Arturo Bris is director of the IMD World Competitiveness Center.
As a Spaniard, I cannot vote in the upcoming Brexit referendum. But the U.K. and its culture have undoubtedly impacted my life: I am writing this article in English; I listen to British music; I like drinking Scotch; and I own a Dyson vacuum cleaner. But the European Union would be much better off without the U.K., and British voters should check “yes” to Brexit.
The outcome is still uncertain, and the ultimate decision is going to be driven by both rational and emotional decisions. Rationally—most people say—leaving the EU would be devastating for the U.K.’s economy in terms of competitiveness, trade, and employment. But many also feel that the EU isn’t doing much for the U.K. And while the European Union is the greatest political innovation of the 20th century, the U.K. has never been a fully committed member, especially in the last few years.
In fact, it has been more of an obstacle than a driving force in the expansion of Europe to the East. The efforts of continental European countries, such as France and Germany, to move toward more integrated economic and social policies have recently been blocked by the different British administrations. The British pound was the first to be excluded from the European Exchange Rate Mechanism (ERM) in 1992, and has never been replaced by the euro. Prime Minister David Cameron’s demands for a “special status”—if the country decides to remain—is indeed something the U.K. has always had.
Financial services in the U.K. represent 12% of GDP and 7% of direct employment, while 38% of its exported financial services goes to the EU. Without the financial sector, the U.K. would be, in terms of regional GDP per capita, not very different from Portugal. But more interestingly, promoting EU regulation that gradually brings financial markets (OTC markets, repo, currency, stocks and bonds, and treasuries) to continental Europe would create wealth where it should be created. Opposition to the London Stock Exchange and Deutsche Boerse merger in March 2016 came with the argument that Frankfurt would lose ground as a financial hub. With Britain out of the EU, the continent could host the world’s largest financial market. London is no longer on the list of the 10 best European cities for investing in property, according to The Telegraph. That ranking is now topped by Birmingham, Berlin, and Hamburg, and includes Copenhagen, Lisbon, Amsterdam, and Milan ahead of London. There are thus several European capitals with the right access to markets, high-quality telecommunications, and availability of skilled and international human capital to replace London as the market of markets.
Newcomers, such as the biggest Chinese banks, are choosing Luxembourg, not London, to set up their headquarters. And there’s an amazing opportunity to rebuild financial markets that have brought a lot of trouble to the world and have caused massive losses to our societies: Lehman Brothers was operating its Repo 105 program in London, and the division of AIG (AIG) that caused the collapse of the largest insurance company in the world (AIG Financial Products) was headquartered in the city as well.
The European Union that’s now being built is the result of commitments and trade-offs, but is also bringing prosperity to millions of people. Currently, the natural expansion of the Union toward the East has added countries such as Estonia, Romania, and (hopefully) Serbia. The EU is the land of Picasso and Chopin, Leonardo and Van Gogh, Audi and BMW, Spotify and Skype, Red Bull and Molière, Atlético de Madrid and Maersk, and Ryanair and Stella Artois. In his book The Second World, Parag Khanna recognizes that there are only three global powers: the U.S., China, and Europe. The rest of the world’s countries form what he calls the “second world.” There has been huge progress in the last 10 years in bringing some of these second-world countries into the first—it would seem natural that the EU let one country move out without much grief and loss.
One argument that seems faulty to me is that, just as the EU creates win-win opportunities for its members, a Brexit would be bad for both Britain and the EU. I am not so sure. Trade to and from the EU would not suffer much. The EU currently captures 74% of Norway’s exports and 55% of Switzerland’s exports. Similarly, about 49% of Norway’s imports and 73% of Swiss imports come from the EU. Both are non-EU members. The Euro will be stronger once the pound loses ground as the currency of a more isolated economy.
The EU has already gone through its worse crisis in 2009 and 2010 and has shown amazing resiliency. And the potential implosion of the EU after a Brexit has been anticipated precisely by those who never believed in the EU and the euro in the first place. Indeed, the EU will be politically and socially stronger once Britain leaves. Once the damage done by irrationality and emotions in the UK is visible to Europeans, there will be no interest whatsoever in breaking up the Union: It will increase Greece’s commitment to the euro, it will accelerate the process by which Serbia and other countries comply to the accession requirements, and it will speed up the integration agenda.
Then there’s Gibraltar. An isolated Britain would be in a weaker position to negotiate the return of Gibraltar, the last colony in Europe, to its rightful owner.
Finally, in the current context, the EU without Britain is better than accepting the stringent conditions attached to it staying in. I am frightened by an appeasement strategy in which we give too much in return to make Cameron come back to the negotiation table. The discrimination against EU citizens (and Syrian refugees) that came out of the February agreement is already too onerous, and would definitely represent a step back on the marvelous journey that we are building together.
All in all, Brexit is more likely to break up Britain than Europe.