Is Europe Worth the Effort?
The issue has little to do with the insignificant accord that Prime Minister David Cameron recently reached with his EU colleagues. It is hard to believe that this agreement will determine Britain’s fateful choice in June. The fundamental issue is whether EU membership still yields large enough benefits to outweigh the loss of sovereignty that it entails.
This is not a matter for discussion in Britain only. For many in the EU, however, it is a very difficult question to ask, because Europe remains emotionally loaded. Only in Britain could a cabinet minister from the same party that brought the country into the EU call for exiting it. No mainstream German, French, or Spanish politician would dare discuss the matter openly, let alone advocate divorce.
But the question cannot be ignored. In most EU countries, large segments of public opinion are dissatisfied with the Union and increasingly sympathetic to nationalistic appeals. In response, many politicians pay lip service to Europe while emphasizing purely national solutions. This inconsistent – and often simply cynical – stance has mired Europe in an unhappy equilibrium: It cannot move backward, it cannot move forward, and it satisfies no one.
One hopes that the fierce EU membership debate, now that it has begun, will be honest enough for everyone to learn from it. In particular, the economic benefits of EU membership are a matter for serious discussion.
Economists describe regional integration as a tradeoff between economies of scale and the diversity of preferences. By joining, countries gain efficiency and influence, at the cost of having to settle on policies that do not exactly match their choices. For example, businesses get access to a larger market, and consumers benefit from lower prices, but regulations are less attuned to their liking. It is as when sharing an apartment: you reduce your costs, but you have to adapt to your roommates’ habits.
Preferences today are arguably much less dissimilar than they were a few decades ago. Former British Prime Minister Margaret Thatcher and former French President François Mitterrand were much further apart ideologically than their current successors. True, the British are still more inclined toward free markets than the French, but the gap between them has become much narrower. There is no factual basis for claiming that we have become unhappier roommates since the 1980s.
Nor has the EU ventured into domains where it produces no value added. The first Cameron government launched a review of EU competences in 2012 to determine which lie with the EU and which with the UK. A comprehensive public consultation and 32 thorough reports later, the audit has not resulted in any request for significant competence repatriation.
Perhaps for this reason, Brexit advocates often focus on the diminishing benefits of regional integration and claim that Britain would be much better off playing its cards alone. Why bother negotiating with continental partners, when the UK can trade with the whole world? Aren’t small, open economies like Singapore thriving?
There are serious objections to this argument. For starters, free trade suffices for selling shirts, but trade in services requires detailed legislation and institutions (such as sector-specific authorities) to enforce it. Absent a comprehensive regulatory apparatus, financial or health-care services, among others, cannot be traded.
So the notion that all that is needed is to eliminate tariffs and bureaucratic red tape is pure fiction. The UK, which is strong in services, needs the institutional framework of the EU single market much more than, say, Poland, which is stronger in goods.