When I voted in favour of the United Kingdom’s continued membership of the European Economic Community in 1975, I was in favour of the UK being part of a European trading bloc. In the 42 years that have elapsed since that vote, the EEC has become the EU and it has changed beyond recognition.
The changes have been in two main directions; Expansion and Ever Closer Union. When we joined on 1st Jan 1973, we did so with Denmark and Ireland, increasing the number of members from 6 to 9. Expansion has seen the number of member countries grow to 28. Ever closer union has so far included the single currency, the removal of borders, common fisheries, a European bank and investment bank and many other institutions plus proposals for a European army. I suspect that had the organisation confined its ambitions to one of these directions, the whole European project would be more likely to succeed.
EU Profligacy
I have become increasingly aware of the amount of waste involved in administering such a cumbersome group of countries, each with its own vested interests. The French insistence that each month, all 751 MEPs plus their papers and official documents are transported the 400 kilometres from Brussels to Strasberg and back is estimated to have cost over £2 billion to date. The EU has 24 official and working languages including Irish and Maltese. To manage all the languages there are 1,750 linguists and 600 support staff bolstered by a further 600 full-time and 3,000 freelance interpreters.
If an Irish MEP met a Maltese MEP in a Brussels bar it is inconceivable that they would speak anything but English. It would probably be the first language in both cases, but at the very least an incredibly familiar language. Both countries have exorcised their right to have their own language recognised by the EU necessitating the employment of hundreds of linguists and interpreters. I suspect that a large proportion of official documents in their governments are in English anyway.
The salary levels of European Union officials are so high that 10,000 of them are better paid than our prime minister. EU officials’ salaries are further increased by numerous benefits and a specially low tax rate which is imposed on it. The EU has repeatedly refused to publish details of the take-home pay of its 47,000 staff. The net result after low taxes and an abundance of employment perks, means that even a mid-ranking EU official has a net annual income of over £83,000 p.a.
EU Waste and Corruption
There is a debate about whether the EU accounts are signed off by their auditors. There are degrees of concern, ranging from corruption to ‘Poor value for money.’ 80% of the budget is spent by member countries and there are numerous instances of money being wasted: In 2014 Poland built three airports; Lodz, Rzeszow and Lublin, which have received more than 100 million Euros in EU funding. The airports did not attract enough customers and they have all closed.
Of the 19 EU financed motorway projects across Europe, 14 have reported much less traffic use than expected. A six mile stretch of new motorway on the route from Algeciras to Barcelona which cost 280 million Euros has seen less than half the amount of traffic predicted. Anyone driving around the M25 in rush hour might wonder why so much motorway money was sent to Spain. The EU has wasted up to three billion Euros building motorways that were not needed, according to the European Court of Auditors.
Fraud in the EU affects 0.2% of annual spending. This is ten times the rate of that in the UK. The National Audit Office says fraud costs the UK government 0.02% of total expenditure. The difference of 0.18% seems very little, but when applied to the EU budget of 143 billion Euros, equals over a quarter of a billion Euros every year.
Benefits from EU membership
Of the twenty-eight member states, eighteen are currently net recipients of funds and together with Single Market access, the benefit to them is obvious. Of the ten net contributing countries, some have EU institutions housed in their countries. Belgium and Luxembourg house most of the EU administration and benefit greatly from that. Germany has the European Central Bank in Frankfurt and France has the European Parliament once a month in Strasbourg. There are numerous EU agencies spread across Europe, employing thousands of staff. The UK has only two or three of these agencies; a disproportionately low number, given the size of the country and the net contributions we have made.
It may be that the biggest beneficiary of EU and Eurozone membership is Germany. The export led German economy operates within a deflated currency, giving its industries huge advantages, making exports very competitive and discouraging imports. Germany’s balance of payments surplus surged to a record $285 billion last year. It is now overtaking the Chinese surplus as the largest trade imbalance in the world. The Chinese have repeatedly taken measures to keep the value of their currency down, They have been accused of currency manipulation, but whatever they do they cannot compete with the advantage that Germany has from operating with Euros.
In the long term, the Euro is doomed unless German banks write off huge amounts of Greek debt or Greece leaves the single currency. So far, German voters will not countenance Greek debt being forgiven and so repeated bail-outs are needed to keep Greece in funds. The can is repeatedly kicked further down the road, leaving the Euro in a state of semi-limbo. Its a limbo that suits Germany very nicely.
BREXIT negotiations
Some anti-Brexit politicians use the term ‘Hard Brexit’ to describe a trading relationship on World Trade Organisation terms. They then state that this would be a disaster for the UK. If it occurs, it will be a far bigger disaster for large parts of European industry. Because of the damage it will do to German and French car manufacturers and French farmers, it is unlikely to happen. A sensible negotiating position for the UK government is to state that we are prepared to continue trading with the EU on existing terms. EU negotiators will be anxious to demonstrate the advantages of membership and to discourage other countries from following the UK’s example. Unfortunately for them, every tariff or barrier they introduce can be countered by one from us that will cause their industries far more damage than ours will suffer. This is because of the huge trade surplus that the EU has with the UK.
EU negotiators will demand a range of things from a 50 or 100 billion Euro leaving charge to access to UK waters for their fishing vessels. They will want to deny the City of London ‘passporting’ rights to sell financial products within the EU but will expect tariff free exporting to the UK markets of their choice. Because the EU exports vastly more goods and services to the UK than we do to them, the UK is in a strong position. For example, restrictions on exports of financial services by the UK can be matched with UK tariffs on the import of wine, olive oil and agricultural products from the EU. French farmers might well block French motorways and ports. Almost one third of cars sold in the UK are made in Germany and if WTO tariffs were applied, German car exporters would pay £1.8 billion in tariffs. On the other hand UK built cars would incur £1.3 billion in tariffs when they went to Europe. German car exporters are almost reconciled to paying tariffs of 9.8% on sales in the UK and some are planning to build more of their cars in the UK because of it. They already have plans to close factories in Europe.
Trading under WTO tariffs will mean that the UK receives vastly more money in tariffs than UK exporters have to pay out. The UK government will be in a position to reimburse UK exporters and still be in pocket. The WTO prohibits most subsidies directly linked to the volume of goods exported, but there are numerous ways around the prohibition. If the UK government were to actively start making plans to instigate a facility which could make payments to exporting companies, which would, in broad terms reimburse them for tariffs to be paid to the EU, post Brexit, then EU negotiators would have an incentive to continue with tariff free trade. In the absence of such a scheme, a 9.8% tariff on cars is much more likely, and whilst some production will transfer to the UK, a lot of UK facilities for making cars to be exported to the EU could transfer to low cost producers like Poland. A lot will depend on whether Angela Merkle is prepared to sacrifice a large part of German automotive industry in order to prevent the UK from having access to the Single Market.
50 billion or 100 billion Euro Brexit bill
THE UK will wish to continue with some of its current arrangements regarding security and scientific research projects which will mean ongoing payments of contributions, but the headline figure of 50 billion Euros is ridiculous and discredits the EU politicians who moot it, A payment of this size would mean the UK continuing to make payments at the current net rate for another eight years. A large part of the calculations include amounts due for budgets covering periods years into the future which have not yet been agreed by anyone. Pension liabilities for EU employees being paid at vastly inflated EU rates are an EU liability. The nauseating spectacle of senior EU politicians saying “The UK must honour its obligations” whilst referring to the 50 billion Euros needs to be examined.
NATO members’ pledges
There are very few things uttered by Donald Trump with which I agree. One of them is the requirement for NATO member countries to honour their commitment to spend 2% of their GDP on defence. Very few European NATO members come close to honouring this commitment. Some of the countries clamouring for the UK to stump up 50 to 100 billion Euros for a fictitious Brexit charge are the worst offenders.
Countries like Germany, Italy, Spain, The Netherlands, Belgium, Luxembourg and The Czech Republic have been taking a free ride on the back of the United States and the UK. This is in spite of Russian incursions into Ukraine and the annexation of Crimea. The Russians have spent billions on a new generation of nuclear missiles as well as the most advanced tank in the world and new fighter jets. They plan to increase the size of their army from 70 brigades to 110 brigades. They have already been moving troops and weapons close to the borders of NATO countries. Their Black Sea fleet, now based in the Crimean port of Sebastopol recently added a dozen warships and patrols the coasts of Bulgaria, Romania and Turkey. There have been numerous incidents of Russian planes and ships encroaching into European countries’ airspace and waters. The Kaliningrad Oblast is a Russian enclave on the Baltic sea between Lithuania and Poland. It is highly militarised and warships based there could easily control the entrance to the Baltic. In response there are soldiers from a number of NATO countries stationed in Estonia, Lithuania, Latvia and Poland.
Whilst European members of NATO have contributed troops to border areas, they have not spent enough on advanced military hardware. They are prepared to let the UK spend vast amounts building aircraft carriers and maintaining Trident etc. and shelter under the resulting nuclear umbrella. Germany spends 1.19% of its GDP on defence. This means there is a £226 billion annual gap between what it has committed to spend and what it actually spends. Spain spends 0.91% of GDP on defence (less than half the amount it has committed) and has a shortfall of £109 billion. Luxembourg must be the worst offender of the freeloaders. It has the second highest GDP per capita in the world (after Qatar) and only spends a derisory 0.44% on defence, although some reports say 0.9%. The lower figure looks more likely because from a population of over half a million, the armed forces consist of 450 professional soldiers, 340 enlisted recruits and 100 civilians. Luxembourg does not have a navy or air force.
Angela Merkle has resisted demands for Germany to increase its defence spending to the pledged 2% and no doubt other EU countries also refuse to spend the amount they have agreed to do. A typical EU MEP will say in one breath that the UK must honour its commitments and pay the 50 billion Euro Brexit bill, and in the next breath will say that their country does not have to honour its commitment to spend 2% of its GDP on defence.
Now that Donald Trump has omitted to say that the US will regard an incursion into any NATO member’s territory as a reason for the US to become involved in that country’s defence, EU countries are even more dependent on the UK. The UK already provides a disproportionate amount of Europe’s defences. It is in Europe’s interest to ensure that the UK has funds available to keep punching above its weight in military matters rather than attempt to extract every last Euro cent for spurious reason from their military benefactor.
Conclusion
The UK will be well advised to include military spending (or the lack of it) as part of its Brexit negotiations.
The UK should visibly start making arrangements to reimburse exporters for any tariffs they are forced to pay because of Brexit.
The Surrey Eunuch 