Brexit may well torpedo the remarkably sweet deal the UK has struck with the EU

 Jeff  Spross

The EU isn’t snookering Britain. Britain is hoodwinking the EU.

On Thursday, the citizens of the United Kingdom will decide whether to sever ties with the European Union. It’s a tangled drama unfolding on the world stage, touching upon populism, national identity, xenophobia, and the relationship between everyday working people and the elites running the world’s increasingly massive and complicated institutions. (Read our helpful Brexit explainer here.)

“The ordinary citizens feel these people in Brussels are remote, they don’t care about them, they’re too distant,” John Van Reenen, director of Britain’s Centre for Economic Performance, told The Week in an interview. “And they want to give them a kick.”

But there’s an irony here. Contrary to the standard pro-Brexit narrative of everyday Britons eager to throw off the EU yoke, the United Kingdom actually already enjoys a uniquely privileged position in the international group.

First of all, Britain never joined the euro currency union, freeing it of all sorts of complicated policy commitments that the rest of the EU is obliged to abide by. But despite staying on the pound, Britain still has full access to Europe’s “single market.” Essentially, this single market allows all EU member countries to move goods, services, capital, and people between each other without barrier, tax, or tariff. “That single market is about half a billion people,” Van Reenen said. It’s an open question just how much benefit national economies derive from being able to participate in this sort of free trade. But they clearly derive some benefit. And Van Reenen’s group thinks it’s a lot.

Any company, no matter where it’s headquartered, can open a branch in an EU member country and get access to Europe’s entire single market. If you build a car in Japan and export it to France, you have to pay a tariff. If you build it in Bulgaria, you can sell it anywhere in Europe tariff-free. This has made London a major hub for many industries, in particular financial services — which provides about 12 percent of Britain’s overall tax revenue

The incredible ease with which people can move throughout the EU also means that Britain “sucked up a lot of great talent from all over the rest of the European Union,” as Van Reenen put it. The country’s financial industry and its universities, for example, boast an enormous amount of high-skill workers from other countries.

What does it cost Britain to enjoy these privileges? It must pay roughly 8 to 10 billion pounds to the EU every year. And it must abide by a host of EU rules regarding free immigration, business regulation, and some operations of its welfare state, among other things. In exchange, Britain gets to elect representatives to the EU parliament, and gets a say in staffing the EU’s various rule-making committees. (Now, the European Union is a needlessly complicated mess of an institution in which genuine democratic accountability is awfully difficult — so there may not be a ton of value to the average Briton in “having a say” in EU policymaking.)

Britain enjoys a few other perks, too. Because it never joined the eurozone currency union, the European Central Bank and the EU authorities cannot use their monetary powers to force Britain to adopt austerity policies it doesn’t want to adopt, as they’ve done with Greece. Nor does Britain have to contribute to the EU bailout funds that have gone to Greece.

Of particular relevance to the complaints about immigration that have been leveled by pro-Brexit forces: Britain still runs passport checks at its border. Because of the Schengen free-travel area, most EU member countries cannot do that. Britain may be subject to EU immigration rules, but the Schengen area is distinct from those rules, and Britain never joined. That allows it to police its own borders with more stringency that most EU members.

The push for Brexit seems rooted in the idea that the EU is somehow hoodwinking Britain. But in many ways, it’s Britain that’s pulling a fast one on the EU. “Britain is in a position to get many of the benefits of the European Union without paying many of the costs,” Van Reenen said. “That’s why it would be a real shame if Britain gives it up.”

So why do so many Britons want to bail on the EU?

Well, it’s not like Britain’s economy is thriving. After some initial stimulus and expansionary monetary policy in the wake of the 2008 crash, Prime Minister David Cameron turned hard toward spending cuts and tax hikes. “There were things like 40 percent cuts in public investments, which were disastrous,” Van Reenen said. The economic recovery sputtered to a halt, wage growth flatlined, and access to public services suddenly constricted.

That’s created a good deal of fear and anger among regular Britons. And it’s been channeled in strange and ugly directions. It can make a certain tribal intuitive sense for pro-Brexit politicians like Boris Johnson to blame immigrants for pushing down wages and sucking up public services, even though that story doesn’t comport with the facts. “You point the finger at the foreigner when in fact the problem is much more with policies that are homegrown,” Van Reenen said.

So in a weird mirror of Trumpism here in the U.S., justified outrage created by the very real failures of the governing elite is perversely targeting the wrong scapegoats. And in the case of Brexit, it may well torpedo the remarkably sweet deal the United Kingdom has struck with the rest of the Continent.

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