Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. On June 23, the United Kingdom will vote to decide whether to quit the European Union, the 28-nation economic bloc with a population of 508 million and a gross domestic product of almost $17 trillion. Let’s not be coy: Leaving the E.U. would be an act of national insanity.It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U. members, would probably rise. Meanwhile, Britain would become less attractive as a production platform for the rest of Europe, so that new foreign direct investment in the U.K. — now $1.5 trillion — would fall.
Also threatened would be London’s status as Europe’s major financial center, home (for example) to 78 percent of E.U. foreign exchange trading. With the U.K. out of the E.U., some banking activities might move to Frankfurt or other cities. This would be a big blow.
Losses could be considerable. A study from the Organization for Economic Cooperation and Development (OECD), after making assumptions about U.K. trade and investment, concluded that “Brexit” — shorthand for Britain’s “exit” from the E.U. — could “shave off” $3,200 from average British household income by 2020. No one really knows, but other studies reach similar conclusions.
Indeed, the adverse effects may be undercounted, argues OECD SecretaryGeneral Angel Gurría. Noting that U.K. economic growth in the first quarter of 2016 was the slowest since 2012, he says that uncertainty over Britain’s future is already causing businesses to delay hiring and investment decisions.
What would Britain get from all this? Good question.
There are three main complaints against the E.U., says Nile Gardiner, who was an aide to British Prime Minister Margaret Thatcher and now works at the conservative Heritage Foundation.
First, the outpouring of regulations from Brussels — the seat of the E.U. — has compromised Britain’s sovereignty. On some issues, the European Court of Justice can overrule British courts.
Second, the E.U.’s liberal migration rules may expose Britain to terrorists or overburden its welfare system. (Once people become E.U. citizens, they are allowed to live or work anywhere in the bloc.)
Finally, the E.U. imposes costs on Britain — an annual contribution to the E.U. budget plus the costs of regulations.
The E.U. certainly isn’t immune to criticism. It is often an elitist institution that has centralized too much power in Brussels for a continent characterized by huge differences of national history and culture. It has also committed massive errors, the adoption of the euro probably being the largest. (One currency didn’t work well for all countries. Britain wisely decided not to join.)
Still, most complaints seem exaggerated. The U.K.’s net annual contribution to the E.U. budget is about 0.5 percent of Britain’s GDP. That’s hardly crushing. Some E.U. regulations may be overkill, but Britain’s labor and product markets are among the least regulated of advanced countries.
What this debate is really about is Britain’s place in the world and its self-identity. Britain has long been of Europe but also apart from it. The British Empire was once the world’s largest. To be simply another member of a continental confederation, albeit an important member, offends this heritage. The nostalgic yearning is understandable, but it is not a policy.
Ironically, leaving the E.U. would confirm the U.K.’s reduced status. The U.K. would have to renegotiate its trading agreements with the E.U. and dozens of other countries. A deal with the E.U. is essential. For the U.K., the best outcome would be to retain much of its preferential access, which — as a practical matter — would mean continuing contributions to the E.U. budget and abiding by most E.U. regulations. The status quo would survive, except that the U.K. would have no influence over E.U. policies. Anything less than this would have the E.U. putting its own members at a competitive disadvantage.