Financial Times, 21 July 2015
THE RISK OF FUMBLING THE EUROPE POLL
By Ed Balls
When a decision is important enough to warrant a national referendum, it is always a momentous event, and usually carries monumental risks. To hold one such referendum in a generation is bold enough. To hold two in three years is reckless in the extreme. Yet this is Britain's course.
The vote on Scotland's future was destabilising enough, and the issue remains far from resolved. But now - in 2017 - the UK must make the equally seismic choice on whether to stay in the European Union.
I was taken aback last summer by quite how much concern the Scottish referendum caused the UK and international business community, and the paralysing impact on investment.
It highlighted a deeper truth about the interaction of politics and economics. Because referendums inevitably risk pitting political short-termism and emotion against long-term economic logic. And that is never an attractive prospect for rational investors or business leaders.
Contrast that with the UK remaining outside the Euro in 2003, a Cabinet decision made exclusively on a Treasury assessment of Britain's long-term national economic interest.
While the famous 'Five Tests' guiding that assessment were indeed first revealed to the Financial Times from the back of a New York taxi, they were not, as popular myth would have it, drawn up there. Instead, they were carefully worked out during visits to Bonn, Paris and Brussels in the year before the 1997 election.
And while Gordon Brown undoubtedly had an open mind as to whether the Tests could be met, I suspected from the outset that they would not. Twelve years on, with the Euro locked in a never-ending and ever more costly crisis, that judgement seems sounder by the day.
Now ask yourself: if we were to base the judgement on whether Britain should stay in the EU on a similar long-term economic assessment, what would the decision be?
First, any pro-Europeans who say the economic case is unambiguous do their cause a disservice. To deny the serious economic problems involved in continued EU membership is factually absurd and politically unwise.
In economic terms, last September's Scottish vote was about whether to maintain an effective, centuries-old currency union with strong fiscal, regulatory and political underpinning. No-one could say the same of the current Euro arrangements, where the focus on Greece's gaping wound is distracting attention from a whole series of maladies facing more influential Euro zone economies.
Any feasible future for the Euro is going to require a much closer union in fiscal, banking and monetary policy. While the UK will thankfully stand outside those arrangements, that undoubtedly makes it harder to maintain our influence and prevent decisions made at Euro zone level damaging British interests.
On top of that, increasing labour mobility is becoming ever more necessary as a means of adjustment for under-developed EU countries, just when open migration is becoming increasingly unsustainable - politically and economically - in the UK and elsewhere.
Given all those concerns, I understand the viewpoint of pessimists who cannot see an acceptable future for Britain within Europe. I also agree with Prime Minister David Cameron's insistence on the need for reforms of the single market, labour mobility and benefits, as difficult as they will be to deliver.
But while appreciating all the challenges of continued EU membership, they do not outweigh the economic advantages and potential opportunities.
Europe is our biggest trading partner. We gain hugely from the single market's liberal trade policies and regulatory harmonisation. Much UK Foreign Direct Investment depends on our continuing membership. And our voice in economic negotiations with America and Asia is stronger as part of the European trading bloc than shouting on our own.
That is why in every conversation I have ever had in America, from the White House to the wider business world, the view has been unanimous: don't leave, stay in and fight for reform and open markets. That is why, given that we have to go through a referendum, I will argue that long-term, economic logic dictates a 'Yes' vote.
But the Government’s strategy to win that vote currently has two problems.
The first is the 2017 timetable. Europe's future will be determined over the next five to ten years, not the next 24 months. There is simply no chance of securing meaningful treaty change on that timetable. Our EU partners neither have the time or inclination to make Britain’s needs their urgent priority.
As with the Five Tests, the Government would have been better placed offering a referendum once they could show the conditions of continued membership had been met, not just on the promise of future change. The second, and more serious, problem is the Government’s reluctance even to engage with the referendum debate until they can show progress on their reform agenda.
This is leaving a vacuum gleefully filled by the Euro sceptics, while putting the pro-EU campaign in a negative stance from the outset, pointing out the risks inherent in withdrawal but hampered from making the positive case for staying in. If there is one important lesson from the Scottish referendum, it is that campaigning on a negative may be enough to clinch the battle but risks losing the war. The SNP's subsequent general election landslide showed how much they won the battle for hearts and minds during the referendum, co-opting the appeals to youth, patriotism and optimism about the future. The pro-EU campaign must not make the same mistake. It cannot just say Britain will lose jobs and influence if we leave. We have to win the argument that - despite Europe's problems - Britain can be stronger, wealthier and more influential in the world if we stay in and fight our corner.
The Government needs to make this positive case now, rather than wait for the current 'renegotiation' to deliver what can only ever be a work-in-progress. Unionists allowed the agenda to be dictated by the separatists in one referendum. Twice would be truly reckless.
Ed Balls is Senior Fellow at the Harvard Kennedy School and a former UK Shadow Chancellor, Cabinet Minister and Chief Economic Adviser