Economics effects of the UK leaving the European Union

Abstract. A look at the economic effects of Britain leaving the European Union. Summary. The UK has been a member of the European Union since 1973. The European Union gives many economic benefits to member countries. These include free trade, inward investment from European companies, free movement of labour, harmonisation of regulations and qualifications and …

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Policies to deal with the free movement of labour

net_immigration_benefits

In this recent post we saw some of the economic and political challenges of allowing free movement of labour within an economic block, such as the EU28. To what extent can the government / EU mitigate these negative impacts, whilst retaining free movement of labour? 1. Funding related to number of people. One issue of …

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TIPP – UK / US trade deal

TIPP (Transatlantic Trade and Investment Partnership) is a potential trade deal between the EU and US. It is currently being negotiated by the European Commission and the US.

freightliner-railway-train

The aim of the agreement is

  • Encouraging trade and investment between the EU and the US.
  • Extend principles of European Single Market to include the US, enabling lower prices for consumers, greater trade and prosperity.

However, critics of the agreement fear that the proposal will lead to lower environmental standards, job losses, privatisation of public services, and overall is geared towards favouring big business at the expense of the consumer and environment.

The main areas of TTIP include

  • Removal of red tape and bureaucracy for firms who are exporting.
  • Setting new rules to make it easier to export, import and invest.
  • Harmonisation of rules and regulations relating to trade between EU and US.
  • Create a fairer process and clearer rules for firms who invest in other countries. This includes ISDS (Investors state dispute settlement) which enable firms to sue governments for lost profits relating to government regulation.

Potential benefits of TTIP

  • Encouraging inward investment from US companies, which will lead to the creation of jobs and kickstart the EU economy.
  • Extending the principles of the single market to reduce interference and non-tariff barriers to trade
  • Greater choice of imports, enables lower prices for consumers. This could be significant in areas like jeans and cars. It might help to reduce the price differential between US and EU in areas like clothes and computers.
  • More exports. The UK could export more to US. For example, British lamb and venison cannot currently be exported to US.
  • The EU received over €325 bn investment flows from around the world (34% of world inward investment) The British government have claimed that TTIP could add £10bn to the UK economy.

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The great Europe debate

The rise of UKIP and Euro-scepticism in the UK inspired me to have another look at an old blog post – Benefits of the European Union.

I’ve spent the past four years criticising the economic policy of the EU, and more specifically the ECB. There are may good reasons to be dissappointed at the EU in recent years. But there is always a danger that people can lose any sense of perspective and see the EU only as an unmitigated bureaucratic disaster more reminiscent of the Soviet Union than a modern progressive block of countries, who have made substantial progress in the past couple of decades.

Researching the benefits of the European Union was a reminder to myself that despite all the problems of the EU, it is not quite as bad as some politicians would like to make out. If nothing else – there is nowhere else in the world I would rather live than within the EU, where there is the rule of law, respect for human rights and decent living standards.

The European Union can count many significant achievements of the past few decades.

  • Reduction of tariff and non-tariff barriers have led to increased trade and, despite problems of recent years, real prosperity for most of the population.
  • Promoting human rights and helping Europe to become continent of peace, rather than the near perpetual conflict which marred the first half of the Twentieth Century.
  • Harmonisation of rules and regulations has helped simplify trade and commerce, and enabled the free movement of people.

Yes, despite many impressive achievements, the EU do seem in danger of throwing away, or at least diminishing many of these hard won gains. I don’t see the problem as regulation on bendy bananas (which are usually false or exaggerated for effect by Daily Trash newspapers – who seem to latch onto anti-EU headline with a glee previously reserved for stories about Princess Diana). The real problem the EU faces is economic stagnation, mass unemployment and the alienation of a whole young generation.

What makes it doubly sad is that it didn’t have to be like this.

The biggest problem facing the EU is one of economic policy. The Single Currency was a bridge too far. The EU is simply  not an optimal currency area. The limitations of the Single Currency have been magnified by an attempt to deal with deflationary pressure through a combination of misplaced austerity and the dogma of suffering. What makes it worse is that countries who have suffered the most economically, have the feeling that their economic suffering has been imposed from the outside. And this just isn’t political rhetoric, that’s how a single monetary policy works. It’s the worst combination – economic stagnation caused by policies outside your country. With the toxic mix of unemployment and outside influence, it is hardly surprising that political extremism is on the rise.

EU unemployment

Source: ECB

The ECB may claim that in the coming months they may do more to combat the threat of deflation and low growth. Now the ECB is willing to effectively act as lender of resort, bond yields have fallen. The Euro may hold together. But, that doesn’t change the fact Europe has been failing for the past five years. The crisis was never about bond yields or EU debt. When bond yields on government debt rise to 12%, this doesn’t cause social alienation and a surge in political extremism. The social and political alienation is caused by mass unemployment and a sense of powerlessness.

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