Fri, Jul 01, 2016 - Page 9 News List

Brussels’ overreach helped push the UK toward Brexit

By Martin Feldstein

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.

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