As the June 23rd BREXIT (the UK-wide referendum to leave the EU) vote draws near, the polls indicate a close result. Those urging a vote for the UK to remain inside the EU are suggesting increasingly dire economic consequences that would follow a yes vote by the British people to leave. Voices from London, Brussels, and Washington have all put immense pressure on British voters to bend to the will of the elites. To listen to their commentary one would think that apocalypse was just around the corner. But is there any substance to their warnings?
The Pro-EU membership camp is led by Prime Minister David Cameron, supported by most of his cabinet, the Bank of England, the BBC and the massive support from the UK and EU governments that have funded enormous advertising campaigns against separation. Given this weight of their power, it is amazing how strong the support for a British exit (BREXIT) has remained.
When Britain first joined the European Economic Community (the precursor to the EU) in 1973, the primary motivation was the hopes of increasing British trade through participation in the world’s largest free-trade zone. However, the hope that the union would simply be a free-trading zone of sovereign countries has morphed into a drive for an EU superstate that has relentlessly pushed for greater regulations on businesses and people and greater control of local laws that have nothing to do with trade.
It has been kept remarkably quiet, for instance, that the EU intends to divide the UK into eleven administrative regions, all reporting directly to Brussels. Although Scotland, Wales and Northern Ireland will remain intact as individual national regions, England will be split into eight regions. Worse still, the coastal counties of England will be teamed with regions in Portugal, France, the Netherlands and Germany, where they will remain in a minority role. Even the English Channel is to be renamed. Very little mention is of the EU proposal for EU-wide ID and tax numbers, likely heralding a heavy EU taxation regime.
Likewise, the proposals to create EU-wide armed forces have been put quietly on the back burner. England has a long and proud history of struggling for its sovereignty. In just the past two centuries she has stood alone against Napoleon and Hitler, before inspiring other nations to join the fray. The presence of French or German armed forces used to support a European police force in the UK will not sit well with the English.
All this and many more threats to the British people have been kept largely quiet. Instead, the main activities of the Pro-EU group have been concentrated on the economic and monetary catastrophe that would face the UK if it were to cut itself off from trading with the EU. Some call this, ‘Project Fear’. The actual underlying facts paint a somewhat different picture, one that makes the Pro-EU case appear misleading, even deliberately so.
The basic argument is that with about 50 percent of its current trade with the EU, the UK would face a catastrophic economic and monetary collapse if it left the EU. As a threat, this sounds potentially devastating. Doubtless it has persuaded some. But in the light of reality, a different and far less worrying image emerges.
The UK has the fifth largest national economy in the world, according to 2015 figures compiled by the International Monetary Fund. In its present state of economic stagnation, the EU can ill-afford to lose the UK. According to the March 2016 Statistical Bulletin from the Office for National Statistics, the UK has had a negative trade balance in goods with the EU that has averaged about $8 billion a month this first quarter. If the UK were to leave without being able to negotiate an independent trade deal, the EU economy might shrink by some $96 billion a year. The UK was the second largest net contributor to the EU budget last year. It follows that the 8 English regions (with Scotland, Wales and N. Ireland considered as ‘relatively poor’) may in aggregate be the second largest suppliers of future intra-EU money transfers from the so-called ‘rich’ to the poorer southern and eastern regions of Europe. In that sense, the EU needs the UK more than the other way round.
The Pro-EU camp ignore the trade balance issue completely and threaten, as did President Obama, that the UK would be left out in the cold, like Switzerland, and unable to negotiate its way out of a disaster. Switzerland is not an EU member and has an economy of less than a quarter the size of the UK’s. And yet from 2009-2013 she exported, on average, 4.6 times the value per person to the EU than does the UK (The Truth About Trade Outside the EU, William Dartmouth MEP, June 2015). With a negative EU trade balance, why would the UK be unable to negotiate, from outside, a trade agreement at least as good as that achieved by Switzerland?
[As an aside, over dinner many years ago, my occasional Lords and Commons golfing partner Dennis Thatcher asked me how the UK would survive alone in an era when world power blocks and corporations were getting bigger? I replied, “In the same way as Switzerland.” He retorted while hitting the table hard with his hand, “That’s just what Margaret thinks!”]
Further, the EU negotiates international trade agreements under the auspices of the World Trade Organization (WTO), in the primary interests of the EU, not of the UK. England has flourished by trading globally, especially with the U.S. and the British Commonwealth. The EU has no trade agreements yet with China or Japan. Outside the EU, the UK would be enabled to negotiate freely to trade with the entire world and be unfettered by the EU where it has a muted voice of 1 among 28 members. Furthermore, free of burdensome and costly EU regulations, the British economy likely would be re-energized, particularly among the vital job-creating small business sector.
In addition to economic collapse, the Pro-EU camp postulates that the British pound sterling, still one of the top five global trading currencies, would plummet following a BREXIT. However, many informed observers believe the international monetary system is on the cusp of a major collapse. In these circumstances, the vital interests of the Federal Reserve, European Central Bank, Bank of Japan and even the Bank of China would be to steady the ship to avert a collapse of fiat currency. Unimaginable amounts of central bank money could be deployed to save the pound, rendering it a false scare.
On the other hand, although the UK is not a member of the euro, a BREXIT indirectly could threaten the euro, now the world’s second currency.
Already a number of EU members are experiencing anti-EU sentiments among their people. The United Kingdom Independence Party (UKIP), which forced the BREXIT vote, is not alone. It is part of a sizable block, styled the Europe for Freedom and Direct Democracy (EFDD) group, in the EU parliament. It is comprised of representatives from the UK, France, Sweden, Italy, Poland, Lithuania and the Czech Republic. In addition, countries like Greece, Spain and Portugal are becoming very unhappy about the implications of Eurozone membership. A for BREXIT vote could ignite an implosion within the Eurozone rather than being a threat to Sterling. This may be what worries the international central banking and political elite most. It has led directly to massive global elite support for Cameron’s Project Fear.
If the British public wises up to David Cameron’s game of fear and vote for BREXIT, there will be some short-term shock and disruption in currencies, equities, bonds, precious metals and possibly employment. However, the global central bank and political elites could be expected to move very fast to avoid the development of deeper problems. Negotiations likely would be concluded very quickly to calm things down with minimal damage to the UK economy or its currency.
John Browne is a Senior Economic Consultant to Euro Pacific Capital.