Why Should UK Stay Hitched To 'Shrinking' EU?

No one pays much attention to trade statistics these days, so you can be excused for having missed something significant that cropped up in the last batch of numbers.

The share of Britain's trade going to the EU has dropped to the lowest level on record.

For most of the past few decades, between 50% and 60% of UK exports have gone to the EU, as opposed to the rest of the world.

But in the past year or so that share has been falling. By 2012 it was down to 50%. By March of this year, the latest month for which we have figures, the share had dropped to 46%.*

That number is central to the EU referendum debate in the coming year or two.

After all, perhaps the main case for Britain's continued membership of the European Union and Common Market is that we are so reliant on the area for trade. The fact that it no longer sucks in more than half of Britain's exports undermines that argument.

It also illustrates another important theme: of all the economic players on the global scene, the EU has perhaps the smallest growth potential in the coming years. Which begs a question: why should Britain ally itself to a (comparatively) shrinking economic area when it could forge deeper links with China, India and other fast-growing emerging economies?

There is no straightforward answer to this, which is why the debate we're kicking off in the coming months will be such a fascinating one.

Writing this piece from Germany, it's clear that no one here particularly wants Britain to leave the EU.

Aside from anything else, Britain has always proved an important ally for the Germans against their overspending, misbehaving Mediterranean neighbours.

Moreover, Europe is changing: the only way to solve the euro crisis is to encourage more political links between members of the single currency.

Given it's pretty clear not every EU member will join the euro, there is a growing understanding in Brussels and elsewhere that the old notion that EU membership implied ever-closer union for everyone is no longer valid.

As such, the prospects of Britain going into a referendum having negotiated some sort of concessions from the rest of the EU are relatively healthy. However, this will involve lots of behind-the-scenes negotiation in the coming months. Which is why so many of us are here in Dresden for the G7 today.

I wouldn't expect the finance ministers gathered here to talk much about the EU referendum in public. But make no mistake: aside from the Greek crisis, Britain's possible exit from the EU is one of the key topics being discussed behind the scenes. The lobbying has already begun.

The question is whether Europe can manage to summon up a compromise that pleases both sides. Then again, that's something they've proved pretty handy at in the past.

* Though 52.8% of Britain's imports still come from Europe.