The Case for Europe (and Against Leaving): Part 2
[Part 1 can be found here]
Almost two months ago I left the UK and, via a short (but fantastic) stop in Bangkok, I landed almost half way round the world in Australia to start a PhD. Before I left I went to a couple of foreign exchange places. Both offered an exchange rate that gave me almost exactly $2 to the £ (so ‘almost exactly’ that I got $200 for £100). Less than two months later that same £100 will get me a measly $187. Now, you could argue that the Australian dollar is just doing really well, but given that there's a bit of a slump due to the (temporary) collapse of the mining industry, this seems like wishful thinking.
In fact the reason for the change is not an increase in the value of the AUD, but the decrease in value of the GPB. The slump gained significant momentum when Boris Johnson backed Brexit and there is no sign of things improving.
I have had a look at exchange rates for the major currencies and found that the pound has been falling against all of them. I then went and had a look at exchange rates for minor currencies and found that the pound has been falling against them too. I looked at random currencies and the pound has been falling against every one I looked at. (I used this site.) In fact, I couldn’t find a single currency which did not show the same trend.
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| GBP vs various currencies for the last year (data from x-rates.com) |
This is the direct result of the EU referendum.
People do not like uncertainly. Business certainly does not like uncertainty. And the prospect of a Brexit creates a huge amount of uncertainty. Almost a year ago financial consultants were warning that the referendum could impact on investment and the graphs above show just how prescient they were. Note, I’m not talking about the consequences of the outcome of the vote, I’m just talking of the consequences of having the vote. We haven’t even got to the consequences for after the 23rd June!
Oh and if you think that I’m misinterpreting the data then I would like to direct you to the Financial Times which states that,
"Hiring and investment expectations among chief financial officers have fallen to a three-year low, while the cost of buying protection against a plunge in the value of sterling after the EU referendum has soared to levels higher than those seen during the 2008 financial crisis."
I’ll be the first to admit I’m not an economist. I don’t understand all the economic implications of staying versus going. I am, however, a scientist (at least by training). I’ve learned to look at evidence, evaluate it and draw conclusions, and the conclusions I’m drawing is that a Brexit would be bad for pretty much everyone.
Much of the evidence appears equivocal with a huge amount of the debate boiling down to ‘we don’t know’. Part of this is because an exit would be completely uncharted territory. No-one has withdrawn since Greenland in the 1980s (something I will come back to later) so no-one knows what the impact of a withdrawal from the EU will be. It’s fair to say that there will be some winners and some losers, we just don’t know how many will be on each side and how much they will win or lose. For example, the National Farmers’ Union commissioned a report which found that,
"farmers’ incomes would fall by an average of €24,000 if farmers were to lose all subsidies. The other scenarios would cost €17,000 and €34,000 respectively…"
However, it admits that while some farmers (cereal and dairy farmers) would most likely lose out following a Brexit, others (poultry and pig farmers) could actually benefit.
Though the evidence is largely equivocal, expert opinion seems to be forming a consensus that that leaving would be economically devastating. A report commissioned by the CBI says that leaving the EU would,
“cause a "serious economic shock", potentially costing the country £100bn and nearly one million jobs”
Moving away from the economy to the lives of ‘normal people’ like you and me, there are impacts both direct and indirect. The Guardian has a handy list of the ways a Brexit would impact people in the UK. For more specific examples, let's look at a joint report by Deloitte and ABTA [PDF] which examined how a Brexit would affect travel. They found that a lot of the rights and protections that cover our holidays come from Europe and that any continuation of these protections would only come as the result of negotiations between the UK and Europe. They also looked at something that has weighed on my mind since the referendum was announced: the European Health Insurance Card. This card saved me a lot of stress and money when I was in Ireland and it’s one of those things that people don’t realise the value of until it is gone. The report said that,
“In the event of Brexit, applicability would be subject to negotiations. Limiting UK travellers’ local health care access could have cost implications for travel insurance premiums.“
p11
I want to end by looking beyond the shores of Great Britain. The UK is not just the island comprising England, Scotland and Wales. The country is officially called the United Kingdom of Great Britain and Northern Ireland and has sovereignty over 14 Overseas Territories (including the Falklands) and 3 Crown Dependencies. I mention this because there are two countries which would be impacted far more negatively than Great Britain by a Brexit and yet seem to be overlooked by the vast amount of the media coverage. They are Northern Ireland and Gibraltar.
The reason why a Brexit would be so detrimental to these countries is that they share land borders with EU countries, something that Great Britain, as an island, does not have to consider. Leaving the EU would require border controls to be imposed which will harken back to the bad old days of the Troubles for Northern Ireland. There are also significant fears that a Brexit could harm the peace process. Gibraltar is, if anything, in an even more perilous position: there are legitimate fears that Spain could close the border, which would make the currently free movement of the 10,000 people who cross the border each day impossible.
While it seems that the consensus is that a Brexit would be an (almost entirely) bad thing, there is significant backing for such a move. Why? What do those supporting the Leave campaign think will happen when we leave? Why do they see a rosy future where others see doom and gloom?
I’ll look at that in my next post. (Oh, and I'll get back to Greenland).
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