The business argument is with the EU

Even if the politics are a disaster zone.

Ever since the financial crisis, a previously buoyant eurozone has turned into a disaster zone. The single currency has lurched from crisis to catastrophe as the finances of member states have come under pressure. Bailouts that appear to be funded in large part from northern Europe are keeping several countries in southern Europe afloat. The next crisis is potentially lurking at the tail end of summer, with Cyprus due to get its next tranche of cash from the unofficial troika of the EU, ECB and IMF in early September. That is dependent on the country meeting stringent financial and budgetary targets and there is little evidence so far that they will be met.

With a German election by then just around the corner, it is unlikely that German chancellor Angela Merkel will be in the mood for leniency. The upshot could be that Cyprus is allowed to exit the single currency – the last six months having bought enough time to make it potentially a more orderly exit, and the economy is small enough for the ramifications to be less seismic than if a country such as Greece had fallen out.

Regardless of what happens in September (and it is as easy to paint a picture in which Cyprus gets the cash and everything carries on as it is), the eurozone’s troubles at least partly explain why the subject of the EU and the UK’s role within it is so high on the political agenda. As leader of the Conservative Party, David Cameron set out his stall clearly. He said he didn’t want the party to keep “banging on about Europe”. But the growth of anti-EU sentiment and the seemingly unstoppable rise of UKIP in particular has meant that, as prime minister, Cameron has had to bang on about it quite a lot.

UK politicians and the media are having to regularly discuss details (and not the possibility) of previously abstract ideas such as a referendum, renegotiation of the country’s relationship with the EU, or even complete withdrawal. The trouble is that all these discussions happen at a volume and intensity that rarely allow for sensible debate. Economic arguments are formed and numbers and statistics thrown around with little heed for anything other than scoring points and winning the argument.

It was somewhat sobering this month then to get a snapshot of what the UK’s exporters (clearly the key to UK economic recovery) think about Europe. The most often repeated story when it comes to discussions about where the UK recovery will come from is that exporters will have to seek out sales in high-growth emerging markets in far-flung corners of the world. So-called BRIC economies (Brazil, Russia, China and India) are cited above all as the key for our future success. Well, this didn’t chime with recent research conducted by economia. We asked the leaders of 500 businesses (a mix of those already exporting and those not currently doing so but with plans to do so in the next three to five years) to rate different markets around the world for their importance.

While it was no surprise to see Western Europe rated as important or very important this year by more respondents than any other market (71 per cent compared to the next most popular market, Asia at 55 per cent), what was less expected was the pattern when respondents were asked to rate the importance of markets in three to five years’ time. Here again Western Europe dominated by a similar margin. Even more unlikely was the rise of North America in the future (up by 5 per cent), knocking Asia back into third place.

Part of the explanation for the continued preference for Europe is the geography. Cost of exports was cited as a concern for and a factor in choosing markets by almost all respondents regardless of size or sector. And while the short distances help, some of the ease of doing business in Europe is driven by the standardisation of market rules and regulations and the lack of need to comply with different country guidelines or indeed to pay any import duties.

It appears from this that when asked about Europe on a purely business basis, without any of the political or emotive overlay, there is overwhelming support for the simplification benefits that arise from EU membership. More detailed analysis of the findings of this research needs to be conducted, but initial findings suggest there is also a worrying reluctance on the part of UK exporters to tap into the phenomenal growth of the emerging economies. In the mid-term at least, the ease of doing business in Europe appears to be winning over the potential returns from more long-term investments in places such as China, India, Russia or Brazil.

That would suggest that keeping close to Europe may be economically beneficial regardless of the politics.

This story first appeared on economia

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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Why Theresa May can't end speculation of an early general election

Both Conservative and Labour MPs regard a contest next year as the solution to their problems. 

One of Theresa May’s first acts as a Conservative leadership candidate was to rule out an early general election. After a tumultuous 2015 contest and the EU referendum, her view was that the country required a period of stability (a view shared by voters). Many newly-elected Tory MPs, fearful of a Brexit-inspired Ukip or Liberal Democrat surge, supported her on this condition.

After entering Downing Street, May reaffirmed her stance. “The Prime Minister could not have been clearer,” a senior source told me. “There won’t be an early election.” Maintaining this pledge is an important part of May’s straight-talking image.

But though No.10 has wisely avoided publicly contemplating an election (unlike Gordon Brown), the question refuses to die. The Conservatives have a majority of just 12 - the smallest of any single-party government since 1974 - and, as David Cameron found, legislative defeats almost inevitably follow. May’s vow to lift the ban on new grammar schools looks to many like an unachievable task. Former education secretary Nicky Morgan and former business minister Anna Soubry are among the Tories leading the charge against the measure (which did not feature in the 2015 Conservative manifesto).  

To this problem, an early election appears to be the solution. The Tories retain a substantial opinion poll lead over Labour, the most divided opposition in recent history. An election victory would give May the mandate for new policies that she presently lacks.

“I don’t believe Theresa May wishes to hold an early election which there is evidence that the country doesn’t want and which, given the current state of the Labour Party, might be seen as opportunistic,” Nigel Lawson told today’s Times“If, however, the government were to find that it couldn’t get its legislation through the House of Commons, then a wholly new situation would arise.”

It is not only Conservatives who are keeping the possibility of an early election alive. Many Labour MPs are pleading for one in the belief that it would end Jeremy Corbyn’s leadership. An early contest would also pre-empt the boundary changes planned in 2018, which are forecast to cost the party 23 seats.

For Corbyn, the possibility of an election is a vital means of disciplining MPs. Allies also hope that the failed revolt against his leadership, which Labour members blame for the party’s unpopularity, would allow him to remain leader even if defeated.

Unlike her predecessors, May faces the obstacle of the Fixed-Term Parliaments Act (under which the next election will be on 7 May 2020). Yet it is not an insurmountable one. The legislation can be suspended with the backing of two-thirds of MPs, or through a vote of no confidence in the government. Alternatively, the act could simply be repealed or amended. Labour and the Liberal Democrats, who have demanded an early election, would struggle to resist May if she called their bluff.

To many, it simply looks like an offer too good to refuse. Which is why, however hard May swats this fly, it will keep coming back. 

George Eaton is political editor of the New Statesman.