Reason To Believe

I almost wish we didn't have the choice of a vote in a referendum. I'd prefer the EU itself to be significantly reformed and much more democratic than to have the black and white in/out choice. But, as I've already said, that's not the choice on offer and, despite Boris's "2 referenda strategy", which I was very surprised the Sunday Times thought credible, indeed attractive, in its most recent editorial, it is not likely to be the choice on offer at any foreseeable stage. After all, if we were to vote to leave, can you imagine the brouhaha if our leaders, whoever they might then be, seek another negotiation? There would surely be a lot of folk saying "what part of leave don't you get?"

But, putting that aside, what are the reasons for us to believe this deeply flawed EU project is good for us? I can only see four reasons of any substance. But two of them at least have significant weight.

1. The single market.

This is a biggie. My economics guru, David Smith (aka Sunday Times Economics Editor) has written twice this month about its benefits: "Leave the single market and risk a world of pain" (5 June) and "Britain succeeds in the EU: we'd be daft to leave it" (12 June). Smith points out that the single market, which remember was a Thatcher policy, the EU traditionally being protectionist, has been a huge success for Britain. Since it began in 1993 our GDP has grown by 62% in real terms, compared with 42% for France, 35% for Germany and 15% for Italy. Switzerland, outside the EU, has grown by 48%. This is OECD data. On our own Office of National Statistics data we have grown 69%, similar to USA (71%) and several times more than Japan (19%). So much for Boris Johnson's jibe that Europe is the only continent growing slower than Antarctica, which is no doubt not a lie - true, but totally irrelevant. Of course the mature economy of Europe is growing more slowly than less advanced economies in Africa and Asia, but feel the volume and remember the old trade union tenet "2% of f***all is f***all": 2% growth in our economy is a lot more moolah than 10% of a much lower number.

Smith points out that our growth record is not just due to the single market, Thatcher's 1980s reforms and Brown's independence for the Bank of England have also been important. Nevertheless, our special position in the single market but outside the Eurozone has meant we have attracted a disproportionate share of inward investment over the last decade: consistently the most of any EU country, including Germany (though Germany is catching up), nearly twice as much as France (and gaining ground on them) and four times as much as Spain.

And things should get better, as the single market doesn't fully extend to services yet. Even so, our services exports to the EU have trebled in the last 15 years. On the other side of the coin, if we leave we would lose the benefit of the "passporting" regime which is important to our financial services sector. I don't doubt that Smith is right when he says that if we leave, activity and employment would be relocated inside the single market. I read elsewhere that London is home to LCH.Clearnet. No, I hadn't heard of it either, but it handles trades on the London Stock Exchange and also many euro-based derivatives. It has become one of the biggest clearing houses in the world. There is currently more trading denominated in euros in London than in the whole of the rest of the EU, which is an amazing stat. That would surely not be allowed to persist if we leave. Frankfurt and Paris would be bound to find a way to bring a lot of it onshore. Indeed they've already tried. The ECB argued that it would be easier to maintain financial stability if the clearing houses were based in areas where it, rather than the Bank of England, was the chief regulator. Britain sued the ECB and last year the General Court, the second highest in Europe's judicial framework, ruled in our favour. I don't remember the case being publicised, perhaps because it went again the received wisdom that we always lose. But earlier this year a former Bank of France governor said Britain's euro-trading position "can be acceptable only if, and as long as, The UK is a member of the EU, and accepts the involvement of, and co-operation with, European regulatory agencies."

And these aren't just jobs for slickers in the City of London. J.P. Morgan is thought to be Dorset's largest private sector employer: 5,000 of its 19,000 employees are based in Bournemouth. The Guardian reported in January that J.P. Morgan might quit the UK if we leave the EU. The bank’s chief executive said: “Britain’s been a great home for financial companies and [EU membership] has benefited London quite a bit. We’d like to stay there, but if we can’t, we can’t."

The health of the City is a big deal for us. London controls about 40% of global foreign exchange trading, a third of European share trades and half the buying and selling of interest rate derivatives. This wouldn't disappear overnight, but respected commentators expect that trading and back office jobs would follow the money and go elsewhere over a period of time.

There is an argument that we don't have to be in the single market to sell to Europe. Indeed Steve Hilton, Cameron's erstwhile guru, said "last time I checked, General Motors had no problem selling cars there". This argument is bollocks on a grand scale. GM exports very few cars from the USA to Europe, it builds them there in the Vauxhall and Opel operations in Britain, Germany, Spain, Hungary, Poland and Austria.

There is also an argument that we should be concentrating on selling into higher growth areas. Yes, but for the most part being in the single market doesn't inhibit that. I suspect it's just easier for our companies to sell into Europe. It's hard work building exports into new countries, after all. But we need to do it, whether we stay or go.

So the single market is a big deal and leaving it is a big risk.

2. The transition.

This is also a biggie and has been my major concern since the referendum was called. Whether or not we would be better off to the tune of £4,300 "GDP per household" (i.e. NOT household income) by 2030, as George Osborne says - and I've always felt years 3-5 of the business plan were for the birds let alone year 14 - I am certain that the uncertainty attached to the exit negotiation, potentially compounded by the Scots kicking off again, would cause a short to medium term hit to the economy. Smith notes that the Treasury, OECD, IMF, LSE, IFS and others have all put forward convincing evidence for a short term economic shock and long term damage. He notes that Vote Leave's "laughable" response is to brand all of the above as creatures of the European Commission. Noting that he is not EU funded, he reminds us that the Treasury was instrumental in keeping us out of the euro. George Osborne made a similar point, when Leave campaigners pointed to the organisations making forecasts now and claimed they all said we should join the euro. The Treasury didn't and, while there might well have been a majority in favour of joining the euro then, there was no grand consensus. There is on the EU economic issue now. "Laughable" is strong stuff for Smith, who I don't remember calling a major economic issue incorrectly in the 25 years I've been reading him.

Markets hate uncertainty and we'd have 2-5 years of it. I take it for granted that this would hit the value of shares and so pensions and savings. Our low interest regime would have to be continued indefinitely, compounding these problems.

The Brexiteers have argued that the markets haven't been wobbly since the referendum was called, so why would there be such a big transitional effect? One of my golf buddies says his Standard Life shares are down around 20% since January. But I checked the Stock Exchange official data (at http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/indices/summary/summary-indices-chart.html?index=UKX) and the FTSE 100 is pretty well where it was at the start of the year. However, there was a 6% fall between 8 and 14 June which may well have corresponded with Leave going ahead in some polls. That drop was nearly all regained between 16 and 20 June as Remain surged back. The £/$ graph shows a very similar trajectory (see http://www.xe.com/currencycharts/?from=GBP&to=USD&view=1Y). So for me, there have been some wobbles when a Leave vote looked more likely.

Anyway, I'm sure, whatever the long run position, we'd all be worse off in the short term. And, as Keynes said, in the long run we are all dead. He didn't mean we should ignore the long run but that we should weigh short run impacts more heavily.

The transition weighs heavily on me.

3. International Affairs.

David Cameron seemed to suggest that us leaving the EU would precipitate internecine warfare across the current EU in the manner of the two world wars. I think this is tripe. However, I do think us leaving is what Putin would want, which doesn't feel good. Some have suggested this isn't what Putin wants, but it seems likely to me. We could do without destabilising the eastern frontier to the point where Russia is encouraged to march into the Baltic States, a thought I'm sure has occurred to them and which would present the most dangerous situation the world has seen since Cuba and 1962, if not since 1945. Unlikely? But scary.

4. Immigration

A surprising inclusion? I think this argument can be run either way. I tend to think greater control equals greater security. But we might be in a worse position if we leave. Hidebound by our own new bureaucracy of a points system we wouldn't have the people we'd like to have, at least not in any timely way. I see a risk to the NHS here in terms of longer waiting lists, etc. And it's not clear to me why, if we've taken our ball away, the EU countries wouldn't just wave migrants through all the way to Calais and into the tunnel, leaving us to grapple with our own failing systems in trying to send them back to whence they came. They might not do this deliberately, but they could do as much harm by turning a blind eye.

5. In the current uncertain world it's better to stick together than fragment. Feels plausible but unverifiable.

So two powerful and three debateable reasons to believe. Which, of course, is a reference to Tim Hardin's song Reason To Believe, covered by Rod Stewart. And which has some apposite lyrics:

If I listened long enough to you
I'd find a way to believe that it's all true
Knowing that you lied straight-faced while I cried
Still I look to find a reason to believe

Maybe we have been told lies. But these are some powerful reasons to believe, not leave.

Next up, reasons to leave. And then it's time to decide (at last).