Brexit is the only way to bring EU reforms

With the Brexit vote looming in the next month, it is still very hard for both the layman and well-informed to cast judgement on the 23^rd June 2016, given the swirl of misinformation out there.

The Venice Commission stresses that the government should be neutral in conducting national referendums   [Code of Good Practice on Referendums adopted by the Council for Democratic Elections at its 19th meeting (Venice, 16 December 2006) and the Venice Commission at its 70th plenary session (Venice, 16-17 March 2007)]. These documents set out how referendums should be conducted, not much of which has been adhered to by the Cameron Government who wasted about £9 million of taxpayers money sending propaganda leaflets to every man (and woman) in the land supporting Bremain.

The arguments for Brexit or Bremain seem to change on a daily basis and are distorted by the egotistical clash between David Cameron and Boris Johnson, who both have their hidden agendas in vigorously supporting opposing camps.

The International Monetary Fund Head Christine Lagarde, is keen that Britain remains in the EU and out-going President Obama has waded into the debate saying that Britain would be at the back of the queue in terms of trade deals if we were to leave. Not only are they wrong, but their biased interventions have been largely ignored by the electorate, as reflected in the polls.

It has also been claimed by the Prime Minister that Brexit could lead to WWIII, and hit global growth by destabilising emerging markets, despite the biggest threat coming from a slowdown in China and the unwinding of QE and higher interest rates.

I will be voting for Brexit on the 23^rd June as I believe that it will be beneficial for Britain and the EU, as well as the global economy. My rationale is that Brexit will lead to higher global economic growth, benefitting us all, as the EU is not reaching its peak economic performance because of its high unemployment rate of 10%. Of particular concern is the high level of youth unemployment and the subsequent disempowerment of young people across Europe.

The EU needs to readdress its delirious ambition of “ever closer Union” which is tied to their failed monetary project, the Eurozone. Its failure is exhibited by the precarious situation that Greece and other Southern Mediterranean countries have found themselves in, which has led to mass unemployment, coupled with low or negative economic growth rates.

Quite clearly, Europe cannot cope with the uniformity and the latent linear Federal structure being undemocratically forced by the EU as this has led to ever increasing divergences (or asymmetries in economic terminology). Asymmetric shocks like the Global Financial Crisis have occurred because of cross-national differences in social, economic, political and cultural factors. These appear to have permanently altered the structure of the EU. Whereas the rationale underlying the formation of the EU was to ‘level the playing field’ by allowing the free movement of factors of production across national frontiers, the reverse is happening. As the exchange rate has been essentially irrevocably fixed, the Eurozone countries’ competitiveness can no longer adjust via flexible exchange rates. As goods and services markets take longer to adjust through purchasing power parity, we are seeing greater segmentation occurring within Europe rather than integration that is at the heart of the European Single Market.

So we are at a crossroads. Either the EU needs to reform or it will fail like the Euro has failed. Cameron’s negotiations that gives the UK ‘special status’ within the EU are probably benign and not even a short-term fix they are unlikely to be ratified into a treaty change, and even if it was would not save the EU now. The EU project in its current form is doomed.

When first Britain signed up for the European club we thought at the time that this was just free trade but we have been dragged unceremoniously along into chaotic oblivion by the hidden agendas of the Federalists in Brussels who see standardisation as the way to bulldoze the way forward to create an undemocratic super state, at a huge social and economic cost.

Unemployment is way too high in Europe and is a direct result of Eurozone monetary union.

Loweringunemployment below its natural rate has been shown to lead to higher economic growth. This needs to happen in the EU with immediate effect as the EU unemployment rate is substantially higher than its natural rate. The common currency has distorted national economic policies needed to reduce unemployment. For example in Greece job creation by the public sector takes a much lower priority to repaying foreign creditors that increased dramatically as a result of the introduction of the Euro.

The association between unemployment and economic growth was put forward by Arthur Okun in the 1960s, capitalising upon centuries old economic though on the matter, and has been formally established as Okun’s.

In their 2012 book Okun's Law: A Meaningful Guide for Monetary Policy Wen and Chen say it:

…is intended to tell us how much of a country's gross domestic product (GDP) may be lost when the unemployment rate is above its natural rate." It explains that "the logic behind Okun's law is simple. Output depends on the amount of labor used in the production process, so there is a positive relationship between output and employment. Total employment equals the labor force minus the unemployed, so there is a negative relationship between output and unemployment (conditional on the labor force).

Ex US Federal Reserve Bank Chairman, Ben Bernanke, summarizes Okun's law’s basic concepts in a speech at the National Association for Business Economics Annual Conference, Arlington, Virginia, March 26, 2012.

That rule of thumb describes the observed relationship between changes in the unemployment rate and the growth rate of real gross domestic product (GDP). Okun noted that, because of ongoing increases in the size of the labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required, just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential.

More specifically, according to [the] currently accepted versions of Okun's law, to achieve a 1 percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately 2 percentage points faster than the rate of growth of potential GDP over that period. So, for illustration, if the potential rate of GDP growth is 2%, Okun's law says that GDP must grow at about a 4% rate for one year to achieve a 1 percentage point reduction in the rate of unemployment.

Clearly, the EU is underperforming in shoring-up economic growth through the lowering of European unemployment, which is currently running at a tragic 10.2% in the Euro Area.

Their focus in Brussels is upon ever-closer political union and not the unemployed, and this brings misery to tens of millions across Europe.  In my mind, it can only do this by reducing asymmetries and respecting the national sovereignty that Britain and other nations need to reclaim.

EU growth may be much higher that will benefit The EU, Britain and the World Economy if they recognised national sovereignty as well as ‘one size does not fit all’ and abandoned the single currency. Coupled with the asymmetries, there are huge imbalances in labour market efficiencies, pay and working conditions across the EU that need to be addressed in relation to both EU monetary and fiscal union. Unemployment is a direct result of the failed common currency and susceptibility to asymmetric shock like the Global Financial Crisis. The EU Commission saw nothing but blue sky for the Euro when it was first introduced over a decade ago. The unevenness or asymmetries have become greater, risking and slowing down economic recovery trajectories. Go to Athens. See the failed EU project. It’s happening in Portugal and Spain as well.

The Euro. This common currency is now anchoring future EU policy to saving face rather than lowering unemployment and raising economic growth. Kicking the can down the road is not the solution!

Thus, Brexit should be seen as a first step to reforming the EU that cannot be achieved through its chaotic undemocratic channels.  This hopefully will lead to other countries holding referendums, leaving and creating a looser affiliation of countries like that of the European Free Trade Area, working towards the good of the community. It’s a shame that it has come to this but Brexit will benefit all. It’s a win-win situation. Only then will the EU reform.

Even if Brexit does not happen, there is likely to be another Eurozone crisis and other countries may hold referendums and decide to leave. The UK referendum will be the catalyst for EU reform. The EU in its present form must reform or be completely dismantled.

In the meantime, the fanfare will continue for the foreseeable future. Hold on tight!