Following the Second World War, Winston Churchill was one of the first to call for the creation of a United States of Europe. Not everyone shared Churchill's desire to create a federal Europe and already back in 1962 the leader of the Labour party Hugh Gaitskell warned against a UK membership of the Common Market. More than half a century later the debate on this issue has now reached a critical point. June 2016 will see the UK population decide on whether to stay in the EU and become what Lord Owen, former leader of the Social Democratic Party, described recently as "partly a country and partly not a country" or to exit the EU and restore sovereignty.
The principal arguments in favor of staying in the EU were set out in an article published by "The Economist".
1. Trade: 45% of British exports go to the EU. If there is a withdrawal, the EU could impose on Britain a wall of exporter tariffs and all kinds of bureaucratic obstacles. In addition, Britain can obtain better trade terms because of the EU's size.
2. Investment: A withdrawal from the EU is expected to be particularly felt in relation to inward foreign direct investment (FDI). As of 2014, the UK had the third highest stock of inward FDI in the world, behind the US and China. EU Countries account for nearly half of the FDI.
3. EU Budget: Britain pays the EU £340 a year per household compared with an estimated £3,000 yearly benefit of membership. A healthy £2660 net gain!
4. Regulation: Most EU regulation collapses 28 national standards into one European standard, reducing red tape and benefiting business. As a member, Britain can fight for better regulation.
5. Immigration: Leaving doesn't necessarily mean reduced immigration. Countries that trade with the EU from outside have a higher rates of immigration, including from other EU countries, than Britain.
Taking each argument in turn:
1. Trade: Let's ignore the fact that the share of UK exports to the EU has dropped 10 percentage points since 2002 and this declining trend sees no sign of abating. What matters is the fact that even if the EU would impose exporter's tariffs and other bureaucratic barriers on UK businesses, the rest of the world remains open for UK's exports.
The UK economy is competitive and liberalized and therefore would be able to withstand international competition. It must also be kept in mind that the UK could turn any possible EU trade-obstacles to its advantage, by redirecting its economy towards other behemoth size markets such as China, India & America without being bound by rigid EU law.
Reorientation of the UK's economy towards other global markets is essential for two main reasons:
a) The EU trading block is in rapid decline. It has gone from having 30% of world trade in the 1980's to a projected 15% in 2020.
b) In February 2016 the Trans Pacific Partnership (TPP) under US leadership was signed.
That new bloc completely surpasses the EU both in population and share of world trade. The already gloomy projection for the EU's share in global trade is bound to drop further as the liberalized trade of the TPP bloc is expected to trigger exports among its member states. An additional hit to EU exports is expected simply because TPP will change the competitive relations between EU and American firms as far as access to the Asia-Pacific market is concerned.
Given that current EU external exports to the TPP member states account for 33.5%, the creation of the TPP will only have a further painful effect on the EU.
After considering all worst case scenarios, it is important to remember that a withdrawal from the EU does not necessarily mean trading will stop with the EU countries. Most likely, Britain will continue to comply with the existing EU trade rules just as it does with any other trading partner and on top of it, will open its economy into new global markets.
2. Investment: It is unclear what makes the anti-Brexits fear a severe loss in foreign direct investment. The decision to invest is mainly motivated by many factors such as the integrity of the UK legal system, the availability of particular skills and services and the status of the English language. These factors are not going to disappear simply because of the withdrawal. A study of historical flows of FDI conducted by Civitas questioned the importance of a single market "… there is no evidence to suggest that the Single Market as a whole has been a magnet to foreign investors, or that it has encouraged FDI in the UK specifically. Many non-members have attracted more FDI".
It is worth mentioning the panic surrounding the City of London. The financial services sector in the City alone is responsible for about 8% of the UK's GDP and as such it is subjected to all kinds of Armageddon prophecies from anti-Brexits such as "massive dislocation" of jobs and financial institutions. For several reasons such prophecies are just as real as a monster under the bed. The logistics of dislocation is a hard nut to crack; The EU is a socialist protectionist customs union. As a result, all other countries inside the EU are burdened with labor and product regulation. Language barrier is another factor that makes dislocation difficult. Dislocated employees will have to struggle with the burden of learning a new language, disrupted family lives and friends left behind. Also, densely populated European cities just don't have enough office spaces compared to London. We have already seen this with hedge funds who thought moving to Switzerland would be a no-brainer but the experiment has soundly failed.
3. EU Budget: Britain can stop sending £350 million (half of England's school budget) to Brussels every week. This money could be spent on other areas such as the NHS. As for the estimated £3,000 estimated benefit per household, I couldn't verify it and equally from a personal perspective cannot see where my household benefits in such a way.
4. Regulation: The argument that as a member Britain can fight for better regulation does not stand up to basic scrutiny; since records began in 1996, the UK never managed to prevent a single proposal placed in front of the Council of Ministers from becoming European law. This amounts to 55 measures that the UK opposed that have since become UK law.
The main concern is that the EU simply dictates the rules as it goes alone and the UK has no influence on them. British history shows that the British people are very independent-minded and like to decide for themselves on questions of trade relations, human rights, foreign policy etc. When Britain became part of the EU 1973, British people did not agree to lose sovereignty in 2016 and become part of a European State with institutions for whom the British electorate cannot vote, and who cannot be democratically removed.
5. Immigration: Leaving the EU may not be the magic solution to immigration problems but it will provide Britain with the sovereignty on immigration matters. That will allow the UK to control the system that currently offers an open door to EU immigrants and blocks non-EUs that could contribute to the UK.
It seems to me that the arguments to stay are purely emotional. So now we even find headline articles such as one from the Guardian: "Royal family considering dramatic Brexit intervention" where according to the author, the royal family is believed to be "willing to risk a potential constitutional crisis to express their anger over the leave campaign".
This is from a broadsheet which has long tradition of being anti-monarchist. Such are the feeble arguments for remaining in the EU that they are suddenly happy to roll out the Queen as a weapon of last resort. All they have left is to plant fear and doubt in the heart and minds of the UK population when clearly the rational arguments don't hold water.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.