The EU is the UK’s major trading partner, accounting for 45% of exports and 53% of imports of goods and services in 2014 The EU is a major source of inward investment into the UK. In 2013, EU countries accounted for £453 billion of the stock of inward Foreign Direct Investment, 46% of the total. Over £4 billion worth of exports are sold by the UK to EU countries each week In 2014, the UK had a trade deficit of £62 billion with the European Union

1. The UK and the European Union

2. 28 European Union Member Nations (in 2015)
Joined
EU
Euro Zone
Member?
Joined
EU
Euro Zone
Member?
Austria 1995 Yes Italy 1957 Yes
Belgium 1957 Yes Latvia 2004 Yes
Bulgaria 2007 No Lithuania 2004 Yes
Croatia 2013 No Luxembourg 1957 Yes
Cyprus 2004 Yes Malta 2004 Yes
Czech Republic 2004 No Netherlands 1957 Yes
Denmark 1973 No (ERMII) Poland 2004 No
Estonia 2004 Yes Portugal 1986 Yes
Finland 1995 Yes Romania 2007 No
France 1957 Yes Slovakia 2004 Yes
Germany 1957 Yes Slovenia 2004 Yes
Greece 1981 Yes Spain 1986 Yes
Hungary 2004 No Sweden 1995 No
Ireland 1973 Yes United Kingdom 1973 No

3. Enlargement of the EU – Rising Per Capita Incomes
All of the new countries
joining the European
Union have a per capita
national income (PPP
adjusted) lower than
the EU average
But many have
achieved some
convergence in average
living standards despite
the effects of the
recession in 2008-2010
Bulgaria and Romania
are outliers with per
capita incomes less
than ½ of the EU
average.

4. Changing Relative Per Capita GDP for EU - 2003-2013
Index (EU28 =
100)
GDP (PPP) 2003 GDP (PPP) 2013
Index (EU28 =
100)
GDP (PPP) 2003 GDP (PPP) 2013
Austria 127 128 Italy 112 99
Belgium 123 119 Latvia 45 64
Bulgaria 33 45 Lithuania 48 73
Croatia 56 61 Luxembourg 240 257
Cyprus 94 89 Malta 82 86
Czech Republic 77 82 Netherlands 133 131
Denmark 124 124 Poland 48 67
Estonia 52 73 Portugal 78 79
Finland 115 113 Romania 29 55
France 111 107 Slovakia 53 75
Germany 116 122 Slovenia 82 82
Greece 93 73 Spain 100 94
Hungary 62 66 Sweden 127 127
Ireland 141 130 United Kingdom 123 109

5. UK and the EU – Data Background

6. Net UK contributions to EU budget
Forecasted net UK contributions to EU budget from 2014/15 to 2019/2020 (in £m)
9,054
8,385
10,178
8,049
8,908
9,374
0
2000
4000
6000
8000
10000
12000
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
NetcontributionsinmillionGBP

7. UK and the EU – Trade & Investment
• The EU is the UK’s major trading partner,
accounting for 45% of exports and 53% of
imports of goods and services in 2014
• The EU is a major source of inward investment
into the UK. In 2013, EU countries accounted
for £453 billion of the stock of inward Foreign
Direct Investment, 46% of the total.
• Over £4 billion worth of exports are sold by the
UK to EU countries each week
• In 2014, the UK had a trade deficit of £62
billion with the European Union

8. UK Trade Patterns
11% of UK exports go to IMF-classified emerging economies
USA 12%
Germany 11%
China 4%
Russia 2%

9. UK Net Labour Migration Data
• Total EU net migration to the UK was 178,000 in 2014
• 46,000 Romanian and Bulgarian citizens immigrated to the UK in 2014
589 567 596 574 590 567 591 566
498 526
624
-344 -361
-398
-341
-427
-368 -339 -351 -321 -317 -327
268 267 265 273
229 229 256
205 177 209
298
-600
-400
-200
0
200
400
600
800
YE
December
2004
YE
December
2005
YE
December
2006
YE
December
2007
YE
December
2008
YE
December
2009
YE
December
2010
YE
December
2011
YE
December
2012
YE
December
2013
YE
September
2014*
Migrationinthousands
Inflow Outflow Net migration

10. Bulgarian and Romanian Workers in UK

11. Longer Term Dynamic Effects of Migration
Labour Market Fiscal Effects
Consumption Competitiveness
Waves of inward migration can have long term effects on a
country’s overall macroeconomic performance
Increase in the
active labour supply
which might cause
lower unit labour
costs for a host
country
Inward migration
increases pressure
on government
spending but can
also lead to rising
tax revenues
• Human capital
helps to generate
ideas and products
• Many migrants
start businesses –
possible exporters
• Knowledge
spillovers
• Increase in
population size
• Rising demand for
public services
• If housing stock is
fixed, can lead to
higher prices and
rising rents

12. The BREXIT Debate

13. Intra-EU Trade Investment and
Jobs
Intra-EU Labour
Migration
EU Rules &
Regulations
Environmental
Policies
Real Wages /
Living Standards
Aspects of UK Membership of the EU

14. Intra-EU Trade Investment and
Jobs
Intra-EU Labour
Migration
EU Rules &
Regulations
Environmental
Policies
Real Wages /
Living Standards
Aspects of UK Membership of the EU
Many of the costs and benefits of UK membership of the
European Union are subjective or intangible

15. UK and the EU – Three Research Reports
Report Source Key Findings Useful evaluation argument
Open Europe Report
(March 2015)
• Between a 0.8%
permanent loss to GDP
in 2030 and a 0.6%
permanent gain in GDP
in 2030
• Economic impact of Brexit not
clear cut in either direction
• Norwegian’ and ‘Swiss’ models of
EU association are not suitable
for the UK post-Brexit
Centre for Economic
Performance (LSE)
(Summer 2014)
• Leaving the EU would
be likely to impose
substantial costs on UK
economy and would be
a risky gamble
• Negative effect on growth
greater than benefit of reduced
EU fiscal contribution
• Much depends on the scale of
non-tariff barriers if UK leaves EU
Confederation of
British Industry
(2013)
• Net benefit arising
from EU membership is
somewhere in the
region of 4-5% of UK
GDP
• Britain does not face an
’either/or’ choice – it needs to
maximise trade with existing
large markets at the same time
as building links to new markets

16. UK and the EU – Three Research Reports
Report Source Key Findings Useful evaluation argument
Open Europe Report
(March 2015)
• Between a 0.8%
permanent loss to GDP
in 2030 and a 0.6%
permanent gain in GDP
in 2030
• Economic impact of Brexit not
clear cut in either direction
• Norwegian’ and ‘Swiss’ models of
EU association are not suitable
for the UK post-Brexit
Centre for Economic
Performance (LSE)
(Summer 2014)
• Leaving the EU would
be likely to impose
substantial costs on UK
economy and would be
a risky gamble
• Negative effect on growth
greater than benefit of reduced
EU fiscal contribution
• Much depends on the scale of
non-tariff barriers if UK leaves EU
Confederation of
British Industry
(2013)
• Net benefit arising
from EU membership is
somewhere in the
region of 4-5% of UK
GDP
• Britain does not face an
’either/or’ choice – it needs to
maximise trade with existing
large markets at the same time
as building links to new markets

17. UK and the EU – Three Research Reports
Report Source Key Findings Useful evaluation argument
Open Europe
Report
(2015)
• Between a 0.8%
permanent loss to GDP
in 2030 and a 0.6%
permanent gain in GDP
in 2030
• Economic impact of Brexit not clear
cut in either direction
• Norwegian’ and ‘Swiss’ models of
EU association are not suitable for
the UK post-Brexit
Centre for
Economic
Performance (LSE)
(2014)
• Leaving the EU would be
likely to impose
substantial costs on UK
economy and would be a
risky gamble
• Negative effect on growth greater
than benefit of reduced EU fiscal
contribution
• Much depends on the scale of non-
tariff barriers if UK leaves EU
Confederation of
British Industry
(2013)
• Net benefit arising from
EU membership is
somewhere in the region
of 4-5% of UK GDP
• Britain does not face an ’either/or’
choice – it needs to maximise trade
with existing large markets at the
same time as building links to new
markets

18. Free
trade
• Britain could negotiate new trade agreements with EU
trade partners and many emerging countries
• Britain would free itself from many of the EU's complex
and expensive laws & regulations
Savings
+prices
• Leaving the EU would cut contributions to EU budget
• Food prices would possibly be lower if we left the
Common Agricultural Policy (CAP)
Other
gains
• Europe needs the UK as a favoured trade partner
• UK would retain greater control over fiscal and
monetary policy and freedom over labour market,
competition and environmental policies
Arguments for Brexit (i.e. leaving the EU)

19. Competitiveness and the BREXIT debate
“We are the fifth or sixth
largest economy in the
world. We could exist on
our own — peacefully and
sensibly.”

20. Arguments for staying inside the EU
Free trade
• Multinationals might reconsider their FDI into the UK
• Adopting a Norwegian approach would mean UK accepting
many EU rules without any say in policies
Open
Markets
• UK will lose tariff-free access to largest export market
• Pan-European trade agreements have benefitted UK
• Outside EU, UK more exposed to low-cost competition
Extra risks
• Costs for businesses adjusting to many new laws
• UK’s net EU contribution is <1% of GDP
• Moves to limit free movement of labour with Brexit might
worsen skills shortages for many UK businesses

21. Competitiveness and the BREXIT debate
“The economic case
for continued
membership of a bloc
with 500m citizens
and 21m companies
will remain
overwhelming.”

22. 1. Norwegian model: Britain joins European Economic
Area, giving access to the single market but freeing
it from EU rules on agriculture and fisheries
2. Swiss model: Britain is independent and negotiates
new trade treaties on a sector-by-sector basis
3. Turkish model: UK enters into a customs union with
the EU, allowing access to the free market in
manufactured goods
4. Unilateral approach: UK relies on its membership
of the World Trade Organisation
Some options for the UK outside of EU
www.bbc.co.uk/news/uk-politics-32793642

23. A highly recommended article
www.bbc.co.uk/news/uk-politics-32793642

24. Evaluative arguments
• Jobs: Are 3 million jobs at risk if we leave?
– Number of jobs related to trade with other EU
member states is not the same as saying that over
three million jobs are dependent on EU membership
• An opportunity to deregulate the UK economy?
– Majority of laws would stay the same
– In some cases the UK government has gone further
than the EU e.g. in environmental interventions
• In Britain’s long-term interests for EU to succeed
• Growth and competitiveness agenda is much
wider than question of UK/EU membership

25. A2 Macro:
The UK and the European Union