INTERVIEW: Roberto Calzadilla, Bolivian Ambassador to the UK
In this interview with Olivia Arigho Stiles, Ambassador Calzadilla discusses Bolivia’s commitment to the planet, its relations with the global north and why Bolivian cuisine will be the next culinary craze.
In the 16th century, half the silver produced in the New World came from Potosí in Bolivia, then one of the largest and wealthiest cities on Earth. Today, following years of dictatorships and aggressive foreign interventionist policies, Bolivia is one of the most poverty-stricken nations in South America in spite of its abundant natural resources.
Yet with the advent of the country’s first indigenous leader, President Evo Morales and the grassroots party Movimiento al Socialismo (MAS) in 2005, the country has enjoyed a period of sustained economic growth and social development. Aided by high commodity prices, Bolivia’s GDP under Morales has increased from $9 billion to $30 billion.
The Bolivian Ambassador to the United Kingdom, Roberto Calzadilla is a vocal supporter of the Morales regime. Softly spoken and contemplative in demeanour, he was previously the Bolivian Ambassador to the Netherlands and has a background at the UN. I ask him about the recent US sanctions against Venezuela in light of Bolivia’s robust advocacy of pan-Latin American solidarity. Bolivia also famously shares a fractious relationship with the US, expelling the US ambassador in 2011. Tactfully he replies, ‘We don’t think that Venezuela could be a threat to the United States, and the declaration that Venezuela was a threat was an overstatement by the US. We resumed relations [with the US] at the last meeting of the Organisation of American States (OAS) in Panama, which was quite important in re-establishing a new phase in these very tense relations. Today with the re-establishment of Cuba-America relations, we think it’s a very big step forward’.
He is sanguine about the prospect of international cooperation between the US and Latin America. ‘We think the South and North America can be good partners in developing prosperity for the people but we have to overcome some tension of the past, some relations that were asymmetrical I would say. Today [Latin America] has a new confidence. But we have to overcome neo-colonialism and interventionism that has characterised relations between North and South.’
This reference to interventionism invokes the period prior to 2005 when Bolivia was subject to a range of US backed International Monetary Fund (IMF) ‘structural adjustment programmes’. In order to repay debts, Bolivia was forced to privatise to render its economy attractive to transnational corporations. The support for MAS arose out of popular mobilisation in the ‘Water Wars’ which flared up in 2000 in Cochabamba where the water industry had been taken over by the US corporation Bechtel with the collusion of the neoliberal government and the IMF.
“Today Bolivia has more sovereignty, more dignity, more prosperity”
Calzadilla credits Bolivia’s dramatic advances in poverty reduction to the policies followed by MAS. The party swept to power in 2005 on a socialistic programme affirming the dignity of the indigenous population and granting new powers of autonomy to localities. Extreme poverty has decreased from 36% to 18%, and Calzadilla expresses optimism that it can be lowered to 9% in five years. ‘Today Bolivia has more sovereignty, more dignity, more prosperity. This has shown that the policies undertaken by Morales were the right ones for Bolivian society. This is reflected in the result of the last elections [where] Bolivians voted more than 61% for Evo Morales. We have overreached the Millennium [Development] Goals. The middle class in Bolivia has increased; at least 2 million people have entered this new status. Bolivia was a country which had an income of $1000 per capita until 2005 and today we are about $3000 dollars per capita.’ Rebutting claims that the MAS has become increasingly conciliatory to big business, Calzadilla affirms that ‘any business you want to undertake in Bolivia is respected… but it doesn’t mean that we have a model where transnational corporations can do what they want. This is why I say its very pragmatic. Bolivia is part of the world and we have to see that we need also to have to have a development agenda.’
Isla Incahuasi, Salar de Uyuni, Bolivia
Photo: Dimitry B, Flickr
Bolivia has ample reason for confidence on this front. It has the planet’s largest reserves of lithium, a vital component in electric car batteries, placing it at the forefront of the world’s clean energy development. Calzadilla speaks enthusiastically about Bolivia’s lithium potential ― ‘This is certainly going to be a contribution to the world. In terms of clean energy, you can see that Bolivia is heavily investing in the development of these resources. In the past we had many resources that were explored and exported but were not [properly] industrialised. Today lithium is going to be a contribution of Bolivia for the car industry.’
As part of a broader programme of international trade, the Ambassador sees the UK-Bolivia commercial relationship as especially strong. ‘We have British Gas [being] very active in Bolivia. In the South we are one of the main exporters to Brazil and Argentina and this is certainly one good example of international cooperation with companies like British Gas. Today we see British Gas still operating in Bolivia, they are investing in Bolivia and the perspectives are very positive.’
“We have an historical respect for Mother Earth which comes with the nature of our Bolivian society”
However one of the barriers to the development of the lithium industry is Bolivia’s lack of sovereign access to the Pacific Ocean which is subject of a long-standing disagreement with Chile. Bolivia lost its coastline in the War of the Pacific (1879–1904) and has not had diplomatic relations with Chile since 1978. ‘We are also working to overcome past problems of the region. Bolivia at the moment doesn’t have sovereign access to the Pacific, but as you know, we have put forward a case to the International Court of Justice which is coming up in next May. The Pacific War had many unresolved problems that we are facing today. One of the main problems that Bolivia is facing is that [lack of sea access] could also increase the price of lithium, because we have to come through several countries.The new challenges of the Pacific means there are new markets for soya and minerals which before were North oriented. But there is a lot that is complementary between the economies of Bolivia and Chile.’
Photo: Danielle Pereira
But a programme of continued fossil fuel extraction raises questions over the reconciliation of economic development in the natural resource-rich global south with preservation of the planet. On the world stage, Bolivia consistently espouses a fierce commitment to environmental protection and it passed a law in 2010 giving legal standing to natural systems. At the U.N. Climate Change Conference in Lima in December 2014, Morales argued that developed countries have a historical responsibility to take the lead in tackling climate change. So does Bolivia place sole responsibility for the climate crisis with developed nations? Calzadilla expands cautiously, ‘I think we have common responsibilities, but there are some historical responsibilities that the industrial nations have to take. We have common responsibilities but we have differentiated responsibilities. And certainly we have differentiated capabilities within technology, and resources for adaptation, mitigation and so on. It is a global challenge that we have to face in a partnership and this is what we hope Paris [COP21 conference] will achieve.’
”We have to remember that we don’t have three planets, we have just one”
He sees Bolivia’s commitment to ecological policy as a logical extension of the strong indigenous influence in Bolivian society. ‘We have an historical respect for Mother Earth which comes with the nature of our Bolivian society, which is very linked to this indigenous vision of respecting the earth and seeing that we are part of the earth. This has been put in our constitution. We have a law of Mother Earth and we have given rights to Mother Earth. We think that we have to remember that we don’t have three planets, we have just one, and we have to take care of our water, our air. We were very active in the UN in order to get the resolution on water as a human right.’
He is optimistic about the advance of an environmental agenda in Europe. ‘I think that Europe is showing a big commitment. Societies here are more conscious about the different effects of everything, the inter-relation of everything. Today I see more and more a commitment towards [environmentally] friendly sources of energy. There are political parties also here in the UK which are more committed to these areas, you see the case of Trident recently in discussion.’
Photo: Eneas De Troya
Elsewhere on the international stage, a nexus of Bolivia’s relations hinges on coca, a key ingredient in cocaine. Coca has been consumed for centuries in the Andean regions and is an integral part of indigenous cultures; Morales himself was a cocalero (coca grower). Bolivia is currently estimated to be the world’s second largest coca leaf exporter and coca eradication has historically been used to justify US intervention in Bolivia. The Ambassador becomes slightly prickly when I broach this subject. ‘First of all, Bolivia has [reduced coca growing] from 60,000 hectares to 23,000 hectares. The trend today is that Bolivia, without the DEA [Drug Enforcement Administration], is doing very well in controlling production of coca. Recently there has been a major study undertaken in patterns of traditional coca consumption. It requires about 15,000 hectares so there is a gap still, and still diversion to the illicit market. But in terms of what has been done in terms of controlling coca consumption, [Bolivia] has been amazing and has been recognised by the United Nations as such.’
Yet fundamental problems of definition persist. ‘Coca is still considered by the UN convention as a drug but it’s not a drug as such. In Bolivia it is chewed, it is drunk in tea. This is something we see as part of our biodiversity, part of our culture.’
“In the future I believe you will see Bolivian restaurants established in Europe”
Another lucrative though not illegal Bolivian commodity (mercifully for health conscious Westerners) is quinoa. The superfood has been consumed by indigenous communities for centuries, and has lately become very popular in the West leading to a spike in exports. Calzadilla is animated about the nutritious grain ― ‘we see it as a contribution to the world… this is a major response to global junk food ’ ― and its economic benefits for the poor indigenous communities who cultivate it. Indeed, given the surge in popularity of Peruvian restaurants across London, Calzadilla’s bouyant claim that ‘In the future I believe you will see Bolivian restaurants established in Europe’ is not outside the realms of possibility.
The defining sentiment conveyed through conversation with the Bolivian Ambassador is a sense of hope and optimism about Bolivia’s future. Although relatively maligned politically, Bolivia’s economic potential and political diversity mean it can only be a significant actor in the future global milieu. Its government’s nuanced commitment to ecological and human well-being is a prescient political project for the post-Millennium era. The view looks bright indeed from this ‘rooftop of the world’.
His Excellency Roberto Calzadilla is the Bolivian Ambassador to the United Kingdom. He was speaking to Olivia Arigho Stiles.
Is Europe still the world leader in the fight against climate change?
Pascal Canfin at the World Resources Institute (WRI) argues that Europe risks being left behind on the global stage if its Member States fail to invest in low-carbon economies.
Photo: Wiki Commons
Europe defines itself as the world leader in the fight against climate change. This is true in many ways. The bloc’s commitment towards the upcoming global deal on climate action, to reduce greenhouse gas emissions by at least 40% in 2030 compared to 1990 levels, is among the most ambitious in the world. But Europe’s leadership is crumbling. The climate and energy policy package adopted by member states in October 2014 is less ambitious than the one adopted in 2007/2008 ahead of the Copenhagen conference – the last big moment in the international climate negotiations. Its legal force is weaker and the expected rate of emission reductions is decreasing. Over the coming years, the reduction rate announced by the United States will be higher than the one provided by the European package.
While Europe had a competitive advantage in green technologies for along time, other countries are progressively catching up. For instance, during the negotiations on the 2011 trade agreement between the EU and South Korea, it was the Europeans, not the Koreans, who demanded the alleviation of standards on car emissions – because European vehicles would have been too polluting to be sold on the Korean market under Korean standards.
The best performing steel mills in environmental terms are not located in Europe, but in China. China is now also the world leader in solar energy. And it is in California, not in Europe, where the convergence of the green economy and the digital economy is taking shape. While the EU has long been the only region in the world with a carbon market, it was joined by a number of US States and Chinese provinces. China will put in place a nation-wide carbon market next year.
The green economy is spurring innovation and investments across the world, but Europe is failing take advantage of its advance – at the expense of its industrial competitiveness and its jobs. It seems almost as if Europe does not see the signals for the third industrial revolution taking place in other major economies.
Europe has struggled to agree on its climate and energy objectives for 2030 because of its internal divides. Some EU Member States, like Germany and the Scandinavian countries, are at the forefront of the global energy transition; many Central and Eastern European Countries however still rely on past energy systems made up of obsolete and inefficient coal-based power generation systems.
The European position on climate is also weakened by the inability of its member states to agree on a common approach towards energy policy. Despite the momentum towards building a comprehensive and low-carbon ‘Energy Union’, many choices are still made on the basis of national priorities, be it the nuclear phase-out in Germany or ambitions to develop shale gas in Poland or in the United Kingdom.
One priority all EU member states share is the ambition to reduce energy dependence from Russia. Energy efficiency, smart grids and a greater share of renewable energy all help reduce the need to import oil and gas from outside the European Union. The energy security aspect could make the Energy Union a major strategic project of the Union for the first half of the 21st century, as the European Coal and Steel was at the end of World War II.
Despite these challenges, the EU and its member states, have everything it takes to be at the center of the international climate negotiations. Europe has one of the most ambitious reduction commitments among developed countries and represents more than 54% of international development aid alone. It is also the closest ally of the poorest countries in the international climate negotiations.
Photo: TOM, Flickr
It is this alliance between Europe, the world’s poorest countries and progressive emerging economies such as those in Latin American or South Africa that led to a revival of the climate negotiations after the failures of Copenhagen in 2009. And it could be this alliance that in Paris in December works to increase the level of ambition from other key players such as China and the United States.
In July, when all major emitters are due to have submitted their contributions towards the Paris climate agreement, we will know how much closer this deal will bring us to the 2 degrees pathway. As this point, we will find ourselves at a crossroads. Most likely, more ambition will be required.
For the EU, this means Heads of State and Governments will have to consider moving forward and propose additional action that goes further than the 40% offer of the European package, using the flexibility offered by the “at least” phrase in the text. The window for agreeing such action open this summer and the meeting between President Obama and President Xi Jinping in September, just ahead of the General Assembly of the United Nations can be an important opportunity to leverage any additional action further. Preparations therefore need to start today.
Europe is the third largest emitter of CO2 on the planet and it has historic responsibility to lead in the fight against climate change. Europe also has a tremendous opportunity in the development of a low-carbon economy: while it is the richest continent in terms of human capital, it is also the poorest in terms of raw materials – and fossil resources in particular. Switching to a low-carbon economy based on innovation, smart grids, compact cities, energy efficiency and renewable energy may not be to the taste of all lobbies, but it is very much in Europe’s economic interest.
Pascal Canfin is a Senior Advisor on International Climate Affairs for World Resources Institute (WRI) and Author of Climate: 30 questions to understand the Conference of Paris, (Les Petits Matins, May 2015.) He is a former MEP (Greens/EFA) and French Minister for Development.
British politics is breaking open – the system is ripe for reform
Katie Ghose of the Electoral Reform Society argues the case for proportional representation in UK General Elections.
At the time of writing, no one knows what the outcome of the UK General Election will be. But we do know one thing for certain – it’s going to be incredibly unfair.
Britain’s First Past the Post (FPTP) electoral system – where one candidate per constituency wins if they get more votes than the rest (while all other votes are ‘wasted’) – has long been the least proportional, and arguably the most undemocratic, way of electing our representatives. But in recent years the situation has gone from bad to worse.
For much of the 20th century, Britain had what was essentially a two-party system. In 1951, Labour and the Conservatives won over 95% of the vote – a situation for which FPTP was designed. Even in 1979, with a fairly strong Liberal Party, this figure was over 80%. But since then the number of voters for the two big parties has been in steep decline. In 2010, just 65% of people voted for the two main parties – a figure that’s likely to be mirrored this year.
The great contradiction
The party system is fragmenting, something we witnessed in the recent leaders’ debate on TV – seven party leaders going head to head, all with different views of what our country should be like, and all of them likely to win seats this May. It was the clearest reflection of the multi-party nature of our political system we’ve seen yet.
Yet we are in a dilemma. The UK now has a multi-party system, but it’s being crammed into an electoral system which caters to the old two-party politics. As a result, the main parties remain in a majoritarian mind-set, repeatedly insisting they will win a majority this May. It’s a claim that goes against all the polls – with Labour and Conservatives both hovering on around 33%. The stalemate is exacerbated by the rise of UKIP and the Greens, national parties which could take up to a fifth of the vote between them (while winning fewer than one in every 100 seats).
A lottery election
That’s not to say the system doesn’t still tend towards boosting the main parties. In 2010, the Conservatives won 36% of the vote, but 47% of seats. Similarly, Labour won 29% of the vote and 40% of the seats. Yet the Liberal Democrats trailed behind on 23% of the vote – and just 9% of seats. When votes aren’t reflected in the final outcome, it’s hard to say we live in a healthy democracy.
Random results like these don’t bode well for stability. Elections become more like lotteries – with small swings of the national vote massively affecting the final outcome. Our recent report showed that in Scotland, for example, the Scottish National Party could get a game-changing 50 or so seats or a paltry few, depending on relatively small shifts in the vote, while a high UKIP or Green vote could change the national government outcome – even if they win just a few seats.
Photo: Moyann Brenn, Flickr
Even with this overall unpredictability however, millions of voters already know how the election will turn out for them locally. The current voting system – centred around small single-member constituencies – creates hundreds of ‘safe seats’, where the same party wins time and time again (while smaller parties don’t get a look in). The average seat hasn’t changed hands since the 1960s, while some haven’t switched since the reign of Queen Victoria. Parties instead give up on these voters and focus their resources on a handful of ‘swing’ seats, spending up to 22 times as much money here as in safe constituencies. The only conclusion one can draw from this is that some votes count more than others.
At the Electoral Reform Society, we’ve already predicted the outcome for this election in over 360 constituencies, due to the nature of the voting system and the number of ‘safe seats’ in the UK. 26m voters already essentially know who their MP will be. Sadly we know that we’ll probably be mostly right – we did the same prediction back in 2010 and got just two results wrong – a 0.5% margin of error. Most would agree that this situation can’t be allowed to continue in any democracy worthy of its name.
A fairer system would allow other parties to get a look in. It would open up these hundreds of safe seats to real competition – often for the first time in decades – and in the process liven up British politics.
It’s not such a radical idea. PR is used in Scotland for local elections, as well as for the devolved institutions. Brits are used to proportional voting for the EU elections – and for the millions of voters in the capital, the London Assembly. Yet the UK remains one of the few countries in the world to stick to this archaic method for its national Parliament, alongside Canada and the US – with the former seriously considering scrapping it after a series of hung parliaments.
Catching up with the rest of Europe by reforming Westminster’s electoral system would do a lot to bring British democracy into the 21st century. Politics is breaking wide open, with smaller parties on the rise. But disenchantment with the status quo is rife. If we had fair votes – alongside an elected House of Lords, votes at 16, regional devolution and caps on party donations and spending – we could see a real improvement in our democracy.
More and more people now agree. After 7th May, the voices for change are likely to grow louder. Then, hopefully, voters might get the democracy they deserve.
Katie Ghose is Chief Executive of the Electoral Reform Society
INTERVIEW: Amelia Womack, Deputy Leader of the Green Party
As the UK’s General Election 2015 race gets under way, Olivia Arigho Stiles speaks to Amelia Womack, the Deputy Leader of the Green Party about the party’s election priorities, mobilising young people and the sea change in European politics.
Photo: Green Party
Few parties in Britain have recently experienced a spike in membership as remarkably rapid as the Greens. The so-called ‘Green Surge’ has seen the party move from the periphery to the near-centre of UK politics, with party membership now exceeding 60,000 and surpassing that of both the Liberal Democrats and Ukip.
Alongside the SNP and Ukip, the Greens have been at the helm of major shifts taking place in British politics. In the new multi-hued political landscape, gone is the prevailing red and blue of the Labour-Tory duopoly. In its stead is a rainbow assortment of parties vying for prominence and airtime in an increasingly crowded electoral contest.
The Green Party’s surge is all the more striking given that it has been concentrated among the 18-24 age demographic, of which 56% did not vote in 2010. It is logical to assume that younger voters disillusioned by the Lib Dems’ U-turn on tuition fees have found solace in the Greens who pledge to abolish them altogether. In 2014 the Young Greens experienced a 165% rise in membership, rising from 1,700 members to 4,500.
Much of this can be attributed to Amelia Womack, the party’s Deputy Leader. At 30 years old, she’s refreshingly young to be a deputy leader of a national political party. Perhaps with the spectre of Natalie Bennett’s disastrous interview with LBC the previous week, Amelia maintains a carefulness and restraint suggestive of intensive media coaching. With the average age of sitting MEPs hovering at fifty years, Womack expresses frustration at the grey (haired) tinge to British politics. “As somebody who’s worked in youth engagement I get really frustrated at the idea that young people don’t vote because it becomes a self-fulfilling prophecy. Young people are told that politics should be a buzzword for boring and it ends up having this negative feed back loop.”
She talks animatedly about fostering young people’s participation in politics, telling me, “I was reading up on youth engagement and what we can do to get more young people involved, and one of the solutions was to have young people at the highest levels of your party and in politics. So I’ve been signing up Young Greens to be council candidates and parliamentary candidates. Then the Young Greens told me to put my money where my mouth was and run for Deputy Leader. Through this I really hope I’ve inspired a lot of young people about what we can do in politics, and shown than politics isn’t what a group of traditionally middle class white men are doing in a building elsewhere but that it is something young people can actively engage in, and influence.”
But the traction the Green Party as a whole has garnered with the British people is rooted in their rejection of one policy: austerity. Amelia reflects, ‘People have been joining the Green party because we’re a party talking about messages and policies of hope, rather than fear. People are starting to reject business as usual politics and seeing that the austerity agenda is not benefiting society as a whole. It means that people are looking for alternatives and are coming to the Green Party. We are an anti-austerity party but as are Plaid, as are the SNP. I think that’s an important thing to recognise. There are so many parties looking at the austerity agenda and seeing where those failures are. At the moment I feel like we’re on the cusp of something given that our membership is continuously rising; people are not just wanting to vote Green, but they want to give us support too.”
“Politics isn’t what a group of traditionally middle class white men are doing in a building“
Yet the Greens rise must be placed in a much wider, pan-European context of burgeoning populist anti-austerity movements. The victory of the radical left Syriza in Greece is the most striking indication of this, with sister party Podemos on course to secure victory on an anti-austerity platform in the Spanish elections later this year.
The Green Team: Amelia Womack, Natalie Bennett and and Sharhar Ali
Photo: Dudley Green Party
Some commentators have emphasised the parallels between the outsider status of the Greens and Ukip, labelling the Greens the ‘Ukip of the Left’. Amelia laughs when I broach this. “No! We’re really a grassroots party. Our policy is made from our members. It is evidence based policy but we come together and we debate and challenge and discuss it. And that grassroots nature fundamentally stands us out from any other political party. In our manifesto we fight for social justice, we fight to make sure that people are getting a fair deal out of the current political system and that includes pay ratios, tackling zero hours contracts, the opportunity to fighting fuel poverty by ensuring home insulation and all of these different environmental policies.”
“Young Greens are really leading the way on diversity.”
Yet in spite of its progressive policies, the Greens have attracted criticism for their perhaps surprising lack of racial diversity. Although the party has the first BME (Black and Minority Ethnic) deputy of a UK parliamentary party in Dr Shahrar Ali, it also has fewer BME candidates than any other major party including Ukip. In careful politico mode, Amelia demurs, “Our members have created the ‘Greens of Colour’ to support the representation of BME groups in parliament and as parliamentary candidates. Beyond that, I feel that Young Greens are really leading the way on diversity. We have so many young people come to our party its exciting to see the Young Greens being so diverse.”
But while the Greens may be effective at maintaining tight links with their grassroots, can they really represent the wider electorate? Policies such as aiming for zero-economic growth and banning animal testing are not obvious vote-winners for a British public which has been squeezed by public spending cuts and precarious work conditions. So is the Green Party simply out of touch with working Britain? Amelia is emphatic on this point ― “It is the Greens who have been tackling zero hours contracts in, and outside of parliament. It is the Greens who have been tackling the ongoing issue of fuel poverty and it is the Greens in Kirklees who have been giving free solar power to support the most vulnerable households in their communities. There has been a lot of confusion about our policies and manifesto… but our policies are created for this vision of the future – a long term vision. The world we want to live in, in twenty, thirty, fifty, even one hundred years time. You need long term goals to reach an agenda; you have long-term goals in your career, in a business, even in your personal life.”
The Green Party’s launch this week of a boy band parody manifesto video only confirms that they offer a radically alternative political vision and outlook. With leadership dominated by women who emphasise their activist credentials as much as their electoral ones, the Greens have shifted the parameters of what party politics means in today’s Britain. With poll figures plateauing at around 5% in spite of their support swell, it may be fair to say the Greens won’t be a kingmaker in this election. But as Amelia tells me, “getting Caroline Lucas elected again [is the election priority]… People are inspired by the fact that she was arrested for fracking, for wearing the No More Page 3 t-shirt in Parliament. We’re [also] targeting twelve seats where we think the Greens have a real opportunity. We’re especially looking at Bristol West, we’ve got an excellent candidate there [Darren Hall].” Alongside this, Amelia will continue working with grassroots campaigns such as This Changes Everything, “trying to make sure there’s a political movement within the climate movement.”
And beyond this? Where next for the Greens? Amelia pauses. “Let’s get the election over with first!”
Amelia Womack is Deputy Leader of the Green Party and the Green Party’s 2015 Parliamentary Candidate for Camberwell and Peckham, London.
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For recovery, Europe needs to support labour not trade
The March issue of the Government Gazette features a balanced and evidence-based overview of the Transatlantic Trade and Investment Partnership (TTIP) negotiations, with opinion and analysis from both sides of the debate. Here, Jeronim Capaldo from Tufts University reveals that TTIP, if successfully concluded, would result in job losses, wage decline and fiscal instability for Europe.
In the coming weeks and months Europeans are likely to hear a great deal about the benefits of trading with the US. The EU and the US have just resumed negotiations of the Trans-Atlantic Trade and Investment Partnership (or TTIP), an agreement that would further liberalize trade between the two Unions. In fact, EU-US trade is already quite free from tariffs but TTIP aims at reducing or eliminating residual barriers, mostly related to differences in regulations, in order to facilitate exchanges even more. To those who expect trade liberalisation to always bring economic opportunities and jobs this seems like a good idea, while those concerned about the distribution of the costs to different social groups remain scpetical.
Unfortunately, official projections of TTIP’s effects offer no certainties. At first glance, the main studies seem to leave little doubt about TTIP’s economic benefits. All of them point to an increase of GDP in the EU, although of negligible amount (less than one percent after fifteen years). However, if we look deeper into those studies, including those endorsed by the European Commission, things soon appear less reassuring.
The first thing to note about existing projections of TTIP is that most of them use a version of the same economic model, a fact that makes the convergence of their results unsurprising. Using the same assumptions about the way economies work and often using the same data, the variety of results that researchers can expect is clearly limited. Secondly, a central assumption in many of those studies is that actual markets function so smoothly that no resources are ever underutilized, including labour. Since this is clearly at odds with a European reality of persistent unemployment, it is important to understand how projections would change if we removed that unrealistic assumption. In a recent Tufts University working paper I investigated this alternative by projecting the effects of TTIP with the United Nations Global Policy Model, an economic model in which employment falls if total demand decreases I obtained dramatically different results.
Projected with the more realistic United Nations model, the effects of TTIP appear decidedly negative for Europe. Although total exports might increase, the overall trade balance is projected to decrease leading to a slight contraction of GDP and the loss of approximately 600,000 jobs across the EU. At the same time, labour incomes are projected to decrease (by 4,200 Euros per worker in the United Kingdom), which would lead to higher inequality between wage and profit incomes. This adds to other negative consequences on government revenues and overall economic stability.
These alternative projections point to bleak prospects for EU policymakers. Faced with higher vulnerability to any crises coming from the US and unable to coordinate a fiscal expansion, they would be left with few options to keep the economy afloat: favoring an increase of private lending, with the well-known risk in terms of financial instability, seeking short-lived competitive devaluations or a combination of the two. In other words, projections based on the United Nations model indicate that seeking a higher trade volume, via TTIP or other similar agreements, is not a sustainable growth strategy for the EU. Instead, the projections suggest that any viable strategy to rekindle economic growth in Europe would have to build on a strong policy effort in support of labour incomes. Seen from this perspective, TTIP appears to be a step in the wrong direction.
Jeronim Capaldo is a Research Fellow in the Global Development and Environment Institute at Tufts University.
All Quiet on the Eastern Front?
As part of the Government Gazette’s extended feature on the 2015 Latvian Presidency of the Council of the EU, Artis Pabriks MEP analyses the impact of tensions between Russia and the EU in the wake of the escalating conflict in Ukraine.
Photograph: Ivan Bandura
Amongst other things, the Presidency of the Council of the European Union is a maturity test for Latvia. It is the first time since the accession of Latvia to the EU in 2004 that the country has held the Presidency. To Latvian authorities and its wider public, the EU Presidency is seen as an opportunity to integrate national and regional interests into the EU agenda as well as to end the informal perception of Latvia as a ‘new Member State’.
Obviously, the capacity of any presiding country to influence the EU political agenda is limited due to a number of factors. The EU agenda is dependent on current geopolitical challenges, national agendas, internal discourse among the Member States, the position of the Council and the European Commission including the Office of the EU High Representative. Yet the Presidency is nonetheless an unrivalled opportunity to steer the EU’s political and legislative direction.
Every Member State sets its priorities long before starting the actual Presidency but the country holding the presidency has to be prepared to adapt to unforeseen challenges. When Latvia took over the rotating EU Presidency on 1st January 2015, it was faced with a number of pressing foreign and security issues. Most important is the ongoing tension between the EU, USA and Russia initiated by Russia’s annexation of Crimea which has escalated as a result of Russian military and political support for the irredentist movement in Eastern Ukraine. Russia’s policy in Europe challenges a number of internationally agreed principles and laws in an unprecedented way. Even if some European political figures at the beginning of the Latvian Presidency hinted that sanctions against Russia may be softened in due course, the indiscriminate bombing of the Ukrainian city of Mariupol and hostilities in the rest of Eastern Ukraine makes it unlikely or at least unwise from the EU perspective.
Secondly, the increasing power of ISIS in Iraq and Syria as well as the rise of other terrorist organisations such as Boko Haram are necessitating immediate changes to the European security agenda and require better cooperation not only between the EU Member States, but also between the EU and relevant international players. The recent attack on “Charlie Hebdo” has also reaffirmed the need to develop and modernise European anti-terrorist policy.
“Russia’s policy in Europe challenges a number of internationally agreed principles and laws in an unprecedented way.”
The Latvian Presidency has a chance to take the lead on these two issues in a pragmatic fashion as the next few months will serve as a building block for the EU’s position. As far as Western policies vis-à-vis Russia are concerned, Latvia as a neighbouring country has additional expertise. From the outset, preparations for the Eastern Partnership have been a priority for the Latvian Presidency and later in May Latvia will host the Eastern Partnership Summit in Riga.
Anti-terrorism activities and EU policy towards Russia are matters which will define the Presidency of Latvia and give Latvia a chance to play a leading role in their resolution. However, it would be naive to hope that both matters will be resolved within the six month Presidency term. Both will dominate EU and world politics for many years and will require a long term approach.
Artis Pabriks MEP
(Photograph: Ernests Dinka)
Apart from these geopolitical challenges, the Presidency of Latvia will additionally be influenced by the EU’s internal discourse. Notably, the rise of Euroscepticism on both right and left of the political spectrum constitutes a threat to European economic growth, political stability and geopolitical influence.
Its expressions are evident in the recent election results in Greece in which the left wing populist party Syriza swept to victory while far right extremist movement Golden Dawn came third. Furthermore there is a fear that Greece may become a ‘Trojan horse’ in the EU-Russia tensions, with photos circulating online linking the new Greek Minister of Foreign Affairs with Russian oligarch Konstantin Malofeev, who was blacklisted by the EU for sponsoring Russian extremists in Eastern Ukraine. The rise of the far right as well as the populist left is a challenge to the fundamentals of the European Union and the values it represents. If not countered properly by mainstream political forces it may become a disruptive force across the continent and may undermine the very existence of the EU.
Yet the European Union is not an isolated actor in world politics. Traditionally, Latvian foreign and security policy has focused not only on the Eastern Partnership but also on the transatlantic partnership with the United States and Canada. The Presidency of Latvia will no doubt support and initiate activities which will strengthen this partnership. Equally, the Latvian Presidency will assist and support efforts to strengthen trade links with North America in the form of the Comprehensive Economic and Trade Agreement (CETA) and Transatlantic Trade and Investment Partnership (TTIP), which are both at different stages in their negotiations. These transatlantic trade agreements possess immense economic importance and represent a chance for the EU to set an example for free trade agreements across the world.
How far the Presidency of Latvia will advance these issues remains to be seen. However, it is fair to expect more assertive policies than might initially be assumed from this small EU Member State. Latvia has the knowledge and opportunity to pass this EU test and break the stigma of being a new Member State once and for all.
Dr Artis Pabriks MEP is a former Latvian Minister for Defence and Minister for Foreign Affairs. He is part of the European People’s Party (Christian Democrats) grouping in the European Parliament. He co-authored Latvia: Challenge of Change, (Routledge, 2001).
Sustainable development targets need firm spending commitments
As part of Government Gazette’s extended focus on the UN’s Sustainable Development Goals, Linda McAvan MEP argues that Europe’s leaders must make firm spending commitments in order to tackle the challenges of poverty and climate change.
Photograph: Nana B Agyel
Will 2015 go down as the year global leaders took decisive action to secure a sustainable future for our planet? That is the crucial question as the UN steps up negotiations on replacement targets for the Millennium Development Goals (MDGs) at the General Assembly in September in New York. Draft documents propose new Sustainable Development Goals (SDGs), applicable to all countries. Then just two months later in Paris, global leaders will come together again to seek a deal on combating climate change.
2015 has also been designated the European Year for Development and as we mark this year perhaps lesson number one is that development policy works. The MDGs have helped cut extreme poverty in half. Millions have been lifted out of poverty, millions more children have gone to school, been protected from malaria and over 2 billion people have been given access to clean water and sanitation.
But unless upcoming global talks in 2015 are successful, and matched by spending commitments and the right policies, our objective of eradicating extreme poverty by 2030 and progress could be lost. This was why European Parliament is calling on the EU to play a leading role in these processes to make sure the goals are ambitious and have at their heart the eradication of extreme poverty, human rights, good governance, reducing inequalities and empowering women and girls.
“Poverty will never be history unless we tackle climate change.”
Securing funds to deliver on these policy goals is now a priority. A special international conference on financing development has been called for July in Addis Ababa. The European Commission has just published a paper calling on the EU to re-commit to the target of spending 0.7% of their national income on development aid, a move I applaud as essential to getting all global players on board.
Coming quickly on the heels of New York are the climate talks in Paris in December. For the world’s poorest peoples global warming is not a future problem but a real and present danger. We need a renewed sense of urgency and serious emission reduction targets backed up by policies to deliver them if we are to stabilise global temperatures. Poverty will never be history unless we tackle climate change.
I believe the EU should prioritise delivering results in these processes, using its important position in the world as the world’s largest aid donor and as a region that has pushed forward with binding legislation to tackle climate change. Our aim should be to achieve genuine improvements in people’s livelihoods and encourage policies for better stewardship of the world’s natural resources. If the EU can achieve this in 2015, backing up words with concrete actions, it will do much to enhance its role in the global community. My colleagues and I on the Development Committee are ready to help meet this challenge.
Linda McAvan MEP is Chair of the European Parliament’s Committee for International Development (DEVE) and Vice President of the Labour Campaign for International Development. She is a member of the Socialist & Democrat (S&D) group in the European Parliament and represents Yorkshire and the Humber.
TTIP: A deal to bolster the power of non-elected bodies
The February-March issue of the Government Gazette features a balanced and evidence-based overview of the Transatlantic Trade and Investment Partnership (TTIP) negotiations, with opinion and analysis from both sides of the debate. Here, Jean Lambert MEP (Green, London) argues that TTIP transfers regulatory power away from elected bodies into unaccountable corporate hands.
Jean Lambert MEP
The proposed trade agreement currently under negotiation between the EU and the US is proving highly controversial. We have seen the Commission forced to respond to public concern by increasing transparency and holding a public consultation on the Investor-State-Dispute -Settlement (ISDS) mechanism. So, what’s different about the trade deal getting increasing headline space at the moment – TTIP (Transatlantic Trade and Investment Partnership)?
For one thing, the sheer scale of it: the EU and USA have about 40% of global GDP, so what is agreed in the deal will have a global effect.
The scope of the deal is also why TTIP is coming under greater analysis now. Unlike most trade deals, it is designed to go beyond tariff barriers to other areas seen as potential ‘barriers’ to trade. This will make a difference to regulations that include the protection of social, labour, environmental and animal welfare standards. There are also questions about its effect on procurement and the provision of health and other public services. Opposition to TTIP has risen commensurate with increased levels of public awareness. Some key areas coming under increasing scrutiny are:
- Impact on jobs
- Food safety, animal protection and environmental legislation
- Access to generic medicines
- Digital rights, and our rights to privacy
These are far-reaching concerns centring on what we eat, what we are treated with and who watches what we do. Facebook and Google for example, are presently able to sign up to a Safe Harbour agreement, effectively a self-certification system to ensure that their data protection standards are at least the same as those required by European law.
However, then came the Snowden episode. After he revealed that US agencies were conducting surveillance on European citizens using US-held data, the European Parliament passed a resolution calling on Member States to suspend the US Safe Harbour agreement until such secret surveillance is at an end. The European Parliament has long-standing concerns with EU-US data co-operation and there could be problems with the TTIP e-commerce chapter, for example, if EU data protection standards are undermined via TTIP. For the US negotiators, data protection is a potential trade barrier but for the EU protecting personal data is a fundamental right.
Generally, TTIP wants to harmonise standards in many areas via a Joint-Regulatory Board, or possibly go for mutual recognition: this probably means lowering standards where previously they had been higher for one side. It is also not yet clear how national elected bodies would be able to challenge such Board decisions.
The legislative ability of parliaments on both sides of the Atlantic to make laws on behalf of their citizenry is no longer a given. The crux is the Investor-State Dispute Settlement (ISDS), allowing corporations to actually sue governments in front of an arbitration panel made up of corporate lawyers, rather than using the Courts. Resulting decisions are not subject to legal challenge.
So when it’s all added up, the picture is sinister. We could have trade deals completed without proper scrutiny, effectively in secret, whittling away European citizens’ hard-fought-for rights. Within this, we also have a mechanism that allows corporate lawyers free reign to make major decisions in secret.
There has been a lot of focus on ISDS but this comes with a warning: ISDS is only one problematic element. We can tinker with ISDS, improve it – even succeed in removing it, but the larger problem of TTIP moving power from elected to non-elected bodies will persist.
The Greens in the European Parliament oppose TTIP. Other MEPs from other parties claim it will bring growth and jobs, but ultimately at what cost?
Jean Lambert is a member of the Greens/European Free Alliance political group in the European Parliament and a Green representative for London.
2015 Latvian Presidency – Will Latvia secure a détente with Russia?
As part of the Government Gazette’s extended feature on the 2015 Latvian Presidency of the Council of the EU, Karolina Borońska-Hryniewiecka and Kinga Dudzińska analyse the significance of the Latvian Presidency for the EU’s relations with Russia.
Ukraine (Photograph: Streetwrk.com, Flickr)
Latvia has taken over the rotating presidency of the EU Council at a turbulent time, marked by intensified terrorist threats and disturbances to territorial integrity on the continent. The exacerbating Ukrainian conflict and aggressive Russian policy in the region pose a direct threat to the stability of the Eastern flank of the EU and will be a test for Latvia’s pragmatic approach towards Russia. In the current geopolitical circumstances, the aim of the Latvian foreign minister Edgars Rinkēvičs, expressed at the beginning of the presidency, to overcome stereotypes and convince Moscow that the Latvian stance is “in no way anti-Russian” might be difficult to realise.
As a country with strong economic ties to Russia and with 25% of its population of Russian origin, Latvia has to date followed the most pragmatic policy towards Moscow of all three Baltic states. Moscow remains one of Riga’s most important trading partners, accounting for about 10% of Latvian exports and imports. Russian monetary capital is still significant in the real estate and tourism sectors and Latvia is extensively dependent on energy supplies from Russia.
Yet at the same time, Latvia has been a member of the Economic and Monetary Union since 2014, views the EU as its most trustworthy partner and, despite its small size, would like to see itself firmly at the EU’s core. As regards foreign policy, before taking over the EU presidency, Riga stated it would be impartial in the implementation of EU priorities, but Latvia was expected to lean towards the neutralisation in its relations with Russia. In this uneasy context, it would be prudent for Latvia to keep a low-profile on the Eastern front while being seen to speak with the EU’s voice.
The present EU institutional context actually makes this task easier for Latvia by posing certain constraints to the agenda-setting role of the presidency. First, the Treaty of Lisbon formally weakened the role of the Presidency in the area of foreign policy to the benefit of the EU High Representative for Foreign and Security Policy. Secondly, the mechanism of the so-called ‘trio presidency’ further disciplines Member States against pushing particular national interests. In addition, the increased political ambitions of the new leadership of the EU in the form of Federica Mogherini and Donald Tusk further overshadows the role of the Latvian Presidency in the Russian debate.
LATVIA and EU POLICY TOWARDS RUSSIA
Latvian policy towards Russia hitherto has been ambivalent. Until now Latvia, as well as other Baltic States, has maintained a hard position in the wake of the Ukrainian conflict and has called for the increased presence of NATO forces in the region. At the same time however, just a few weeks ago Latvia admitted ago that it is not against the reduction of EU sanctions towards Russia. On January 12th in Moscow, Minister of Foreign Affairs of Latvia Edgars Rinkēvičs met with Sergey Lavrov, Minister of Foreign Affairs of the Russian Federation, and affirmed that the EU is interested in normalising relations with Russia but the annexation of Crimea cannot be recognised.
When it comes to its own initiatives on the Russian question, Riga has applied a “wait-and-see” policy and has taken a reactive position towards EU leadership by following the contours of the EU debate and by adhering to the decisions taken by European powers. Latvian presidential activity has remained ‘low key’ and limited to that of moderator between the hawkish, and the conciliatory tendencies in EU policy towards Russia. A change in this course should not be expected in the near future.
Yet Latvia’s approach will be tested at the Eastern Partnership (EaP) summit planned for May 2015 in Riga, during which Donald Tusk can count on the fact that Latvia will put pressure on other countries to tighten their policy towards Russia. However, the Latvian foreign minister has already promised a new orientation for the EaP, in order not to provide grounds for further antagonism with Russia. In the meantime, Mogherini expressed the hope that Latvia, at the helm of the EU, could help in reaching a détente with Russia.
(Photgraph: Streetwrk.com, Flickr)
Despite the Baltic States’ persistent efforts to increase security on the eastern flank of NATO, Latvia may also seek to cool EU action towards Moscow in the face of potential disagreement within the presidency trio, as Italy also opposes stricter sanctions on Russia. For Latvia this is especially important given that Russia’s trade embargo on various products in response to the EU sanctions could cost Latvia a contraction of 0.7% of its GDP. At the moment, securing a consensus in the Eastern policy could be difficult since unity among EU Member States appears weak, evidenced in the latest statements by Greek and Hungarian leaders.
Moreover, the effectiveness of the existing sanctions has been undermined as their main political objective has not been achieved. While economically the Russian market has been hit hard, sanctions did not prevent Moscow’s actions in Ukraine. Meanwhile, the events in Mariupol and Donetsk represent a severe setback in the negotiations with the EU which urgently needs solidarity and consistency if it is to make progress in this conflict.
Karolina Borońska-Hryniewiecka is an analyst at the Polish Institute of International Affairs in the EU Programme and an Assistant Professor at the Institute of Political Science of the University of Wrocław. Kinga Dudzińska is an analyst at the Polish Institute of International Affairs in the Eastern and South Eastern Europe Programme.
Greek elections: Syriza and the populist blame game
© European Union 2015 – European Parliament
The February-March issue of the Government Gazette offers an extended focus on the implications of the 2015 Greek elections and the eurozone debt crisis. Here, Takis S. Pappas assesses Syriza’s populist rhetoric and analyses the possible political machinations behind a Grexit.
In last month’s snap election, the Greek voters brought to power the populist Coalition of the Radical Left (known by its acronym, Syriza), a party led by the 41-year old Alexis Tsipras. However, as Syriza was unable to muster a parliamentary majority on its own, it opted to form a coalition government with the rightist populist and ultra nationalist Independent Greeks (ANEL), a party that was launched in February 2012 also on an anti-austerity platform.
ANEL party leader Panos Kammenos is a vocal champion of racist, homophobic and anti-Semitic views and has a penchant for conspiracy theories that verge on the absurd. This seemingly “unholy” alliance of Mr. Tsipras and Mr. Kammenos is the equivalent of a working relationship between say, Michael Foot and Nigel Farage in the UK, Jean-Luc Mélenchon and Nicolas Dupont-Aignan in France, or, at party level, Die Linke and the Pegida movement in Germany.
In the aftermath of the election, the new prime minister was quick to place his government between a rock and a hard place. First, he made clear that the government is not interested in an extension of the current bailout program, thereby setting Greece on a collision course with its foreign lenders that may eventually cause a Greek exit from the euro.
Second, Tsipras made pledges that are clearly undeliverable without extra money, including an increase of the minimum wage, the halting of privatisation plans and other reforms, the abolition of an unpopular property tax, and the promise of generous social welfare packages to low-income groups in society.
But, third, as he now has effectively brought his Government (and Greece) to the brink, Tsipras was also quick to identify those to be held responsible in case of a Grexit: Germany, which, according to the new Greek government, still owes Greece reparations for its invasion during World War II, the ECB, which recently stopped acting as a lender of last resort for Greece, the Greek banking system and, of course, the previous government for all its misdeeds.
Is it all irrational brinkmanship, then, or is there some logic to it? For it seems that the Greek prime minister, himself under considerable pressure from far-left internal opposition, may indeed welcome a Grexit and then engage in a blame game against the Germans, the ECB, the Greek bankers and the outgoing political classes for having betrayed the Greek people.
As opinion polls now show that over 70 percent of the Greek public supports an open confrontation with the Troika, Tsipras has tried to project himself and his party as the sole representatives of Greeks. As he put it in his first policy speech before the Greek Parliament on February 8th, “This government is just the voice of [our] people. In the honour, history, and civilization this people carries in its luggage, we can only be its own will … We are flesh from the people’s flesh, we come from within the pages of this people’s history [book], and for this reason we are going to serve it to the end”.
Greek Finance Minister, Yanis Varoufakis
Syriza is a populist party par excellence and as such, is guaranteed to antagonize the liberal political elites. It conceives of and refers to, Greek society as divided between the “pure,” “ethical” or blameless people, and the parasitical native political oligarchy which is firmly subservient to foreign interests. These two groups stand poles apart and there can be no reconciliation between them, or, as an earlier slogan of Syriza snapped, “It is either Us or Them.” Nor is there any need for compromise since the people as a natural majority are bound to finally win and impose their collective will on the political system. In fact, some believe that so strong will be the impact of the Syriza-led popular movement in Greece that it will soon sweep across the rest of southern Europe to the north until all “European people” finally regain sovereignty.
Will this government last? Well, that depends on whether the country can retain its position in the Eurozone. Staying in will give the new government a new lease of life but it will be forced to implement painful structural reforms under the eye of foreign lenders and against forceful internal party opposition.
Being compelled to leave the Eurozone, however, may actually offer the government a better chance of retaining power because, in that case, it would be able to mobilize a rainbow of political forces from both the left and the right, domestically and internationally, in a relentless blame game against all actors who could be held responsible for such a development.
For the time being, and as important decisions about the future of Greece are currently being taken in Athens, Brussels and the other major world capitals, Greece’s liberal democracy is in the balance. Since the crisis began in 2009, the Greek people have taken part in four elections, put six different prime ministers to the test of office and experimented with government coalition partners of most political hues – from the nationalist and populist ANEL, to the ultra conservative Popular Orthodox Rally (LAOS) to the centre-right New Democracy and the centre-left PASOK, to the moderate leftist Democratic Left, and now the radical leftist Syriza. The only other parties that have not been given a chance to govern in crisis-ridden Greece are the Communist Party (KKE) and the neo-Nazi Golden Dawn. This naturally raises the question of what may be the next development in Greece if even Syriza, in its strange partnership with ANEL, may not succeed in solving the Greek crisis.
Takis S. Pappas is the author of Populism and Crisis Politics in Greece and co-editor of the forthcoming book ‘European Populism in the Shadow of the Great Recession’.
Stay or go? The economic consequences of Brexit
Swati Dhingra from the LSE predicts the economic consequences of Britain potentially leaving the EU.
The direction of Britain’s relationship with the European Union (EU) will be decided in this Election. The Conservatives have committed to an ‘in-or-out’ referendum on membership while Labour and the Liberal-Democrats have opposed this. The political consequences of leaving the EU (so-called ‘Brexit’) are widely debated, but less attention is given to the economic consequences. How would Brexit affect the UK economy and the income of UK citizens?
Predicting the economic impact of Brexit is difficult. Leaving the EU would influence the UK economy in many ways. Trade, foreign direct investment, immigration and economic regulations would all be affected. Also, there is uncertainty over future policies after Brexit or any renegotiation. This is why most analyses of Brexit look at a range of possibilities and give wide- ranging estimates. To reconcile these different views, let’s look at research-based assessment of the past impact of EU membership, the expected outcomes from Brexit, and its implications for Britain’s future in the world economy.
Taking stock of the Single Market.
At the eve of joining the common market, many in Britain were concerned that membership would increase prices and hurt earnings. But this has not been the experience over the past two decades. The single market increased competition across firms, resulting in lower prices for consumers. Employment and wages were positively impacted by the product market reforms, and businesses expanded in response to market integration.
Empirical evidence also dispels widespread fears of immigrants taking away good jobs. Immigration had positive effects on employment and wages, and did not put pressure on public finances. These trends have continued over the crisis period (Figure 0.1). There were small negative effects for low-wage earners be- fore 2005, but these were not sustained in the later period. While this calls for distributional remedies, it does not imply an exit from the EU as the single market had an overall positive impact on UK consumers and workers.
Jumping the trade train.
The most direct channel through which the single market affected the UK economy is bilateral trade with the EU, which increased to 50% of all UK exports and imports. EU membership matters primarily because it leads to lower trade barriers. This makes goods and services cheaper for UK consumers and allows UK businesses to export more. Leaving the EU would reduce trade because of higher tariff and non-tariff barriers (from different regulations, border controls, etc.). Additionally, Britain would benefit less from future integration within the EU. The main benefit of Brexit would be a lower contribution to the EU budget.
Our research quantifies the economic impact of these channels under two scenarios:
(1) An optimistic scenario, in which Britain has a free trade agreement (FTA) with the EU (much like Switzerland and Norway do through the European Free Trade Association, EFTA).
(2) A pessimistic scenario, in which Britain is unable to negotiate such favourable terms and there are larger increases in trade costs.
Changes in trade barriers would reduce UK incomes by 1.1% to 3.1%. This is driven largely by current and future increases in non-tariff barriers, which are important for trade in services, such as finance and accounting, where Britain is a major exporter. The costs of reduced trade far outweigh the fiscal savings from not having to contribute to the EU budget. In cash terms, the net loss is £50 billion in the pessimistic scenario and a still substantial £18 billion in the optimistic scenario.
“reduced integration with EU countries is likely to cost Britain far more than the savings from contributions to the EU budget.”
These results relate tariff and non-tariff barriers to incomes, but do not capture the dynamic gains from productivity growth or channels such as higher transaction costs from Brexit. The consequences of Brexit can alternatively be inferred from empirical results that relate membership to trade and incomes. After controlling for other determinants of bilateral trade, EU members trade 40% more with other EU countries than they do with members of EFTA. Combining this with estimates that a 1% decline in trade reduces income by between 0.5% to 0.75% implies that leaving the EU and joining EFTA will reduce UK incomes by 6.3% to 9.5%. To put these numbers in perspective, UK’s GDP fell by around 7% during the 2008-09 financial crisis.
Missing the next trade train.
The EU is currently negotiating new FTAs with the United States and Japan. Based on the impact of previous EU-negotiated FTAs, we estimate these trade deals will lower UK prices by 0.6% and save consumers £6.3 billion per year. With Brexit, these benefits would be lost or substantially reduced. As a stark example, import prices for many products in Colombia increased after the Colombia-US FTA because US exporters exerted greater mar- ket power. The size of the EU economy gives Britain a stronger bargaining position in future negotiations.
Leaving the EU would also affect immigration, economic regulation and UK’s position as a recipient of foreign direct investment. These effects are harder to quantify than changes in trade, but are likely to further reduce incomes.
The economic consequences for Brexit are complex. But reduced integration with EU countries is likely to cost Britain far more than the savings from contributions to the EU budget. Even if Britain maintained full access to the single market, it would not have a seat at the table when the rules of the single market are decided. Future EU reforms involve sectors such as banking and services, where Britain has a stake in being part of these negotiations.
Swati Dhingra is a Senior Lecturer in Economics at the London School of Economics (LSE).