Christina: EU Debate – It’s all about confidence
[This is a personal opinion giving an economic appraisal of the EU and is not the official policy of Eastbourne unLtd Chamber of Commerce or the Alliance of Chambers in East Sussex known as ACES.]
It’s all about confidence
A successful economy can be affected by many factors but probably the most important is “confidence”. That intangible feeling that business people have which affects all their decisions. Whether to invest in new technology; employ more people and expand; invest in training and marketing; expand into new markets nationally and internationally; whether to award pay rises to staff and how much to give.
It’s fair to say that no one really knows what will happen if we vote “out” on June 23rd. So there is going to be a period of time when business confidence is likely to be pretty low.
Brexit could also affect our export documentation making it harder for us to sell our wares abroad for a period of time. France, Germany and other EU countries may be less inclined to buy our products. (Remember how you felt when Scotland was talking about exiting the United Kingdom?) We may go to the “back of the queue” for trading agreements with the USA, as Obama said recently but what about Germany, France, Japan, India and China? Will we go to the back of their queues too?
In February 46% of our exports went to Europe while we bought 55% of our imports from Europe (the largest commodity being cars from Germany). Do we really want to make this trade more complicated or expensive or put any of these transactions at risk?
According to the April edition of The Week, the UK is highly reliant on the export of financial services to Europe (unlike the export of goods, we had a massive £19.9bn trade surplus in services). London is the financial capital of Europe and many organisations use us as an entry point to the Single Market under the “passport scheme”. This scheme allows firms set up in one member state to provide services in another. This would be difficult from outside the Single Market which is why so many banks view Brexit with concern. EU exporters to the UK would want Brussels to maintain good terms of trade with us post Brexit, however, this might not be so easy with services as our competitors in Europe will be very keen to re-erect barriers inhibiting cross border competition which could affect our financial institutions badly.
In fact, according to the Sunday Times (01/05/16) France has set up a team of their best financial brains to work out how to benefit from Brexit. Frankfurt is also a strong financial centre which will be keen to step into London's shoes and become the new financial centre of Europe.
All this uncertainty would have a negative effect on confidence and could affect our economy badly. This lack of confidence won’t just affect the largest, multinational companies; this could affect all SMEs - and all their employees too.
The worst case scenario?
But let’s take a look at the very worst case scenario. If Britain leaves the EU it is possible that other countries will follow suit. If they do the EU could collapse and put the Euro as a currency at risk. This could presage a significant lack of business confidence across Europe both in the EU zone and in non-EU countries. If this lack of confidence lasts it could lead to another recession - but this time the banks wouldn’t get the blame - we would.
Europe is such a significant global market, a recession in Europe could quickly spread to the rest of the world. But again, the banks wouldn’t get the blame, we would.
British business people are respected world-wide. The BBC World Service is like a 24 hour advert promoting the UK and the London Olympics spread warmth towards us across the globe. Why would we want to jeopardise our valuable global reputation?
During the last recession we found that in a modern economy we couldn’t get by without banks so rescue packages were put in place and we all carried on putting our wages in our preferred bank, even though we were angry with them. If we are seen as the cause of a future global recession, people from other countries may want to punish us by avoiding our goods or by charging us more for theirs. Either way this could affect our trading ability badly for several years to come and business confidence in the UK.
Can we change our minds?
It should be noted that if we leave, it will be almost impossible to get back should we change our minds. If the EU zone survives the turmoil of our leaving we would need to persuade 27 different countries to accept us back should we change our minds, and this would very likely take years. On the other hand, if we vote to stay in Europe, we could change our minds in the future and still pull out.
Many of us would like to see big changes to the way Europe is managed and run but there is also much good Europe has done for us. And remember, our MEPs can veto European legislation as can our government; so, you may ask, what has the European Parliament ever done for us?
Beneficial EU Legislation
- The EU forced us to clean up our coastal waters
- Introduced control of chemicals to protect our safety
- Introduced freedom of goods and services so we can sell more easily across Europe
- Introduced 20% reduction in carbon emissions
- Reduced mobile phone and data roaming tariffs across Europe
- Introduced the Working Time Directive to reduce exploitation of workers setting out how many hours workers should work and their entitlement to reasonable breaks and holidays
- Introduced control of pesticides and banned harmful substances
- Introduced food labelling rules to stop claims of “low fat” or “lowers cholesterol” when it wasn’t the case
- Introduced sourcing of meat products so we know what we are eating
- Introduced inclusive air fares to stop airlines promoting prices with hidden costs
- The UK opted out of the EU immigration ruling which said that illegal immigrants could be detained for up to 18 months and face a 5 year re-entry ban
Taking trade with Europe and beneficial legislation into account, could exiting Europe be throwing the baby out with the bath water?
The press is very quick to publish some pretty wild stories about EU legislation that might affect our daily lives so here are some myths reported in the press that the EU has never proposed:
- Banning curvy bananas
- Banning coffee machines
- Banning rhododendrons from British gardens
- Banning firemen’s poles
- Banning double decker buses
- Banning bag pipes
- Banning prawn cocktail crisps
- Banning mushy peas
- Insisting that all pigs have toys in their sties (yes – the press really reported this in 2003)
See http://news.sky.com/story/1266181/the-top-10-european-union-myths-debunked for full details of these myths.
The big question
Once you take out EU funding and subsidies that come to farms, the arts, enterprise zones, skills and areas of deprivation to name a few of Europe’s beneficiaries in the UK, the Telegraph reported that we paid £6.5 bn to Europe in 2015. This is about a third of the amount published by the Brexit campaign.
The big question is – do you think it is worth paying out £6.5 billion a year to remain part of the EU club, against an export value in excess of £130 billion per year - almost half of our global exports?
Clearly, David Cameron and George Osborne think it is.
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