The outcome of the Brexit referendum on June 23 2016 was a surprise to many – I would even say to almost everybody – within and without the UK borders. It is widely known that the relationships between the UK and the EU have not been exactly easy; however, to find out that the country had decided to Brexit, instead of staying in the Union, left politicians, academics and media speechless. It is a small consolation that those who chose not to Brexit were 48%, agains 52% of pro-Brexiters.
After nine months about that disgraceful June 23, it is still hard to figure out the real reasons behind this slap in the EU’s face.
Although perhaps somehow tired by the frantic negotiations of David Cameron and the insistent and, sometimes, far fetched demands coming from Downing Street to persuade the British to stay, I think it is safe to say that most of the EU members did not want the UK to leave. UK leaders, academics and policymakers have contributed hugely to the consolidation of the Union, bringing new ideas and fresh air in support of a more market friendly and less bureaucratic spirit in the EU. Indeed, Adam Smith’s insights about the invisible hand and the functioning of markets, Ricardo’s pioneering claims about comparative advantages and international trade, and other contributions of many prominent economists and thinkers, are part of a valuable legacy which is deeply embedded in the British society. Its citizens could still contribute immensely to the shaping of the UE in a particularly complex moment of history.
I have claimed that UE benefits from the presence of UK; however, does UK benefit from being in the EU? Obviously, 52% of Britons apparently think that that is not the case. It is a legitimate claim, of course. I must admit that some time ago I was not totally sure that joining the EU was the right choice for a country. At this moment, though, the benefits of being part of the Union, for a country in general and for the UK in particular, are in my view larger than the costs.
The advantages brought about to the UK by the status of London as one of the two or three main financial hubs in the world have also been analysed profusely, and hence I will not focus on this point now.
A huge benefit associated to the EU membership is being part of a highly integrated, rather dynamic market of more than 500 million people. For several years the EU has been the first exporter of goods and services in the world, the first importer of services and the second importer of merchandises; these figures are not in the least trivial.
In this setting British firms have benefited from the absence of tariffs and other non tariff barriers prompted by the single market: more than 70% of firms in the Confederation of British Industry report that the single market has exerted a positive impact on their business, either by facilitating their sales of products or by providing key components to their supply chain.
No doubt trade has a direct impact on firms’ profits. But there are also indirect effects. Trade is a channel whereby innovations and technology advances are passed on from some agents and firms to others. Moreover, some recent research has shown that, in the case of the EU, larger levels of trade are associated with bigger flows of Foreign Direct Investment, another mechanism that allows the diffusion of technology and best practices, and which impacts productivity and growth positively.
One of the main costs of belonging to the EU is the need to comply with EU regulations and principles, some of which may be perceived as especially burdensome during specific periods of time. In my view, this has been a key issue influencing the pro-Brexit vote. In particular, and due to the existence of free movement of citizens in the EU, a noticeable influx of people from EU countries have entered the country in recent years. Thus, immigration has been perceived by part of the UK population as a downside of belonging to EU. This effect, however, is very difficult to assess properly: on the one hand, when analysing migration we usually work with proxies or estimates, rather than with precise numbers. Moreover, it is difficult to estimate the impact of immigration on the economy of the host country, because it is a combination of effects of different sign. Anyhow, it is reasonable to presume that, in a country with full employment, such as the UK, it is hard to argue that foreigners are stealing jobs from the nationals. The alleged pressure on public services or the abuse of benefits caused by immigrants is often claimed more with circumstantial evidence than with sound, rigorous numbers. In any case, the age of the people entering the UK suggests that their contribution to HMR is typically larger than their consumption of social services.
And we must not forget that, paradoxically, the number of immigrants from non EU countries is still larger than that of EU nationals, although it is true that this last category is growing faster. Hence, to leave the EU because of the potential damages that immigration may inflict on the British society, seems an overreaction: would not have been easier to restrict the number of visas given to non EU nationals, as it was already happening, rather than to terminate a relationship that has worked since 1973?
When thinking about movements of people within the EU it is advisable to look at the flows in both directions. What is going to happen to the 700.000 Britons that, according to Behaviour Abroad, live in Spain, many of them enjoying a well deserved retirement? (and, incidentally, in a stage of life when the use of health care services gets more frequent). Needless to say that we Spaniards are immensely happy to share with others our sunshine, our beaches and our mild winters, and also, when necessary and with the proper financial adjustments, our health services, but there is a big issue there that can not be overlooked by British authorities.
It is sad to imagine a EU without UK, but apparently that is where we are headed now. Nevertheless, let’s hope that, by some kind of magic produced by the British government and the EU authorities, UK does not drift apart totally from the rest of Europe. We have a common past, a common heritage, a common set of principles in many aspects, and we should try to keep the relationship between both areas as friendly and smooth as possible, despite the unpleasant episode that took place nine months ago.