EU economic policy has held the UK back and cost us £82 billion over two decades

EU economic policy has held the UK back and cost us £82 billion over two decades

Those campaigning to reverse the EU referendum result talk of the EU as if it is the very basis of British and European prosperity. When viewed against the evidence, such an analysis is simply untenable. A new report from Global Britain, £82bn reasons the EU held back the UK, shows how.

Almost every aspect of the EU’s economic performance – not least UK trade with it – has been dismal, underperforming regularly against every corner of the globe – be it advanced or developing nations – for a very long period of time.

For many countries across the European continent, EU-induced policy – primarily designed to hold the euro together – has directly led to economic hardship, socially damaging levels of unemployment and a questioning of the very fabric of their societies. The result has been a rise in more radical politics and people leaving their countries of birth to seek better economic opportunity elsewhere. This is the antithesis of what the EU was founded to achieve.

The failure of EU economic policy has not only impacted EU nations but also cost the UK £82bn over the twenty years to 2017 due to lost economic opportunity, as weak demand has impacted negatively on UK exports to the Eurozone.

To understand the failure of the Eurozone, we need to go back to a time when it did not yet exist. In 1994 the economies of the US and the future Eurozone were of broadly similar size – worth 24.9% and 24.5% of global GDP respectively. Today the US economy is 30% larger than the Eurozone. Simply put, had the Eurozone grown at the same rate as the US, the UK could have expected to have sold £82bn more in exports due to greater economic demand. The unfortunate truth is that EU economic performance has been the global laggard over the short and long term.

By comparison, since the financial crisis, the UK economy has outperformed all the major EU economies including Germany. Overall it has grown 19% over that period compared with a 13% rise in the Eurozone. That 6% differential is worth £120bn, or to illustrate what that sum represents, just less than the entire NHS budget.

For the British people, the beneficial result of the country’s performance has been more jobs. The UK has materially outperformed the EU in both job creation and reduction of unemployment. UK unemployment is at its lowest level since 1974. French unemployment is 2.5 times the UK level, Spain 4 times and Greece 5 times higher. Since the EU referendum, 750,000 more people are in work in the UK. This contrasts with HM Treasury forecast of 500,000 job losses following a Leave vote – meaning its prediction was an embarrassing 1.2 million out.

Despite misplaced criticisms, job growth has been across the board and not just in the ‘gig economy’. More people work in manufacturing, construction, utilities, IT, health, education and the arts sectors than before the referendum. UK wage growth has started to pick up too and is growing in real terms, while the UK’s minimum wage is the second most generous in the EU.

The underperformance of the Eurozone can be laid firmly at the EU’s own door. Fundamentally, the Eurozone is not an optimal currency area; it lacks fiscal transfers and is weakly controlled with no central Treasury. The structural weakness and disequilibrium of the euro has led to sub-optimal firefighting policy choices to prop the currency up. The lack of political will and democratic accountability make it near impossible to rectify its flaws. These are structural issues that will not be easily rectified, leading to continuing divergent performance, socially damaging unemployment levels in the south and a loss of competitiveness. The problem is the euro’s construction and there is no easy fix. Underperformance is baked in.

Imbalances are growing, not reducing, be they employment levels, migration trends, fiscal strength, competitiveness and Target2 liabilities (intra-country balances).

The big myth remains that the Single Market is central to UK prosperity. It is not. Over the last 20 years, UK trade has grown 12 times with China, 3.1 times with the rest of the world ex-EU, 2.6 times with the US and just 2 times with the EU. Moreover, the UK trades with a modest surplus with the world ex-EU but has a £96bn deficit with the EU. Does it not strike you odd that UK trade not only is growing faster where it trades generally under WTO rules rather than within the EU Single Market – and is in surplus, not enduring a huge deficit?

EU citizens are voting with their feet. An estimated 3.5 million have moved to the UK over the last 20 years. Economic failure has directly led to widespread migration away from Italy, Spain, Portugal and most of Eastern Europe. People follow the opportunity and it has generally not been in the Eurozone. Again, despite claims, net EU migration has remained positive to the UK since the EU referendum.

The EU’s problems are structural and not cyclical. They are largely self-inflicted. The euro’s structure is the root cause of the problem, together with increasingly costly one-size-fits-all regulation that simply does not work for such a disparate Union. The price of preserving the euro is likely to continue to lead to low growth and poor employment prospects. Italy, as an example, has a smaller economy than 15 years ago. Such dreadful performance is fuelling economic and political dissatisfaction in Italy itself and across the EU.

The question should be: why can our policy makers not see that while we must remain friends with our European neighbours, the EU project has failed Europe? The answer is for Britain is to re-emerge as a true global trading nation.