Britain, the Euro and Beyond

Mark Baimbridge, Philip B. Whyman

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317172239
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This important book provides an analysis of the economic relationship between Britain and the EU and discusses the future direction in which this relationship might develop. It examines the historic and contemporary costs and benefits of EU membership, and assesses whether this has been a burden or a benefit for the British economy. In addition the authors assess current trends and developments, most notably in the area of participation in Economic and Monetary Union (EMU) and the consequences that this would have. Questions of fiscal federalism, the development of a minimum level of social policy for Europe, together with the likely impact on business and trade unions are also considered. The authors then discuss potential future scenarios, including a more flexible loose membership arrangement or complete withdrawal, and the affect that a range of options might have on the British economy.

Chapter 1 Introduction

DOI: 10.4324/9781315570037-1

The relationship between Britain and the European Union (EU) has been a difficult one over many decades, beginning with disinterest upon its formation, increasing desperation to gain membership when this appeared to guarantee superior economic performance, and latterly disquiet about the net drain that membership has upon the vitality of the national economy. There is no doubt that an organisation that has recently expanded to twenty-seven (and counting) member states is a significant player in the world economy. It has a larger population size and gross purchasing power than the USA. The introduction of Economic and Monetary Union (EMU) between twelve member states, in its initial phase, is without precedent in world economic history, since it has occurred without first attaining political integration intended to govern the single economy so created. Therefore, the EU is certainly a powerful economic and trade bloc, and all medium sized nations should desire to form some type of relationship with this organisation in their own interests. Nevertheless, this does not necessitate membership or the signing of formal treaty arrangements, but may involve a relatively informal statement of co-operation on a range of topics for mutual benefit.

One factor underlying the difficulty of the relationship between Britain and the EU arises from the fact that the former has tended to regard European integration as primarily (or entirely) an economic process, whilst leading federalists have taken a more holistic viewpoint, balancing more towards economic integration with aspects of political union. Thus, British membership of the then ‘Common Market’ has been transformed as the organisation has taken on more powers and trappings of a super-national state, most powerfully reflected in the introduction of EMU amongst the majority of pre-2004/2007 accession existing member states, but also reflected in moves towards the establishment of a federal system including a constitution and unified foreign policy stance. These initiatives have move ahead of the majority of British citizens, who express surprise (and more than a little hostility) towards this policy drift. This divergence between those seeking a narrow or broad direction for the EU has therefore dogged its development, with moves to pursue a federalist agenda, rejected by a majority of British voters due to a failure to first debate the future of Europe and thereby gain consent (or otherwise) for the preferences of the political elite.

The importance of the EU for British economic development has, additionally, been called into account due to the increasing impact of globalisation. The dramatic reduction in world tariffs on manufactured goods and many types of services, together with international deregulation of controls on currency movements and national financial sectors, have facilitated the expansion of international trade, greater financial market integration, and the development of the trans-national organisation of production facilities. The process has enabled the rapid economic development of Asian economies, including Taiwan, Singapore, South Korea, Hong Kong, China and India. In such circumstances, the question has been raised over the relative importance that Britain, or any other medium-sized economy, should give towards regional economic integration, as opposed to pursuing a policy of global trade and other economic links. Indeed, it is certainly true that, in more recent years, the former economic dynamism associated with the EU appears to have declined, and the burdens of economic failure (i.e. long-term, large-scale unemployment) have been keenly experienced in many continental European nations.

The question of Britain's relationship with the EU is further complicated since it cuts across traditional political divisions, so that advocates and opponents of deeper political and/or economic integration can be found on both sides of the party political divide. Neo-liberal conservatives may support the creation of a large free trade area, free from all political interference with the agenda of big business, but may oppose most forms of regulation (particularly social policy) and discussion of political integration that originate in Brussels. Similarly, a left-of-centre supporter of European integration is likely to hold their views because of the importance of establishing regional regulation of capital, and promotion of a social dimension to an otherwise narrowly economic perception of European integration, whilst they may be less enamoured by the power that the ‘project’ gives to trans-national corporations and the resultant weakness of trade unions and national governments. Consequently, the greater the emphasis all parties place upon the negative features, the more likely they are to be described as ‘Eurosceptics’, and the net advocates of the process ‘Europhiles’. Yet, the important point to note is that honest commentators within each grouping accept that the debate over the future relationship between Britain and the EU is not wholly one-sided and that their conclusions are reached due to their analysis of the problem and preferred solutions.

This book seeks to provide an analysis of the economic relationship between Britain and the EU and thereby facilitate discussion of the future direction in which this relationship might develop. In the process, it will examine historic and contemporary costs and benefits in seeking to arrive at an estimation of whether, to date, EU membership has been a burden or an assist for the British economy. Additionally, it assesses current trends and developments, most notably in the area of EMU participation and the consequences that this, reinforced by the impact of its institutional framework, would have upon the British economy. Questions of fiscal federalism, the development of a minimum level of social policy for Europe, together with the likely impact upon business and trade unions, are additionally considered. The book finally turns to consider alternatives to the current arrangements between Britain and the EU, whether involving a degree of re-negotiation of rights and responsibilities, or adopting some other means of relaxing the uniformity necessitated by current membership rules, so that, either Britain alone, or indeed the entire EU organisation, can enjoy enhanced flexibility and autonomy within a loose membership arrangement. In the terminology, this would create a united conglomeration of individual, sovereign states, and not a ‘United States of Europe’. Additionally, the final section of the book examines the consequences that might arise if Britain withdrew from the EU, either to be free of the costs and restraints imposed by membership, or through desiring to create different forms of trade and/or macroeconomic strategy aimed at more optimally promoting national economic development than under the current EU model. Hence, conclusions are reached relating to a range of alternative economic policies that could be adopted, both within and without formal EU membership, which might improve the economic development of the British economy.

Part I Britain as an Awkward Partner

Chapter 2 Britain and the EU: A Difficult Relationship

DOI: 10.4324/9781315570037-2

Introduction

This chapter provides an overview of the historical relationship between the UK and the EU. Firstly, it summarises why the EU is a distinctive entity compared to the other international organisations to which Britain is aligned (e.g. NATO, UN, IMF etc). It is from this perspective of the unique interrelationship between Britain and the EU that many, if not all, of the tensions emanate from. Secondly, we briefly review the turbulent ‘on-off’ relationship that characterised the post Second World War period. We follow the assessment of Harrison (1996) that the relationship has processed through several distinct phases. Significant for this book overall, the most recent of these can be traced back to the 1988 Bruges speech of Mrs Thatcher and formalised under the leadership William Hague in 1997. The victory of the Eurosceptic wing of the Conservative Party over the Europhile camp, represented by Kenneth Clarke in the 1997 leadership election, has developed to the point where UK membership is being openly questioned. Thirdly, we examine the potential causes for the often-fractious relationship between Britain and its Continental neighbours. Possible reasons for this include the UK's unbroken history, the legacy of empire and war, the presence of a distinctive legal system, unique capitalist structure and an individualistic culture. It is argued that these play an important role in contributing to the frequently conflicting aspirations of both people and politicians on each side of the English Channel.

A Short History of European Integration

The EU is a unique institution, which is continually evolving in bursts of activity interspersed with relative passivity. The intention to peacefully integrate European economies has precedents as long ago as the fourteenth century, although the particular form taken by the EU is largely determined by its emergence out of the period of political and economic reconstruction following World War II. Its aim, as specified in the founding 1957 Treaty of Rome, has been to ‘lay the foundations of an ever closer union among the peoples of Europe and by pooling resources is to preserve and strengthen peace and liberty’. Thus, the EU was established as a political organisation to enhance security through mutual reconstruction, whilst avoiding excessive nationalism so recently exhibited by European nation states.

From the beginning, the EU has evolved principally through the promotion of economic co-operation and integration preceding ever-closer political ties. Thus, it was foundered through a merger of the European Coal and Steel Community, the European Atomic Energy Community and the European Economic Community. Subsequently, it created a customs union before further integration established a single internal market. Indeed, the creation of EMU between twelve EU member states should be perceived as another step on this road of further integration. However, the principal reason why the architects of this ‘new’ Europe have preferred economic integration to precede political union is the result of a political conflict between competing visions of the mechanism(s) of achieving closer ties between nations.

Throughout the development of the EU there have been disagreements and fluctuating alliances between federalists, advocating the replacement of individual nation states by a larger democratic structure, internationalists, preferring a global not regional focus, and nationalists, who prefer a community of nation states engaged in free trade. As a result, it has typically been easier to reform trading relations between member states than generate unanimity on more politically sensitive issues such as tax harmonisation, border controls, together with the establishment of a unified army, foreign policy and police force.

The organisational model adopted by the EU reflects its creation as a ‘cold war’ entity, dominated by Europe's political and business elite. It is the EU Commission, civil servants who initiate topics for discussion and provide subsequent drafts of propose legislation, who are thereby able to influence the future agenda. The Council of Ministers comprises representatives of national governments, whose agreement is required for proposals to become legally binding Directives. Thus, the future framework of the EU is determined between two self-selected groups, which are substantially more open to lobbying by business interests than by civic groups (Balanyá et al., 2000). The third EU institution, the European Parliament is comprised of directly elected representatives in approximate proportion to a nation's relative population size. However, parliament is a relatively new phenomenon, grafted onto the existing elite model to enhance popular support of the EU institutions whilst simultaneously countering claims of a democratic deficit at the heart of the organisation. Although able to review proposals, the parliament can only affec...