Better off in or out?
In a series of pieces looking at arguments over the European Union referendum, RexN looks at economic data to explore the cases for and against. In trying to look at economic data, a common source of statistics was found, namely tradingeconomics.com. It should be noted in advance that the compilation of economic statistics varies between countries, with depth of data easier to come by for some more than others.
The starting point for each of the countries selected varies. This is not an attempt by the writer to show bias but down to the sources. Trend lines have been added using the system provided on the site. The Y axis shows percentage change.
The first country selected, quite naturally, is the United Kingdom, whose data goes back to the 1950s. What we can see over the period in question is a slight long term decline in trend economic growth.
It is interesting to reflect on Britain’s currency policy with regard to the rest of Europe. We joined the Exchange Rate Mechanism (ERM) in 1990. The Maastricht Treaty, paving the way for currency union and the Euro, was agreed in 1992.
It is interesting to note that there was an economic decline during the ERM years. After leaving the ERM steady growth, above long term trend, followed. Indeed, extracting the 10 year trend, the UK shows upwards growth.
By comparison, the next stop on the journey was to see what had happened within the Eurozone since the inception of the Euro:
The initial observation is that economic growth in the Eurozone has a long term downward trend, from around 0.8% at its inception to zero. As expected, there was negative growth as there was with many countries from around 2008, the downturn in the Eurozone being more exaggerated than in the UK. The 10 year trend is downwards but still positive.
What then becomes interesting is to see what happens in the rest of Europe, starting with our near neighbours also in the G7, France:
We see similar patterns as in the UK from the 1950s, volatility in growth being reduced but with a downward trend, approximating to zero towards the end of the period. Could we expect the same with another G7 country, Italy?
Sure enough, the pattern is the same, a downward trend, which is maintained over the period. However, when we look at the last 10 years, the trend has been downwards, reaching negative growth.
So, what about other countries that are on the edge of the European Union? What would we see in Spain, one of the countries who have attracted investment away from Britain in the shape of car assembly and other manufacturing, bearing in mind that cars once made in Dagenham and Luton are now made there?
Sure enough, we see the same overall pattern, a trend for growth rate decline, moving to negative despite an improvement over the last few years. Another peripheral economy, also with the benefit of car assembly shifted from the UK, is Portugal:
Perhaps unsurprisingly by now, we see the same again, the trend being towards negative long term growth.
Of those countries that have received high profile publicity, we should have a look at Greece:
Although the long term trend has been downwards, again moving to negative. The majority of the last 10 years have seen negative growth.
A major part of the European jigsaw is Germany, the manufacturing powerhouse of the EU:
Of course, there has been scope for growth, bearing in mind the divergence in prosperity between the former split of West and East which was resolved in 1989 after incorporating the less productive East. To our surprise, even though the trend has been towards positive growth, the overall picture is flat.
Does it give a different perspective to look at a couple of other logical choices, firstly our main trading partners across the Atlantic?
There is a slight decline in long term trend, given the range of data available from the 1940s. However, at times recent growth has on occasions approached 5% with the 10 year trend showing as above 2%.
Another example is the most populous Commonwealth country, India:
Once again, the long term growth rate is significantly above the EU average, India seeming to be relatively protected from global downturns.
Intuitively, 2 major questions arise. The first of those relates to the export markets that British companies have chosen to align themselves with. Certainly, the majority of our international trade is within the EU. Should British companies stick with that, or should they be exploring other trading links more aggressively?
The other big question is about the long term sustainability of the European Union. Sir James Goldsmith, who created the Referendum Party, would speak lyrically about the history of empires and their downfalls.
Arguably, those unions which came about from empires, have tended to collapse when there has been a high degree of centralisation with its accompanying bureaucracy. These could be argued to have been exemplified by Rome, the Habsburgs and indeed the Soviet Union.
Notably, these unions have dissolved from the periphery; Rome from Germania, the Holy Roman Empire from adjacent revolutionary France, the Habsburgs ultimately with World War 1 and the Soviet Union from the shipyards of Gdansk and the Autumn of Revolutions.
Has the European Union grown too far, become too bureaucratic and too centralised, does it do enough for those on the fringes?
Time will tell whether the greater risk is staying in or leaving. Economic prospects outside the EU, in faster growing markets such as North America and the Commonwealth, might make us question whether it is right to maintain our exposure to less dynamic economies.
Ultimately, it is for the British people to decide on 23rd June where our long term interests are best served, preferably with a balanced view of the facts.