Tomorrow is simply about the method and the timing

Though our relationship with the EU may seem to be bookended by referendums, it’s politicians who’ve made the big calls. Edward Heath took us in to the EEC in 1973, and the nation endorsed that decision three summers later.  And Gordon Brown and Ed Balls set us on the path to eventual Brexit via the five economic tests they set for joining the Euro [supposedly in the back of a New York taxi!]

It’s easy to forget just how keen Tony Blair was on Euro membership:

“The decision to launch the single currency is the first step and marks the turning point for Europe, marks stability and growth and is crucial to high levels of growth and employment.” – June 15, 1998

“The tragedy for British politics – for Britain – has been that politicians of both parties have consistently failed, not just in the 1950s but on up to the present day, to appreciate the emerging reality of European integration. And in doing so they have failed Britain’s interests.” – November 23, 2001

“Should we stand apart from the alliance right on our doorstep as a country? It would be crazy to do that. It is an economic union. We shouldn’t, for political reasons, stand aside. I don’t believe that would be a fulfilment of our national interest. I believe it would be a betrayal of our national interest.” – May 15, 2002 *

It seems pretty safe to say that he misjudged the eventual success of the Euro. But he was right about the emerging reality of European integration: there’s no way the Eurozone can survive without it.

As Andrew Lilico put it in a recent interview with Vox, there are only two ways for the EU to cope with its ongoing economic shocks – population movements or fiscal transfers:

If you want to have things function and maintain social cohesion, you don’t want vast population movements. You need fiscal transfers. That means regional subsidies, benefits payments, tax breaks to allow individuals to keep going in tough times.

The EU has a system like this, but it’s very small: half a percent of GDP. In the UK it’s 3 to 8 percent of GDP, something like six to 15 times as big. If you’re going to make the euro function, you’re going to need much larger transfers from the richer parts of Europe — like Germany and Northern Italy — to poorer parts — like Greece, Southern Italy, and Spain.

At the moment this is being erratically enacted via debt haircuts and interest deferment. But ultimately it requires Eurozone taxes and a Eurozone Treasury, and political integration to match.

Will the EU manage to get to this position, or will it implode under the political stresses it implies? I don’t know. But non-Euro Britain isn’t going to want to be part of either scenario. The question is whether we’d be better off getting out now or waiting for developments.

Tissue Price