The UK needs to build good economic relationships with emerging markets even more than with its EU neighbors. China is already highly competitive in manufacturing and is gaining competitiveness in high-technology manufacturing. India is a leader in Information Technology and, being an English speaking country, also has the ability to be globally competitive in Professional Services. Latin American and Southeast Asian economies, such as Brazil or Indonesia, will become increasingly competitive in agriculture and energy. The WTO and various other bilateral free trade agreements are reducing the barriers to these types of goods, making them increasingly attractive to the European consumer.
Considering the competition for European markets, the EU's greatest value and likely greatest priority will be the protection of European markets, not the opening of global markets. The UK, because of its focus on global finance and professional services, has little to gain from the protection of its own market and much more to gain from the opening of non-European markets.
The current Eurozone crisis demonstrates the untenability of the EU notion of economic and monetary union. The Eurozone's 17 member countries do not have similar monetary policies, making harmonious monetary union very problematic. Germany, for instance, has very strict monetary policies, which is enabled by stable economic growth and low unemployment. In contrast, weaker Eurozone countries such as Greece, Italy, and Spain have stagnated economically for the better part of a decade, producing high unemployment and failing firms. To alleviate these problems, their governments spend on social welfare and economic subsidies.
Germany's departure from the Eurozone would not only benefit Germany, but could benefit the remaining Eurozone members.
The weaker Eurozone countries, such as Spain and Italy, would have the flexibility in monetary policy to correct unique economic issues. Spain and Italy, for instance, both suffer from high labor costs which have hampered their economic growth in the past decade. The lack of economic growth and consequently tax revenue is a major cause of their present fiscal deficits. Without the dominant Germany there to impose strict monetary policies, Eurozone countries could devalue their currencies to promote production and reduce consumption, as China has.
Germany would benefit in the short-term from leaving the Eurozone but would suffer economically in the long-term. In the short-term, Germany's currency would actually be stronger by 2.4% if the Eurozone were to collapse. However, in a more broad and long-term economic context, Germany benefits greatly from the Eurozone because of its role as the EU's biggest exporter. The Eurozone had a positive effect on exports in "scale-intensive" industries such as the chemical, office machinery, and accounting industries in highly industrialized Germany.
Much of the debt that weaker EU countries have accumulated was spent on German goods.
In light of the great economic diversity of the EU, the vision of a centralized economic and monetary union will continue to prove unrealistic. Furthermore, disharmony within the economic union will make it even more difficult to respond to the inevitable threats from emerging global competitors. The EU's current and future competitors, e.g. The U.S., China, India, and Brazil are not unwieldy supra-national governments but national governments and will face the internal struggles which burden the EU.
The EU model of supranational government is not wholly unrealistic. There are many political entities which have similar ultimate goals, such as ASEAN, MERCOSUR, or NAFTA. However, the EU is much more developed as a supranational political entity than either NAFTA or MERCOSUR because it has a standing governmental body and a common currency.
Other multi-national political and economic associations are much more focused and conservative in their approach. NAFTA is the least developed as a political entity and is purely a trade agreement at this point, more of a legal institution than a political organization.
MERCOSUR is a little more developed than NAFTA, but exercises little supranational political authority over its member countries.
NAFTA and MERCOSUR have been successful and stable in promoting trade precisely because they have not required extensive commitments on the part of its members.
ASEAN is perhaps the most similar to the EU at this point in the authority it has over its member countries. ASEAN has been successful in promoting trade through cooperation in the ASEAN regional free trade agreement as well as group "bilateral" agreements between ASEAN countries and outside countries as well as between individual ASEAN countries and outside countries. Thus, ASEAN demonstrates that departure from the EU in its current form does not mean that the UK will not be able to cooperate with its European neighbors in promoting its economic interests.
Loss of Free Trade
The European Union was originally created for the purposes of international stability and security. The main aim of the EEC, as stated in its preamble, was to "preserve peace and liberty and to lay the foundations of an ever closer union among the peoples of Europe." Calling for balanced economic growth, this was to be accomplished through the establishment of a customs union with a common external tariff, common policies for agriculture, transport and trade, and enlargement of the EEC to the rest of Europe. For the customs union, the treaty provided for a 10% reduction in custom duties and up to 20% of global import quotas. Progress on the customs union proceeded much faster than the twelve years planned. The UK has not yet joined the Eurozone, departure would be much less disruptive to the UK economy.
The European Union is also perceived as a necessary vehicle for Europe to balance the political influence of the United States and China. The European Union is seen as a potential third power bloc, providing a much-needed liberal, multi-lateralist, and secular counterweight to the theological-conservative U.S. Or the mercantilist China. Internationally, the EU is increasingly perceived as a cohesive political unit representing certain secular and democratic political values, along with a certain level of industrialization. It is seen by some as a progressive counterweight to the reactionary U.S. And the commercial-minded China. The E.U. has recently established a head of foreign affairs in 2009, although the full extent of this officer's political powers has yet to be seen.
The need for political security and stability in the region is much less pressing than it was when the EU was formed. Europe is no longer the site of warring imperialist powers primed for total war. Nor is it any longer a region devastated by World War and vulnerable to the Communist Soviet Union. Actually, it is perhaps the most prosperous, peaceable, and progressive region in the world. Because of these characteristics, Western European countries will be able to resolve political and economic disputes multilaterally. It can also rely on the U.S. As a mediator in this regard.
The UK should withhold support requested for the Eurozone. The Prime Minister should support the May 2013 Referendum on UK membership in the EU.
Article 39 (ex Article 33) of the Treaty on the Functioning of the European Union, on eur-lex.europa.eu
"Agriculture: Meeting the needs of farmers and consumers." Europa: Gateway to the European Union. European Commission. 26 August 2011. Retrieved 4 November 2011. "... The common agricultural policy is the most integrated of all EU policies and consequently takes a large share of the EU budget. Nevertheless, its portion of the EU budget has dropped from a peak of nearly 70% in the 1970s to 34% over the 2007 -- 2013 period."
Almost half EU spending allocated towards an industry that employs only 5% EU citizens and generates 1.6% GDP
Vicarelli, Claudio & De Santis, Roberta & De Nardis, Sergio, 2008. "The Single Currency's Effects on Eurozone Sectoral Trade: Winners and Losers?," Economics - the Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(17), pages 1-34. P. 13