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The Uk and the European Union - BREXIT Examined

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The EU is the UK’s major trading partner, accounting for 45% of exports and 53% of imports of goods and services in 2014
The EU is a major source of inward investment into the UK. In 2013, EU countries accounted for £453 billion of the stock of inward Foreign Direct Investment, 46% of the total.
Over £4 billion worth of exports are sold by the UK to EU countries each week
In 2014, the UK had a trade deficit of £62 billion with the European Union

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The Uk and the European Union - BREXIT Examined

  1. 1. The UK and the European Union
  2. 2. 28 European Union Member Nations (in 2015) Joined EU Euro Zone Member? Joined EU Euro Zone Member? Austria 1995 Yes Italy 1957 Yes Belgium 1957 Yes Latvia 2004 Yes Bulgaria 2007 No Lithuania 2004 Yes Croatia 2013 No Luxembourg 1957 Yes Cyprus 2004 Yes Malta 2004 Yes Czech Republic 2004 No Netherlands 1957 Yes Denmark 1973 No (ERMII) Poland 2004 No Estonia 2004 Yes Portugal 1986 Yes Finland 1995 Yes Romania 2007 No France 1957 Yes Slovakia 2004 Yes Germany 1957 Yes Slovenia 2004 Yes Greece 1981 Yes Spain 1986 Yes Hungary 2004 No Sweden 1995 No Ireland 1973 Yes United Kingdom 1973 No
  3. 3. Enlargement of the EU – Rising Per Capita Incomes All of the new countries joining the European Union have a per capita national income (PPP adjusted) lower than the EU average But many have achieved some convergence in average living standards despite the effects of the recession in 2008-2010 Bulgaria and Romania are outliers with per capita incomes less than ½ of the EU average.
  4. 4. Changing Relative Per Capita GDP for EU - 2003-2013 Index (EU28 = 100) GDP (PPP) 2003 GDP (PPP) 2013 Index (EU28 = 100) GDP (PPP) 2003 GDP (PPP) 2013 Austria 127 128 Italy 112 99 Belgium 123 119 Latvia 45 64 Bulgaria 33 45 Lithuania 48 73 Croatia 56 61 Luxembourg 240 257 Cyprus 94 89 Malta 82 86 Czech Republic 77 82 Netherlands 133 131 Denmark 124 124 Poland 48 67 Estonia 52 73 Portugal 78 79 Finland 115 113 Romania 29 55 France 111 107 Slovakia 53 75 Germany 116 122 Slovenia 82 82 Greece 93 73 Spain 100 94 Hungary 62 66 Sweden 127 127 Ireland 141 130 United Kingdom 123 109
  5. 5. UK and the EU – Data Background
  6. 6. Net UK contributions to EU budget Forecasted net UK contributions to EU budget from 2014/15 to 2019/2020 (in £m) 9,054 8,385 10,178 8,049 8,908 9,374 0 2000 4000 6000 8000 10000 12000 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 NetcontributionsinmillionGBP
  7. 7. UK and the EU – Trade & Investment • The EU is the UK’s major trading partner, accounting for 45% of exports and 53% of imports of goods and services in 2014 • The EU is a major source of inward investment into the UK. In 2013, EU countries accounted for £453 billion of the stock of inward Foreign Direct Investment, 46% of the total. • Over £4 billion worth of exports are sold by the UK to EU countries each week • In 2014, the UK had a trade deficit of £62 billion with the European Union
  8. 8. UK Trade Patterns 11% of UK exports go to IMF-classified emerging economies USA 12% Germany 11% China 4% Russia 2%
  9. 9. UK Net Labour Migration Data • Total EU net migration to the UK was 178,000 in 2014 • 46,000 Romanian and Bulgarian citizens immigrated to the UK in 2014 589 567 596 574 590 567 591 566 498 526 624 -344 -361 -398 -341 -427 -368 -339 -351 -321 -317 -327 268 267 265 273 229 229 256 205 177 209 298 -600 -400 -200 0 200 400 600 800 YE December 2004 YE December 2005 YE December 2006 YE December 2007 YE December 2008 YE December 2009 YE December 2010 YE December 2011 YE December 2012 YE December 2013 YE September 2014* Migrationinthousands Inflow Outflow Net migration
  10. 10. Bulgarian and Romanian Workers in UK
  11. 11. Longer Term Dynamic Effects of Migration Labour Market Fiscal Effects Consumption Competitiveness Waves of inward migration can have long term effects on a country’s overall macroeconomic performance Increase in the active labour supply which might cause lower unit labour costs for a host country Inward migration increases pressure on government spending but can also lead to rising tax revenues • Human capital helps to generate ideas and products • Many migrants start businesses – possible exporters • Knowledge spillovers • Increase in population size • Rising demand for public services • If housing stock is fixed, can lead to higher prices and rising rents
  12. 12. The BREXIT Debate
  13. 13. Intra-EU Trade Investment and Jobs Intra-EU Labour Migration EU Rules & Regulations Environmental Policies Real Wages / Living Standards Aspects of UK Membership of the EU
  14. 14. Intra-EU Trade Investment and Jobs Intra-EU Labour Migration EU Rules & Regulations Environmental Policies Real Wages / Living Standards Aspects of UK Membership of the EU Many of the costs and benefits of UK membership of the European Union are subjective or intangible
  15. 15. UK and the EU – Three Research Reports Report Source Key Findings Useful evaluation argument Open Europe Report (March 2015) • Between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030 • Economic impact of Brexit not clear cut in either direction • Norwegian’ and ‘Swiss’ models of EU association are not suitable for the UK post-Brexit Centre for Economic Performance (LSE) (Summer 2014) • Leaving the EU would be likely to impose substantial costs on UK economy and would be a risky gamble • Negative effect on growth greater than benefit of reduced EU fiscal contribution • Much depends on the scale of non-tariff barriers if UK leaves EU Confederation of British Industry (2013) • Net benefit arising from EU membership is somewhere in the region of 4-5% of UK GDP • Britain does not face an ’either/or’ choice – it needs to maximise trade with existing large markets at the same time as building links to new markets
  16. 16. UK and the EU – Three Research Reports Report Source Key Findings Useful evaluation argument Open Europe Report (March 2015) • Between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030 • Economic impact of Brexit not clear cut in either direction • Norwegian’ and ‘Swiss’ models of EU association are not suitable for the UK post-Brexit Centre for Economic Performance (LSE) (Summer 2014) • Leaving the EU would be likely to impose substantial costs on UK economy and would be a risky gamble • Negative effect on growth greater than benefit of reduced EU fiscal contribution • Much depends on the scale of non-tariff barriers if UK leaves EU Confederation of British Industry (2013) • Net benefit arising from EU membership is somewhere in the region of 4-5% of UK GDP • Britain does not face an ’either/or’ choice – it needs to maximise trade with existing large markets at the same time as building links to new markets
  17. 17. UK and the EU – Three Research Reports Report Source Key Findings Useful evaluation argument Open Europe Report (2015) • Between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030 • Economic impact of Brexit not clear cut in either direction • Norwegian’ and ‘Swiss’ models of EU association are not suitable for the UK post-Brexit Centre for Economic Performance (LSE) (2014) • Leaving the EU would be likely to impose substantial costs on UK economy and would be a risky gamble • Negative effect on growth greater than benefit of reduced EU fiscal contribution • Much depends on the scale of non- tariff barriers if UK leaves EU Confederation of British Industry (2013) • Net benefit arising from EU membership is somewhere in the region of 4-5% of UK GDP • Britain does not face an ’either/or’ choice – it needs to maximise trade with existing large markets at the same time as building links to new markets
  18. 18. Free trade • Britain could negotiate new trade agreements with EU trade partners and many emerging countries • Britain would free itself from many of the EU's complex and expensive laws & regulations Savings +prices • Leaving the EU would cut contributions to EU budget • Food prices would possibly be lower if we left the Common Agricultural Policy (CAP) Other gains • Europe needs the UK as a favoured trade partner • UK would retain greater control over fiscal and monetary policy and freedom over labour market, competition and environmental policies Arguments for Brexit (i.e. leaving the EU)
  19. 19. Competitiveness and the BREXIT debate “We are the fifth or sixth largest economy in the world. We could exist on our own — peacefully and sensibly.”
  20. 20. Arguments for staying inside the EU Free trade • Multinationals might reconsider their FDI into the UK • Adopting a Norwegian approach would mean UK accepting many EU rules without any say in policies Open Markets • UK will lose tariff-free access to largest export market • Pan-European trade agreements have benefitted UK • Outside EU, UK more exposed to low-cost competition Extra risks • Costs for businesses adjusting to many new laws • UK’s net EU contribution is <1% of GDP • Moves to limit free movement of labour with Brexit might worsen skills shortages for many UK businesses
  21. 21. Competitiveness and the BREXIT debate “The economic case for continued membership of a bloc with 500m citizens and 21m companies will remain overwhelming.”
  22. 22. 1. Norwegian model: Britain joins European Economic Area, giving access to the single market but freeing it from EU rules on agriculture and fisheries 2. Swiss model: Britain is independent and negotiates new trade treaties on a sector-by-sector basis 3. Turkish model: UK enters into a customs union with the EU, allowing access to the free market in manufactured goods 4. Unilateral approach: UK relies on its membership of the World Trade Organisation Some options for the UK outside of EU www.bbc.co.uk/news/uk-politics-32793642
  23. 23. A highly recommended article www.bbc.co.uk/news/uk-politics-32793642
  24. 24. Evaluative arguments • Jobs: Are 3 million jobs at risk if we leave? – Number of jobs related to trade with other EU member states is not the same as saying that over three million jobs are dependent on EU membership • An opportunity to deregulate the UK economy? – Majority of laws would stay the same – In some cases the UK government has gone further than the EU e.g. in environmental interventions • In Britain’s long-term interests for EU to succeed • Growth and competitiveness agenda is much wider than question of UK/EU membership
  25. 25. A2 Macro: The UK and the European Union

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