the aftershocks of the euro crisis may create challenges for Britain, they also present opportunities to obtain more out of the single market, which is hugely beneficial. They do not constitute a good reason to throw everything in the air and quit the EU. That is the really risky choice.

Full article in Financial Times (subscription required)

© Financial Times

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