Author(s): David T. Llewellyn
Date published: May 2016
SUERF Policy Note, Issue No 7
by David T. Llewellyn, Professor of Money and Banking, Loughborough University
Abstract: On June 23rd the British electorate will make a momentous decision: whether or not the UK should leave the EU (BREXIT). Two immediate issues immediately arise. Firstly, there is a great deal of unsubstantiated rhetoric on both sides of the debate. Claims are made with great confidence when in truth we simply do not know. Secondly, the debate is somewhat surreal because the electorate has no way of knowing what the alternative to membership is and especially with respect to trading arrangements in the event of BREXIT. The issues are clouded with uncertainties, risks and a lack of information. The purpose in this SPN is not to make the case for or against BREXIT but to emphasise the uncertainties and offer a critical analysis of some of the claims made in the debate.
Before addressing the arguments in the debate, the paper considers four key issues: the existing position of the UK within the EU; a brief summary of the arguments in support of BREXIT and the case against; a discussion of the economic dimension, and the ambiguous concept of sovereignty where a distinction is made between what might be termed independent sovereignty, effective sovereignty, and collective sovereignty.
Debates on complex and multi-dimensional public policy issues, where facts are scarce, offer fertile ground for the emergence of myths. Several have emerged in the BREXIT debate and are discussed in the paper: (1) BREXIT would mean independence for the UK and the restoration of a much higher degree of national sovereignty; (2) the UK would no longer be required to make financial payments to the EU budget with the result that more resources could be devoted to public services; (3) a trade deal with the EU would be easy to negotiate within a comparatively short period; (4) trade deals with other parts of the world would be easy and quick to negotiate; (5) any impact of BREXIT on the EU itself would be of no concern to the UK; (6) there would be greater control over UK borders and immigration; (7) the UK would be free of alleged burdensome EU regulation; (8) BREXIT would free the UK from the commitment to ever-closer union as enshrined in the EU Treaties; (9) the European Court of Justice would no longer have authority to over-ride judicial decisions made in UK courts, and (10) the unelected EU Commission determines EU laws.
A fundamental trade-off is the choice between maintaining access to the Single Market versus escaping from the three key elements in any trade deal with the EU: freedom of movement of labour, contributions to the EU budget, and regulation. Given the importance to the UK of access to the Single Market, this trade-off poses a dilemma for those advocating BREXIT as any realistic trade deal with the EU would imply abandoning some of the key issues underlying the BREXIT case. It is also necessary to consider the various risks (both of exiting and remaining) and whether they are judged to be symmetrical around the mean.
A key issue is the impact that a BREXIT would have on the EU itself. In particular, would it influence the future direction of the EU and, if so, in which direction: towards “ever closer union” or towards major reform in some key areas and a greater emphasis on the principle of subsidiarity? The debate has been conducted on the basis that there is a simple binary choice: leave or remain. A third alternative strategy, however, has not been discussed and relates to the future evolution of the EU. This third choice would be to remain a member; join forces with like-minded Member States, and then with partners take a more active role in pressing for fundamental reforms. The rider would be that the UK retains the option of a second referendum if reforms are not forthcoming. Whilst a vote to leave is likely to be irrevocable, a vote to remain would not be.
JEL-codes: F13, F15, F21, F22, F23, F33, F36, F42, F53, F55, F62, G15, G77, J61
Keywords: Brexit, EU democratic deficit, EEA, EU, EU-budget, European Court of Justice, trade deals, European regulation, foreign direct investment, free trade, free movement of labour, Single Market, sovereignty.
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