Why Brits Should Prepare for a Second EU Referendum

According to Europe Economics' Andrew Lilico, PhD, Britain is destined to leave the EU. And Brexit would only have a marginal impact on the UK economy

Emma Wall 25 May, 2016 | 1:16PM
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If Britain voted to leave the European Union, the EU would force Poland and Hungary to join the euro, says economist Dr Andrew Lilico – in a bid to strengthen bond between the remaining members.

We could actually be better off economically outside of the European Union

If they refused they would be booted out of the Union, to join the second tier of European constituents such as Norway who are not part of the EU but do belong in the European economic area. Lilico, a Fellow of the Institute of Economic Affairs and Principal of Europe Economics, said that the EU would want control over governance issues and making Poland and Hungary sign up to the European Exchange Rate Mechanism, a pre-cursor to joining the euro, would be the first item on the agenda.

It is this push towards corporate and currency unification which Lilico says seals the fate of the UK – as we have no intention of joining the euro, eventually we will leave the EU. Currently, polls are divided as to the outcome of the EU referendum on June 23rd. But Britain is unanimous when it comes to adopting the single European currency – only 7% of the population would entertain the idea.

“I think it is highly unlikely we will remain in the EU over the long term, whatever the outcome on June 24th,” revealed Lilico at a press briefing hosted by Martin Currie yesterday. “If the remain vote win is marginal there will be another referendum, but either way we are not going to join the euro so we will fall out of the EU eventually.”

Lilico concedes that if Britain left the EU there would be a short-term negative economic impact – but said that the economic argument was not the reason to leave. Instead he referenced the stifling nature of EU membership – the failed trade agreements with Australia because of objections with Poland, the failed US trade deal because Austria disagreed, and the deal with Japan which has recently been derailed by Germany.

“There is an argument that we could actually be better off economically outside of the European Union – as could Europe itself,” he said. “Short term you’re looking at a loss of 2% but by 2030 that could be a gain of 2% GDP. The money we send to the EU could be spent in the UK and regulatory issues disrupting growth would be sorted out. New trade deals with the rest of the world would also boost our economy.”

The UK Would Not Become an Isolated Nation

Lilico said that it was these potential new trade deals which provided the most interesting food for thought throughout the Brexit debate. Far from the isolated nation which the remain campaign has painted the UK as post-exit, Lilico says that we would seek out like-minded medium-sized countries to do business with.

“Leaving the EU is like leaving a job; your main concerns are not with your old employer – whether you still have access to your old email, gardening leave, client access – but your new role,” he said. “The UK will not want to be isolated, we won’t want to be like Switzerland. We have been sticking our nose into other countries’ for hundreds of years. We will seek out Canada and Australia, and other countries with similarities, to forge new alliances.”

As for new tariffs and trading restrictions? “We have been advocating free trade for 170s. The ideas that we would go, leave the EU and join the World Trade Organisation and raise tariffs is absurd.”

The City Will Still Stand

Commitment to the status quo should protect the City of London in the event of Brexit, says Lilico. He argues that an international centre for finance requires a place that is easy to earn money, and enjoyable to spend it – and the UK offers the only combination of the two in Europe.

“The pressure would be to keep the City to stay the same. If the City was going to leave London it would have done so in 2003 when we refused to join the euro,” he concluded.

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Emma Wall  is former Senior International Editor for Morningstar