Britain Seceding from EU?

May 18th, 2015

By: Kelly Diamond, Publisher

brexitConfession: my eyes light up like a Christmas tree at the mere mention of secession.

When Texas talks about it, despite its myriad misgivings in its way of governance, I get excited. When secessionists talk about breaking California up into as many as 6 different states, I get giddy. I was absolutely pulling for Scotland during their recent referendum! I want to high-five Iceland for backing out of their bid to join the EU. Ok that wasn’t really secession since they never joined… but rather an avoidance of unionization.

Secession translates into ONE thing: decentralization. Entailed in decentralization is fragmentation and dilution of power, and that can offer some great opportunities to the country and the people in it, if played right.

Once again my starry eyed hopes of secession were piqued at the idea of a British secession from the EU. To be fair, there haven’t been any successful secessions in a while. But the fact that suggesting it has become more common place is wonderful. Britain’s referendum will be in 2017. A lot can happen or not happen in that time, but for now, Prime Minister David Cameron seems to be pacing on the side of secession.

I find it rather ironic that the same David Cameron who madly railed against the secession of Scotland form the UK is taking seriously the secession of the UK from the EU, but nonetheless, I think a seceded UK will make it that much easier for Scotland to emancipate itself come their next referendum.

Britain joined the EU in 1973. In the years leading up to that, Britain was economically suffering; so much so, it’s initial bid was rejected. It is argued that EU membership is what saved England from going even deeper into the red than it already had fallen.

As I read the pros and cons of the discussion regarding the implications this has on Britain, I’m finding that the greatest obstacle is in fact government policies! The bulk of the reluctance by those who want Britain to remain a member of the union is directly tied to the current trade agreements it has with fellow member countries.

What’s stopping it from having those same arrangements on a more bilateral basis? The EU. It stands in its own way. Of Britain’s top 10 exports, eight of them are members of the EU. The EU would be silly to take an isolationist position and cut off trade with Britain only to spite the countries which rely on its exports; but I don’t rule the possibility out entirely either. The EU has not demonstrated much of an aptitude for pragmatism.

Britain is a net contributor to the EU to the tune of a little over £9.5 Billion per year, which isn’t even 1% of its GDP. That doesn’t include the cost of being EU compliant, however. That’s just membership dues. Regulations cost Britain approximately £185 Billion per year, or 11.5% of GDP.

The claim is that Britain’s GDP will drop by roughly 2% to 4%, but if they aren’t paying for compliance with EU regulations, wouldn’t that put them at a net gain? Or am I over simplifying things? Also, the economic benefits the EU offers Britain are contingent upon the current EU circumstances, and those circumstances not worsening.

There’s no question that British secession proponents and opponents alike think the EU is in need of reforms if not a serious overhaul. If such reforms do not happen, then will the EU continue to be a benefit to its larger contributors/members? Watching as it shoulders the weight of such liabilities as Greece, Cyprus, Spain, Portugal, and France while Germany remains the lynchpin to keeping it all together, the EU appears a rather precarious network.

Some posit that close to 3 million jobs rely on EU membership and if Britain were to leave, those jobs would be lost forever. But that sounds a little over dramatic. Britain has seen fluctuation of jobs in the 3 to 4 million range during its membership with the EU. What makes this any different?

There are likewise concerns that many large companies in the finance and automotive industries would pull out of Britain if it ceases to have its EU trade ties. But this also poses a huge opportunity for Britain. If you recall, I wrote about the “Double Irish”. An amazing tax loophole that has huge corporations like Apple flocking to the Emerald Isle for tax relief. Ireland was using this to attract businesses and jobs. Guess who objected? The EU. If Britain secedes from the EU, it would no longer be beholden to their tax regime demands. Britain could concoct a tax plan – not much different than the Double Irish – that would easily keep those businesses right where they are. In the words of the great Don Corleone, “Make them an offer they can’t refuse,” only with less violent implications… ha ha ha.

Another area where the government is literally tripping over itself is immigration policy. It used to be that one EU member country was the way in to other member countries. Any British nationals residing in other EU countries would then be subject to the non-EU member immigration policies. Of course it doesn’t HAVE to be that way, but the EU could very well do this.

In all seriousness, forging out on their own comes with some initial risk and perhaps even a few blows to the economy. Clearly, there will be some logistical matter to iron out in terms of residents and British national expats residing in EU countries. To think otherwise is naïve.

The EU was originally created for the purposes of trade, but became far more complicated and convoluted when they decided to share a central currency. I honestly don’t think bilateral trade requires a “union” at all. It’s just a simple agreement to allow countries to freely trade with one another. Converting the currency wasn’t so big of an encumbrance that it required a central bank of its own generating an amalgamated monetary unit either.

The EU is really just a very typical complicated government solution to a rather simple market hiccough. There’s really no reason why Britain couldn’t do well on its own, independent of the EU, if it has a proper economic plan.

That’s the catch though, isn’t it? The benefits of remaining an EU member rely on the EU maintaining some level of solvency… which doesn’t look incredibly likely. The benefits of secession from the EU rely on Britain attaining a level of solvency… which thus far has not been manifest in their economic policies.

England ultimately will have some tough choices to make; but countries such as Russia and China have managed to scrape an existence out for themselves. Maybe England will broaden its scope, and dip into some developing markets as well and diversify her economic ties beyond the EU. The next year or so should be interesting.   I will be keeping an eye on the EU, for sure!

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