Does return of EU growth weaken case for Brexit?

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The argument that Britain had a stellar economy held back by being in the EU is no longer tenable, argues Denis MacShane. [Shutterstock]

One of the more powerful arguments advanced in Britain by Eurosceptics – from hardline Brexit ideologues to polite rationalists who disliked many aspects of European integration – was that the European Union had a dreadful economic tale to tell this century, writes Denis MacShane.

Denis MacShane is the former Minister of Europe and author of “Brexit, No Exit. Why (in the End) Britain Won’t Leave Europe” (IB Tauris). He is a senior advisor at Avisa Partners, Brussels.

The point was put most vividly by the anti-EU Tory, then briefly the UKIP MP, Douglas Carswell, that the UK was “shackled to a corpse.” William Hague in 1998 and Nigel Farage in 2016 said that being in the EU or the eurozone was like being a building on fire with all exits locked.

One does not have to indulge these vivid metaphors to acknowledge that in the last 25 years the economic story in Europe has been less than impressive.

In what the French call “les trentes glorieuses” – the three decades of post-war growth – the main continental economies, Germany, France, Benelux and Italy, outgrew Britain handsomely. Between 1950 and 1973, British growth increased by 2.9% each year. In the same period, Germany grew by an annual average of 6%, France and Italy by 5.1%.

30 years later, following the end of communism and the rise of globalisation which destroyed heavy industries and their related jobs in Europe, Britain surged past its European partners. Between 1993 and 1997 – the years when Euroscepticism sunk roots in the press and the Conservative Party, UK growth was 3.4% annually compared to France’s 1.36%, Germany’s 1.14% and Italy’s 1.24%.

The creation of the euro did little to help EU growth. Between 1998 and 2002, Britain grew each year by an average of 3.24% compared with 2.62% in France, 1.8% in Italy and I.68%  in Germany.

More broadly, the rising BRIC economies and America’s new GAFA (Google, Apple, Facebook, Amazon) economic model were clearly out-performing Europe. The arrival of the euro was not matched by reforms and financial discipline in the PIGS (Portugal, Ireland, Greece, Spain) and the 2008/9 crash made Europe look even more miserable by comparison with the UK.

To be sure, Britain relied heavily on FDI and EU freedom of movement to import workers to do skilled and unskilled jobs that the labour intensive UK economy had failed to reskill or motivate a national workforce to do. Freedom of movement rules do not apply to state employment but the biggest employer of European workers in Britain is the NHS as the nation has always refused to train enough doctors and nurses.

Being in the Single Market turned London into Europe’s Wall Street as every bank, investment fund, bond and currency trader in the world came to London to do business without let or hindrance in the 450 million strong market. 1,000 Japanese firms installed themselves in the UK regenerating manufacturing.

The best indicator was the resilient employment figures. To be sure they were in part achieved with a big taxpayers’ subsidy and despite high levels of employment, 19 million people live below the official poverty line as the rise in food banks, homelessness, and sleeping in city streets is witness to.

But overall, and even if at times somewhat smugly, there was a justified self-satisfaction in Britain that we had got things right and the poor benighted continentals were now the economic past.

The future was Brazil, Russia, India and China as declared by Jim, now Lord O’Neil, in a set of early 21st century arguments which were repeated endlessly over the following years.

It was one of the more powerful arguments of the Leave campaign, namely that Britain should unshackle itself from Europe and embrace a new world of growth. It was a theme repeated by Sir Jim Dyson in his interview with Andrew Marr this Sunday.

The BRICs don’t look so bright today but far more interesting is the return of European growth compared to a very sickly British picture. Latest figures give UK growth in 2017, 2018, and 2019 of 1.5, 1.3, 1.1%, respectively, compared to 2.2, 2.1 and 2.0 in Germany, 2.2, 2.1, and 1.9 in the eurozone as a whole or 3.2, 2.7, 2.2. in non-euro Sweden and growth of more than 4% in Poland.

It seems as if tough measures imposed after the 2008/9 crash have paid off. Ten years after the 1929 Wall Street crash, Europe was plunged into World War II. A decade after the global banking crash, Europe has solid growth with many countries well ahead of the UK and with a better record than Britain on public debt, deficits, and household borrowing.

This should not lead to complacency as many EU economies still have too much unemployment and weak banks with too many non-performing loans or depend too much on being quasi tax havens like Ireland for Apple or Luxembourg for Amazon.

But the argument that Britain had a stellar economy held back by being in the EU is no longer tenable. That is yesterday’s narrative. A new one would point to a recovering and growing Europe and it begs the question whether Brexit is an answer to a problem – zero growth Europe – that no longer exists?

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