The UK’s relationship with the European Union sunk to a fresh low after David Cameron used his veto against treaty changes at the 8/9th December EU summit.
The fallout from the veto is still going on: French President Nicolas Sarkozy called Cameron an “obstinate kid” when he refused to toe the line, MEPs have questioned the UK’s rebate, France’s top financial regulator called the British right the “world’s stupidest” politicians and France's top banker said the UK should get a ratings downgrade.
But, name calling aside, what does EU membership really mean to the UK and what we would lose if we decide to get out of the EU and go it alone?
There are two main fears voiced by some businesses and Europhiles. The first is that leaving the EU would damage our economy by weakening our access to the European single market. The second is that the UK would end up a little island adrift at sea and without EU membership our political and economic standing in the world would diminish.
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The potential impact
So what about the first point; how would our exit of the EU really impact our economy?
Our net contribution to the EU each year is approximately £4.6 billion annually or £13 million a day. This gives us a place at the top negotiating table of Europe where common laws, agricultural policies and financial regulation is decided.
It also gives us access to the single market, meaning that we get to trade with other EU countries without fear of tariffs or other measures that could be used against us to hurt our exports sector.
If we were to leave then it is more than likely that the EU would slap import tariffs on UK-made goods, potentially hurting our terms of trade and weighing on economic growth. Added to that cheap flights to European destinations could become a thing of the past if new taxes were applied to UK airlines.
If our goods faced import tariffs in Europe, then the UK would most likely respond with similar measures, making the European goods we have got used to having – for example Brie cheese, Champagne, Italian wine and Spanish meats – all more expensive for consumers.
City hit
The UK’s financial centre, which is the cause of this argument with Europe, may also suffer as it relies on business from Europe to thrive.
Interestingly enough, German bank Deutsche Bank is the single largest employer in the financial services sector in London. If we are no longer part of the EU – with no influence over future financial regulation in the currency bloc – will big banks want to be based in London?
Also, the financial sector relies on European markets for a large chunk of its business. Our passport to Europe, which makes it easy for the UK to sell cross-border financial products, may also be at risk if we were to repeal the 1972 Act of Parliament that first saw us legally join the EU.
Political risk
Europhiles also argue that the UK would see its standing in the world drain away if we break ties with Europe. Who are we kidding that America would want to stand shoulder-to-shoulder to us if we couldn’t help advance US interests in the currency bloc?
Would we have as much say on the financial stage without our badge of membership to the EU? Nick Clegg and Co. warn that if the Eurosceptics get their way then the UK could find itself in a very lonely position.
Are the fears real?
However, this talk of economic and political collapse smacks of fear-mongering when you parse the actual facts about the UK’s relationship with the EU.
We not only would save £4.6 billion a year, but UK trade might not be as damaged as some may think. Since the European Union and the UK are both members of the World Trade Organisation there would be a limit to the amount of tariffs we can apply to each other’s goods without violating the rules of the WTO.
Added to this the UK actually runs a trade deficit with the rest of the European Union to the tune of £3 billion. Europe sells us more goods than we sell to it, so our friends over the water need the UK to keep buying their goods (particularly Germany). Thus, high import tariffs for our goods could backfire.
Due to this UK politicians are in a strong position to negotiate a new trade treaty with the 26-member EU just as Switzerland has done. In fact, the Swiss authorities have managed to avoid the pitfalls of being outside of the EU while maintaining good relations with their European neighbours – why couldn’t the UK do the same?
Fears that business could be turned off if we abandoned the EU are also a little far-fetched. English is the lingua franca of the business world; we also have an excellent geographic location in that we span US and Asian time zones.
The eurozone has no common language and its financial infrastructure is patchy across the currency bloc, so fears that American banks could leave UK shores en masse overnight upon a UK exit from the EU are also hard to believe.
Gone but not forgotten
Whether or not we end up leaving the EU, Europe will still be our most important global relationship mostly due to proximity but also because of cultural and economic ties born over centuries.
These bonds don’t disintegrate with us pulling out of the currency bloc. So the EU without the UK won’t necessarily spell doom for the UK politically or economically. However, as things stand even uttering the name Cameron is toxic in some parts of Europe.
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