In my previous posts on Eurozone, I highlighted the creation of the single currency, the effects of a single monetary union without a common fiscal union and explained the Greece Crisis. The current Greece crisis is a classic case of Political Compulsions and Brinkmanship trampling Economic rationalities. The event some years back when Greece asked for international assistance for first time was much more of a serious issue. The possibility of a deal happening is very much there and is in the best interest of all stakeholders to reach an agreement soon.
Now lets turn our attention across the North Sea. Its the turn of another country to threaten the European Union (EU) about referendum, but this is not about Economics but about Politics – “whether to be part of EU or not”. I believe it could be a bigger threat than the Greece issue.
People may begin to question my rationale that its a bigger problem than the Greece crisis. They have a valid point, after all Britain was never part of the Eurozone. This argument is not that simple.
Lets dissect why Britain wants to do a referendum on its EU membership. All political parties in the UK have some or the other opinion on this which were quickly changed depending on the time and opportunity. In my opinion there are both Cultural and Economic/Political reason which explains the British detachment from the European Union.
1. Cultural Identity : To begin with Britain was never fully enthusiastic to be part of a bloc and always wanted to maintain a separate identity. They had some distinct identities from the European Union for example English as the mother tongue, elitism compared to other EU states etc
2. Economic/ Political : Britain became part of the European Communities in 1973 because of Economic rationality rather than Political will. This was cemented further as Europe was doing very well in terms of Economic growth. But in recent times the Economic/Political crisis in the EU member states particularly in the Eurozone members intensified the discussion for separation.
There seems to be a growing feeling among Britons that being part of the EU has made Britain suffer due to :
a. Migration from other EU states
b. Bureaucratic Political decision making
c. Uncompetitiveness for British Companies.
These reasons are nevertheless debatable.
The EU rules on freedom of movement of people and job increased migration rapidly. The prospect of getting a good job in London made lot of Job seekers throng EU. The stats need to be checked whether this affected the job seeking Briton nevertheless it became big issue in Election rhetorics.
The Bureaucratic set up at Brussels (EU Capital) made each states to give up some of their legislative powers. EU states would have to frame laws within the EU conformity.
The competition commission at Brussels made British companies on par with others from the EU. The exclusivity was gone and much more regulation and scrutiny followed.
All these were difficult to swallow in London.
The British PM David Cameron wants to pacify the Britons by bringing a proposal to the EU on amending rules related to migration, employment , making laws etc. According to him a better deal for the UK would give confidence to the average Briton to be part of the EU or else he would call for a Referendum in 2017. As of now he has not found much support from Germany and France, the big two Euro area members.
Economists on the other hand continue to argue on UK membership of EU. If UK gives up the membership it would have restricted access to a massive market of EU. This would make British companies competing with companies from other states very difficult. There are also possibility of International companies shifting their HeadQuarters to the EU which would make sense for them.
A Britain exit or Brexit if it happens would be a massive blow for the unity of the European Union.
It would make the EU look fragile. Nonetheless i hope as the Scots decided to remain part of the UK, the UK would be better off being part of the EU.
Lets wait and watch for things to develop in coming months.