A thoughtful British friend of mine said to me a few days before the UK’s Brexit referendum that he would vote for “Remain” because of his concern about the economic uncertainty that would follow if the UK left the EU. However, he added that he would not have favored Britain’s decision to join the EU back in 1973 had he known then how the EU would evolve.
While voters chose “Leave” for a variety of reasons, many were concerned with the extent to which EU leaders have exceeded their original mandate, creating an ever larger and more invasive organization.
Jean Monnet’s dream of a “United States of Europe” was not what the British wanted when they joined the EU 40 years ago. Nor were they seeking a European counterweight to the US, as Konrad Adenauer, Germany’s first post-World War II chancellor, had once advocated.
Britain simply wanted the advantages of increased trade and labor-market integration with countries across the English Channel.
The EU began as an agreement among six countries to achieve free trade in goods and capital and to eliminate barriers to labor mobility. When EU leaders sought to reinforce a sense of European solidarity by establishing a monetary union, Britain was fortunately able to opt out and keep the pound — and control over its monetary policy. However, the opt-out has left Britain a relative outsider within the EU.
As the EU expanded from six countries to 28, Britain could not permanently limit entry to its labor market by workers from the new member states. As a result, the number of foreign-born workers in Britain has doubled since 1993 to more than 6 million, or 10 percent of the labor force, with most now coming from low-wage countries that were not among the EU’s other original members.
Although pro-Brexit voters worry about the resulting pressure on UK wages, they generally do not reject the original goals of increased trade and capital flows that are the essence of globalization. Some Brexit defenders could point to the example of the successful US free-trade agreement with Canada and Mexico, which contains no provision for labor mobility.
Unlike Britain, the other EU countries, led by France and Germany, wanted more than free trade and an enlarged labor market. From the start, European leaders were determined to expand the “European project” to achieve what the Treaty of Rome called an “ever closer union.” Advocates of shifting authority to EU institutions have justified this with the notion of “shared sovereignty,” according to which British sovereignty could be eroded by EU decisions, without any formal agreement from the UK’s government or people.
The “Stability and Growth Pact” of 1998 imposed a limit on member countries’ annual deficits and required that debt-to-GDP ratios shrink toward a maximum of 60 percent. When the global financial crisis began in 2008, German Chancellor Angela Merkel saw an opportunity to strengthen the EU even further by enforcing a new “fiscal compact” authorizing the European Commission to oversee members’ annual budgets and impose fines for violating budget and debt targets — though no fines have been levied. Germany also led the move to establish a European “banking union” with a single regulatory framework and a binding resolution mechanism for troubled financial institutions.
Not all of these policies directly affected the UK; nonetheless, they widened the intellectual and political gap between Britain and the EU’s eurozone members. That reinforced the fundamental difference between market-oriented British governments and those of many EU countries, with their traditions of socialism, government planning, and heavy regulation.
The division of powers between the EU bureaucracy and member states is governed by the ambiguous principle — borrowed from Catholic social teaching — of “subsidiarity”: Decisions should be made at the “lowest” or least centralized level of “competent authority.” In practice, that did not limit the rulemaking in Brussels and Strasbourg. Subsidiarity provides much less protection for EU member governments than the 10th Amendment of the US Constitution — which denies to the federal government any powers not delegated to it by the Constitution — does for US states.
The British public is of course not alone in its discomfort with the EU. A recent poll conducted in EU countries by the Pew Foundation found that a majority of voters in three of the largest countries — Britain, France, and Spain — view the EU unfavorably.
In Germany, the public was split 50-50. In Italy, a clear majority say that they have benefited from EU membership; and yet the populist Five Star Movement, which recently won mayoral elections in 19 of the 20 cities it contested — including 70 percent of the vote in Rome — has promised a referendum on leaving the eurozone if it wins the parliamentary election later this year.
Although many officials and experts predict that Brexit will have dire economic consequences, this certainly is not inevitable. Much now depends on the terms of the future relationship between the EU and Britain.
The UK is also now in a better position to negotiate a more favorable trade and investment treaty with the US. Although the proposed US-EU Transatlantic Trade and Investment Partnership is bogged down, a British government outside the EU could negotiate a deal with the US far more easily. The US would be negotiating with one country, not 28 — many of which do not share Britain’s pro-market policies.
The question of Britain’s EU membership has been decided. Now its economic future depends on what it does with its new independence.
Martin Feldstein is a professor of economics at Harvard University and president emeritus of the National Bureau of Economic Research.
Copyright: Project Syndicate
For the Chinese Communist Party (CCP), China’s “century of humiliation” is the gift that keeps on giving. Beijing returns again and again to the theme of Western imperialism, oppression and exploitation to keep stoking the embers of grievance and resentment against the West, and especially the US. However, the People’s Republic of China (PRC) that in 1949 announced it had “stood up” soon made clear what that would mean for Chinese and the world — and it was not an agenda that would engender pride among ordinary Chinese, or peace of mind in the international community. At home, Mao Zedong (毛澤東) launched
With a new White House document in May — the “Strategic Approach to the People’s Republic of China” — the administration of US President Donald Trump has firmly set its hyper-competitive line to tackle geoeconomic and geostrategic rivalry, followed by several reinforcing speeches by Trump and other Cabinet-level officials. By identifying China as a near-equal rival, the strategy resonates well with the bipartisan consensus on China in today’s severely divided US. In the face of China’s rapidly growing aggression, the move is long overdue, yet relevant for the maintenance of the international “status quo.” The strategy seems to herald a new
To say that this year has been eventful for China and the rest of the world would be something of an understatement. First, the US-China trade dispute, already simmering for two years, reached a boiling point as Washington tightened the noose around China’s economy. Second, China unleashed the COVID-19 pandemic on the world, wreaking havoc on an unimaginable scale and turning the People’s Republic of China into a common target of international scorn. Faced with a mounting crisis at home, Chinese President Xi Jinping (習近平) rashly decided to ratchet up military tensions with neighboring countries in a misguided attempt to divert the
The restructuring of supply chains, particularly in the semiconductor industry, was an essential part of discussions last week between Taiwan and a US delegation led by US Undersecretary of State for Economic Growth, Energy and the Environment Keith Krach. It took precedent over the highly anticipated subject of bilateral trade partnerships, and Taiwan Semiconductor Manufacturing Co (TSMC) founder Morris Chang’s (張忠謀) appearance on Friday at a dinner hosted by President Tsai Ing-wen (蔡英文) for Krach was a subtle indicator of this. Chang was in photographs posted by Tsai on Facebook after the dinner, but no details about their discussions were disclosed. With