It’s not the EU we left...
While many Remainers still hope to rejoin, the European Union has changed a lot in just a few years – and not for the better, writes Rob Lyons.
At the Battle of Ideas festival, we have five discussions investigating the most important economic issues of day. Join us by booking your early-bird ticket - but hurry, our offer ends on Monday. Even better, sign up as paid subscriber to our growing Substack community and get a big discount on Battle tickets and join our subscriber-only meeting in the run up to the festival.
In a report published earlier this week, The Future of European Competitiveness: A competitiveness strategy for Europe, the former head of the European Central Bank, Mario Draghi, has provided a deeply pessimistic overview of the EU’s economic prospects. Productivity growth is ‘weak, very weak’. The gap between the EU and US is growing ever wider. The main way in which Europe has avoided an even worse downturn has been by selling to faster-growing Asian markets.
But as Draghi notes:
The previous global paradigm is fading. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets. Europe has abruptly lost its most important supplier of energy, Russia. All the while, geopolitical stability is waning, and our dependencies have turned out to be vulnerabilities.
Draghi calls for urgent action for coordinated policy, including a huge increase in investment to five per cent of GDP per year (around €800 billion at current levels) - rates last seen in the 1960s and 70s: ‘This is unprecedented: for comparison, the additional investments provided by the Marshall Plan between 1948-51 amounted to around one to two per cent of GDP annually.’
Far from being a potential saviour of the UK economy, as many who bemoan Brexit tend to argue, the EU is in serious trouble – particularly as population growth slows, too. All this while attempting an energy transition to renewables which, despite the claims of proponents, is making doing business in the EU ever more expensive. ‘For the first time since the Cold War we must genuinely fear for our self-preservation and the reason for a unified response has never been so compelling’, Draghi told a press conference.
We have little to crow about in the UK, given that the latest GDP figures here show that the economy is flatlining, again. But it's not just the EU’s economy that is cause for concern. One of the big factors in the Brexit vote was the way decision-making was becoming more and more unaccountable to voters, a trend that has continued.
As Thomas Fazi notes in a new report, The Silent Coup: the European Commission’s power grab, the Commission president, Ursula von der Leyen, has taken advantage of the Covid and Ukraine crises to push through changes to how the EU works - with more and more power residing in Brussels. Now, member states are even more subject to the Commission on everything from national spending plans - which must be approved by Eurocrats – through to foreign, defence and security policy. Whenever the EU is in trouble, the answer always seems to be ‘More Brussels’.
Draghi’s ‘unified response’ could be more of the same - if it ever actually happens. That said, as David Frost noted yesterday in the Telegraph, the EU is ‘a world leader at devising growth strategies… Unfortunately, these growth strategies haven’t generated much actual growth’.
Another blow for the autonomy of member states came on Tuesday when the European Court of Justice ruled in a long-running case that Ireland had given illegal ‘sweetheart’ tax arrangements to Apple and instructed the Irish government to recoup €13 billion from the firm. This is despite the fact that Ireland - a small country keen to attract Big Tech firms - doesn’t want to. As Brendan O’Neill rightly notes, this is just the latest example of the way ‘the EU gives itself the border-busting, sovereignty-smashing power to tell governments of all persuasions what they may do with their own resources’.
Even the idea of an open Europe, exemplified by the Schengen agreement, which removed many internal borders, is now much more open to question. The German chancellor, Olaf Scholz, has announced that from next Monday there will be controls on all of Germany’s land borders. Germany’s interior minister, Nancy Faeser, explained that the new restrictions were in response to ‘acute dangers posed by Islamist terrorism and serious crime’. At the first sign of trouble, the shutters come down.
All of which makes the manoeuvres by Keir Starmer to ‘reset’ relations with the EU rather curious. The EU is in economic decline, deeply divided over the role of Brussels in national affairs and the implementation of Net Zero policies that are harming everyone from German industrial giants to small farmers. Far from a global powerhouse, the EU looks increasingly irrelevant on the world stage. As Frost points out: ‘The EU’s woes mean that Keir Starmer’s project of boosting growth by resetting relations will eventually come to be seen as futile.‘
Meanwhile, Labour’s trade secretary, Jonathan Reynolds, is crowing about the imminent ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), ‘a major milestone in our journey to full membership of a bloc that will boast a combined GDP of £12trn after the UK joins‘. It’s a deal that simply wouldn’t be possible inside the EU’s Customs Union.
Labour’s plan for the UK’s relationship with Europe, particularly the economic impact, is the topic of a session at the Battle of Ideas festival, Running back to EU? Labour, Europe and the economy. The festival takes place on 19 & 20 October at Church House in Westminster. There’s still time to take advantage of discounted ‘early bird’ tickets. Our paid Substack subscribers also receive significant discounts.
Running back to EU? Labour, Europe and the economy
Saturday 19 October, 16:45—18:15, Church House, Battle for the Economy
In July, on the eve of the General Election, Keir Starmer was asked if he could foresee ‘any circumstances’ in which the UK would rejoin the EU’s single market ‘in his life’. His response was an emphatic ‘no’. Yet it is clear that Labour wants to ‘reset’ the UK’s relations with Europe. Reports in July suggested the German government wants to expand Starmer’s offer of security cooperation into a ‘mega-deal’ that encompasses everything from agricultural rules to the Erasmus student exchange programme.
In the period after the UK left the EU, there were considerable difficulties for many businesses in working out how to trade with the EU, despite a deal that largely dispensed with tariffs on goods. Many difficulties remain – particularly with Northern Ireland’s status, having a foot in both the EU and the UK markets. Many commentators believe leaving the single market was a mistake that is hitting the UK’s economic growth.
But others believe that Brexit has had little impact on the economy. The UK’s economic problems are longstanding, they argue, and have much more to do with a lack of investment and slow productivity growth than with our trading relations with the EU. The pandemic lockdowns and the energy-price crisis were much more important ‘headwinds’ than Brexit. Others believe recent UK administrations have failed to take full advantage of the post-Brexit freedoms to deregulate and pursue other national economic policy opportunities.
Moreover, recent UK GDP figures compare favourably with similar countries – Germany, France and Italy – in the EU. And there are persistent concerns about being in the single market without being in the EU – that the UK would end up being a ‘rule taker’ rather than a ‘rule maker’ – while being obliged to accept free movement.
How far can Starmer go in forging closer ties with the EU when there is little appetite for reviving the debate about Brexit? Has leaving the single market been an economic disaster as some claim? Or is this yesterday’s news, distracting us from the policies we need at home to revive the economy?
Explore the other Battle of Ideas festival discussions we have in our economy strand…
How should we approach the consequences of demographic ageing? Is it an inexorable economic and social burden that we need to find ways of adapting to? What is the connection between population structure and size, and a country’s growth potential? Would it help if more policies focused on supporting healthy and active ageing? Can societies survive a decline in their population?
In the UK, there are currently around 9.4 million people aged between 16 and 64 years old who are economically inactive – neither in work, nor looking for work. Yet official unemployment stands at a relatively low rate of 4.4 per cent. Are the shortages of workers a temporary, post-pandemic blip or a sign of a structural problem? Is it mainly due to the structure of our labour market and the kinds of jobs available, or are there other factors at play? Will the economy suffer if a minority never work? What can be done to get the UK back to work?
Established in 2010 by the then-chancellor George Osborne, the Office for Budgetary Responsibility (OBR) was created in the wake of the global financial crisis to provide independent and transparent analysis of the UK’s public finances. Is the OBR an essential institution that safeguards economic stability, or is it an obstacle to democratic governance that should be reconsidered?
What will be the impact of AI on the economy? If many jobs in the future will be automated, what happens to the redundant workers? Is this just the latest tech hype that will blow over when rose-tinted expectations aren’t fulfilled – or are we simply at the start of a workplace revolution that will provide new impetus to the economy?
“In the UK, there are currently around 9.4 million people aged between 16 and 64 years old who are economically inactive – neither in work, nor looking for work”
This represents about 25% of the population in that age range, to be compared with an unemployment rate below 5%.
Lies, damned lies, and statistics.
I think the risk is that the EU elites in Brussels will see this as a reason for more intervention by them rather than recognising that it is their incompetent interventions over many years that has led to the sclerotic nature of the EU countries. The answer is always "More Brussels"......