This post will give you a walk through the years of the
relationship between Britain and the rest of Europe. We start with the 1800s.
In this period, Europe is generally a protectionist place, but Britain is
closer to it economically than any other point since the 1600s. Due to the
protectionism, though, Britain sees most of its trade growth occurring outside
of Europe. It is cheaper to import and export from elsewhere.
By the time World War One starts most of Britain's trade
is not with Europe. The only real interest Britain has in Europe at this point
is a political one - they didn't want one nation (Germany) from dominating the
continent. Two wars are fought to stop this happening, they succeed. During the
1930s, the gold standard collapses which pushes Britain closer to its empire.
This relationship continues through World War 2 and the Commonwealth and the
USA become Britain's main trading partners.
The years immediately following World War 2 leave Britain
relying on European recovery to stop the spread of communism. Despite this, the
empire and USA are still the main trading links. The expectation is that
Western Europe will remain protectionist and broken for a whole generation
following the war, so Britain still considers itself a key power.
An important event occurs in 1957 when the European
Economic Community is formed with the signing of the Treaty of Rome. France,
Germany, Italy, Belgium, Netherland and Luxembourg were the original 6 members.
They all agree to strive for three keys goals: Abolishment of internal trade
barriers on manufactured goods, introduction of a common external tariff and
aim for further economic and political integration between the six of them. How
does Britain react? It immediately feels like it cannot join. The common
external tariff would not be compatible with Britain's empire and trading
patterns. Britain goes and creates its own community - the European Free Trade
Association with Scandinavia and parts of Central and Southern Europe. It was a
much looser agreement than the EEC; there was an internal free market on
manufactured goods but no external common tariff so Britain could still
effectively operate with their empire.
By the time the 1960s come around it is obvious that the
Sterling is no longer a major currency. The Commonwealth begins to erode away
as countries gain their independence and trading with the EFTA is growing too
slowly. Conversely, trade with the EEC
is growing faster despite not being a member. It would be access to these
markets that would be necessary for prosperity. The decision to join comes in
1961 when Britain makes a formal application. France initially blocks the join,
they think that Britain is far too committed to the Commonwealth and therefore
would not be a beneficial member. It took 12 years for Britain to finally be
accepted, but there are problems almost instantly. The loss of sovereignty,
relations with the Commonwealth and the EEC budget are all issues.
The Common Agricultural Policy was the main spending
focus of the EEC budget. The problem was that Britain's agricultural sector was
so structurally different from other EEC members that the CAP was not beneficial.
Britain imported cheap food and subsidised its own small agricultural sector.
Deficiency payments were made to try and increase productivity, but overall the
cost of aiding the British farms was very small. The 6 EEC members all had very
large and inefficient farming sectors. Imports were kept out with high tariffs
and any surplus product was bought by the EEC to maintain the price. It was
costly for the consumer and highly inefficient, but it gave the farmers a lot
of political power. The rest of the budget was also an issue for Britain.
Roughly 1.2% of each members GDP was donated to the EEC budget. Income was also
derived from external tariffs, and as Britain imported a lot of food and raw
materials they found themselves contributing a lot to the budget. 75% of the
budget was spent on the CAP, and with Britain's small farming sector they did
not receive much. Britain was essentially contributing more than it was getting
from the EEC.
So why did Britain join? Well, mainly through fear. They
thought economic and political marginalisation would take place, they'd lose
influence and not be considered an important player in Europe if they didn't
become a member. Britain also hoped to ride the short term costs in the hope
that the longer term would reap benefits. They hoped the longer term benefits
would come in the form of access to fast growing markets and exposure to
greater competition. I guess in the long run some of this does occur, Britain
benefits in the early 1980s when they receive a rebate on the EEC budget, but
an economic crisis in the 70s puts plans for further integration well and truly
on hold.
Since 1985, the Single Market has been created in Europe
by the Single European Act. The EEC became the EU and political governance
changed partly to police the market. The single currency, of course, was
introduced, but Britain vetoed. They opted out in the hope that the whole plan
of a single currency would fall through, but this did not happen. By 2000, though,
Britain had become closer to Europe economically despite being less integrated
than the other Euro members. Most foreign direct investment goes outside of
Europe, but the amount staying within is increasing.
Essentially, Britain goes along with change in Europe
because it has no other choice. It is no longer the biggest player in the
continent and other countries are setting the agenda.
Surely the biggest economic issue with Europe is the epic trade deficit between the UK and the EU. It currently stands at £70 billion in 2012. (See Membership of the EU: pros and cons).
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