January 27th, 2015
By Will Cousins
The case for Britain staying in the EU is not just about present prosperity; it is about creating opportunities for our businesses in the future. This will be made clear today at an event hosted by Business for New Europe and FIPRA in Brussels, on priorities for the Single Market and the “cost of non-Europe.” It will show how action at an EU-level will create vast gains for businesses across the EU, and here in Britain. The European Parliament estimates the cost of a lack of economic integration in Europe to be a staggering €800bn, or 6% of the EU’s GDP.
There are many areas where the EU can deliver gains for businesses in specific sectors. But we should focus on five priorities, which will benefit all types of businesses.
Firstly, the digital sector. The Single Market is perhaps the EU’s greatest achievement and has boosted EU GDP by an estimated 2.2% since its creation. But it was created before the internet revolution changed the way we live and do business, and subsequent reforms have not done enough to bring it up to date. At a time when consumers use online purchasing so regularly, the number of cross-border transactions in Europe is still disappointingly low. There is a clear need to create a single area for online payments and e-invoicing , to protect intellectual property rights at a European level, and to break down geographical restrictions that exclude foreign competitors. All this could raise the long-run level of EU GDP by 4.1%, or €520bn. This could be absolutely transformative for Britain, as we have the biggest digital sector in Europe.
It isn’t just in digital where the Single Market is incomplete. According to the European Commission, trade integration in the EU is at 22% for goods, but only 5% for services. This is largely because, while there are almost no barriers to trade in goods within the EU, service markets remain fragmented. There should be fewer barriers to cross-border services, public procurement should be opened up, and the existing Services Directive must be much better enforced. The European Parliament believes full completion could be worth €233bn a year to the EU economy- and once again, the UK would be a big beneficiary, given the importance of services to our economy.
Creating a Capital Markets Union is the job of Jonathan Hill, Britain’s European Commissioner. And it is an important job. Completing financial markets could create an efficiency gain of €60bn a year, 90% of which would go to small businesses. European SMEs get 75% of their funding from banks, compared to around 25% in the USA. Opening up capital markets would create a huge new pool of investment for small businesses to tap into. The EU is not about big businesses flourishing amid the red tape- it is about breaking down national obstacles that stand in the way of small businesses growing and succeeding.
Ongoing war in Ukraine and turmoil in the Middle East have turned European minds to the security of the continent’s energy supply. A new drive towards energy security must include far greater integration of Europe’s energy markets- which, happily, would also save businesses some €50bn a year. Europe has been helpful to the British government’s energy strategy recently; permitting the government to spend £25bn building a new nuclear power plant at Hinckley Point, which when completed could produce 6.5% of Britain’s energy needs.
The Transatlantic Trade and Investment Partnership, or TTIP, has been covered prominently, and not always fairly, in the news recently. This ambitious free trade and investment deal with the United States could boost the EU’s GDP by €60bn a year, and Britain could benefit by up to £10bn. The US is a vital economic partner for Britain, buying 18% of our exports and providing 27% of our foreign investment. TTIP has clearly proved controversial, and will take longer to negotiate than thought. But the political will is clearly present on both sides of the Atlantic, and we should reflect on how good a deal we would get if we were negotiating with the American behemoth on our own, rather than as part of the world’s largest economy.
These five areas have long been priorities for Britain. A joint letter by David Cameron and 10 other reform-minded European leaders in 2012 emphasised completing the single market, the digital sector, Energy Union and free trade. In 2013, 260 businesspeople signed Business for New Europe’s manifesto for reform, which included all of these as priorities.
The fact that four of the ten signatories to David Cameron’s letter now have senior positions in the EU should indicate how good the chances of this agenda being delivered are. They dominate the new Commission’s Work Programme for 2015, and the relevant Commission portfolios are held by pro-reform, pro-business politicians, such as Jonathan Hill.
Some might think, cynically, that if we can leave the EU while retaining access to the Single Market, then we will benefit from its completion anyway. This is a complacent attitude to take. Leaving aside the very high possibility that we would not be able to stay in the Single Market if we left the EU, Brussels will still need pushing by member states in order to deliver. There is a reformist faction in Europe, and Britain is its natural leader. The Single Market was a British achievement, and we have spent forty years fighting for a more open and business-friendly attitude in Brussels. If we stay in Europe and lead this agenda, the benefits for British business will be immense.
January 24th, 2015
By Haude Lannon
Bad news for the rare City eurosceptic this morning: Goldman Sachs has come out (repeatedly) to say that “Britain should stay in the EU to ensure London remains a great financial capital of the world“. Note that this is not the first time Goldman or other international banks have said this – many have raised the possibility of even leaving London in case of a Brexit, see here. Also industry associations like the British Bankers’ Association have come out clearly in favour of EU powers over financial services.
There is another good and balanced read on the subject: an interview in CityAM back in November with James Bardrick, head of Citigroup in the UK.
He leaves no doubt that the EU is good for the City and Britain has the influence to make the EU even more competitive: “Remember, the UK very much led the formation of the single market, and has been right behind some of the best changes that have been made to it over its history. I see no reason why we shouldn’t continue to do that.”
On the question of what would happen in case of a Brexit, he is very clear
“We’d have to make changes to our operating model to reflect some of the increased inefficiencies that being outside the EU would throw up, and there is no doubt that would lead to changes in the way we have to deploy some of our resources, both financial and people.”
Have no doubt: banks are obliged to consider their business interest and are already making contingency plans on where to move their European wholesale operations in case the City of London loses the right to freely sell financial services to the EU (the so-called passport). The winners may be Frankfurt or Paris, but even Dublin could grow into a financial hub from the jobs moved from London (see the reports here).
As for how many jobs and how much tax revenue would be lost in Britain – we don’t know yet exactly. The question is not whether the City would lose, but how much.
January 23rd, 2015
By Will Cousins
“Forget the EU- let’s take on the world with our TRUE friends”, screams the headline in today’s Daily Mail. The author is Daniel Hannan, Conservative MEP for South East England, and the theme is a familiar one- that Britain is “shackled to a corpse” in the EU, and should focus instead on the Commonwealth, or the “Anglosphere” as Hannan often calls it. In this back-to-the-future narrative, membership of the EU has “artificially redirected” our trade to European countries, which “dislike” us”, from our “true friends.” These friends comprise what used to be known as the Old Commonwealth- Canada, Australia, New Zealand- plus the United States and India.
First, the facts. In 2013, the rest of the EU bought 44% of our exports. The five countries Hannan mentions bought 23%. This is despite the fact that the rest of the EU has a population of 444 million and a GDP of $15 trillion, while the Anglosphere has a population of 1.6 billion and a GDP of $22 trillion. It is true that our exports to the EU fell, but the same is true of our exports to the USA, Australia, Canada and New Zealand. Only India saw an expansion.
He doesn’t mention foreign direct investment either. In 2012, the Anglosphere accounted for 32% of the total stock of FDI in Britain. The EU was responsible for 50%. In that year, investment from the EU jumped by £95 billion, while the level of investment from all the Anglosphere countries save America fell. Hannan may think he knows where our “destiny” lies, but the numbers are not so sure of themselves.
And that shouldn’t be surprising. Hannan may be right when he says that, economically, “geographical proximity has never mattered less”. But it still matters a great deal. A 2008 study on the distance effect on bilateral change showed that its importance has hardly changed in the past fifty years. [Anne-Célia Disdier & Keith Head, ‘The Puzzling Persistence of the Distance Effect on Bilateral Trade’, 2008]. Work by the OECD found that a 10% difference in distance between two countries decreases intermediate goods imports by 8.2% as compared to 7% for consumption, and 5.3% for imports of capital goods [S. Miroudot, R. Lanz & A. Ragoussis, ‘Trade in Intermediate Goods and Services’, 2009].
The immense importance of the European market to Britain is not simply caused by geography. The CBI shows [CBI, ‘Our Global Future’, 2013] that EU countries have the highest level of export complementarity with the UK. Belgium is top, with 71%. Eight of the top 10 are in Europe; India comes 135th.
This is not to deny for a moment the importance of our links with the Anglosphere countries. We are close to all of them, and of course the alliance with the United States is vitally important for Britain. But our relationships with these countries are not damaged by our EU membership; they are enhanced by them. Britain brings a great deal to the EU table, and our alliance with the United States is one of them. British governments, both Labour and Conservative, have traditionally tried to form a bridge across the Atlantic. If we left the EU, Washington would simply deal bilaterally with Brussels, Berlin and Paris.
As for the others, they simply do not form a viable alternative to Europe. Are we really going to deliberately and permanently damage our relationship with Germany in order to re-emphasise our kinship with New Zealand? Rugby matches against Australia and royal visits to Canada are no replacement for a structured alliance with our neighbours.
Hannan loves the Anglosphere- but not enough, apparently, to listen to what its leaders are saying. He seems not to have noticed that the Obama administration emphatically stated that “we want to see a strong British voice in that European Union. That is in the American interest.” That was in 2013, and if he missed that, he cannot have missed the fact that every US administration since Kennedy has supported British membership. In the same year, the Australian foreign minister said: “Australia’s strong links with the UK allow Australian businesses to use the UK as a platform for trade and investment in the broader EU market. I encourage the UK to maintain its influence by remaining an engaged participant in all aspects of the EU internal market.” The Prime Minister of New Zealand, John Key, was in London last week, and was too diplomatic to say what he thought about Britain’s future in Europe. But the purpose of his trip was to pursue a trade deal with the whole of Europe, and to enlist British help in achieving it.
And that is the point. “Europe or the Anglosphere” is a false choice. The Commonwealth countries want Britain to stay in- to make the EU better, and to improve its links with their own countries. Hannan has not provided one shred of evidence that our relationship with the Commonwealth would be any better if we left.
Hannan quotes Churchill in his article. Fifty years from the great man’s death, it might be worth remembering what he said in a radio broadcast, in a prophetic growl, in November 1934. “There are those who say: Let us ignore the Continent of Europe. Let us leave it with its hatreds and armaments to stew in its own juice, to fight out its own quarrels. Let us turn our backs upon this alarming scene. Let us fix our gaze across the ocean and lead our own life in the midst of our peace-loving dominions and empire. There is much to be said for this plan if only we could unfasten the British islands from their rock foundations and could tow them 3,000 miles across the Atlantic Ocean and anchor them safely upon the smiling coasts of Canada. I have not heard of any way in which this could be done.”
Britain is 23 miles from France, and 11,426 miles from New Zealand. We will continue to trade and do business with the nations of Europe. We will continue to inhabit the same space, and face the same threats, from terrorism and a resurgent Russia. Churchill knew that denying this fact, and dreaming of detaching Britain from its place in the world, was useless fantasy. Eurosceptics would do well to listen.
January 23rd, 2015
With the Greek elections fast approaching, and polls all pointing to a likely anti-austerity coalition led by Syriza, this morning Business for New Europe brought together a panel of experts to discuss the possible fallout – what would a Syriza victory mean for Greece and the rest of Europe?
Panellists were Catherine Fieschi, Director of the political think tank Counterpoint; Vicky Pryce, chief economic advisor to the CEBR, a former head of the Government Economic Service and author of Greekonomics: the euro crisis and why the politicians just don’t get it; and Professor John Ryan of the Von Hügel Institute at St Edmund’s College, Cambridge University.
Catherine began by pointing out that the two Greek parties generally labelled as “populist”- Syriza and Golden Dawn- are in fact nothing of the sort. Golden Dawn are a straightforwardly neo-Nazi party, while Syriza is a party of the radical left that lacks the narrative of exclusion that typifies populist parties.
She said that it is effectively certain that Syriza will win the elections, as Greek voters generally fall behind the party that is ahead. However, the election result will probably create some certainty, as Syriza in opposition have so many people claiming to speak for them. If they form the government, Alexis Tsipras will form a government and install some discipline. Additionally, the threat of Grexit is likely to be hollow, because 2/3 of Greek voters want to stay in.
Finally, she reminded us that contagion can be political, as well as economic. A Syriza victory could boost the prospects of other anti-austerity parties in the Eurozone, such as Podemos in Spain and even the Front National in France.
Vicky Pryce said that Syriza is a relatively new party and a protest movement for all those who have had enough of austerity. People are also angered by the continued Greek problems of corruption and tax avoidance.
She agreed with Catherine that Syriza will prove more coherent and moderate in government than they have been in opposition. They have eased back on the rhetoric about walking away from the bailout, and the people who have so far been speaking for Syriza will not be the ones actually making the decisions and holding power if they win. That said, they still have a number of deeply unrealistic policies, such as re-hiring redundant public sector workers, increasing the minimum wage and completely ending austerity. She said that Greece has made too much progress on reducing its debt to GDP ratio to start spending more money now.
Vicky said that it was crucial that two things should happen quickly: a stable government should be formed and they should try to conclude negotiations with the EU as quickly as possible. The sectors which have kept the Greek economy going, such as tourism, need to have stability restored, so that people keep coming to Greece and that the whole of the EU has a plan for the future.
It is clear that for EU leaders, their primary concern are their domestic electorates – for example, Alex Stubb, the Finnish Prime Minister, who has softened his line in recent days, but has made it very clear that he would not back any debt forgiveness for Greece.
John Ryan criticised both the European Commission and the German government for some of their recent comments about Greece. He said that the views of Syriza and the EU are so irreconcilable that something will have to give. He believes that debt restructuring must happen, as Greece will never be able to pay them off otherwise. The problem is that this will create a knock-on effect, with other deeply-indebted countries like Ireland demanding a restructuring of their own debt. Indeed, the Irish government have supported the principle of holding a European Debt Conference.
In the end, a Syriza victory will force a choice for the Eurozone member states- do they accept an extremely damaging Greek exit from the single currency, or do they permit Europe-wide debt restructuring?
The question and answer session was also enlightening. The bottom line for Syriza, said Vicky Pryce, is that they need to be able to claim to have negotiated an end to austerity. There are ways of doing this beyond simply writing off debts, such as increasing debt maturity or reducing the interest rate.
In response to a question about Greece’s economic fundamentals, she said that growth has been reasonable, and the vital tourism sector has held up well. However, wages, productivity and living standards are all well down. The tax base has become stronger, but avoidance remains endemic, with everyone from oligarchs to taxi drivers hiding money abroad. There is also widespread avoidance of VAT.
The panel agreed that Greece needs even more structural reform if it is to achieve serious rates of growth. Agriculture is an example of a hugely backward and inefficient sector of the Greek economy, and it will need huge changes.
In all, it was a very enlightening event. BNE is very grateful to the three panellists and Thomson Reuters. We, like the rest of Europe, will be holding our breath when the votes are counted on Sunday night.
January 19th, 2015
By Lucy Thomas
In today’s edition of The Times, a headline reads ‘Whitehall accused of pro-EU bias’. The story turns out to show Business for New Europe checking some numbers with the Department for Business – numbers which are publicly available and would be provided to anyone who asked for them.
As a pro-European campaign group, BNE makes the economic case for Britain’s EU membership based on facts and figures. Hardly surprising then, that when we publish information on jobs or the economy we want it to be accurate and up to date.
This involves looking at existing research from a range of sources, and where information is held by the relevant government department, checking with them. This is often found online, but sometimes we get in touch to make sure we have the very latest information.
So it is somewhat surprising that the Department for Business is criticised for verifying information which they hold – and information that is publicly available. Were Business for Britain or any other organisation with any view on our EU membership to ask for the latest figures, I’m sure BIS would oblige.
Surely if our opponents were confident in their research, they wouldn’t take issue with others checking official statistics to see how they measure up?
It is also current government policy that the UK should remain part of a reformed EU. So perhaps the headline should instead read: ‘Whitehall accused of doing its job’?
It isn’t always ‘Brussels knows best’ as European Parliament allow member states to decide on GM crops
January 13th, 2015
By Will Cousins
We often hear cries that ‘Brussels’ is taking too many decisions that would be best left to member states. Today, we have seen the reverse, with a new agreement on GM crops allowing member states to construct their own national solutions, rather than a ‘one-size-fits-all’ approach.
This afternoon, the European Parliament voted to adopt a new directive on the cultivation of genetically modified crops. This is a controversial subject, dividing member states and political parties alike, and this division has prevented progress on an EU-level for many years. Luckily, the EU institutions today came up with a solution that represents a victory for subsidiarity and common sense.
The Directive will effectively re-nationalise control over GM crops. Those member states which want to grow them, including Britain, will be free to do so. Conversely, countries which are opposed to GM, such as France and Germany, will have the power to ban them. At a stroke, this breaks a deadlock that has endured for fifteen years between pro- and anti-GM member states.
There is a Dutch phrase which sums up how business wants the EU to work: “Europe where necessary, national where possible.” This Directive plays exactly to this idea of subsidiarity. An EU solution was impossible, so national solutions will be permitted. The EU will, rightly, continue to play an oversight role. Genetically modified crops will need to pass EU safety tests, and member states will not be allowed to grow GMOs near the borders of their anti-GM neighbours. Like the reform of the Common Fisheries Policy in 2013, the ideal of national initiative under European oversight has been upheld.
Genetic modification is an emotive issue. Passionate advocates and opponents of the technique may be disappointed by this compromise. But whatever one’s personal opinion, it can only be a good thing that the EU has found a pragmatic, national way of breaking deadlock in Brussels. British business should be encouraged by this new attitude to European regulation.
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January 9th, 2015
The latest comes from Europe Economics and Business for Britain, claiming that the UK government would not have introduced 50% of financial regulations were we not in the EU.
That requires either a hugely impressive retrospective crystal ball, or (more likely) broad assumptions and questionable leaps of logic. Here are just a few:
- The report claims that outside the EU, the UK would not have signed up to any single market rules. Given that almost half our exports go to the rest of the EU, it’s hard to see how that would ever be the case.
- The EU Financial Transactions Tax is highlighted as a costly burden to the UK, yet this has not been introduced and it is unlikely to be in the near future. It is also not possible to say that no UK government would have introduced something similar of its own accord.
- There is no recognition that many financial regulations are agreed at G20 level, and where specific arrangements are made for the EU, it is usually at the request of the UK and the City. (For example, it is widely acknowledged that Trade Finance section in CRD IV was shaped to suit the UK’s interests)
- Likewise, many financial rules derive from the Basel Committee on Banking Supervision, which the UK would still implement were it not in the EU.
The icing on the cake is the suggestion that (Alternative Investment Fund Managers Directive) could be responsible for a downward trend in growth.
Business for New Europe is all for rigorous debate, but at least let’s argue over facts not guess work.
Here are a few from the City itself:
- A survey of banks and financial institutions found that 84% of respondents want the UK to remain in the EU (TheCityUK, The City Speaks)
- 85% of European hedge fund assets are managed from the UK (TheCityUK, The UK and the EU, a Mutually Beneficial Relationship)
- Twice as many euros are traded in the UK than in all Eurozone countries combined, UK has 40% of world share (TheCityUK)
- The UK accounts for 78% of EU’s foreign exchange trading (TheCityUK)
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January 8th, 2015
By Will Cousins and Lucy Thomas
One conclusion can very obviously be drawn from Angela Merkel’s visit to London yesterday- she is an admirer of the British Museum. The German chancellor visited its exhibition- ‘Germany: Memories of a Nation’- with David Cameron, and described it as the “highlight” of her trip. But can anything else be taken away from a summit that was noticeably downplayed in comparison with the last bilateral meeting between the two leaders?
Firstly, Merkel’s commitment to keeping Britain in the EU has not dimmed. She said that “I very much like having the UK in a strong and successful EU,” and reiterated her belief that a way would be found to keep Britain in. Refreshingly, David Cameron sounded more committed to Britain’s membership than he has for some time – accusing eurosceptics of having “often very contradictory views,” and explicitly saying that “I don’t think the right answer is for Britain to leave the EU.” Despite growing British euroscepticism, the two leaders clearly retain a good working relationship.
So far so good. But what was said at the press conference could be as important as what was not said. No mention was made of the two central plans of the Prime Minister’s immigration speech in November: denying benefits to EU migrants for the first six months of their stay, and deporting EU citizens without a job after six months. It was reported before the speech that the European Commission regarded the second of these as impossible to deliver. Discussion mostly revolved around action that could be taken at national level to prevent abuse of welfare systems – and therefore what could be achieved without any EU treaty change.
This suggests that London is orientating its demands around what Berlin would be willing to accept. But we can’t put all our eggs in the German basket. It is true that any deal is going to require Merkel’s agreement as the biggest voting weight in the EU, but there are another 26 member states that will also have to agree to many of the changes. If whatever deal emerges is perceived as an Anglo-German stitch-up, it makes it less likely that France, Italy, Poland and others will agree.
Now that this meeting is out of the way, the government can focus on the area where it really can lead in Europe- economic reform. The Commission’s Work Programme for 2015 contains measures that the British government has long pushed for, such as the creation of a digital Single Market, Capital Markets Union, and forging ahead on the TTIP trade deal with the US. It is on driving this agenda that the Anglo-German relationship can be most effective.
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