Dear [Salutation],

We would like to remind you that the CER's Economists on Brexit conference takes place tomorrow at The Royal Society (6-9 Carlton House Terrace, London SW1Y 5AG).

The timing of the conference will be:
17:30  Registration opens; drinks and canapés served
18:00  Introduction by John Springford, Senior Research Fellow, CER
18:05  Keynote speech by The Rt Hon Gordon Brown
           Chair: Charles Grant, Director, CER
18:40  Drinks and canapés served
19:10  First electronic vote on the motion 'Leaving the EU would damage Britain's economy'
19:15  Economists’ debate with:
           Roger Bootle, Executive Chairman, Capital Economics
           Stephanie Flanders, Chief Market Strategist for Europe, J.P. Morgan Asset Management
           Gerard Lyons, Chief Economic Advisor, Mayor of London's Office
           Martin Wolf, Chief Economics Commentator, Financial Times
           Chair: Evan Davis, Lead Presenter, BBC Newsnight
20:35  Second electronic vote on the motion 'Leaving the EU would damage Britain's economy'
20:40  Results and end of conference

Please let us know if you are no longer able to attend, otherwise we look forward to seeing you from 17:30.

With best wishes,
Jordan Orsler

Events manager & PA to Charles Grant
Centre for European Reform
T: +44 207 233 1199
M: +44 7946 246 762

At 6 pm today, former prime minister Gordon Brown will give the keynote speech at the launch of the Centre for European Reform report, The economic consequences of leaving the EU.

His speech will be followed by a debate on the economics of Brexit. Stephanie Flanders of JP Morgan Asset Management and Martin Wolf of the Financial Times will argue that Brexit would damage Britain’s economy. Roger Bootle of Capital Economics and Gerard Lyons, economic advisor to Boris Johnson, will argue the reverse, chaired by Evan Davis of BBC Newsnight. The audience – a specially selected panel of 100 economists from the academic and business worlds – will vote on the issue.

The CER's report shows that the US’s free trade agreements have been less effective than the EU’s single market at reducing trade costs.

The reason is that the single market is a much more advanced form of trade agreement. It has not just abolished tariffs, but has gone a long way to breaking down non-tariff barriers to trade that arise from different national regulations.

A post-Brexit Britain will struggle to offset higher trade barriers with the EU by signing FTAs with other countries. According to the CER’s analysis, Britain’s trade costs with the EU fell by 0.4 percentage points a year between 1996 and 2010. By contrast, FTAs between the US, Canada and Australia did very little to reduce the cost of trade. Australia’s cost of trade with the US fell by 0.05 percentage points a year. In Canada’s case, trade costs increased with the US after it signed the North American Free Trade Agreement in 1994. (See chart.)

Other highlights from the report include:

• EU membership has boosted Britain’s trade significantly. The CER constructed a ‘gravity’ model to quantify how much trade is down to the EU itself, rather than the simple fact that Europe is comparatively rich and nearby. It shows that Britain’s EU membership has boosted its trade in goods with other member-states by 55 per cent: this ‘EU effect’ amounted to around £130 billion. By contrast, the value of Britain’s trade with China was £43 billion that year.
• European rules are not a major constraint upon Britain’s economy. According to the OECD, Britain has the second least regulated product markets in the developed world, after the Netherlands. Both are EU members. The OECD’s labour market protection index shows that Britain has similar levels of labour market regulation to the US, Canada or Australia – and far lower than continental European countries. EU employment rules therefore do little to inhibit Britain’s flexible labour market.
• Finally, in a new analysis of the effect of EU immigration on UK wages, the CER finds that immigration from the EU between 2004 and 2015 has reduced the wages of low-skilled services workers by 0.8 per cent. For comparison, the government’s tax increases and benefit cuts between 2010 and 2019 will reduce the incomes of the poorest tenth of Britons by 10.6 per cent, according to the UK’s Institute for Fiscal Studies.

Commenting, one of the report’s authors, John Springford said: “Britain would face an invidious choice after Brexit. The EU would insist that in return for full access to the single market, the UK must continue to sign up to EU laws, pay budget contributions and accept the free movement of people. As Britain would have voted to escape these perceived burdens, higher barriers to trade with the EU are all but certain. The higher the barriers, the greater the damage to the British economy.”

Notes for editors:
John Springford, senior research fellow, can be contacted about the report on +44 20 7227 1199 or at john@cer.org.uk
Simon Tilford, deputy director on +44 20 7227 1199 or at simon@cer.org.uk

The members of the CER commission are:

Kate Barker, Former Member, Monetary Policy Committee, Bank of England
Sir Brian Bender, Former Permanent Secretary, UK Department of Business, Innovation and Skills
Wendy Carlin, Professor of Economics, University College London
Nicholas Crafts, Professor of Economics and Economic History, Warwick University
Paul De Grauwe, John Paulson Professor of European Political Economy, London School of Economics
Gérard Errera, Chairman, Blackstone Group France and former Secretary-General of the French Foreign Ministry
Martin Hatfull, Director of Government Relations, Diageo and former UK Ambassador to Indonesia
Sony Kapoor, Director, Re-Define
Sir Richard Lambert, Former Director, Confederation of British Industry and former Editor, Financial Times
Lord Mandelson, Former European Commissioner for Trade, and former Secretary of State for Business, Innovation and Skills
Mariana Mazzucato, RM Phillips Professor of Science and Technology, Sussex University
Lord Monks, Former General Secretary, Trades Union Congress and former General Secretary, European Trade Union Confederation
Kevin O'Rourke, Chichele Professor of Economic History, Oxford University
Andrew Oswald, Professor of Economics, Warwick University
Christopher Padilla, Vice-President, Governmental Programs, IBM and former Under-Secretary of Trade in the US Department of Commerce
Jonathan Portes, Director, National Insitute of Economic and Social Research
Sir Michael Rake, Chairman, BT Group plc and former President, Confederation of British Industry
André Sapir, Senior Fellow, Bruegel and Professor of Economics, Université Libre de Bruxelles
Simon Walker, Director, Institute of Directors
Sir Nigel Wicks, Former Chairman, British Bankers' Association and former Chairman, EU Monetary Committee
André Villeneuve, Advisory Council Member, TheCityUK
Martin Wolf, Chief Economics Commentator, Financial Times

Charles Grant, the CER’s director, has made some notes on his recent visit to The Hague, where he met government officials. Written for friends of the CER, they are not for publication and should not be cited.

Dutch officials were notably pro-German on most issues, quite hostile to the European Commission and rather uninterested in France. Because any new EU treaty would have to be voted on in a Dutch referendum, they do not want another treaty – not just in the near future, but ever.

Brexit and German leadership in Europe

The government officials I met were very concerned about the risk of Brexit – notably for the boost it would give to Dutch eurosceptics, and for its potential to weaken economic liberalism within the EU. But apparently the leading politicians are unlikely to tell the British how to vote, out of fear that it would be counter-productive. That did not stop King Willem-Alexander telling the European Parliament on May 25th that that the “European bouquet would not be complete without the English rose”.

Many EU governments worry about Brexit because it would make German power in Europe even more preponderant than it is already (that is the view one often hears, for example, in Warsaw, Paris and Rome). But if Brexit boosted German power, it would not be a problem for the Dutch. “We’re not uncomfortable with German power; Merkel talks to us a lot,” said one official. “She is a responsible leader. We agree with Germany on most issues. Europe needs German leadership.”

Eurozone governance

The Dutch follow the Germans on most eurozone issues. This is not just because their economies and their roles in the eurozone, as creditor nations, are similar. The Netherlands’ political culture also emphasises the importance of following rules. Thus on Greece, the Dutch think the IMF has to be involved, but they refuse to write off Greek debt (though ‘extending and pretending’ is OK). As for any future demands for new money for Greece, it would be politically impossible for the Dutch government to provide new money – whatever the Germans do and say.

The Dutch don’t like the Commission’s increasingly political and ‘soft’ line on budget deficits, eg recently giving Spain more leeway. They lament the ‘reverse QMV’ rule, which makes it hard for governments to stop the Commission pushing through its proposals on budgets. The Dutch like the idea of replacing the Commission with an independent institution to analyse national budgets (eg the European Stability Mechanism). This could then send recommendations to the Council of Ministers – and if the Council wished to give a country more flexibility, for political reasons, it should be open about saying so. Some senior officials in the finance ministry in Berlin think along similar lines. Nevertheless there is not much chance of such a radical reform of eurozone governance, because a lot of countries, including France, would defend the Commission’s role.

The Dutch share Germany’s hostility to the ECB’s quantitative easing programme – on the grounds that it leads to low returns for savers, may cause asset bubbles, and is (they think) not working. But when I asked what their alternative proposal was to fight deflation and enable the ECB to fulfil its mandate on prices, they had no clue. The Dutch also like the German idea that sovereign bonds should be risk-weighted by banks; but they know this is not viable in the short term, given how many sovereign bonds are held by shaky Italian banks.

The Dutch have an even bigger current account surplus than the Germans (about 10 per cent of GDP, against 7.5 per cent) and are therefore unsympathetic to those – including the Commission, the French and many Anglo-Saxon commentators – who want Germany to lower its deficit. The Dutch emphasise that their deficit is more structural than the Germans’, being caused by things like the ‘Rotterdam effect’ (other countries’ exports pass through the Dutch port) and Dutch exports of gas.

The Dutch are a bit less hostile than the Germans to the Commission’s proposals for a deposit insurance scheme for the banking union – partly because their finance minister chairs the Euro Group, which has a policy of supporting deposit insurance. But on substance they share the Germans’ reluctance to agree to anything that could lead to the quasi-mutualisation of debt. The Dutch think that common deposit insurance won’t happen for a long time, ie until the various member-states have sorted out their banks’ problems.

The Dutch are not fans of the ‘economic reform contracts’ that Angela Merkel wants, because they would lead to a loss of sovereignty. In general, they don’t like the idea of a ‘grand bargain’ between France and Germany on the way forward for the eurozone, because they don’t trust the Commission to enforce tighter budget discipline, which would be part of that bargain. In short, they do not want major changes to eurozone governance, partly because of:

The Dutch problem with referendums

The Dutch referendum law allows any petition of 300,000 signatures to trigger a vote on a new law or treaty. Therefore under current rules there could not be a referendum on leaving the EU. However, TTIP, CETA and any other significant trade agreement would probably be put to a referendum and almost certainly defeated. So would any new EU treaty. The Dutch therefore oppose any treaty change, even after 2017. This has big implications for the future of the eurozone. “The only kind of EU referendum that we could possibly win would be one on membership,” said one official.

There is talk of changing this awful law, either by raising the threshold for the number of signatures required (to, say, 1 million) or by exempting international treaties. There would be a majority in Parliament to change the rules. But the second of those two options would be politically difficult. In any case even a new law to change the current system could be subject to a petition for a referendum.

What will the Dutch presidency of the EU do about the referendum in April which went against the Ukraine-EU association agreement? The Dutch government has not decided, but there is talk of ‘renegotiating’ the deal in a way that would not change a great deal of substance. I was left with the impression that this exercise could be similar to the EU’s constitutional treaty evolving into the Lisbon treaty.

The EU’s problems: Italy and Poland

The Dutch find that Matteo Renzi has become somewhat easier to deal with in recent months, eg on migration issues. “We are willing to be a bit softer on the fiscal rules, as he is trying to reform”. In contrast the Dutch want the Commission to be tough on Warsaw’s new government: the rule of law has to be enforced in Poland. “The other member-states offered a way forward to the Poles, through getting the Venice Commission to make recommendations, but these were rejected”. The Dutch seem to think that throwing the rule book at the Poles will solve the problem, and don’t believe that a more subtle approach is needed. However, they liked my idea that, post a successful referendum, Cameron could play a mediating role.

Migration

Mark Rutte played big role in brokering the EU-Turkey deal, which the government sees as a “triumph of our presidency”. But the opposition is opposed because of human rights problems in Turkey. On the difficult issue of visa liberalisation, for once the Dutch want a ‘political’ Commission, that can fudge the key condition that Turkey must satisfy, the reform of its counter-terrorism law; they would happily focus on the practice in Turkey rather than the law itself.

What about the recent Commission proposals to reform the Dublin asylum rules? The Dutch like these but think they won’t be agreed for years, since there is a blocking minority. “If we can fix the external border by strengthening it, then in the long run quotas become feasible. Even Orban indicates he could accept them.”

Charles Grant is director of the Centre for European Reform

Vote Leave's proposal today for an Australian-style points based immigration system has been described by the CER's deputy director Simon Tilford as "grossly misleading".

Tilford says: "if the UK were to adopt this system, it would be impossible to negotiate access to the single market after a Brexit. But Vote Leave campaigners fail to spell this out to voters. They also fail to mention that if the UK goes down this path, the EU is likely to reciprocate in kind, meaning that those Britons who want to work and study in the EU would face new visa or permit requirements."

John Springford, CER senior research fellow, added: "Vote Leave have implied that the Bank of England estimates the impact of EU immigration on the wages of low-skilled workers as 2% - according to the Bank of England’s research, the effect is actually 0.77% (see 5th bar of the chart below). Tax rises and benefit cuts since 2010 have reduced the incomes of the poorest by far more than immigration."

Notes for editors:

Simon Tilford and John Springford are available for comment to the media and can be contacted on:

simon@cer.org.uk, john@cer.org.uk or via 020 7233 1199.

For any other press enquiries, please contact the press office on pressoffice@cer.org.uk.

PRESS RELEASE

A document released by Vote Leave with their suggestions for “establishing a new UK-EU deal after 23 June” has been dubbed ‘a recipe for chaos’ by researchers at the Centre for European Reform.

• Vote Leave argue that “extensive preliminary discussion both in Britain and with European partners should take place before Britain formally initiated the withdrawal process”. But EU member states are unlikely to negotiate any details before the formal Article 50 process, giving Britain two years for its divorce with the EU, is triggered. And the longer Britain postpones formal negotiations, the greater the economic and legal uncertainty for both British and European citizens and businesses.
• Vote Leave claim that they will effectively end the ECJ’s supremacy and repatriate part of the EU budget immediately – i.e. when the UK would still be an EU member. They also say that, before Britain had formally left the EU, the UK should unilaterally repatriate external trade policy, and become an independent member of the World Trade Organisation (WTO). But the UK cannot be a member of the EU’s customs union and be an independent WTO member at the same time.
• Vote Leave claim “it is also in all countries’ economic and political interests for there to be a friendly deal that will increase and improve international cooperation.” But the measures suggested would violate the EU’s treaties, inviting retaliation from the EU and making negotiations over access to the single market difficult.
• Vote Leave claim that “three years and ten months is ample time to negotiate” a new trade deal with the EU, pointing to examples of swift trade agreements between other countries. But in trade talks, size matters. And the UK would be a junior partner in the negotiations with the EU-27. Certainly, the UK has a trade deficit with the EU and so the EU would be interested in striking a deal. But that is not a guarantee that Britain will get its way in the negotiations.

Agata Gostyńska-Jakubowska, a research fellow at the CER said: “The priority for the EU will be to start negotiations quickly and reduce uncertainty. And if Britain refused to accept that, it would further antagonise the EU, with whom it must strike a comprehensive agreement to minimise the economic fallout.”

John Springford, a senior research fellow at the CER said: “If the UK unilaterally withdrew from the EU’s external trade policy it would have to negotiate a new tariff regime with the WTO. That would mean leaving the EU’s customs union, subjecting UK exporters to EU tariffs. And Britain would no longer be party to the EU’s trade agreements.  It’s a recipe for chaos.”

Ian Bond, director of foreign policy at the CER said: “The assumption throughout this document is that the rest of the EU will just do it our way if we vote to leave. There seems to be no realisation that until our withdrawal agreement enters into force the Treaties still apply to us, and the Commission can still take us to the European Court of Justice. It is rather delusional.”

CER researchers are available for comment to the media via our press office, on: 020 233 1199 or pressoffice@cer.org.uk.

PRESS RELEASE

A document released by Vote Leave with their suggestions for “establishing a new UK-EU deal after 23 June”, should Britain vote to leave the EU,  has been dubbed ‘a recipe for chaos’ by researchers at the Centre for European Reform.

• Vote Leave argue that “extensive preliminary discussion both in Britain and with European partners should take place before Britain formally initiated the withdrawal process”. But EU member states are unlikely to negotiate any details before the formal Article 50 process, giving Britain two years for its divorce with the EU, is triggered. And the longer Britain postpones formal negotiations, the greater the economic and legal uncertainty for both British and European citizens and businesses.
• Vote Leave claim that they will effectively end the ECJ’s supremacy and repatriate part of the EU budget immediately – i.e. when the UK would still be an EU member. They also say that, before Britain had formally left the EU, the UK should unilaterally repatriate external trade policy, and become an independent member of the World Trade Organisation (WTO). But the UK cannot be a member of the EU’s customs union and be an independent WTO member at the same time.
• Vote Leave claim “it is also in all countries’ economic and political interests for there to be a friendly deal that will increase and improve international cooperation.” But the measures suggested would violate the EU’s treaties, inviting retaliation from the EU and making negotiations over access to the single market difficult.
• Vote Leave claim that “three years and ten months is ample time to negotiate” a new trade deal with the EU, pointing to examples of swift trade agreements between other countries. But in trade talks, size matters. And the UK would be a junior partner in the negotiations with the EU-27. Certainly, the UK has a trade deficit with the EU and so the EU would be interested in striking a deal. But that is not a guarantee that Britain will get its way in the negotiations.

Agata Gostyńska-Jakubowska, a research fellow at the CER said: “The priority for the EU will be to start negotiations quickly and reduce uncertainty. And if Britain refused to accept that, it would further antagonise the EU, with whom it must strike a comprehensive agreement to minimise the economic fallout.”

John Springford, a senior research fellow at the CER said: “If the UK unilaterally withdrew from the EU’s external trade policy it would have to negotiate a new tariff regime with the WTO. That would mean leaving the EU’s customs union, subjecting UK exporters to EU tariffs. And Britain would no longer be party to the EU’s trade agreements.  It’s a recipe for chaos.”

Ian Bond, director of foreign policy at the CER said: “The assumption throughout this document is that the rest of the EU will just do it our way if we vote to leave. There seems to be no realisation that until our withdrawal agreement enters into force the Treaties still apply to us, and the Commission can still take us to the European Court of Justice. It is rather delusional.”

CER researchers are available for comment to the media via our press office, on: 020 7233 1199 or pressoffice@cer.org.uk.