IPR Blog

Expert analysis, debates and comments on topical policy-relevant issues

Dr Felia Allum and Annarita Criscitiello (Università Federico II, Naples University, Italy : The Brexit referendum is not only a British affair

📥  Brexit, EU membership, EU Referendum, Euroscepticism, Italy

Dr Felia Allum, Lecturer in Italian History and Politics, Department of Politics, Languages & International Studies and Annarita Criscitiello (Università Federico II, Naples University, Italy)

Why should Italians care about the Brexit debate in the UK? After all, Italy and the UK are at the opposite ends of the spectrum in terms of their relationship with the EU. As a letter co-signed by the countries’ Foreign Ministers, Paolo Gentiloni and Philip Hammond, at a meeting in December 2015, put it: ‘Italy and the UK have two fundamentally opposing ideas of Europe’. In contrast to the British vision of the EU, the main focus of which is business opportunities produced by the internal market, Italy’s perspective is unashamedly federalist, and deeply committed to building ‘an ever closer Union’ and creating 'a United States of Europe', particularly economically and institutionally. Thus, these are two very different visions, and two very contrasting approaches to Europe.

These differences can be explained by their distinct histories, geographies, institutions, and cultures. Italy was a founding member of the Common Market; indeed the establishing treaty was signed in Rome in 1957. Italy always saw in the European project, not only the opportunity for the rebuilding of its economy and infrastructure after its defeat in WWII, but also as a unique opportunity to regain political credibility after its fascist past and Mussolini’ s legacy. The UK, by contrast, joined the Common Market only in 1973. It had not initially been interested in joining in 1957 because it believed it was in a stronger position in its three spheres of influence (the Commonwealth, the US, and then Europe). Fifteen years later, it practically had to beg to be allowed to join, after De Gaulle had vetoed its first application in 1963.

These different starting points have greatly influenced their subsequent membership. It has been suggested that the Italians have always been the first to endorse decisions, but are rather slow at implementing them, whereas the British have been notorious for making complications but, once convinced, implementing decisions straight away. They also differ in relation to the development of Euroscepticism in their countries. Euroscepticism has in general dramatically increased over the last ten years, but especially since 2011 and the global economic crisis that put the whole of the European integration project into question, in particular in countries like the UK and Italy.

A Eurobarometer survey in 2013 highlighted the economic and cultural features of Euroscepticism in each member state. In the UK, citizens were uncertain about what the nation and individuals gained from EU membership, whereas Italians were much more concerned about what families could gain. We can thus say that the strong British attachment to its national identity means that its form of Euroscepticism is not only economic, but also cultural.

Should they stay or should they go?
The Brexit debate has not yet made an impact on Italian politics or the Italian public at large. When David Cameron returned triumphantly from Brussels with his reform package, which kicked off the unofficial referendum campaign, it did not even make the headlines in the Italian national press, which were paying tribute to the great writer, Umberto Eco, who had just passed away. It is not an exaggeration to say that, so far, there has been very little if any interest in the Brexit debate and its implications for Italy. This may change as the referendum date approaches, but what do Italians think at this stage?

Where there has been political discussion, it has been characterised by the traditional left versus right divide; or rather left, pro-Europeans versus right, populist Eurosceptics. This translates into the pro-Europeans wanting the UK to remain in the union, and the Eurosceptics wanting the UK to leave. These positions have been clearly articulated by various politicians who believe that the implications of the Brexit referendum would go well beyond London and Brussels. Marco Piantini, an EU official and advisor on European affairs to the current Renzi government, is clearly worried. He recently expressed the Italian left’s fear about a possible UK exit. He pointed out the significant role that the UK plays in the EU, and how a Europe without the UK would be a weaker, less globally consequential one. In particular, he argued that the UK’s exit would have a very negative impact on the EU because the UK represents a substantial market and the largest trading space in the EU. To take this space away would be to deprive other member states of an important slice of economic trade and activity. Culturally, the EU’s riches would also decline as the first international language would be outside the European family of languages. Thirdly, he argued that an EU without the UK would be a lesser political and diplomatic player. The EU, according to Piantini, would lose considerable international prestige and power without the UK’s voice, because the UK has always been a key international player, and has contributed substantially to the major political events of the 20th century, such as the defeat of fascism and the creation of the United Nations.

By contrast, some of the main representatives of the Italian right would welcome a UK exit. Matteo Salvini, leader of the populist and Eurosceptic Northern League, is hoping for a ‘yes’ vote because he believes that a UK exit would weaken the EU project and throw its whole future into doubt, thus halting possible further European integration in its tracks. Representatives of Silvio Berlusconi’s Forza Italia, such as Renato Brunetta, have argued that the EU’s poor management of the immigration crisis and the threat of terrorism means that reasons for Brexit have been reinforced and, if the UK were to leave, it would be the end of the EU.

So far, the Brexit question has largely been a non-event for the Italian political class, and where there has been an interest, it has become the traditional battle between Europeanists vs Eurosceptics, federalists vs intergovernmentalists.

What does the Italian public think of Brexit? 
Euroscepticism now exists in both countries, regardless of their pro-European governments. Public opinion polls highlight that Italians and Brits have common fears and worries when it comes to European integration, which manifests itself as ‘Euroscepticism’. Two recent Italian public opinion polls (SWG and DEMOS & Pi  ) confirm this. The SWG poll (co-commissioned by the British Embassy in Rome, and conducted on a sample of 2,000 citizens above the age of 18) concentrated on the reform package negotiated by Cameron in early 2016. As we know this package gave the UK a ‘special’ status: fewer welfare obligations to EU citizens and a veto on further integration. This agreement was considered by 39% of those interviewed to have been a real failure for the EU. In particular, they believed that the EU should have got more from the British government. Of this group, about 45% made up of those who voted for the Five Star Movement, a movement that in itself is characterised by Euroscepticism.

It is also interesting to note that 20% of those interviewed believed that it would be better if the UK left the EU. Among those who were in favour of a Brexit, 30% were Northern League supporters, while only 15% of those interviewed believed that the agreed package was a positive one.

When asked about the possible consequences of a two speed Europe and a possible Brexit, 42% believed that it would contribute to a weakening of the EU. Some 64% of these were left wing PD voters, and 57% right wing Forza Italia voters. 31% of those interviewed had a more catastrophic vision, believing that a two speed Europe would signal the end of the EU; the majority of these were Northern League voters (49%). Only 9% believed that a Brexit would reinforce the EU, while 18% had no opinion.

The poll conducted by DEMOS & Pi  (carried out in February 2016 on a sample of 1,014 citizens above the age of 18) focused on the referendum itself. According to this poll, a slim majority (50.5%) believed that a Brexit would only have negative consequences. About one in ten (12%) believed that it would be a good thing for both the EU and the UK, and about 18% saw a negative impact for both sides. In particular, 15.3% believed that Brexit would produce a positive outcome for London and a negative one for Brussels. However, 19% of those polled thought that the UK’s Brexit would have no impact whatsoever.

How do these opinions translate into political affiliations? Those most worried about a Brexit are left wing PD voters with 73% believing it would provoke a negative outcome for all. But the majority of voters of all parties agreed that it would be negative: 44% of Northern League and Forza Italia voters and 39% of Five Star Movement voters. There was a clear division of opinion about whether Brexit would be a good thing for London (and not Brussels) varying from 14% of Forza Italia voters , 18% Northern League and 26% Five Star Movement, to 5% of PD voters.

Considering the possible impact that Brexit could have on EU institutions, the feeling that emerged is one of preoccupation and worry both for those who had a negative opinion of the EU, and those who were more positive. Indeed, the majority (63%) of those who have faith or a lot of faith in EU institutions predicted negative consequences, but so did those who had little or no faith in EU institutions (46%).

Will Brexit force Itexit?
These attitudes and reactions of Italians may still change during the official referendum campaign. Time will tell. The political scientist Ilvo Diamanti recently focused on the Brexit referendum debate in an article in the national daily La Repubblica and made some interesting comments. Although his article was about the use of referendums in representative democracies (Italy held a referendum on the 17th of April on how to access petrol in Italy), his arguments are more subtle. He argued that the Brexit referendum is not only a British affair, and stressed how the consequences will be felt across Europe. The main thrust of his argument, which has not yet really been heard in the UK, is that if the UK does leave the EU after the referendum on the 23rd of June, other countries where Euroscepticism is a growing phenomenon might also want to leave, and this might prove the end of the EU. ‘Who supports Brexit in Italy’, he writes ‘supports the end of the EU’.

He makes a more general point about the state of representative democracies and the widening gap that exists in all EU countries between politicians and voters: the growing crisis of representative democracy. One way of trying to curb this alienation is for politicians to use elements of direct democracy such as the referendum to make citizens feel more involved in politics. This is the path that Matteo Renzi has chosen: a referendum on constitutional reform will be held later this year. But if Britain votes to leave the EU, Renzi might find himself facing a referendum on the most substantial question that could be posed to Italian citizens: Itexit.

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

 

 

 

Dr Bruce Morley: The economics of the UK outside the Eurozone: what does it mean for the UK if/when Eurozone integration deepens? Implications of Eurozone failures for the UK

📥  banking, Brexit, EU membership, EU Referendum, EU renegotiation

Dr Bruce Morley, Lecturer in Economics, Department of Economics

The UK along with Sweden and Denmark opted not to join the Eurozone when it was formed in 1999. Since then a number of other transition economies including Poland, Hungary and the Czech Republic have joined the European Union (EU), but have not joined the European single currency (Euro). There are a number of important implications for countries that are members of the EU but not the Eurozone, which relate to the effectiveness of the single market, financial stability and the need for continued convergence of the Eurozone economies. Despite not being a member of the Eurozone, what happens in the Eurozone has implications for the UK economy and financial system.

When the UK was considering joining the Euro in 2003, the UK government published five criteria to determine if joining would be in the UK’s national interest[1]. In many respects the broader issues addressed by these points are still relevant when considering the UK’s relationship with the Eurozone. For instance the effects of changes in the Eurozone economies on UK economic growth and employment levels. If trade between the UK and the Eurozone were to be affected adversely then both growth and employment could fall. At the moment the UK has a large trade deficit with the Eurozone economies, which it needs to reduce and arguably the lack of demand in the Eurozone has contributed to this. For instance in 2014, 44.6% of UK exports were to the EU and 53.2% of UK imports were from the EU[2], however the UK’s trade deficit with the EU, reached £59 billion (exports minus imports) in 2014, although in the same year it recorded a surplus of £15.4 billion in the service sector. Policies such as the Common Agricultural Policy (CAP) also directly affect relations between the UK and the Eurozone, again this has contributed to the trade imbalances, as many products that are imported could just as easily be produced in higher quantity in the UK, such as wheat.

A further feature of the 2003 criteria, related to the City of London’s relationship with the EU. A particular feature of the UK economy is the reliance on financial services in general and the City of London in particular for output, employment and substantial amounts of tax revenue. For instance in the year to March 2015, UK financial services contributed £66.5 billion in tax revenue, or 11% of total tax receipts in the UK, with the industry employing approximately 1.1 million people[3].   The UK financial services industry is affected by both the UK’s domestic regulatory regime and increasingly the Eurozone’s regulators. This is an area where the UK’s relationship with the Eurozone is particularly important, as it is moving towards some common regulation across the Eurozone and other EU members. Traditionally EU financial regulation was done by various directives, however this left substantial variation in the way that individual countries regulated their financial institutions. There was a change of direction after the 2007/08 sub-prime mortgage based financial crisis, when it was decided more co-ordination was required. It was felt that some countries had coped better than others, for instance Spain had not suffered to the same extent as the UK, as Spanish banks were limited in their ability to hold mortgage backed assets off balance sheet. This has led to the formation of the single rule book, which aims to provide a set of prudential controls over the financial institutions across the whole of the EU, which they are expected to abide by. This has coincided with the Basle III accord, which aims to strengthen the prudential controls of the world’s banking system. Under the single rule book, the European Banking Authority (EBA) will ensure that Basle III is implemented in a consistent manner across the EU. However Basle III is a voluntary code and there are already suggestions that its implementation will impede world economic growth by between -0.05 and -0.15% per annum (OECD, 2011), so there are reservations among some member states about implementing it. Likewise it is not entirely clear the extent of any national autonomy over prudential controls and whether the EBA can impose regulations on member states.

There are fears in the City of London that the EBA will impose excessive controls on its activities, making it uncompetitive and ensuring that it loses business to other financial centres around the world. The introduction of controls on bonuses has been one area of concern, with the City suggesting it inhibits its ability to attract the top bankers. However there have been reassurances regarding the relationship between the UK financial sector and the EBA, such as a double majority vote requirement to change regulations, where both the Eurozone and non-Eurozone members require a majority vote in favour of specific rules. In addition the member states broadly accept the basic tenets of the new financial regulatory system, such as the need to hold more tier 1 capital, although the UK is not in favour of increased transaction taxes. There is however a clear potential for future problems, for instance what would happen in the event of a crisis to a Eurozone headquartered bank, which does much of its business in the City of London.

The UK economy is influenced by the performance of the Eurozone economy and the strength of the Euro, with most of the recent focus on the performance of the Greek economy in particular and the souther European economies in general. Much of the analysis has been on sovereign debt levels and rates of interest, with the International Monetary Fund (IMF) recently publishing a report questioning whether current levels of Greek debt could be sustained in the long-run, although not included in the report, the same concerns apply to other members of the Eurozone. However the level of debt can’t be the only problem for the Greek economy, as Greece’s debt to GDP ratio is substantially below that of Japan, where there is little evidence of a problem. This has directly affected the UK financial system previously, when a previous write down of Greek sovereign debt in 2012 involved private investors in Greek government debts having to accept a 50% write down in the value of the debt, known as a haircut.

However over recent months this problem has been reduced, following the decision of the European Central Bank (ECB) to carry out Quantitative Easing (QE). This mainly involves the ECB buying government bonds from all the Eurozone member states in proportion to the size of their respective economies. So the ECB now holds many billions of Euros of debt, of mixed quality on its balance sheet. Much of it is very safe, especially the German debt, but much of it is more risky, such as the Greek and other southern EU economy debt. At the moment the ECB based demand for this debt is keeping its value high and return low. But what happens when the ECB stops QE? Will it return to the crises of earlier months, will there be more bailouts and write downs of debt? On the positive side the amount of the riskier Eurozone sovereign debt held by the UK financial system has been reduced, but if the Eurozone crisis returns and countries are forced out of the Euro, there will inevitably be adverse implications for the UK economy, economic growth and employment.

None of the bailouts or financial strategies used so far are really confronting the fundamental problems in the Greek economy or the Eurozone as a whole. In particular the structural differences in the economies across the Eurozone, which mean that a common monetary policy is not always appropriate. The fundamental problem is arguably a lack of convergence across the Euozone economies and the moves to encourage greater convergence could affect the non-Eurozone members too. The differences cover many aspects of the economy including labour and goods markets and aggregate consumption levels. For instance a study published by Carruth et al. (1999), just as the Euro was being formed, found substantial differences in consumption patterns across the member states. The findings indicate a common policy response to shocks across the EU may not be appropriate, even when the core states alone are considered.

 

The final aspect of the Eurozone that has an important effect on the UK economy is the strength or otherwise of the Euro. The recent problems in the Eurozone impacted on the value of the Euro, which has suffered increased volatility and a loss of value against other major currencies during the Eurozone crisis. Although since the beginning of QE, the Euro has stabilised. During the Eurozone crisis, a potential reason for the volatility in the Euro has been the increased likelihood of the Eurozone breaking up. For instance studies by Eichler (2012) among others found strong evidence that the Euro depreciates when the risk of a Eurozone break up increases, in addition it also created increased volatility in the currency. However a devalued Euro is not necessarily all bad news for the Eurozone, as it can encourage their exports and economic growth. Although, countries that rely on exporting to the Eurozone, such as the UK will potentially suffer. This has become increasingly apparent in the UK agricultural sector, as farm payments are based on the value of the Euro and as the pound has appreciated against the Euro, so payments have fallen.

This recent crisis has again highlighted the need for a longer term solution to the problems in the Eurozone, rather than short-term market intervention in the form of QE. This could possibly involve greater fiscal integration within the monetary union and many economists, such as Alan Greenspan (former head of the US Federal Reserve) have gone as far to say that a fiscal union should be formed in order to prevent future crises.[4] Although he didn’t specify the extent of this union, in the USA, which is often used as an example, federal government expenditure is about 20% of GDP. This may require a central fiscal body with increased powers over taxation and some expenditure across the EU, going further than the currently proposed European Fiscal Board. But even this may not be enough as a political union could also be required. When the Euro was formed, it was felt that the retention of fiscal policy was necessary as a mechanism for individual members to stabilise their own economies in the event of asymmetric shocks to the Eurozone, so fiscal union may not be popular across the EU. Further fiscal integration in the Eurozone would again have an impact on the UK. An example of this could be corporation tax levels, which in some EU countries are much lower than the UK. If this was to become more widespread across the EU, more multinationals could be encouraged to move their headquarters to these countries at the UK’s expense. It is also possible that any form of fiscal union could freeze the UK and other non-Eurozone members further out of the core membership, as single taxation levels create a more uniform single EU market for these members.

 

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

References

Carruth, A., Gibson, H. and Tsakalotos, E. (1999), Are aggregate consumption relationships similar across the European Union? Regional Studies, 33, 17-26.

Eichler, S. (2012), The impact of banking and sovereign debt crisis risk in the Eurozone on the Euro/ US dollar exchange rate, Applied Financial Economics, 22, 1215-1232.

Slovik, P. and Cournede, B. (2011), Macroeconomic impact of Basle III, OECD Economics Working Papers. DOI: 10.1787/18151973.
[1] In order to join the single currency, all potential participants had to meet a set of economic criteria, known as the Maastricht criteria. All passed except Greece, but it was allowed to join a couple of year later.
[2] Data from the ONS Statistical Bulletin, Balance of Payments, Quarter 3 (July to September) 2015, 23 December 2015, Tables B and C   During 2014 the UK’s total deficit (exports minus imports) was approximately £35 billion, as a result of a surplus with the rest of the worlds. Initial estimates for 2015 suggest this has worsened, although 2015 values are subject to revisions.
[3] Data taken from https://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Pages/Total-Tax-2015.aspx
[4] Taken from an interview with the BBC at http://www.bbc.co.uk/news/business-31249907.

 

Dr Aurelien Mondon: Debating the future of Europe is essential, but when will we start?

📥  Brexit, EU membership, EU Referendum, Euroscepticism, France, future

Dr Aurelien Mondon, Senior Lecturer, Department of Politics, Languages and International Studies

The campaign for the UK referendum appears to have induced the French to confront their own pessimistic view of the Union and its future. A recent poll conducted by Eichhorn et al. in six countries suggested that French respondents were the least keen to see their British counterpart remain in the EU, with 44% declaring that the UK should leave. This was in stark contrast with other countries: Brexit supporters were 27% in Germany, 20% in Poland, 19% in Spain, 21% in Ireland and 33% in Sweden.

Of course, such dissonant results may be partly attributable to the UK’s reputation as an ‘awkward partner’ within the EU, something which has led to multiple feuds between UK and French leaders. However, one cannot ignore that the campaign takes place in a unique environment in France, at a time when one of the leading engines of the European construction is faltering, with warning signs flashing from all directions, and no one seemingly willing to put in the necessary work to get it going again. Beyond the UK’s fate, the same poll highlighted that 53% of French respondents wished for their country to ‘hold a referendum on its EU membership’ and only 45% declared they would vote for France to remain in the Union; 33% would vote for it to leave. Again, these numbers are in stark contrast with Germany in particular, leading the Le Monde correspondent to conclude that ‘while the French profess a relative indifference with regard to the Brexit, they appear as the most eurosceptically worked up country, behind the UK’.

As has been the case on the other side of the Channel, the debate in France about the possibility that the UK leaves the EU after the referendum in June has been predominantly negative. The political climate has meant that, even in a traditionally pro-EU country, the arguments made for a ‘Bremain’ appear based on a pessimistic approach rather than the enthusiasm which had historically been core to the European project: If you stay it won’t be great, but if you leave it will be worse.

In France, the debate is also taking place in a particularly hostile environment for ‘internationalist’ ideals. The European elections were commonly characterised as an ‘earthquake’, with the Front National winning the contest with almost 25% of the vote. For left-wing newspaper Libération, France had sent a clear signal to Europe (see image 1).

Image 1: Libération front page, 26 May 2014

La France FN

Even though the Front National (and UKIP) failed to appeal to more than 1 out of 10 voters in a particularly advantageous setting, their victories created hype around their message and legitimised their negative account of the situation as it was picked up by the media and politicians. In turn, a stronger focus on issues of immigration and terrorism (particularly in the wake of the horrific attacks in France in 2015, often linked to the refugee ‘crisis’) have skewed the campaign away from the real challenges facing Europe and the attention of the public away from their own concerns. To put it simply, and borrowing from agenda-setting theory, the media and politicians ‘may not be successful in telling people what to think, but they are stunningly successful in telling their audiences what to think about’ (McCombs 2014). As a result, the debate has moved away from socio-economic issues (unemployment, cost of living, healthcare etc.) to nationalistic and pseudo-cultural issues (immigration, terrorism, Islam).

Immigration and public opinion – the chicken or the egg?

This negative and skewed media coverage of the EU debate is reflected in the way people (mis)perceive their broader community and the issues these imagined and fantasised communities face. A simple, and by no means exhaustive experiment, can be conducted using two questions from the Eurobarometer survey. The first requires respondents to provide what they think are ‘the two most important issues facing (their country) at the moment’.[1] As Table 1 suggests, immigration does seem like a genuine concern across the EU, and in the UK in particular where it is noted as the most important issue. In France, however, a year after the Front National’s victory in the European elections, immigration is considerably lower, showing already a discrepancy between the results and subsequent coverage and public opinion.

Table one

Table 1: Question: What do you think are the two most important issues facing (YOUR COUNTRY) at the moment? (Top 5 EU answers with immigration and terrorism). (Source: Eurobarometer, Spring 2015. Source: Eurobarometer, Spring 2015).

However, a starker picture emerges when French, British and European respondents are asked what they think affects them personally. When European citizens consider their daily struggle, immigration and terrorism remain low on ‘the most important issues’ they face ‘personally’ (despite the poll taking place after the January Paris attacks). ‘The most important issues’ the French, British and Europeans are facing are those which have seemed conspicuously absent in the public debate about the future of the EU (see table 2).

Table 2

Table 2: Question: And personally, what are the two most important issues you are facing at the moment? (Top 5 European answers with immigration and terrorism). (Source: Eurobarometer, Spring 2015).

This is not to say that the results from the Eurobarometer should be taken as real representation of public opinion personally or nationally. Yet this demonstrates that what is often argued to be a pressing popular demand or concern may in fact be motivated by the process through which perceptions and misperceptions are made available via the media and politicians. To put it simply: are we worried about immigration, or do we think about immigration as an issue because we are constantly told we should?

The rise of the Front National or a growing distrust towards the mainstream?

Therefore, the Front National’s victory in the European elections in 2014 may not have meant unconditional support for the party and its Europhobia: more than a ‘Eurosceptic earthquake’, the election results confirmed that the vast majority of French voters saw little interest in voting at all (57% abstained). This is hardly surprising considering the oft-denounced democratic deficit in EU institutions and the lack of knowledge about its inner workings. Yet it would be a mistake to read the results of these elections outside of the socio-political context in which they took place. These elections took place in a deeply distrustful environment, with the government’s approval ratings at a record low. However, it would be simplistic to blame the rise of Euroscepticism and even Europhobia in France on François Hollande’s presidency. As figure 1 below shows, distrust of parties and government has run rampant in France throughout the early twenty first century. For the government, the level of distrust has never fallen below 54%, while for political parties in general, the biggest dip was in 2007, with 76% of respondents declaring they tend not to trust political parties (including the Front National). In 2014, it was almost nine out of ten French respondents who declared they did not trust their parties.

The European parliament, on the other hand, generates a lower ‘distrust’ rate than the French government and political parties. In fact, before 2013, more respondents to the Eurobarometer declared trusting the European parliament than distrusting it.

Aurelien graph

Figure 1: level of distrust in ‘government’ (question: ‘I would like to ask you a question about how much trust you have in certain institutions. For each of the following institutions, please tell me if you tend to trust it or tend not to trust it?’ Answer: ‘Do not trust’); level of distrust in ‘political parties’ (question : ‘I would like to ask you a question about how much trust you have in certain institutions. For each of the following institutions, please tell me if you tend to trust it or tend not to trust it?’ Answer: ‘Do not trust’); and level of distrust in ‘European parliament’ (question: ‘please tell me if you tend to trust it or tend not to trust it?’. For each year when more than one poll was taken, the average is represented. (source: Eurobarometer)

Another Europe is possible

Gauging trust and distrust in politics is a tricky business – after all, someone distrusted may be competent – but the levels of negativity felt by the French with regard to their own institutions may inform us about the reasons behind the growing Euroscepticism in France.

While the mediatised picture may seem bleak, 61% of the French respondents to the 2015 Eurobarometer declared that felt ‘they are citizens of the EU’. Contrary to their British counterparts, who tend to be more negative on most counts with regard to the EU, its benefits and future, it could well be that what the French are looking for is not a return to some nationalistic and chauvinistic project, but rather the creation of a different kind of Europe, based on a progressive outlook. A focus on issues such as TTIP, the future of our welfare systems and work rights legislation would appear more in line with Europeans’ concerns, but also provide a much sounder basis to discuss broader international issues such as our foreign policy and the current influx of refugees. If this is to be taken as a serious hypothesis, then what is mostly described as the rise of an anti-Europe sentiment, could and should in fact be channelled into a more optimistic and productive discussion, something which unfortunately has been conspicuously absent from the elite debate on the future of Europe.

 

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

[1] Respondents could provide a maximum of two answers from the following list: The financial situation of your household; Rising prices\ inflation; Other (Spontaneous); None (Spontaneous); Don’t know; Crime; The economic situation in (OUR COUNTRY); Taxation; Unemployment; Terrorism; Housing; Immigration; Health and social security; The education system; The environment, climate and energy issues; Pensions; Energy; Defence/ Foreign affairs; Living conditions; Working conditions.

 

 

When the sun rises on workers' wages, and what to do when it sets

  ,

📥  labour market

Californian workers have enjoyed a week of sunshine.  The Governor of California, Jerry Brown, has reached a deal with labour unions and state political leaders to raise the Californian minimum wage to $15 an hour (£10.45 at current exchange rates). The proposal now goes to the state Assembly for approval; if it is passed, six million Californian workers will get a big pay rise.

British workers are also feeling the benefit of a minimum wage increase. From 1 April, the so-called National Living Wage kicks in for employees over the age of 25. It will start at £7.20 an hour and rise to £9 by 2020. In practice, this is a higher minimum wage, not a Living Wage, but it is still a pay rise for millions of workers. The Resolution Foundation estimates that 4.5 million workers will see their pay rise as a result of this policy in 2016 – for those on the national minimum wage, it will mean a 10% pay rise.

front cover

These are big wins for working people on both sides of the pond. But they have been achieved by political action, not industrial muscle. The vast majority of workers who will benefit are not unionised. Their gains have come from political mobilisation instead. In the US innovative, energetic campaigns to raise the wages of employees in fast food chains have been targeted at city and state legislators who have the authority to set local minimum wages. As the power and reach of big unions has waned, alternative organising campaigns have sprung up, and they are chalking up some impressive victories, like that in California.

In the UK, the Living Wage campaign has proved the most effective cross-party, civil society organiation to organise for low-income workers’ interests in recent decades. It has gone from strength to strength, even in the months that have followed the government’s announcement of an official National “Living” Wage. It is highly unlikely that the government would have acted to raise minimum wages without the trailblasing efforts of the Living Wage campaign.

None of this is much consolation to the steelworkers facing unemployment at Port Talbot and other plants. Despite the talk of assistance to retrain and find new jobs, the likelihood of their gaining employment at the skill and pay levels they can secure in the productive steel industry are remote, particularly with the public sector shrinking. Many will end up on the National Living Wage instead.

There are plenty of global factors at work in the steel crisis, chief amongst them the export of huge volumes of Chinese steel onto world markets, and the stagnation of demand for steel, both in China itself, and in the investment starved West. But one thing unites both steel and the service sectors where the majority of minimum wage workers are employed, and that is the need for long-term, coordinated industrial strategies to raise R & D, investment, skills and productivity.  EU state aid rules may be too prescriptive – the continent needs to advance its global interests through public investment and EU-wide industrial strategies, and not just to enforce single market rules – but plenty of this is possible within the existing policy framework. If the minimum wage gains offer one lesson, it is for the primacy of politics: shaping markets in the public interest, not just compensating the losers.

 

 

Dr Susan Milner: Will women decide the outcome of the EU referendum?

📥  Brexit, EU membership, EU Referendum, EU renegotiation, Euroscepticism, future

Dr Susan Milner, Reader, Department of Politics, Languages and International Studies

Will women decide whether Britain stays in the European Union (EU) or leaves? As the campaign enters the critical final months, with opinion polls showing a very tight race, which way women will vote has become an increasingly important issue. Could they be the all- important swing voters on whom the result depends?

Let’s start with the raw numbers. There are around a million more female voters than male voters. Women live longer lives on average than men and make up 52% of the electorate.  More importantly, their longevity means that there are more women than men in the crucial ‘older voters’ category. Over-65s are a vital constituency because they are more likely to turn out to vote than young people: they were the age group with the highest turnout in the 2015 general election, when 78% of them voted compared to 43% of 18-24 year olds. Women make up nearly 56% of the over-65s electorate. Together with the fact that older voters tend to express more sceptical attitudes towards European integration, such figures might suggest that this important group of older women voters could tip the scales in favour of leaving the EU.

Yet that assumption is too quick. Women are in fact more likely to be undecided than men about the EU. In a February poll conducted by YouGov, 19% of women said they didn’t know whether Britain should remain or leave, compared to only 12% of men.  Women have been consistently less likely than men to express a firm opinion on EU membership: whereas 43% of men say they have made up their minds about which way to vote in the referendum, this figure drops to 29% for women. The proportion of women saying they are not sure about EU membership has been consistently around a quarter for the last few years, and according to the latest ICM poll has not been affected by the start of the official referendum campaign. Although some commentators argue that this gender gap simply reflects women’s greater reluctance to state opinions, rather than the fact that they have not made up their minds, the poll findings fit other evidence which suggests that women are indeed less engaged with the EU and therefore less likely to be informed about its institutions and policies.

Deborah Mattinson of the public opinion organisation Britain Thinks argued earlier this year that it was surprising that campaigns had not yet targeted women voters. That has all changed recently with the formation of two opposing groups each aiming to persuade women to vote one way or another. The ‘Women In’ group, headed by business leaders and celebrities, was formed in January and focuses on economic issues, but has struggled to differentiate its programme from the mainstream ‘Britain Stronger in Europe’ group, which begs the question why a separate group is needed. The pro-withdrawal campaign group ‘Women for Britain’, seeking to strike a patriotic chord, received more media interest with its launch on International Women’s Day by employment minister Priti Patel, but perhaps not for the reasons she intended, as her attempt to claim the suffragette heritage was quickly snubbed by feminists and the Pankhurst family. Meanwhile, the recent divisions within the Conservative party have brought Mrs Patel further into the limelight, pitting her against pro-EU education and equalities minister Nicky Morgan as rival potential leading figures in the party.

woman

Appealing to women voters seems like a sensible strategy given the need to sway the ‘don’t knows’, since the gap between the ‘leave’ and ‘remain’ positions appears to have closed. But working out what will convince women voters is far from straightforward. Politicians’ attempts to engage women in the 2010 and 2015 general elections led to more emphasis on jobs, childcare and ‘family’ issues in party manifestos (1); in 2015, this may help to explain the reduction in the gap between the proportions of men and women voting, compared to previous elections. In other words, there is some evidence that focusing on women’s concerns has the desired effect of mobilising them to vote.

In the 2014 Scottish independence referendum, too, both sides identified women voters as a target group for their campaigns as they were more likely to say they had not made up their minds than men (2). Women were thought less likely to vote for independence and their more cautious, economically-minded priorities featured heavily in the ‘no’ campaign. Just before the vote took place, polls suggested that the grassroots mobilisation of the ‘yes’ campaign, featuring female activists and highlighting Nicola Sturgeon’s new style of leadership, had succeeded in infusing the independence argument with a more positive message of renewal. In the end, though, only 43% of women supported independence, compared to 53% of men.

How all of this applies to the EU referendum is another matter. However, two consistent key features of women’s reported attitudes stand out as potentially relevant to the referendum campaign. The first relates to the bigger priority given by women (compared to men) to ‘bread-and-butter’ issues such as education and employment. In theory, therefore, focusing on the EU’s positive contribution to British jobs, and the concomitant risks of leaving, should help to persuade women to vote to remain. This is especially true as the arguments for withdrawal have hitherto tended to play on patriotic and anti-immigrant feelings which do not chime with women voters. This is why the Chancellor has repeatedly stressed in recent months the risks inherent in leaving the EU at a time of global economic uncertainty. Although weak growth in the Eurozone, and the widespread perception that is has not solved its structural problems, make it harder to sell the economic benefits of EU membership, the argument that leaving would present significant risks remains a potent one (it is also why the precipitous fall in the Chancellor’s personal ratings since the March Budget is problematic for the Remain campaign).

The second key feature is women’s distaste for the antagonistic style of politics typified by Prime Minister’s Question Time. Women do not like aggressive, partisan and polarising politics, which matters for the tone and conduct of the rival campaigns. Although the choice at the referendum is a binary one, and cannot be redefined in consensual terms, the messages and style of the campaigns will be important in determining how and whether women engage with the referendum debate. The fallout from the 2016 budget, and the febrile, often bitter, debate in the Conservative Party about its leadership, may not bode well for encouraging women to engage with the EU referendum campaign.

Most commentators agree that this campaign is not like any other and it is difficult to draw firm conclusions from the available polling evidence. One indication of how unpredictable attitudes on European integration have become is that young voters, who have shown a consistently large majority of support for EU membership, do not appear to be particularly engaged in the referendum campaign.  Voters’ attitudes towards European integration don’t fall neatly into existing socio-economic cleavages; rather, they cut across economic and cultural divisions. So although younger voters are more cosmopolitan and liberal in their attitudes, they have in years begun to show political attitudes that reveal anxieties about their economic future. Similarly, university graduates, Labour supporters and voters in higher income groups are more strongly pro-European, and have higher turnout rates than unskilled and lower income groups.

All of this underlines the real sense that both campaigns have a lot to play for in aiming their campaigns towards the large number of wavering or as-yet-undecided voters. Women make up the majority of these people. They could yet decide whether Britain stays or goes.

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

 

(1) See Rosie Campbell and Sarah Childs (2015) All aboard the pink battle bus? Women voters, women's issues, candidates and party leaders. Parliamentary Affairs, 68/1 (supplement: Britain Votes): 206-223.

(2) See Meryl Kenny (2014) Engendering the independence debate. Scottish Affairs, 23 (3): 323-331.

 

 

Professor David Galbreath on: Security in, secure out: Brexit’s impact on security and defence policy

📥  Brexit, defence, EU membership, EU Referendum, EU renegotiation, future, migration, political parties

Professor David Galbreath, Professor of International Security,  Associate Dean (Research)

A more secure Britain?

On the morning of 21 March 2016, terrorists struck Brussels airport and metro system in coordinated attacks to intimidate and demoralise. Opponents and proponents of Brexit grabbed the events to prove their point: outside we are less coordinated against a transnational problem, while inside we are subject to the challenges of free mobility that the EU’s Schengen zone presents to a borderless Europe. The UK already maintains its own borders and remains outside the Schengen zone; however, the UK has been a victim of ‘home grown’ terrorists, such as the 7/7 bombers, as well as the long history of IRA attacks.

Presently, national military and police intelligence networks are not dependent on the EU, though they may be enhanced by the EU, such as through Europol. Cooperation with other European security institutions is not determined by membership of the EU. For instance, Europol has strong working relationships with many external international partners, such as Canada and Norway. Brexit would not threaten intelligence and cross-jurisdiction cooperation. At the same time, it is equally the case that police and security agency work would be made no easier through Brexit. As might be expected, the necessities of national security are asserted whether a country is an EU member or not. Being in or out may have major effects on many areas of life, but national security is unlikely to be one of them, at least in the short term.

Why is this the case?

Traditionally, the most developed areas of European policy have been in areas involving the single market, in terms of trade, goods, services and more recently finance. As a result of several hostage and terrorist events in the early 1970s, the so-called TREVI group was established between member-state interior and justice ministers in 1975. The focus of the group was counter-terrorism but eventually extended to other areas of cross-border policing. From the Maastricht Treaty (1993) until the Lisbon Treaty (2007) this area of policy sat within the so-called Third Pillar of Justice and Home Affairs (latterly referred to as ‘Police and Judicial Co-operation in Criminal Matters’. Of the three pillars, the Third Pillar was the most inter-governmental and thus not orientated towards further integration. While the Lisbon Treaty abolished the pillar system, policing and judicial affairs have remained, by and large, inter-governmental platforms of policy cooperation and coordination. In other words, the European Commission has not sought to intervene in national policing and judicial systems, unlike say the Council of Europe (an altogether different international organisation from the EU).

Rather, European cooperation in the areas of policing has often been problematised by differences between national agencies and policing cultures. While Europol is established to coordinate member-state responses to cross-border activities such as drugs and organised crime, there are considerable national barriers, rather than EU barriers, to further cooperation and presumably a more effective approach.

In as much as counter-terrorism remains the primary concern for member-states, the EU has a limited role to play in terms of providing a space for national governments to come together to agree on the terms and conditions of the threats of extremist politics. However, there are other organisations such as the North Atlantic Treaty Organisation (NATO) and the Organisation for Security and Cooperation in Europe (OSCE) who also have a counter-terrorism mandate in Europe and beyond. The EU is one arrangement amongst many that seeks to enhance cooperation in security and judicial matters. At the same time, the EU is the only organisation that seeks to eliminate the barriers to cooperation as it has done in many cases for trade, labour and currency. One might argue going forward that the nature of the EU’s integration makes for a more orchestrated response to trans-national threats to the UK and Europe. Let us look at this in more detail.

Trans-national threats and UK security

If we look at the UK’s 2015 Strategic Defence and Security Review (SDSR), we can see that the UK government and security agencies are concerned with issues that threaten the region, if not the world. In addition to highlighting traditional defence policy, the SDSR also highlights combating extremism and terrorism, cyber-attacks, serious and organised crime, and threats to infrastructure. As these issues have developed over time, the UK has worked together with the EU, as well as other partners, to establish institutions and agencies that offer a more coordinated approach to what are essentially trans-national problems. In all of these cases, the myriad threats to UK national security come from abroad and are not aimed at the UK alone. As world politics has become more trans-national, so has the way that the UK and the EU do security.

What are the implications of this? Policing, intelligence and military officials have seen the EU become an important part of their portfolio since the 1980s. As the foreign policy scholar Professor Christopher Hill has argued, European policy has become ubiquitous for UK departments and agencies as they seek to engage with the problems that face the UK and Europe. To see this as simply the EU intervening in UK policy areas across the board is misleading because this is to ignore the effort that successive UK governments have taken to enable the EU to do regional security better, especially in areas that do not concern territorial defence (the preserve of NATO). As world politics has changed, the EU has become an important part of the UK’s ability to shape regional security policy.

Yet the EU itself lacks weight in dealing with difficult policy areas such as refugees, the Middle-East peace process, a resurgent Russia, trans-national organised crime or climate change. Across these areas the EU member-states have deemed that they themselves are responsible for responding to crises, to the effect of showing the EU as a poor regional security actor.

However, I would go further to say that the EU provides an opportunity for further cooperation and, even in some cases, integration of security policy for issues that threaten the UK and Europe. National security imperatives will go beyond the political rhetoric of Brexit and beyond.

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Brussels, Britain and Brexit

The attacks in Brussels press us to think about whether Britain would be more secure and resilient to crises in or out of the EU. The leader of UK Independence Party (UKIP), Nigel Farage, responded to the bombings by saying that the free movement of people also means the ‘free movement of Kalashnikovs’. Home Secretary Theresa May responded in Parliament that European policy, intelligence and military cooperation are important for Britain’s own security, pointing specifically on numerous occasions to European Arrest Warrants as a prime example. As already discussed, the reality is that being in or out of the EU may have little impact on Britain’s national security, though it would most definitely have impacts on other areas. Such an argument was set out by Sir Richard Dearlove who has said that Brexit would have a negligible impact on UK security, other than it would enable limits on the number of EU citizens coming into the country (as Britain already has independent control of its borders for all others).

However, the focus on national sovereignty versus EU member status is misleading because in an ever-increasing globalised and trans-national world, the benefits of both are lower. Perhaps even more importantly for the UK, the main sources of political violence are those who are born and raised in Britain. While there is a trans-national quality to their indoctrination, their threat to public safety is not impacted by debates about borders. They are very local problems that will not cease with the settlement of the Brexit referendum.

In conclusion, the EU has been a nascent security actor on behalf of the UK and its other member-states for more than three decades. I have argued here that international terrorism, as well as many other security issues, are part of much larger trans-national threats that require a trans-national response. As it stands, the EU does not have a robust response to many of these problems and thus Brexit would have marginal short term effects on the UK’s ability to protect itself, in either direction. However, it is equally clear that the Euro-Atlantic Area needs a more robust coordinated response to such threats. With a changing political atmosphere in the US, and a NATO that has been fighting successive war after war in the Former Yugoslavia, Afghanistan and North Africa, the alternatives to the EU are becoming less and less able to take on such a robust response to such threats.

The UK thus will decide whether it will be at the centre of this development along with France, Germany, Italy and other EU member-states, or on the periphery seeking to balance a national approach with a trans-national approach for trans-national problems.

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

 

Dr David Moon on: The Same, but Different: Wales and the Debate over EU Membership

📥  Brexit, EU membership, EU Referendum, EU renegotiation, Euroscepticism, future

Dr David Moon, Lecturer,  Dept of Politics, Languages & International Studies

Insofar as the debate surrounding the EU referendum has noticed differing perspectives between the constituent nations that form the UK, it has almost entirely involved comparisons of Scotland and England. Specifically, it has focused on how “Brexit” might affect Scotland’s continued membership of the UK, with the Scottish National Party (SNP) raising it as a possible precursor for a second independence referendum. Yet, the situation in Wales is also worthy of attention. Wales, in many ways, is the referendum’s ‘swing seat’ – a key target for both ‘Leave’ and ‘Remain’ campaigns – and looking at the recent debate between First Minister Carwyn Jones and Nigel Farage we find a perfect illustration of the dominant rhetoric from either side.

Wales: EU ‘Swing Seat’?

There has been a long running assumption that Wales, like Scotland, is generally more supportive of the EU than England. Evidence suggest that this is not the case, however, identifying a ‘healthy’ degree of Euroscepticism in the former Principality. YouGov polling in February[1] reported Ceredigion as the most “Europhile” part of the UK; however, out of the 17 Welsh regions where data was available, only eight leant Europhile, four leant Eurosceptic and five close to median. Positive news for the ‘Remain’ camp on balance, but nevertheless somewhat mixed. A similar picture emerges from YouGov polling between June 2015 and February 2016 showing the ‘Remain’ lead in Wales shifting from 4%, to 7%, -2% and -8%[2]. The Financial Times splashed on these figures with a prediction that ‘Wales looks set to be the only devolved region to favour Brexit’[3].

Whether signalling a developing trend towards ‘Leave’ or simply flux remains to be seen. However, increasing Euroscepticism in Wales may also be identified in the rising success of the UK Independence Party (Ukip). In 2015, Ukip polled 13.6% of the overall Welsh vote, but in six constituencies it achieved around 18% or more. Claims made by Plaid Cymru leader Leanne Wood that Ukip’s “values are not the values of Wales”[4] have been undermined as the Europhile “Party of Wales” was pushed into fourth place behind Ukip at the 2015 General Election. As my colleague Dr Cutts and I have written[5], Ukip also pose a growing problem for Labour in her valleys heartlands. Current polling predicts Nigel Farage’s party will win nine seats in the forthcoming elections to the National Assembly of Wales[6]. The Assembly is Ukip’s key target this May.

Wales is resultantly on the frontline of the EU debate and the way that debate is being framed and argued within Wales is significant beyond Offa’s Dyke. In January this year, the First Minister of Wales, Carwyn Jones, challenged Farage to a debate on the EU[7]. Studying the rhetoric of both Jones and Farage tells us a lot about how the campaign is being framed across the UK, but also the opportunities that appeals to local circumstances might provide each side.

In their debate, Farage and Jones struck very different but familiar poses, each in their own ways making appeals to the Aristotelian rhetorical triad ethos, pathos and logos. The following sections break down their opening statements in line with these appeals.

hero-wales

Logos

Appeals to logos involve the logic of an argument – cause and effect, and pointing to the evidence for your case. The first issue in both orator’s arguments was thus to define the grounds of the debate. In Farage’s words:

“The question is:

Do we wish to regain our independence as a nation state?

Do we want to be free to make our own laws?

Do we want our own courts to be supreme?

Do we want to take back control of our borders?

Do we want to be, like 200 countries around the world, a normal, self-governing nation, and live in a true democracy, where the people that we vote for, and the people that we can sack, are the ones that make our laws?

Or, are we just a part of … the EU. … Namely, are we happy to be a subordinate member of a bigger club.”

The (rhetorical) question of whether the UK should ‘Remain’ or ‘Leave’ is thus, for Farage, not about the risk of leaving, but the poverty of staying. The burden to produce evidence is resultantly not on his side – i.e. having to demonstrate why the UK would be better off ‘out’. It is those supporting continued EU membership who have to justify how the present, unacceptable system is at all tolerable.

While in Farage’s rhetoric, the decision is about leaving an intolerable union to regaining the ‘normal’ freedom of currently lost sovereignty, Jones articulates it as about working together, internationally, and not fleeing into isolation. Making this case, his position as First Minister enables him to equate Wales’s position in the EU with that in the UK:

“Wales is part of two unions that provide us with stability, security and prosperity.

The union of the UK and the union that is the EU.

Neither one is perfect.

You’ve heard me talk many times about the need to change Wales’s relationship with Westminster.

But I will never advocate giving up and walking away.

There’s a saying, “decisions are made by those who turn up”. If you want change you’ve got to work for it, not walk away from the table.

And that’s what we need to do in terms of the EU.

And now, more than ever, is the time to work together, nationally and internationally.”

The comparison between the EU and the UK is unlikely to work in England, but for Wales, far smaller than her domineering neighbour, the argument that unions bring security carries weight. Support for Welsh independence from the UK flickers around 3-6 %. Attempting to frame the two unions as somewhat analogous therefore makes sense. It also ties into the classic ‘Remain’ argument, that nations benefit from being “at the table” – whether Westminster or Brussels – when decisions are being made.

Jones backs up this argument with hefty appeals to facts and figures:

“… record foreign investment has gone into Wales this year. …

200,000 jobs in Wales rely on European trade.

Europe is our largest trading partner.

43% of our trade is with EU countries.

Hundreds of Welsh students study in Europe every year, many more go there to work, and thousands of families holiday there.…

500 companies from other EU countries have their base in Wales.”

Framed this way the logic of the argument is the reverse of Farage’s: To leave the EU would be a huge risk – the facts show this, just as they show existing benefits. Wales is one of the main financial beneficiaries of the UK’s EU membership, with many parts, since 2000, qualifying for EU Objective One funding; scarred by a legacy of unemployment and low-wages, arguments about jobs and trade loom large.

Farage, however, does not counter this line of argument with his own list of facts. Instead, he places his emphasis on the latter two rhetorical appeals: ethos and pathos.

Ethos and Pathos

Ethos, refers to rhetorical appeals to the good character of the orator, and Farage constantly places himself – and thus his ethos – at the centre of his argument:

“I want independence.

I believe we’ll be better off out.

I believe we can free up our five million men and women running small businesses.

I believe we should make our own trade deals and stand on our own on the world stage and reengage with the Commonwealth and others …

And crucially, yes I do believe we should control our own borders.

I think unlimited EU immigration has driven down wages and put frankly intolerable pressures on our health and education systems.

I want us to have an Australian-style points system.

I want immigration to be a positive topic in this country, not a negative one, but it can’t be as members of a European Union.”

Appeals to his own ethos – as a ‘truth-teller’ who stands by his clear values – are backed up with attacks on the ethos of those who oppose leaving: They are “scaremongering” with hyperbolic claims that “if we weren’t in the EU: Trade would cease; Jobs would be lost; we’d finish up somehow, living in caves.” Such arguments, Farage argues, “are made by the same people who said if we didn’t join the euro we’d be ruined” – people, in other words, with a history of poor judgements – and evidence that “our political class don’t think we’re big enough, or good enough, to be in control of our own country and make our own laws.”

This is how Farage fights back against the list of facts and figures reeled off by pro-EU politicians – by pooh-poohing them as part of ‘Project Fear’, parroted by untrustworthy politicos, and talking down the nation and its people. Rather than evidence to take into account, Jones’s list of business and jobs figures becomes a list of threats, doom and gloom. All of this is in supposed contrast to Farage, whose message is that of the positive patriot, who places himself at the head of his people: “I believe we are big enough, and strong enough, and good enough, and I want you to grab this historic opportunity to take back control of our own lives.” In this, Farage appeals to pathos – to emotion – specifically related to national pride and drive.

Since Farage places so much emphasis in his argument upon his own character, it makes sense that opponents seek to undermine this and Jones sought to promote his own positive ethos as First Minister while casting aspersions on his opponent:

“As First Minister of Wales I’m here to tell you what this decision really means for our country.

And that starts with an admission.

There won’t always be easy answers to complicated questions.

In fact, if a politician ever tells you there’s an easy answer to a complicated question they’re pulling the wool over your eyes.

Because this is a serious debate about our future.”

As framed by Jones, the debate thus came down to a distinction between his honesty as the Welsh people’s elected (and generally popular[8]) leader, compared to the deliberate oversimplifications and lack of seriousness of Farage’s points. The facts of the matter – the logos of the argument – do matter; the complexity is real, and rather than fearmongering, it is responsible to recognise and warn of dangers that could have negative consequences for the nation. Like Farage, Jones also makes appeals to pathos – to the character of the nation, tying it to the referendum vote:

“A vote in the referendum to stay in would be the vote of a confident nation.

A country that is comfortable with our place in the world.

A country that still believes that we have a role to play on the international stage.

And I believe that Wales is that confident country.”

Conclusion

Where Wales goes, so goes the UK? It is too soon to tell, but any evidence that the Eurosceptic side is winning in Wales should be of huge concern to the ‘Remain’ campaign. In the debate itself, so far, the rhetorical battle-lines have been familiar. On one side, “Brexit” it is a dangerous jump into the unknown, unsecured and isolated. On the other, it is an escape from an intolerable situation into greater freedom and thus security. Those who argue to ‘Leave’ are either positive patriots, or simplifying, backwards-looking hucksters; and those who argue to ‘Remain’ are either fear mongers talking the nation down, or serious and honest individuals with the facts on their side.

At the end of the day, Britain’s vote will be determined not on the basis of a cool-headed collective appraisal of the details in all their complexity. It will be the rhetorical ability of both sides to frame the debate around their preferred interpretation; to convince observers of the logos of their argument, the ethos of its advocates, and tap into the pathos of the electorate.

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts  will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

[1] https://yougov.co.uk/news/2016/02/28/eurosceptic-map-britain/
[2] http://blogs.cardiff.ac.uk/electionsinwales/2016/02/23/all-welsh-eu-referendum-polls-so-far/
[3] http://www.ft.com/cms/s/0/2aa5a1fa-d64e-11e5-829b-8564e7528e54.html
[4] http://www.walesonline.co.uk/news/wales-news/plaid-cymru-leader-leanne-wood-6789219
[5] https://www.opendemocracy.net/ourkingdom/david-cutts-david-s-moon/why-rise-of-ukip-is-significant-threat-to-welsh-labour
[6] http://blogs.cardiff.ac.uk/electionsinwales/2016/02/15/1323/
[7] https://www.youtube.com/watch?v=fRwkh9o5gk0
[8] http://blogs.cardiff.ac.uk/electionsinwales/2016/02/16/ratings-of-the-party-leaders-in-wales/

 

Professor Chris Martin on: Brexit and the City of London: A Clear and Present Danger

📥  banking, Brexit, EU membership, EU Referendum, EU renegotiation, Euroscepticism, future

Professor Chris Martin, Professor of Economics, Department of Economics.

In September 2011, the UK government began legal action at the European Court of Justice (ECJ) against the European Central Bank (ECB). It claimed that an ECB policy proposal was outside its legal competence, as defined in European Union (EU) law[1]. The UK government took this action even though the Justice Secretary at the time, Chris Grayling, supports Brexit (as does the incumbent, Michael Gove), in part because of the requirement that EU law applies in the UK. Moreover, supporters of Brexit in the UK government have a strong aversion to the ECJ, with Grayling describing it as having “reached the point where it has lost democratic acceptability".

This episode is more than just one more example of the ironies of political life.  It illustrates the tensions at the heart of the EU between the single market and the single currency. The single market guarantees free movement of goods, services, labour and capital. The rules ensuring these “four freedoms” are enforced by the ECJ. The ECB is taking an increasingly prominent role in ensuring the stability of the financial system in the Eurozone. It has ultimate supervisory responsibility for all banks in the Eurozone and has direct supervision of the largest Eurozone banks. Clashes occur when access to the single market conflicts with the need for financial stability. There are nine members of the EU who do not use the Euro, but these tensions are especially severe in the case of the UK.

This is because of the dominance of the UK in European wholesale banking. There are two broad types of banking, retail (for example, bank lending to firms and households) and wholesale (for example, trading on foreign exchange markets or buying and selling financial securities and derivatives). Within Europe, the City of London dominates the latter.  Average daily turnover in the UK foreign exchange market exceeds US$2.5 trillion per day[2]. London is the largest global centre in Euro foreign exchange markets, with daily trade of over US$ 1 trillion. This is nearly 45% of global trades, a figure that far exceeds any country that belongs to the Eurozone[3]. The City is also dominant in markets for swaps, especially interest rate swaps.  Although these are obscure and complex financial products, they are central to the daily business of large financial institutions. London-based trades in these assets amount to over US$ 1.3 trillion per day[4].  A substantial proportion of these trades will involve banks that are ultimately regulated by the ECB.

The extraordinary size of these markets helps us understand why financial markets are so important for the performance of the UK economy. They account for 10% of GDP and 12% of UK tax receipts. Directly or indirectly, they employ over 330,000 people, many in high-skill, high wage jobs. Banking and Financial Services is one of the few areas where the UK has a large and consistent trade surplus, of nearly £47bn[5]. Not all of this is due to the City of London, but the City does make a major contribution.

There have been several examples of how the tension between the single market and the Eurozone affects the UK in recent years. The 2011 case brought before the ECJ by the UK Government concerned the proposed “Eurosystem Oversight Policy Framework” published by the ECB. This included a requirement that clearing houses for mainly Euro-related financial products should be located within the Eurozone. This would have required, for example, that LCH.Clearnet, which handles around 50% of the global interest rate swap market, relocate away from London. Other examples include the UK appealing to the ECJ against plans for a Financial Transactions Tax by eleven Eurozone countries and against the EU’s proposed cap on bankers’ bonuses[6].

In 2014, the ECJ found it in favour of the UK government, arguing that the ECB proposals exceeded its authority in EU law. In this case, access to the single market over-rode the ECB’s financial stability mandate. There will likely be similar cases in the future as regulation of European financial markets increasingly moves into the ECB and as the dominance of the Eurozone within the overall EU grows. The tensions are a threat to the dominance of the City of London while the UK is a member of the EU. How would things change if the UK were to leave the EU?

The effect of Brexit on financial markets and the City of London is unknowable; it depends on a large number of factors that are difficult to foresee and difficult to control. Optimists argue that Brexit would allow the City to flourish in a low regulatory environment as the UK frees itself from the burdensome regulations of Brussels.  But this is highly subjective. What seems like a meddlesome imposition to some looks to others like a prudent response to the toxic risks of financial instability, so clearly exposed by the 2008 financial crisis. As the Centre for European Reform argued in a 2014 report[7], a nation state cannot have financial stability, internationalised finance and national sovereignty. A country can only have two of these three. Given the post-crisis focus on financial stability, it seems clear that in order to continue as one of the few dominant centres in global finance, the UK will have to conform with international regulations on financial markets.

Although the long-term impact of Brexit is deeply uncertain, it is clear that the UK would have to do very well in the negotiations that would follow a vote for Brexit in June. Just to keep things as they are, three things would have to happen. First, the UK would need continued access to the single market, with recourse to the ECJ for adjudication and enforcement of the rules of the single market. That would require access on terms similar to those negotiated with Switzerland or Norway, something that comes with a substantial price and with reduced influence on the rules of the single market. But that would not be sufficient. Second, the UK would need continued access to the TARGET system for clearing payments in the Eurozone. Although not a member of the Eurozone, the UK used the rules of the single market to gain access to TARGET. Access to this allows UK-based financial institutions to more easily participate in inter-bank and other short-term money markets in the Eurozone. Access was granted on the basis that non-Eurozone EU members should have the same ability to transact in the common currency as Eurozone members. This principle would not apply if the UK were to leave the EU and so continued access to TARGET would be problematic in the event of Brexit.

Thirdly, the UK would have to negotiate arrangements similar to the current passport system of financial regulation. Currently, the UK benefits greatly from the “passport” system whereby financial institutions based in the UK can provide financial services in all EU countries without further financial regulatory requirements. In effect financial institutions can use their compliance with UK financial regulations as a “passport” to operate anywhere in the EU. The financial services passport is a major reason why many foreign banks, especially American and Swiss ones, have large UK-based subsidiary operations. The presence of these large banks then encourages Eurozone-based banks like BNP-Paribas and Deutsche Bank to also base a large part of their operations in the UK. It is hard to overstate the importance of this. According to CityUK, 37% of financial services companies say they are very likely or fairly likely to relocate staff if the UK left the EU[8] and lost the passport system. Goldman Sachs and JPMorgan have indicated the passport system is a primary reason for their presence in London and stressed the importance to them of the UK remaining in the EU[9] because of this. It is at best highly uncertain whether the UK would be able to secure a passport-like arrangement following a Brexit.

In summary, the dominant position of the City of London in highly lucrative wholesale banking is already under threat as the UK struggles with being a major centre for large-scale markets in Euro-denominated assets while not being a member of the Eurozone.  Even if the UK remains within the EU, the unresolved tensions between the requirements of the single market and the need for financial stability on financial institutions based in the Eurozone will continue to create difficulties. But the outlook for the City of London would become much bleaker were the UK to vote to leave the Eurozone in June. Financial markets are very keen for the UK to reject Brexit.

This blog post is part of a new IPR Series – all related to the BREXIT debate and the EU Referendum. This collection of commissioned blog posts  will be published as an IPR Policy Brief in May 2016. Sign up to the IPR blog to get the latest blog posts, or to our mailing list to receive invitations to our events and copies of our Policy Briefs.

[1] Case T-496/11
[2] Bank of England data for 2013: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2013/qb130410
[3] ibid
[4] Again, Bank of England data for 2013. This figure is for daily transactions in OTC interest rate derivatives; these are “mostly in interest rate swaps”.
[5] Illustrative figures are in https://www.cityoflondon.gov.uk/business/economic-research-and-information/statistics/Documents/an-indispensable-idustry.pdf
[6] https://www.cer.org.uk/sites/default/files/smc_final_report_june2014.pdf
[7] https://www.cer.org.uk/sites/default/files/smc_final_report_june2014.pdf
[8] https://www.dlapiper.com/en/uk/insights/publications/2015/10/banking-disputes-quarterly/brexit/
[9] In evidence to the Parliamentary Commission on Banking Standards.

 

Disability Benefits

📥  Budget, Economy, labour market, Osbourne

The day after a Budget is usually a difficult one for any Chancellor, but this year, George Osborne has been subject to sustained and withering scrutiny, most notably on the failure to meet his fiscal targets and the shunting around of corporate taxes revenues and capital spending that enable him to reach a projected surplus in 2019/20. There are deep-seated problems in the British economy  - expressed most sharply in our weak productivity performance – that the Chancellor’s economic strategy has exacerbated, not solved, and he is paying a fiscal price for these. But his Budget decisions may yet extract a political price from him too.

Last year, the Chancellor was forced to abandon tax credit cuts announced in the summer. This year, political disquiet has focused on cuts to disability benefits, principally those to Personal Independence Payments (PIPs). Spending on these benefits has been rising above forecasts, so the government is cutting entitlements. The IFS says 370,000 disabled people will lose an average of £3,500 a year thanks to PIP cuts. This is causing outrage amongst the Chancellor’s opponents and anxiety on his backbenches.

There is a good explainer of both the substance and the politics of this issue by the political journalist, James Kirkup, in the Daily Telegraph. In sum, Kirkup thinks the government may have walked into a new tax credits row.

To see why this is plausible, we can turn to evidence from the authoritative British Social Attitudes survey. In the 32nd report of the survey, covering data up to 2014, the public was asked (as it is every year for the survey) about attitudes to social security and welfare benefits.

Here is the table showing priorities for extra spending on benefits since 1983. It shows fairly consistent support for disability benefits, which are now second only (and narrowly so) to retirement pension in the hierarchy of public priorities.

Figure 3. Priorities for extra spending on social benefits, 1983–2014

blog one.

 

Furthermore, this support cuts across party lines. Here is the table that shows levels of support for extra spending on welfare, by party identification.  Support for extra spending on disability benefits is fairly uniform, clustering around 60%: the views of those who identify with the Conservatives don’t differ much from those who identify with Labour, the Lib Dems and UKIP.  This contrasts with spending on other benefits.

blog two

 

The Chancellor has picked a fight on an issue on which public opinion is solid, and on which his own supporters agree with those of other parties. He may live to regret it.

 

Graham Room on alternatives to austerity: Budget day lessons from Keynes

  , ,

📥  Economy

Nationally and internationally, economic growth – such as there was – is faltering.  China’s slowdown has prompted falls on the Asian and global stock markets. The US Fed’s signal that interest rates may soon rise – and QE wind down – multiplies the gloom.  Europe creaks, as new crises – refugees and fears of Brexit – reinforce the sense of a whole continent desperately seeking a way out.  After seven lean years, there seems to be little prospect of seven years of plenty anytime soon.

The debate over policy responses remains locked between government debt reduction and renewed action by central banks, in some new version of QE.  On March 10th, the European Central Bank surprised financial markets by cutting interest rates and expanding its QE programme to €80bn a month (up from €60bn).  It also launched a new scheme to encourage the commercial banks to lend to businesses: all in an effort to revive economic growth and avoid deflation.  The markets however seem to be taking all this as a sign that if this does not work, the ECB has no more to offer.   This may therefore just reinforce business and consumer expectations of continuing stagnation, compounding the gloom.

It is not therefore surprising that the Bank of International Settlements has warned of a ‘gathering storm’, with governments and central banks ‘running out of options’.  Moreover, with reforms of the banking system, following the 2008 crash, having been much less than many deemed necessary, any significant weakening of the global macro-economy could well provoke a new banking crisis.

Faced with the evident limitations to what monetary policy can achieve, the OECD has been arguing for a stronger fiscal policy by governments. The new leadership of the Labour Party, with Stiglitz, Piketty and Mazzucato among its advisers, is trying to develop just such a strategy (albeit couched initially in the language of QE, re-worked to fund anti-austerity measures). Nevertheless, UK government policy remains focussed on debt reduction and shrinkage of the public sector. Budgetary discipline likewise provides the guiding rule for governments in the Eurozone, subject more and more to Germany’s economic hegemony.

It is in this context that the Chancellor George Osbourne makes his 2016 budget statement.    Additional cuts in public spending will be needed, with disability benefits carrying much of the burden.  These cuts are needed because, he claims, the world is in a difficult and dangerous place, with more uncertainty than at any time since the global economic crisis of 2008-09.  “We have got to live within our means to stay secure, and that’s the way we make Britain fit for the future,” he told the Andrew Marr Show.

The IPR Report Alternatives to Austerity, published in July 2015, set out an alternative approach to the continuing recession. This was inspired in considerable measure by Keynes, whose General Theory was published eighty years ago last month.  What then is the situation that we face: and what is now to be done?

Keynes was centrally interested in the role of money in a modern capitalist economy.  This did not however mean that he looked to monetary policy to steer such an economy, least of all to kick-start growth during a period of recession.  In a recession business confidence would be lacking - and however low interest rates were pushed, entrepreneurs would sit on their hands (and their cash) and wait till times got better. Keynes would not therefore have been surprised at the very modest response of the economy to the QE stimulus provided by central banks over recent years.

Why then have governments continued to look to the central banks to shoulder the main burden of getting the economy out of recession?  The reason surely is not any positive belief in the efficacy of monetary stimulus: more the belief that there is no alternative, no other hope on the horizon, especially now that China’s growth has faltered. Why no alternative? Because the high levels of government debt that resulted from their bail-out of the banks – coupled with the shrinking tax receipts of an economy in stagnation – have been the prime target of government concern.   Debt reduction trumps economic growth as the prime objective of government policy, in the UK and the Eurozone in particular. This is in part in the belief that reducing public expenditure will allow the private sector to expand; and in part out of fear of the international money markets.  The problem is, that without a return to economic growth, and to more buoyant tax receipts, debt reduction is unlikely to be feasible.

Is there some other alternative?  Here we must notice the varieties of interpretation that have been placed on Keynes’ own work – in part because he himself addressed the problems of both short and long-term adjustment, and the problems of recession but also (especially during WW2) those of an economy operating close to full capacity.  Nevertheless, in these different situations, his recurring theme was that government can and should act to ensure that national resources are fully used and effectively deployed: steering and complementing the functioning of markets, but also reducing the uncertainty about the future which otherwise disables and dispirits entrepreneurs and investors.

Although Keynes did allow some role for monetary policy, his basic message was that interest rates should be kept stable and low. The heavy work and the fine-tuning would be done by fiscal measures.  The latter can however take many forms.  The first priority – much emphasised in the General Theory – was to secure a level of effective demand that would produce full employment and high levels of utilisation of capital equipment. In a recession, when private spending on consumption and investment were low, the immediate priority was therefore to increase public spending, almost regardless of what form this took.  Spending that created jobs for the unemployed was given pride of place, in part to address a social evil, and in part because the workers thus employed were likely to spend and thus to have multiplier effects across the larger economy.

This left Keynes being viewed by many as concerned solely with demand management and with public spending geared to soaking up unemployment. It also left many of his interpreters (what Joan Robinson referred to as the ‘bastard Keynesians’) to argue that once Keynesian expenditure had secured full employment, the market mechanism could be left to do its work, with Keynes having little or nothing else to offer.

Keynes was not however concerned only with ensuring sufficient effective demand in a recession. More fundamental was his concern over low levels of business confidence and their ‘liquidity preference’ – sitting on their hands rather than investing in skills and factories.  Only government could provide the stability within which capitalist entrepreneurs and their ‘animal spirits’ would flourish. The returns that entrepreneurs could expect on their investments and on the inventions they brought to market depended on the general level of activity in the economy and this was itself dependent on public policies.  Government policy shaped the environment within which businesses made their long-term investment decisions.   It was those long-term decisions – by government and by business – that then determined the long-term growth potential of the economy, the tax revenues that could be expected and the long-term health of the public finances.

More generally, Keynes and his successors emphasised the role of public investment in building the long-term capacity of the economy. This might be through investment in infrastructure or human capital or the science base.  It would involve long-term projects which were of a scale or duration which no private investor could contemplate. It might involve projects whose benefits were collectively enjoyed but which did not offer realistic returns to any individual private investor.  What all these public investments recognised was that capitalist economies develop by expanding and transforming their human and technological capacities; but that this is unlikely to take place at the optimal rate, if investment is left to the private sector. Capitalist economies need to be steered and coordinated. From this point of view, austerity as a way of addressing our economic woes is fundamentally misplaced.

The world, says the Chancellor, is an uncertain and dangerous place.  We must, it seems, hunker down, be thrifty and hope for better times to come.   Keynes disagreed.   Precisely because of that uncertainty, governments – individually and in concert – must be proactive in managing the global economy and the global markets before whose anxieties and dictates they too readily tremble.    There was a moment following the 2008 crisis when the G20 seemed ready to act together and decisively but it soon faded.  Unless the brave but limited efforts of the central banks are now succeeded by vigorous and concerted government action, geared not least to the green technologies we so desperately need, continuing stagnation seems unavoidable.  And that in turn may mean growing political discontent and disaffection, social conflict and division.  The increasingly dangerous world the Chancellor says he wants to fend off may in that case only be hastened.