Wednesday, April 27, 2016

Martin Wolf assesses the arguments for Brexit.

The favourite argument used by "leave" supporters to dismiss the arguments of any economic commentator or businessmen in favour of staying in the EU is to suggest that they supported Euro Entry - and where the person did, often on similar grounds to the reason they are now arguing for Remain, that's fair enough - and say "Wrong then, wrong now."

They cannot use that one against Martin Wolf, chief economist at the Financial Times: as I have previously noted here, he was a strong opponent of scrapping the pound in favour of the Euro and has been described as one of the five people who were most influential in saving the pound and keeping Britain out of the Eurozone. So he absolutely is not some kind of  passionate Europhile.

Which makes what he had to say in the FT about the leave arguments all the more powerful. I am still deciding how to vote but I find Martin's arguments extremely important.



In the FT here, Wolf lists what he sees as the ten main arguments put forward by campaigners for Britain to leave the EU as follows:

1) EU membership has brought few benefits
2) EU membership has imposed huge costs
3) There is no status quo - the EU will integrate further and after a Remain vote take more control over the UK
4) The UK should leave because a eurozone break-up would damage the UK economy.
5) The EU is growing more slowly than the rest of the world and this may hold back the UK
6) Membership of the EU prevents the UK from opening up world markets
7) It would be easy to agree on alternatives to EU membership
8) It will be easy for the UK to obtain a good deal from the EU, in their own interest, after a Leave vote. Often this argument is supported on the basis that the rest of the EU runs a trade surplus with the UK, which it will be desperate to keep.
9) It will be easy to reach an agreement on controlling immigration.
10) The uncertainty associated with leaving the EU would be modest.


A shortened form of his response to these points is as follows (Text in italic is the Brexit argument: text in bold is the response.)

"First, membership has brought few benefits. This is false. The Centre for European Reform estimates that it has raised trade with EU members by 55 per cent, increasing productivity and output. Trade creation within the EU has far exceeded diversion of trade from elsewhere."


"Second, membership has imposed huge costs. In fact the net fiscal cost is a mere 0.5 per cent of gross domestic product. Moreover, this could be regained in full only if the UK abandoned altogether its preferential access to the EU market. The UK is also one of the least regulated high-income economies."


"Third, an increasingly integrated eurozone will dictate to the UK. Yet a full political union of the eurozone looks quite unlikely. Its members also differ on many points, which opens up opportunities for UK influence."


"Fourth, the UK should leave because a eurozone break-up would damage the UK economy."

"If the eurozone broke up in a disorderly fashion, the damage to its closest partners might be substantial. Yet the EU will remain the UK’s biggest trading partner indefinitely. Thus the UK would be damaged by a eurozone break-up, whether in the EU or not. Arguing that leaving would shield the UK against such a disaster would be like arguing Canada should leave the North American Free Trade Agreement, to avoid a US financial crisis. It makes no sense."


"Fifth, the UK should leave because the EU is slow-growing. It is plausible that the UK’s trade with the rest of the world will expand relative to trade with its slow-growing neighbours. But reducing access to EU markets deliberately would make sense only if membership prevented the UK from trading with the rest of the world."

"Sixth, membership of the EU prevents the UK from opening up world markets. Yet the EU was a moving force in three successful global trade negotiations: the Kennedy, Tokyo and Uruguay rounds.  The clout of the EU gives it far greater capacity to open up the markets of, say, China, India or the US than the UK could do on its own."

"Seventh, it would be easy to agree on alternatives to EU membership."

Wolf points out, however, that those recommending leaving have no agreed position. Reviewing the various options he concludes that "In all, the more sovereignty the UK wishes to regain, the less preferential access it retains. This trade-off cannot be fudged."


"Eighth, it will be easy for the UK to obtain whatever it wants from the EU."

"This is naive. Divorces are rarely harmonious. Moreover, countries with big surpluses with the UK (notably Germany) would continue to sell their goods to the UK, even if Brexit led to a small rise in the import tariff. The share of UK trade done with the rest of the EU is also far greater than the share of EU trade done with the UK. Thus the idea that a departing UK could dictate terms is a fantasy."


"Ninth, it will be easy to reach an agreement on controlling immigration. But if the UK wanted to retain preferential access to EU markets it would be required to retain labour mobility."

"Tenth, the uncertainty associated with leaving the EU would be modest. In fact, the uncertainties would be pervasive: we do not know what the UK government negotiating an exit would want; we do not know what the rest of the EU would offer; we do not know how long negotiations would last; and we do not know what the outcome would be."

You can read Martin Wolf's arguments in full on the FT website here and whether you are supporting Leave, Remain or are undecided, I strongly recommend you do so.

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