Political Economy: For Britain, Better to Stay Put in E.U.

Quitting the European Union would be bad for Britain. Membership in even an unreformed Union would be better than a “Brexit.” Quitting would mean either not having access to the common market — at a huge cost to the economy — or second-tier membership.

The debate over quitting has moved into high gear in the past 10 days, after the U.K. Independence Party, or UKIP — which wants Britain to pull out of the Union — performed well in local elections. The Conservative Party, which governs in coalition with the pro-European Liberal Democrats, has been thrown into turmoil because UKIP has been winning votes from the Tories.

What is more, many Conservatives would like Britain to quit the Union, too. Last week, Nigel Lawson, one of Margaret Thatcher’s finance ministers, argued the case for getting out. Boris Johnson, the mayor of London and the Conservatives’ most popular politician, also shuffled a little further in a euro-skeptical direction — although he stopped short of calling for a departure.

David Cameron himself has not shifted his position. He wants to hold a referendum in 2017, after he has had a chance to renegotiate Britain’s relationship with the Union in so far unspecified ways. But he may be tempted to give tacit support to legislation to call a plebiscite in an attempt to embarrass the opposition Labour Party, which has so far refused to back such a vote.

Despite the increasingly anti-European tone of the debate, the overall likelihood of Britain’s quitting the Union has not really changed since the local elections. True, the probability that the British people would vote in a referendum in favor of staying in the Union has fallen. But the chance that such a plebiscite might take place has also probably dropped, because UKIP’s rise makes it less likely that Mr. Cameron will be re-elected in 2015.

It is, of course, possible that the pro-European Labour Party will match Mr. Cameron’s promise to hold a referendum. But that would probably be against its interests. A future Labour government would find it hard to win in a referendum — as the Conservative Party, unconstrained by being in government, and its allies in the media would mount a vociferous anti-European campaign. After such a defeat, Labour would be left reeling.

If Labour felt the only way to win the next election was to promise a referendum now, it might still take the risk. But its chances of winning have risen in the past 10 days. And any attempt by the Tories to embarrass Labour for not backing a plebiscite is more likely to backfire by further exposing the divisions in its own ranks.

Pro-Europeans, though, cannot just calculate the political probabilities. They need to make the case for staying in the Union.

Anti-Europeans often fudge the question of whether they would like Britain to quit the common market as well as the Union. They should be invited to clarify precisely what they mean.

Quitting the common market would be extremely bad for the economy, because about half of Britain’s trade is with the Union. That would not all vanish. But all sorts of barriers would make it much harder for companies to do business across frontiers, leading to a big rise in unemployment.

Britain has the world’s third-largest stock of foreign direct investment after the United States and China. But multinational companies, which have used Britain as a hub in part because it has access to the common market, would curtail their investment if that were no longer so. The financial sector in the City of London, Britain’s most successful industry, would also suffer if it were cut off from its European hinterland.

Not surprisingly, many euro-skeptics do not want to quit the common market. They think they can have unfettered access to that market without the rules and regulations that irritate them.

The idea that Britain can have its cake and eat it too is naïve. The rest of the Union might well allow it access to the common market — and even then not on an unfettered basis — but only if Britain abided by E.U. rules. What is more, it would not then have a vote on those rules, putting its businesses at a disadvantage.

That is the position Norway, which is not in the Union, finds itself in. It also has to pay almost as much on a per capita basis as Britain does for the privilege of such second-class status.

The anti-Europeans are fond of lambasting the bureaucracy in Brussels. They also point to misguided policies like the Common Fisheries Policy, which results in the throwing of dead fish back into the sea, or the planned Tobin tax, a levy on financial transactions that will gum up financial markets.

These attacks are fair, even if they do not snuff out the case for staying in. But Britain has a golden opportunity to help overhaul the European Union. This is because the main solution to the euro zone’s crisis is to make it more competitive. It is a misconception to suppose that the euro zone is charging toward political, fiscal and banking union, as Germany is just not willing to pay for it.

Instead, the common market needs to be properly extended to services. Free trade needs to be promoted with other blocs, like the one in North America. And capital markets should be bolstered as a solution to Europe’s banking malaise.

Mr. Cameron needs to start pushing this agenda now. Achieving it would not just be good for Britain. It would increase the chance of persuading the electorate to vote yes in a referendum.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/05/13/business/global/for-britain-better-to-stay-put-in-eu.html?partner=rss&emc=rss