06.11.2018

United Kingdom and the EU

The Department of Economics had invited to a Brexit conference on 26 October 2018. In a scientific workshop, top-class scientists from Zurich, Dublin, London and Germany presented their views on economic costs, the effects on trade, the legal situation, inflation and living standards. Hans-Werner Sinn, former President of the ifo Institute for Economic Research, gave the keynote address, which opened a concluding panel discussion.

Serenity towards the UK's withdrawal from the EU is highly dangerous. Right at the beginning of his presentation, Hans-Werner Sinn made clear the economic importance of the British for the EU. In 2017, the United Kingdom accounted for 15.2 % of the gross domestic product (GDP) of all EU countries. Only Germany was more significant with a share of 21.3 %. In terms of GDP, the UK's withdrawal is comparable to a joint withdrawal of 19 other EU countries, namely the 19 countries with the lowest GDP. What does this mean for the European Union and especially for Germany? And what consequences can the Brexit have for Great Britain?

The great importance of the British in the EU was made clear by an excursion into the history of the European Economic Community (EEC), which came into being in 1958, and the EU that emerged from it. The Élysée Treaty of 1963 sealed Franco-German friendship. The accession of the United Kingdom to the EEC in 1973 opened up trade relations with almost the whole world for the other members of the EEC. Germany also benefited greatly from this. Now, 45 years later, the EU faces a major dilemma when the United Kingdom leaves the EU on 29 March 2019. According to Sinn, only a miracle could avert this.

Compensating for the withdrawal

According to the economic researcher, the British could cope better economically with a withdrawal than the rest of the EU. Since 1995, the UK has increasingly made itself independent of the EU in terms of exports, and the USA and "the rest of the world" have become more important as trading partners than Germany and France. "Were the British a victim of the Eastern European expansion of the EU? Sinn asked this question on the occasion of a graph that made it clear that the UK's current account balance relative to its GDP had become increasingly negative since 1997. For Germany, however, the UK was for a long time the third largest export destination; today it has slipped to fourth place after the US, France and China. However, the Brexit also accounts for a significant proportion of German exports. Especially Bavaria and Baden-Württemberg with their automotive industry would be affected by trade restrictions.

Too many majority decisions

The question of capital flight, coupled with the weakening of the British pound, especially after the referendum, and the differences between the UK, France and Germany in the importance of manufacturing compared to services were other issues.

Sinn pointed out serious arguments of the supporters of Brexit: For example the criticism of the increasing importance of the majority principle in EU decisions, the violation of the subsidiarity principle in the demarcation between EU competence and competence of the nation states or regions, the communitarisation of risks without a common state, or the dissatisfaction with the position as a net contributor. From a German perspective, Sinn sees the danger that free traders in the EU (including Germany) will lose the blocking minority of 35% of the population anchored in the EU Treaty as a result of Brexit. Sinn conjured up the image of "Fortress Europe", which becomes more probable as a consequence of changed power relations.

Migration, inclusion and welfare

In conclusion, Sinn reminded the audience that three desirable goals can hardly be achieved at the same time: 1. free international migration, 2. differently generous national welfare systems and 3. the inclusion of migrants in the national welfare system of their country of residence. He thus alluded to the concerns of many EU critics that citizens from poorer EU states are migrating to richer member states because they enjoy the more generous welfare state there. This could be changed by making labour migration possible, but by obliging the home countries to shoulder the social benefits. This would abandon the third objective, but Sinn stressed that it was much better than abandoning the other two.

Nevertheless, if the Brexit were to take place, this would not in any way restrict free trade and free migration. To prevent this, the EU should approach the British with offers and refrain from any kind of "punishment" for the Brexit. Termination of EU membership and re-entry must be simplified in the sense of voluntary participation in the community. The EU should not become a prison. With this plea the economic researcher concluded his lecture in the Pfleghofsaal of the university.

Translated with www.DeepL.com/Translator

Text and Photo: Ramona Gresch/University of Tübingen, School of Business and Economics