Monday, March 28, 2016

Should We Stay or Should We Go? The Brexit Question

What’s “BREXIT”

Although it sounds like the latest drug advertised on TV ... ask your doctor about BREXIT ... common side effects include ... Brexit refers to the possibility that the United Kingdom may leave the European Union.  Since “A decision by the United Kingdom, fueled especially by its British citizens, to withdraw from the European Union” is a horridly unwieldy mouthful, the question has long since been simplified as a “Brexit,” this year’s equivalent of 2014's potential Grexit when Greece seemed ready to abandon the euro.

June 23 might not be as critical to British history as “1066, the Norman invasion, and all that” although “invasion” by foreigners and the UK’s relationship to the European continent are at stake.  June 23, 2016 is the date on which citizens of the United Kingdom will vote in a referendum on whether to remain in the European Union or to leave. 

(Most of us think of The United Kingdom, Great Britain, and England as synonyms.  But “Great Britain”  refers to the island that is home to the English, the Scots, and the Welsh.  The United Kingdom, the official name of the country, includes Northern Ireland along with the inhabitants of Great Britain.  This is not pedantic hair splitting: polling data suggests that it is the English who are most likely to favor leaving the EU while the Scots, Welsh and Northern Irish are more strongly in favor of remaining.  In fact EU membership played a very different role in 2014's vote on Scottish independence when neither side wanted to leave the EU.  The campaign against argued that leaving the UK would mean leaving the EU and the campaign for argued that Scotland could quickly become an EU member in its own right. )

[click here for an overview of the history and major features of the EU.]

The United Kingdom’s relationship to the European Union shows the same ambivalence as its historic relationship to the continent.  The UK has been deeply involved in European history and culture since Roman times but has also seen itself as an island nation close to, but not really part of Europe.

The UK did not join in the movement for a common market and European integration until 1973 and then only with conditions that exempted it from some of the obligations of membership.  The UK has deliberately remained outside the eurozone, refusing to the let the Pound Sterling be shoved off the world stage.

Throughout the evolution of European institutions, there have been critics and doubters, quite certain that the enterprise, especially the goal of increasing unity among the people of Europe, would and should collapse.  Eurosceptics, as they are known, are more prevalent and more vocal in the UK than elsewhere and are well represented in both public opinion and the leadership of the major political parties, especially the ruling Conservatives. 

During David Cameron’s successful bid for reelection as Prime Minister last year, he promised to hold a referendum on EU membership.  This was seen as a shrewd political move at a time when his own Conservative Party was deeply divided over EU membership and allowed him to avoid taking a stand that would alienate either those who want to leave or those who want to stay.  It was also seen as a bargaining tactic, designed to encourage the EU to make significant concessions to the UK, and in fact, Cameron did win some major concessions from the EU last December.  The Prime Minister has subsequently taken a strong pro-EU stand and has actively campaigned for a “remain” vote. 

What Are the Issues?

[for a more thorough analysis with a discussion of the best available data on the claims of both sides, click here.]

Immigration, sovereignty and the economic impact of EU membership dominate the emerging campaign.

Immigration

Freedom of movement is a central feature of the European Union.  The “leave” campaign stresses the growing number of immigrants from other EU countries that have come to the UK in the past few years, worrying that this will undermine the uniqueness of British identity and the core values of English society.  Concern about immigration has increased in the past year, as hundreds of thousands of refugees from Syria, Africa, and elsewhere have entered Europe.  While Germany and Sweden have been the most popular destinations, a significant number of refugees have sought refuge in the UK.  The terrorist attacks in Paris and Brussels have heightened suspicion and fear of refugees and there are charges that lax security by EU members means it is extremely difficult for the UK to protect its citizens from Paris or Brussels style attacks. A second type of immigration is also cited by the “leave” campaign:  “Welfare tourism.”  Migrants from other EU members, especially Eastern Europeans, come to the UK and can immediately claim far more generous welfare benefits than they could get at home.  

The “stay” campaign counters that there have not been that many refugees arriving in the UK, in part because of the added expense of air fare or the cost of traveling through the chunnel.  And unlike the porous open borders of the continent, there are relatively few entry points into the UK and it is far easier to prevent undocumented immigrants from entering.   “Stay” advocates point out a  significant number of British citizens have relocated to other EU countries without a lot of hassle.  Because of UK membership, UK citizens could make 44 million trips to Europe in 2014, for both business and pleasure without having to acquire visas or undergo the enry and exit procedures that non-EU members face.  And the “stay” camp argues that the concessions Prime Minister Cameron got form the EU in December include restrictions on immediate eligibility for welfare benefits.

Natonal Sovereignty and Democracy in the EU

The European Union has several levels of governance.  The issues in the referendum are focused on the Council of the European Union, in which the governments of the 28 members adopt laws and policies for the European Union.  It works on a “one country, one vote” basis, with a qualified majority -- 16 countries with at least 65% of the EU’s population.

The “leave” camp argues that this arrangement means that the governmental elites of foreign countries can pass laws that affect daily life in the UK over the objections of the democratically elected government of the UK.  This often, they argue, means intrusive and burdensome regulations on businesses.

The “remain” camp counters that while it is true that the UK was on the losing side of a vote about 12% of the time over the past five years, most Council decisions are negotiated consensus positions, agreeable to all members and the relatively high rate of UK minority positions reflects the policies of the Conservative party.  And most EU regulations in fact promote the health and safety of consumers, or prevent deceptive and manipulative business practices.

The Europan Union’s long term political goal of greater political integration in Europe has been a major negative for those who want out of the EU who identify far more closely with their national identity than with some transnational community.  Thus one of the major concessions Prime Minister Cameron sought from the EU last December was an agreement that the UK would be exempt from the aspirations for greater European political and cultural integration. 

Follow the Money

There are three big economic issues in contention in the Brexit campaign: the cost of membership, the balance of  trade, and jobs.

Each EU member contributes to the Union’s budget which supports a host of programs, with a significant bias toward assisting the poorer countries and regions in the EU.  The UK receives less money in EU programs than it contributes to the EU budget.  Eurosceptics have long objected to sending UK taxpayer pounds to poorer members (cleverly tabbing Portugal, Italy, Greece and Spain as PIGS.)  The image of lazy and spendthrift southerners and East Europeans guzzling at the EU’s public trough is a powerful one.  The “remain” campaign counters that the UK contribution to the EU is less than 1.5% of the annual budget and the UK gets much of that back, plus a host of intangible benefits from membership.

The United Kingdom runs a negative balance of trade with its EU partners and a positive balance of trade with the rest of the world.  That is, the UK imports more from its EU colleagues than it exports to them but exports more to the rest of the world than it imports.  The “leave” camp argues that getting out from under the EU free trade rules wold allow the UK to better control its economic relations with other countries and avoid being taken advantage of by foreign companies and countries.

The “stay” campaign counters by arguing that losing unfettered access to European markets that account for over one third of UK exports would make the trade deficit much worse while not improving trade with the rest of the world.

Closely related to the trade issue is the question of jobs.  The “leave” campaign argues that reducing imports from the EU, freeing businesses from unfair and burdensome regulations, and saving the tax payer pounds that now go to the EU will spark significant economic growth and create new jobs for workers in the UK.  They deny the “remain” claim that leaving the EU would have a major negative effect on jobs tht depend on the UK’s ability to freely export to Europe.

The “stay” argument cuts the other way.  Leaving the EU will dramatically undermine the ability to export to Europe and will cost a significant number of jobs.  Moreover, leaving he EU would make the UK much less attractive to foreign investment, particularly from the United States.  A number of major American corporations have set up subsidiaries or manufacturing facilities in the UK, notably Northern Ireland, because that provides access to European markets. (And tax benefits.)

From This Side of the Atlantic?

Very few Americans are paying attention to a possible Brexit.  We have our own campaign season to amuse us and a host of other things to think about.  The few people who are paying attention tend to be very concerned about the negative consequences.  It is believed that a Brexit would hurt America’s ability to trade with Europe, and render the substantial investments in the UK less valuable.  There are worries that a Brexit could make European economies less stable and exacerbate the challenges facing the eurozone which has not yet fully dealt with the Greek crisis of two years ago. 

American foreign policy has been generally supportive of the evolution of the EU and seen the emergence of a peaceful, democratic and prosperous Europe as a major benefit to the United States.  A Brexit would not mean the end of the EU but it would be seen as a serous blow stability.  Moreover it would complicate international cooperation in some key areas, including efforts to prevent terrorist attacks. 

Will They or Won’t They?

The polling data on the broad outline of supporters of leaving and staying are quite consistent.  In addition to showing differences between British voters and the rest of the UK, they show that the “leave” option is supported more heavily by older voters, those who have the equivalent of a high school diploma or less, and those who work in low paying or uncertain jobs.  Younger, more well educated and more prosperous voters are much more favorable to the “stay” position.

But almost no one seems eager to actually predict the outcome for two reasons.  The first is that everything suggests that opinion is very evenly split and the outcome may depend heavily on which voters actually go to the polls.  The other reason for a reluctance to predict an outcome is a lack of confidence among organizations trying to measure public opinion in the UK.  The shift away from land lines, the growing rate of refusal to participate, and the increasing difficulty in estimating future turnout from past patterns, have all affected polling in the UK and the U.S., making results considerably more difficult to predict.

One group is willing to predict the outcome, and willing to put its money where its mouth is.  It is legal to bet on elections in the UK and London bookies will give you 2-1 odds on the UK staying in the EU.  According the Independent, a prominent London newspaper, “Punters have reportedly been placing bets worth up to £5,000 on success for the remain campaign.”



EU ABC's

The modern European Union has its roots in the immediate aftermath of World War II which left continental Europe devastated and the United Kingdom profoundly weakened.  The European Coal and Steel Community was created in 1950 with the short term goal of accelerating economic recovery by creating a more efficient system for producing coal and steel, two of the most critical industries for reconstruction.  The five countries that initiated the organization agreed to ignore national boundaries, regulations, quotas and tariffs and treat coal and steel as single, integrated industries.  The long term goal of the originators was to transcend the nationalism that had led Europe into two global warts in the first half of the 20th Century.  More precisely, the intent was to bind the German economy so tightly to France and the rest of Europe, and to ultimately create a shared European identity, that war would become unthinkable.

The vision of short term economic gains leading to the long term development of a common European identity based on both tangible benefits and shared liberal democratic values has remained central.  The early success of the Coal and Steel Community led to the creation of the 9 member common market in 1956 and the gradual evolution of a true European economy and the creation of common political institutions that have become the modern European Union. 

Today’s EU has 28 members all of whom participate in a common economy and some pan-European political and legal institutions, and many of whom share the Euro as a common currency.

The most salient dimension of the EU’s economy is the free transit of goods, services, and people.  There are no tariffs (taxes on goods imported from other countries) and many national regulations on product safety, quality, and standards have been replaced by EU standards.

Licensing rules for occupations from acupuncturist to zookeeper have been standardized.  A barber from Sevilla can move to Berlin and open a shop as easily as if he were merely moving down the block.  A London bank can open a branch in Brussels or Lisbon or Prague under the same terms and conditions as a Belgian, Portugese or Czech bank. 

And people can move freely.  A citizen of an EU country does not need a visa or have to go through customs to for a vacation abroad or to settle permanently n a new country. 

The EU features a common currency, the euro, but not all its members are part of the system.  Some, like the UK, prefer to keep their own currency because it gives the national government greater control over its economy and a national currency is an important symbol of sovereignty and independence.  Others, particularly the newer Eastern European members, cannot meet the eurozone’s requirements for a balanced budget and fiscal policy.

At the political level, the EU has a rather complex governance structure, with some institutions representing the governments of its member states, others consisting of representatives elected by popular vote, and others enforcing and interpreting a common legal system.

The EU has a common foreign policy which is not always consonant with its individual members’ policies, a flag, and an anthem (Ode to Joy).  However, it fails the Frank Zappa test.  The late rock artist and leader of the Mothers of Invention insisted that a real country had to have a beer.  An airline or some atomic weapons were good, but a national beer was a necessity.  There are many, many excellent beers originating in the 28 member countries of the EU, but there is no European Union brew.