Why Brexit is better for Britain

Why Brexit is better for Britain

In this debate, GRI asked whether or not the UK should leave the EU. Mikala Sorensen argues that the past years have given rise to a feeling among Britons that what should have been a European community for prosperity and mutual benefit, is to an ever greater extent is becoming a lopsided, meddling, and overly complex bureaucracy. Brexit is the better alternative. Read the pro-EU side here.

Recently, London Mayor Boris Johnson joined the ranks of other notable Eurosceptics such as Justice Secretary Michael Gove, Leader of the Commons Chris Grayling, and Iain Duncan Smith, Work and Pensions Secretary. A Britain tearing loose from the EU would stand before a number of options, all of which “are good”, according to Johnson. Johnson likens the Brexit referendum in June to a jail cell door, accidentally left ajar by the jailer, with a view to the sunlit land beyond. Johnson’s advice to the metaphorical prisoner is to jump at this window of opportunity and get out.

Regulations and refugees, the EU’s twin woes

The UK has – since the early days of the European Economic Community – been persuaded predominantly by the trade and economic performance of cooperation. The EU anno 2016 is far wider ranging, and assumes power over a long list of areas, where trade is arguably derivative at best.

EU rules such as a ban on serving olive oil in jugs or dishes at restaurants, granting a special permission for Cornish pasty producers to label swedes as turnips, and a maximum noise level from lawnmowers, have little discernible relevance to commerce. Yet deliberations about such matters cost time and effort on the European, as well as national, level.

Calculations carried out by Open Europe, a think tank in favour of a more flexible EU, show that the top 100 EU rules cost Britain £33.3bn a year in 2014 prices.

Excess regulation is one of the biggest irritants associated with the EU from the perspective of British businesses. In particular, SMEs believe that a departure from the EU’s rigid rules will constitute relief from a significant portion of the bureaucratic burden they experience.

200 bosses of small British companies signed an open letter last week, arguing for Brexit based on an appeal for more flexibility and adaptability – things they feel that Britain’s EU membership stifles. It came as a retort to a letter from the heads of 36 FTSE 100 firms, who joined the ‘in’ side a week prior. SMEs employ 60% of the private-sector UK workforce and are the main driver of job creation.

Making sure that SMEs have a good basis for success is pivotal for the economy. It so happens that many small and medium-sized businesses would rather toss out “the EU’s constant diet of unnecessary regulations which add to our cost base, reduce our bottom line, and raise prices for our customers for no return.”

While the reasons to dispute continued membership of the EU listed so far have been deliberately designed by policymakers and bureaucrats, other – unforeseen – challenges ought to make the ‘in’ side think twice. First of these is the ongoing migration crisis.

Migration attitudes fuel Brexit support

By the accident of geography, Britain has not had to cope with the level of asylum seekers seeking Germany and other Northern countries. Neither has Britain been burdened by the transit of a seemingly endless stream of migrants passing through, like most of Southern Europe. Nevertheless, as the ‘jungle’ in Calais can attest, the UK is an attractive destination, and has been for quite some time.

The job market is in better shape than in most other European nations, and the language is arguably easier to learn or improve upon. That is why taking steps to limit ‘welfare tourism’ has been on Cameron’s list of demands. Even prior to the current crisis, the UK experienced tension over the arrival of European economic migrants.

The appetite for alleviating the strain on the continent and taking in migrants is nonexistent. Thus, Britain opted out of the voluntary relocation scheme agreed to last year. With no solution anywhere in sight, the migration crisis is a persuasive reason to leave the dysfunctional Union, paralysed, unable to act, and crumbling from within.

Weak EU periphery

The second – somewhat – unforeseen challenge is the endless Euro turmoil. Attention to this has diminished given the distraction constituted by more than 1.3m asylum applications filed in Europe in 2015 (Eurostat). However, seeing as Greece, Italy and Spain are key entry spots for migrants, it is highly doubtful that their economic situation is solid.

Since Macedonia closed the border to Greece in order to stem the migrant flow, chaos has erupted in the area, leading Greece to refuse to accept becoming “Europe’s Lebanon”. The debt burdens of the periphery countries remain problematically high, and the structural differences within the Eurozone, split by a North-South divide, are as evident as ever.

There is no easy fix for this, and the populations in the affected countries are sick of reforms and austerity, as support for Syriza in Greece, Podemos in Spain and Five Star Movement in Italy underscores.

Former Governor of the Bank of England, Mervyn King, predicts that this imbalance will cause the collapse of the Eurozone. The question is where that will leave the EU.

Even with Brexit, Britain can keep its close trade relations with the continent, without necessarily being part of the European behemoth. The UK is a significant agent in Europe, and holds enough sway to negotiate a post-Brexit trade deal. The reforms that Mr. Cameron has secured using the referendum as leverage fall short of the sort of fundamental change that he hoped to secure, signaling the lack of flexibility inherent in the Union.

Norway and Switzerland have larger stakes in trading with the EU than does Britain, and yet membership is not part of the bargain. In Norway’s case, it is an EEA-member, while Switzerland has a number of agreements securing access to European markets. An exit from the European Union would save Britain from a lot of downside, while competent diplomacy could secure most or all of the upside.

The EU started as a trade union, and the UK has been dealt a unique opportunity to retreat from political involvement, and revert to a cooperation of commerce. The Brexit referendum is a one-off chance, and it should not be squandered.

GRI Debates provide critical insight into the world’s most challenging political risk topics. Through well-balanced opinion based articles, GRI Debates offer a forum for deeper discussion into how major political decisions and security challenges affect markets, investment, and economic growth across the globe.

Categories: Economics, Europe

About Author

Mikala Sorenson

Mikala Sorensen is an Economist with regional expertise in Europe. She holds a first class honours degree in Philosophy, Politics and Economics from the University of York and a Masters in Economics from the University of Copenhagen. Having interned at the Danish OECD-delegation in Paris and currently working at the Danish Ministry of Finance, she specialises in politics and macroeconomics. Analysis for GRI is an expression of her own views.