Opinion appears divided as to how the success of anti-Europe parties throughout the continent, and UKIP in the UK, should be perceived.
Some see their gains as a genuine threat to established parties while others dismiss this political shockwave as a mid-term protest vote that will evaporate when ‘real’ elections come along next May.
Either way, the extent of their success has shifted the posturing, if not yet the policy outcome, of European debate. German Chancellor Angela Merkel and French President François Hollande have both acknowledged the need for reform whilst UK Prime Minister David Cameron appears to have a spring in his step en route to the seemingly endless negotiations.
In the meantime, to appease the anti-Europe brigade and show that he ‘gets it’, he has moved on from calling UKIP a “bunch of fruitcakes” to announcing the EU is “too big, too bossy and too interfering”.
If we look back to the original raison d’etre of joining the EU, the anticipated benefits from the free movement of capital, services, goods and labour were thought to be sufficiently compelling to outweigh the partial loss of sovereignty, together with the burdens of another layer of political intervention and bureaucracy.
Visible burdensTo a growing minority, the burdens have become very visible and increasingly intolerable. For example, they are well aware of the many millions in subsidy going to the EU every day and the seemingly endless regulations expected to be adopted and abided by. They are also acutely mindful of the impact of open borders on the movement of people into the UK and are not convinced by the reports suggesting immigrants are net economic contributors.
In contrast, the benefits of EU membership, whilst no less real are much less visible, and understandably so. Economists and politicians have not sought to help the electorate quantify the trade benefits enjoyed by the UK from being part of the EU, nor what agreements it would have to be replaced by in order to continue to do business in Europe.
Similarly, no politician has a sought to spell out the extraordinary complexity an exit from the EU would involve in terms of negotiating trade barriers and tariffs, nor the extent to which they might hamper and potentially significantly diminish demand for UK sourced goods - or the propensity of foreign-owned corporations to site their UK operations in the UK, not least in the City.
Benefits for the CityThat may be about to change. The Financial Times has reported that the commission set up by the Centre for European Reform is shortly to publish a report concluding that EU membership has been beneficial for levels of trade with Europe and inward investment into the UK. The report will highlight that there have been substantial benefits to the City in particular. It will also suggest the benefits of exit are illusory as the alternative would be a myriad of complex bilateral agreements. We should expect a flurry of such reports in the wake of UKIP’s European election success.
A good result for many financial market participants would be a shift to a lighter touch from the EU on our domestic matters
Obviously no one knows how well UKIP will fare in the general elections next May, but it seems reasonable to conclude that its success in the European elections will continue to influence the UK’s policy on Europe and the propensity of the EU to tell us how to run our own affairs. A good result for many financial market participants would be a shift to a lighter touch from the EU on our domestic matters – perhaps we could call it ‘EU light’. If the benefits of membership were not curtailed, it is difficult to see what the downside would be and this might be a small price for the federalists to pay to keep their European dream alive. But just as our politicians have been accused of ‘not getting it’, one suspects the federalists don’t get it either, as we see from the wrangling over who will be the next president of the European Commission.
If nothing is done to appease the anti-Europe voters in the UK and their cause gains momentum it is likely to create growing uncertainty about our membership. This, in turn, could have a negative effect on our financial markets as the worries about what would follow start to creep in.