Many in the United Kingdom have argued that EU regulation has become burdensome and unreasonable. While an EU correspondent for The Telegraph in the 1990s, Boris Johnson criticised regulation sometimes in an exaggerated way; famously in relation to a supposed prohibition on the bendy banana.
Compounding the economic arguments is that the UK’s contribution to European Union of €13 billion per annum is claimed to be unjustified by the corresponding benefits it receives and that it could be best used elsewhere and saved on Brexit.
Much of the EU budget is still spent on agricultural supports. The United Kingdom having a relatively small agricultural sector, receives proportionately less per head than many other states such as France and even Ireland. A growing proportion of the budget is spent on regional social and other development supports which is proportionately support developing economies in Eastern Europe.
It is argued that outside the European Union, the UK would be free to subsidise and support industries in a way that is now restricted and circumscribed by the EU state aid rules.
Some argue that unreasonable EU regulation holds back the British economy and that after Brexit, and the UK would be free to set its own standards and regulation saving costs and leading to greater competitiveness.
The narrative of unreasonable EU bureaucracy has been likened to the way many in America argue against the Washington bureaucracy. The same broad scope and remoteness seemed to be present.
The volume of EU technical regulations, when combined with the apparent lack of accountability, has often seemed arbitrary, unreasonable and meddlesome. Of their nature, many EU rules are technical, relating to such matters as the regulation and specification of products and trading standards. Many are aimed at specific industries. In practice, the EU engages in very wide consultation processes before enacting laws and have largely followed international industry-based standards in relation to such matters as product regulation, which is rarely of political interest and is more in the scientific and technical sphere.
A left-wing critique of Brexit is part of a broader critique of international capitalist organisations including the World Trade Organisation, the International Monetary Fund and the World Bank. This “lexit” left-wing criticism views the EU as anti-democratic giving too much power to corporate elites. It is alleged to propagate monopoly corporations and tax dodging elites.
Some in the UK have argued that because of its economic size and significance that regardless of concerns about incentivising further exits, the EU will ultimately make an agreement that is favourable to the UK reflecting relative economic interests. It is argued that economic gravity will win out regardless.
Finance and Economics
The global financial crisis commencing in 2007 / 2008 led to the steepest fall in output in Western economies since the great depression in the 1930s. Most European economies contracted severely. Learning lessons from the great depression, the United Kingdom and the United States embarked on a policy of effectively printing money by the purchase for currency of a variety of bank assets many of questionable quality.The unprecedented monetary measures accompanied by near-zero interest rates brought a recovery in the United Kingdom by 2012.
The increase in unemployment and falling output led to a rapid dislocation in public finances. Government borrowing reached potentially unsustainable levels in many countries. The David Cameron 2010 coalition was intent on re-establishing credibility in public finances.
The Eurozone crisis was perhaps the most serious challenge to affect European Union before Brexit. The European Union was slow to respond to the financial crisis and initially raised interest rates after many years of relatively low-interest rates.
The global financial crisis revealed potentially fatal flaws in the euro project. The euro lacked a central government to stand behind the currency in circumstances of bank runs and a rapid loss of confidence. Individual states were left alone to stand behind their banks.
In some states such as Ireland, the potential insolvency of the banks was beyond what the state could bear, leading to a loss of confidence and rocketing borrowing costs for the state at a time when its borrowing had expanded exponentially in response to both the economic and banking crises. This led to the prospect of a complete loss of confidence in banks as the principal intermediaries of money the potential insolvency of the member states themselves and the prospect of a disorderly collapse of the euro itself.
By 2010, several Eurozone countries, including Greece Spain Ireland Portugal and Cyprus, were unable to repay or refinance their government debt or bail out banks without the assistance of third parties. A troika comprised of the European Central Bank, the IMF and the European Commission, and the European Financial Stability Facility which raised funds backed by member states.
Together with €17.5 billion from the National Pension Reserve Fund, the EU IMF EU Commission raised an €85 billion facility in late 2010 in return for which the government agreed to reduce its budget deficits. Ireland exited the package in December 2013.
Exposing EU Flaws and Weakness
The Euro crisis exposed the risks and flaws in a currency that was not backed by a tax-raising policy which could ultimately rescue banks the event of a run on the banks and on government debt. A complete solution would require a fiscal union to support a monetary union.
Significant steps were taken, including the European Stability Mechanism as a permanent rescue fund to succeed the temporary European financial stability facility as a European financial stabilisation mechanism. Treaty amendments were made pursuant to the Lisbon Treaty mechanism to allow a permanent bailout mechanism to be established. The European Stability Mechanism is an intergovernmental organisation based in Europe.
The Euro crisis both demonstrated the weakness and limits of the European Union and pointed to the possibility that ever closer union including deeper fiscal and political integration leading ultimately to fiscal union might be necessary to make the EU work in order to prevent future euro crisis.
The Fiscal Company Bypasses the UK
Originally EU leaders planned to change existing EU treaties, but this was blocked by UK Prime Minister David Cameron, who demanded that the City of London be excluded from future financial regulations, including the proposed EU financial transaction tax. Accordingly, a separate treaty was agreed outside the formal EU institutions, as it had been with the first Schengen treaty in 1985.
The fiscal stability treaty came into force on 1 January 2013 and was ultimately ratified by all eurozone states plus certain other states who have chosen to opt-in. The United Kingdom is outside the compact. Budgets must be in balance surplus under certain definitions. There is a balanced budget rule a debt break rule with automatic correction mechanisms.
The weaknesses of the earlier stability and growth Pact are strengthened by rules providing for an automatic procedure to impose penalties in the case of breaches of the 60% deficit and 60% debt to GDP rules in relation to public finance and public debt.
The United Kingdom was not directly affected by the Eurozone crisis and was able to opt-out of some of the above mechanisms but did ultimately contribute to some of the above funds and bailouts on as quasi-commercial terms.
The Euro crisis has rumbled on for over a decade. Some in the United Kingdom argue that the euro puts the EU on a path to deeper fiscal and political integration which would ultimately become unwieldy and unworkable for countries such as the UK who have opted out of the euro. In accordance with this argument, it would be better for all concerned if the UK opted out and left other countries with a freer path to evolve towards a federal state.
The effects of austerity on the Greek Spanish and other countries subject to bailout has led to high unemployment rates, above 20%, many years after the crisis began. This seemed in contrast to the relative success of the United Kingdom in creating jobs and employment. Although not a predominant part of immigration.