By Valentina Magri
Do you remember the British sitcom of the Eighties “Never the Twain”? Well, it seems Oliver Smallbridge and Simon Peel may have found their heirs: Europe and the UK.
The British PM David Cameron has promised to change Europe with internal negotiation in a more flexible, competitive and open way. After that he will give Brits the chance to decide on a referendum whether to remain or to exit from Europe by the end of 2017.
In Mr Cameron’s words: “If you give them (the Brits) the choice right now, staying in Europe as it is, unsatisfactory as some of it is, or leave, I don’t think that’s a very fair choice. That’s why reform first, referendum second”.
The Chancellor George Osborne has been more threatening towards the EU, saying it is “falling behind” growing competition from global economic powers. He said “there is a simple choice for Europe: reform or decline. Our determination is clear: deliver the reform, and then let the people decide”.
Mr Osborne is particularly dissatisfied with EU because he deems welfare spending to be too high, job creation to be too low and there to be a lack of innovation by companies. In light of these recent statements, let’s go deep into the relationship between Europe and Britain from an economic standpoint.
English economy: declining globally, rising in the EU
According to Cebr’s World Economic League Table, Britain’s international ranking based on GDP will drop from sixth to seventh place by 2028 due to emerging markets. Indeed, India will leave tenth place to become third ahead of Japan, Brazil will pass from the seventh to the fifth place and China will overtake the US to become the world’s largest economy.
But if we compare the UK with the other European countries, the story is pretty different. England will overtake Germany by around 2030 and France by 2018. What’s more, it’s forecasted GDP growth is the second most successful of the European Western economies after the US.
The British growth will be fostered by three primary factors:
- positive demographics with continuing immigration;
- low taxes with respect to the European standards;
- less exposure to the problems of the Eurozone.
But the UK’s growth is conditional. It is predicated on a falling value of the Euro, rising population in Britain and diminishing population in Germany. It requires the UK to reorient its exports to faster growing markets such as the BRIC economies, MIST nations and the developing markets on the periphery.
Arguably the most prominent danger is the breakup of Great Britain, highlighted by the referendum on Scottish independence in September 2014, and the unresolved relationship of the UK with the rest of Europe.
Europe and the City
Fiona Woolf, the Lord Mayor of London, told Bloomberg News that the threat to leave the European Union by the British Government had left a “sword of Damocles” suspended over the City and British financial industry as a whole.
A report carried out by Policy Network for the City of London Corporation entitled Britain’s financial services industry in a changing Europe, noted: “In 2008-2010, shortly after the outbreak of the financial crisis, the focus of attention inevitably turned for the City of London and its alleged role in the collapse of European economies. Widespread resentment against financial capitalism translated into a strong regulatory reaction”.
Furthermore, the report asserted that the dominant view in other European member states is that there is no alternative to the City being part of a highly regulated single market on financial services.
But some governments are more ready to help than others, such as the Internal Market Commissioner Michel Barnier, who said at a Policy network event in July 2013: “I have taken UK objective into account, not by accident but by design. […] Eurozone member states do not vote as a block”.
The tone is accommodating also in Sweden, in the Netherlands and in the German centre-right. In addition, an official at the European Council in Brussels interviewed by Policy Network said: “Financial integration in the euro area might bring about a rift in the financial Single Market in the long term, hence UK worries are justified. Today, UK demands of special care are largely accommodated. But what will happen in 20 years?”
Actually, English people will vote for/against EU within three years. The big question, it seems, is what reform will occur before then, rather than after the vote has passed.