Tag Archive: Pensions

The Return of the Greek Drachma … err Drama!

© Ricardo Pinto, 2015, AngloDeutsch™ Blog, www.AngloDeutsch.EU

Greece is widely considered to be the cradle of democracy. The theatre of ancient Greece is also considered to be the fountainhead of the Western dramatic tradition, and it shows. The earliest Greek dramas emerged during the 6th Century BC and the term “drama” is derived from the Greek word for action (to do or to act). Indeed, the three main dramatic genres, namely tragedy, comedy and satire (tragicomedy or burlesque), emerged from Athens.

It is just as well that drama is a Greek invention because in the last five months, a mixture of “comedy” and “satyr” is exactly what the Syriza-led government has been serving-up on the European Union (EU) stage. For the final act, it is quite possible that “tragedy” will complete the fascinating yet frightening performance that is unfolding before our eyes. The end product of the Greek drama could well be a return to the Greek drachma.

Greek Drama: paving the way for the drachma?

Dramatic structure refers to the framework of a dramatic work such as a play or a film.  According to Gustav Freytag, dramas can divided into five parts or acts (also called Freytag’s pyramid), as illustrated below.

Freytag's Pyramid and the Greek Drama

I would like to take the liberty of applying Freytag’s pyramid to modern-day Greece, as far as the Eurozone crisis and its future in the EU are concerned. Bear with me.

Act 1. Exposition

This introduces important background information to the audience such as the setting before the main plot in the form of flashbacks, characters’ thoughts, background details, etc.

The first Act of the latest instalment of the Greek drama started during the General Election of January 2015. The Syriza party, indeed almost all Greek parties, told more or less the same narrative and provided the same broad analysis of the background to the plight of Greece and the Greeks. The plot can be summarised as follows: the Greek troubles are the result of the Euro and EU, the Troika (ECB, IMF and EC) has imposed unbearable burdens on the Greek people, resulting in a collapse of GDP, reduction in income and pensions (internal devaluation), very high levels of unemployment, etc. This has all been done in the name of austerity, which has principally served to rescue German and French banks, as well as the Eurozone as a whole but Greece itself. The Greek people have suffered enough. Austerity must end and Greece must regain its self-respect.

Interestingly, the above exposition concentrated almost entirely on the period post-2009, when Greece was rescued from bankruptcy by the EU. The first Act makes clear that the protagonist (Greece) has been treated very badly by the main antagonist in the drama, the Troika / EU / Eurozone / Banks but that enough is enough. The protagonist´s exposition somehow leaves out the decades of corruption, mismanagement, clientelism and sheer incompetence of generation upon generation of Greek leaders that necessitated a rescue by the rest of the Eurozone in 2009 in the first place. But such is the nature of dramatic plots. It is not convenient to set out the background in painful detail, including the fact that Greece had the chance to exit the EU but chose instead to remain and be part of the euro while taking the painful internal devaluation that it implied and which countries in a similar position have also gone through. The previous government signed-up to the bailout conditionality but clearly the mood has changed after five years of painful austerity.

A key aspect of the exposition was the election manifesto. As I have previously discussed, the Syriza programme did prioritise an end to austerity, however, any reading of its pledges would lead to the conclusion that it was both contradictory and unrealistic.

It called for Greece to remain in the EU and Eurozone yet basically roll back the commitments made by the previous government as part of the conditionality for the bailouts, while at the same time calling for an end to privatisation, restoration of lost state jobs, raising of minimum incomes and pensions, free health provision and much else beside. That is all very well during a general election, except for two minor issues: Greece is broke and the only way this can be done is if others pay for it in the short, medium and possibly long-term, yet permanent bailouts are forbidden by various EU treaties for a very good reason.

The EU rescue packages were designed to stop Greece from becoming bankrupt as a result of its own decisions made over a period of decades and did indeed manage to keep them in the Eurozone and the EU, something which the Greek people have always insisted upon. They were designed primarily to buy Greece time to regain competitiveness through reforms agreed to by the previous government. Five years later, this is all interpreted as no more or less than national humiliation, bullying and dictatorship on the part of the EU, with Germany and the Troika singled out for special attention. This was a cracking opening Act in the play.

Act 2. Rising Action

The rising action is a series of events that begin immediately after the exposition (introduction) and builds up to the climax. The entire plot depends on these events to set-up the climax and the satisfactory resolution of the story.

A series of events took place immediately after the election, which set the course for the current Greek drama.

As I have previously discussed, instead of picking a mainstream coalition partner, Syriza chose the Independent Greeks Party which was committed to revoke the agreements between Greece, EU and the Troika, prosecute those who negotiated them, repudiate part of Greece’s debt and require German war reparations for the invasion and occupation of Greece during WWII. Syriza selected this party over other moderate alternative partners. This was widely interpreted and an immediate slap in the face for Germany, by far the most important contributor to past, present and future EU bailouts. Not a good start to negotiations, but great drama.

Syriza then took it as read that being elected actually gave it a mandate to end  austerity in Greece. Under a scenario where Greece would leave the Eurozone and possibly the EU, this would have been correct. Just because they were elected on the basis of a contradictory and unrealistic manifesto, does not give a country the right to implement it unless it assumes responsibility for the costs associated with such a manifesto. Clearly, all the other Eurozone countries would need to pay for a Greek programme that they had absolutely no control over. But if they are to agree a further bail out, they naturally have to approve the basis or conditionality associated with further funds, since they have their own electorates to consider. Instead, Syriza chose to act as if the other countries owed it to Greece to agree their programme by virtue of their electoral mandate.

Furthermore, Syriza and the Independent Greeks Party made a series of important appointments based on political dues to take-on the Troika, rather than selecting experienced and diplomatic negotiators, steeped in the EU way of doing things.

A critical decision was the appointment of the unelected Yanis Varoufakis as the Finance Minister. A bike riding, fiery blogger with a penchant for game theory who describes himself as a “libertarian Marxist” was not necessarily an inspired choice for dealing with 27 other EU Finance Ministers. While he may be a highly regarded economist, he has almost no political experience, except for a period during 2004 – 2006, when he served as an economic adviser to George Papandreou.

Alexis Tsipras, the other main character in the play, can hardly be considered a mature politicians himself, having first been elected to the Greek Parliament in 2009. But initially both Alexis Tsipras and Yanis Varoufakis were widely fêted by the European media for being a contrast to the previous government – young, handsome, tieless, bike riding (Varoufakis), living in a modest neighbourhood (Tsipras), etc. The media throughout Europe loved this and the message that the Greeks were going to take on the austerity camp in the EU. But it was not only the media and the population of various countries that appreciated the rising action in the Greek drama. Many political parties, such as Podemos and other populist movements, saw the Syriza as a white knight in shining armour riding to slay the austerity dragon and reclaim its democracy from the clutches of the dreaded Troika.

Indeed, many economists and politicians in the EU were actually in tune with the message that after five tortuous years, the emphasis had to change. Instead of unrelenting austerity, collapsing GDP, falling incomes and standards, increasing poverty, deflationary pressures, the emphasis simply had to shift to investment, growth and employment. This had to be combined with flexibility in the bailout programme’s target of a surplus of 4.5% of GDP, so that it could be redeployed to achieve Syriza’s programme objectives.

Therefore, a series of events and individuals came together in the second part of the play that created the basis for the next Act in the political drama.

Act 3. Climax

The climax is the turning point. If the story is a comedy, things will have gone badly for the protagonist up to this point; now, the plot will begin to unfold in his or her favour. If a tragedy, things will go from good to bad or bad to worse for the protagonist, often revealing their weaknesses.

However, although the media, general public, economists and politicians were generally well disposed to the Syriza agenda for easing austerity and focusing on growth, the next  set of events gradually but systematically turned against the Greek government, leading to a crescendo of criticism and recrimination.

The talk of war reparations, right at the beginning of the term of government did not go down too well in Germany. Yet Tsipras and Nikos Paraskevopoulos (Justice Minister) kept banging this particular drum to the tune of € 341 billion in compensation (about the same as the overall Greek debts), knowing full well that this would goad German public opinion at a critical time in Greece’s negotiations. This was naïve to say the least and resulted in a general feeling on the part of the Germans of being blackmailed.  Just to add a bit fuel to the fire, Panos Kammenos (Defence Minister, Independent Greeks) seemed to consider it appropriate to threaten to send Islamist fundamentalists to Germany from among tens of thousands of migrants currently in Greece in revenge for the austerity measures he felt had been imposed on Greece by the Germans. That turned up the heat nicely, not least because other people had been under the impression that the Greeks had chosen to remain in the EU and Euro, sign-up to be bailout and take the bitter medicine of internal devaluation.

The choice of Varoufakis to negotiate the EU bailout was a little unfortunate. Varoufakis may well be a brilliant economist and he may well know more about the ins and outs of the financial crisis than all the other 27 EU Ministers of Finance put together. However, lecturing to them from the off was never going to be a winning strategy. From the beginning there was a fundamental personality and ideology clash between himself and Wolfgang Schäuble, the powerful, experienced and prickly German Minister of Finance, who wasted no time in making it clear to the Greek negotiators that their programme was unrealistic, their promises to their electorate had been misleading and that there would still be conditionality in negotiating EU bailouts.

The basic assumption which characterised the Greek position from day one was that they had the Eurozone countries by the balls and that they simply had to squeeze long and hard enough for their demands would be acceded to. In other words, the basis of negotiations, perhaps informed by game theory,  was that the Eurozone countries feared a Greek default and the contagion that would follow, and that this had the potential to deal a mortal blow to the Euro and the EU project.

But the EU finance ministers did not seem to be cowed by this threat, which I consider to be the worlds´s biggest game of chicken. Greece’s most natural allies in the anti-austerity movement, namely Italy and France, were quickly put off by the strident tones and lack of willingness to compromise. The Spaniards, Portuguese, Irish and Cypriots who were also following the internal devaluation route proved to be even more resistant to backing the Greek cause, no doubt fearful of similar populist movements in their own countries. And the northern group of EU countries, especially Germany, Finland, Slovakia, etc. and others were anxious of the consequences of capitulating to Greece’s insistent demands. As I previously wrote, moral hazard is the main reason why Syriza could not and will not force an EU capitulation. If the Greeks could manage to drive a coach and horses through the bailout terms and conditions, would others be tempted to follow their lead and would this be sustainable for the rest of the Eurozone?

The demand for 50% debt relief was denied, though everyone recognises that the current level of state indebtedness (180% of GDP and rising) is not sustainable and will need to be tackled at some point in the future, during calmer global economic times. There certainly was recognition of the need to allow Greece to use more of its primary budget surplus over the next few years. But Greece’s steely determination to avoid as conditionality to the extent possible in the future Eurozone rescue package, whilst simultaneously dismantling the few reforms implemented so far, such as rolling back privatisation, reemployment of former public employees and raising wages and pensions which it can ill afford, only served to harden opinion against Greece. The consequence after five months of intense negotiations and diplomacy is that remarkably little agreement exists on the overall package of reforms necessary to secure the latest tranche of the EU bailout worth Euro 7.2 billion.

It is tempting to conclude that the single most notable Greek achievement appears to have been the rebranding of the “Troika” into the “Institutions”.  This would be unfair, but everyone has noted the Greek government’s populist tendencies. Progress has been made on the reform programme, but there appear to be insurmountable sticking points, such as the primary surplus targets, VAT reform, privatization targets, minimum wage levels and pension reforms. These are all issues which impinge directly upon the country’s fiscal base and thus its debt sustainability, which is why both sides are sticking grimly to their guns.

Within a few months, the almost complete inability to make progress on these sticking points has raised tensions to critical levels. The resulting lack of confidence and trust means that several high-profile individuals no longer negotiate directly. Varoufakis has been removed from the Greek negotiating team for his abrasiveness and style. Schäuble has been side-lined because of his prickly relationship with Varoufakis and his conclusion that the way forward is a “velvet Grexit”.  Jean-Claude Juncker, the President of the European Commission and one of the key remaining Greek allies, has expressed his anger and frustration at Tsipras’ misrepresentation of the EU proposals. Many others have vented their frustration with the main protagonists of the Greek drama. The IMF has packed its bags and gone back to Washington saying it was pointless to stay while the two sides remain so far apart. Sigmar Gabriel, Germany’s vice-chancellor recently said that Europe and Germany will not let themselves be blackmailed or let the exaggerated electoral pledges of a partly communist government be paid for by German workers.

These almost unprecedented accusations and counter-accusations serve to harden positions and will make it ever more difficult to achieve compromise in the coming days. Instead of seeking common ground, the Greek Prime Minister reacted by accusing the IMF of “criminal responsibility” for the situation and that its creditors were seeking to “pillage”, “humiliate” and “asphyxiate” his country. For good measure, he added that if Greece fails, it will be the beginning of the end of the Eurozone.

As if that was not enough, others are raising the stakes. Germany’s EU Commissioner, Guenther Oettinger argues that Greece could face a “state of emergency” on 01 July 2015 and Josef Kollar, the vice chairman of Slovakia’s Finance Committee, accused the Greek prime minister of “swindling the whole world” and that “Politics should … be based on economic reality. And in reality, the drachma would be a rescue for Greece.”

The climax was reached in the third Act: there are open rifts and recriminations, the likelihood of Grexit is openly talked about, emergency measures and being discussed and a return to the Greek drachma is widely speculated upon.

Act 4. Falling action

During the falling action phase, the conflict between the protagonist and the antagonist unravels, with the protagonist winning or losing against the antagonist. The falling action may contain a moment of final suspense, in which the final outcome of the conflict is in doubt.

During mid-late June 2015, we enter the 4th and penultimate Act of the Greek drama. Nothing less than the future of Greece in the Eurozone is at stake. Unless Greece honours the € 1.5 billion repayment due to the IMF on 30 June, it is likely to default. Yannis Stournaras, the Governor of the Bank of Greece, has pitched-in to confirm that his country does not have enough funds to pay the IMF and sketch a less than reassuring scenario of the likely consequences of default.

The only solution is to resolve the critical sticking points in the little time that is left. In the past, I would have bet my bottom dollar in the EU’s ability to manage this. Today, following all the posturing and bickering, I am doubtful that the remaining issues can be resolved and a possible EU rescue package can be approved by the Eurozone governments in time for the IMF payment on 30 June 2015.  At the same time, the game theorists among the Fine Young Radicals remain convinced that the EU will shrink from pressing the euro Armageddon button and Greece will win take the prize.

Freytag’s pyramid predicts that the falling action may contain a moment of final suspense, in which the final outcome of the conflict is in doubt. There is only one politician with the stature to change the entrenched dynamics, and I certainly do not refer to either Mr Cameron or Mr Hollande, whose lack of leadership and vision is palpable. A last-minute intervention by Mrs Angela Merkel is the only hope for a compromise that satisfies all parties sufficiently to get a deal done but, as usual, she is keeping her cards close to her chest until there is no alternative but to act. But perhaps the situation is already past the point of acting.

At the moment, it is far from clear whether the protagonist or the antagonist will win the day. But in a way, it does not really matter because we have already entered uncharted territory where there will only be losers in this Greek tragedy.

Act 5. Dénouement

The comedy ends with a dénouement in which the protagonist is better off than at the story’s outset. The tragedy ends with a catastrophe, in which the protagonist is worse off than before.

And so we enter the final Act, but it is not clear whether this drama is a comedy, a tragedy or a mixture of the two.

It is still possible for the conflict to be resolved, reducing the tension and stress in Greece and Europe. If this happens, Tsipras, Varoufakis and the rest will be fêted for their high stakes brinkmanship and other countries will undoubtedly try to replicate the methodology deployed by the Greek government. But will this end happily for the Greeks and for Europe? I very much doubt it. There may be a rolling back from the reforms that the Troika/Institutions have been seeking so as to raise Greece´s own competitiveness, but this will only make it harder and take longer for Greece to regain economic traction compared with its neighbours. There may be further debt relief, but even if the level of indebtedness is scaled back to the supposedly sustainable level of 120% of GDP, the Greek economy would still need to perform well consistently for a stretch of time so as to avoid its debts mounting-up rapidly. There may also be implementation of many of the measures that the Syriza has been insisting upon and which are the source of the stalemate, but these will come at the expense of the Eurozone countries for the foreseeable future, many of which are significantly poorer than Greece and resent having to subsidise the Greeks’ minimum wages, pensions, etc. The seeds of doubt about the merits of continuing Eurozone membership have already been sown and will start germinating. If other countries such as Spain and Portugal follow the Greek model (moral hazard), several of the net EU contributors, not least Germany, may conclude that the limits of the EU and Eurozone have not only been reached but surpassed. As for the Greeks themselves, they may be in greater control of their own destiny but the reforms that have been so elusive in the past will still need to be implemented, which is not a given. Whatever happens, the Greek citizens will realise that austerity will not, in fact, have been stopped. Furthermore, unless the economy starts performing much more strongly, the latest tranche of the EU bailout will not last long. But after the extreme stress and friction of negotiating this agreement, there may not be much enthusiasm for another full bailout. The game theorists must realise that this is a consequence of their winner-takes-all and at-all-costs strategy. Grexit will remain a possibility. Or perhaps the Syriza government will begin to collect tax revenues vigorously, introduce effective reforms exceeding all expectations and pull the country back from the brink. The past is not necessarily a predictor of the future, but I doubt this will happen without strong and timely global growth to lift all boats, including the Greek one.

But it is possible, indeed likely, based on the latest statements emanating from all sides, that this Greek tragedy will end in catastrophe – yet another word of Greece origin. If Greece does not make the IMF repayment due on 01 July 2015, it is quite possible that a political rabbit will be pulled out of the bag and default will be averted. Angela Merkel is apparently fond of the saying: where there is a will, there is a way. But based on the current situation, sooner rather than later, the country will run out of money. At that point, all hell will break loose, despite all the warm and comforting reassurances from politicians that firewalls are in place to avoid contagion that would wreak havoc across Europe and possibly other parts of the world.

As I wrote in a separate blog post: Eastern Europe went through variants of shock therapy in the 1990s and the Russians, Poles and all the others will confirm that very little was predicted by economic theory, that recovery took much longer than anticipated and that they have absolutely no desire to ever experience such wanton destruction again. I would not wish this upon Greece or any other nation. I would much rather another round of muddling through in the classical European way instead of the destructive, unpredictable catharsis that is being floated. But I also know that many would disagree and not just in Greece.”

Having reflected on the last five months since the election of the Greek government, I am tending to the conclusion that the Greek drama may well end in a dénouement / catastrophe / catharsis resulting from the Fine Young Radicals’ refusal to compromise. They will take the hit, re-establish the drachma or something similar and do their best to move forward. Greece will then be fully in charge of its monetary policy, its currency, its dignity and everything else that its people, in an act of mass amnesia, believe Germany and the other Eurozone countries have taken away from them in the last five years. Of course, they cannot then expect further EU bailouts, will have to live within their own financial means and will rely on their own politicians to navigate the process of regaining international competitiveness.

Hold on! For a second I almost forgot that this is precisely the scenario that the Greek citizens have been bending over backwards and executing double somersaults to avoid. For otherwise they would surely have voted to exit the Euro/Eurozone/EU in one of their previous two general elections, rather than willingly go through the latest acts of this excruciating Greek drama.

Perhaps it really is true that we cannot have it both ways… even in the EU.


British Voters and EUroscepticsm: much ado about nothing?

A Historic Turning Point Coming Up?

British voters are weighing up their options, but a strong element of anti-EU sentiment can be detected. The General Election scheduled for 05 May 2015 may well be turn out to be historic. If the Conservative Party wins, it is committed to holding a straight in/out referendum in 2017 about whether Britain is to remain in the EU or not. Previous posts have discussed the role of the eurosceptic Conservative wing and the role played by the Ukip party in the hardening Conservative and Labour Party stance in relation to the EU and EU-related immigration. Previous posts have also discussed a growing anti-Euro and anti-Islam sentiment in Germany, though it is materially different and not as pervasive as in the UK. No obvious anti-EU sentiment can be detected, which is why this post focuses mainly on Britain.

A reading of opinion polls illustrates that the balance of British public opinion, which has never exactly been EUphoric since joining in 1973, appears to be turning stringently EUrosceptic. The common assumption among quite a few politicians and a large segment of the media seems to be that life would become instantly better if only Britain would jettison membership of the EU, regain “control over its borders”, thus stopping “uncontrolled” migration along with excessive “interference” from Brussels in British affairs. But is this really the case? How much would actually change overnight, as far as the voters’ priorities are concerned?

Voter Priorities (2010-2015)

With the British general election not so far away, it is worth asking: just how much would actually change in people’s lives if the UK were to leave EU in terms of immediately improving life in Britain, based on the issues that matter to voters? To address this thought experiment, I have used the latest Ipsos MORI poll which asks about the top concerns of British voters.

British voter priorities 2010-2015

In January 2015 four issues predominated in terms what is important to voters, namely healthcare (almost half), economy (one-third) followed by asylum and immigration (27%) and education/schools (20%). Europe/EU as an issue is on par with unemployment, which at present is a pretty low rate in the UK (less than 10% note it as being important). A further five issues are of some importance in terms of voting intentions (benefits, taxation, housing, foreign affairs and pensions).

Table 1 shows some change since 2010, but the top four priorities have been fairly consistent. What is noticeable, however, is that whereas economy and education have not changed, both health and immigration have risen significantly in importance to British voters since 2010. Perhaps surprisingly, housing is increasing in importance but remains a secondary priority for British voters.

Voter Priorities and UK vs. EU Responsibilities

On the basis of the voter’s priorities, it is worth asking the question: what exactly are the responsibilities of the British Government and what is affected by the EU? On the basis of this question, it is possible to assess what might change for Britons.

UK EU competencies

Below I discuss these issues briefly, focusing first on the top four voter priorities:

  • Health: The Department of Health is entirely responsible for the NHS in terms of budget, priorities, reforms, etc. The main EU influence is in enabling the citizens of the EU-28 to be fully covered when they go to other EU countries without the need for additional health insurance for work, holidays, study, etc. It also allows people to choose where they wish to be treated, if the services are better or waiting lists are shorter. Health Tourism is an issue concerning non-EU citizens, rather than for EU ones. Nothing dramatic would change tomorrow, if the UK were to leave the EU in terms of quality of care, waiting lists, response rates or any of the other key issues of concern to the British voter. If anything, choice is likely to be reduced and extra costs incurred when British citizens travel to the EU. In terms of EU residents living in the UK and their use of the health service, not much would change. If they are working, they are also paying for the NHS through their National Insurance contributions. Otherwise, they would have to insure themselves privately and still have access to health in Britain. The exception would be if the UK chooses to deport, something that is barely imaginable. Verdict: no change. There are no magical solutions to the problems of the health service in Britain. The trends are neither recent nor connected with membership of the EU.
  • Economy: the UK is entirely in charge of its macro- and micro-economic destiny, since it is not part of the euro and thus not affected by the eurozone rules. The UK can affect its interest rates and implement quantitative easing to its heart’s content. The Stability and Growth Pact does have requirements, such as no budget deficits greater than 3% of GDP, no public debt exceeding 60% of GDP without diminishing by 5% per year on average over 3 years. Verdict: nothing would change. The UK and many other countries have greatly exceeded these limits at a time of serious economic and financial concerns. Britain is 100% in charge of its destiny, unlike Greece, Spain, etc. The Chancellor has already set in train further drastic reductions in public expenditure in the next period of Government. There is nothing about the programme of austerity that the British Government can pin on the EU, which is probably why this has not been tried, unlike for example Greece.
  • Asylum/immigration: as I have previously discussed, there are three elements here. Firstly, the UK is entirely in charge of its asylum policy and can choose who to let in and who to keep out. The same applies to non-EU immigration, which Britain is entirely in charge of. These elements comprised over 68% of immigration (together with Britons returning to the UK). The EU cannot and does not interfere with this but the balance (32%) is EU migrants. Many international companies are based in Britain that require access to the global pool of human resources to maintain their standards and profitability. On balance, basing a decision to leave the EU because of the freedom of movement of people principle and perceptions of “uncontrolled immigration” in the last decade does not appear to be justified. The unemployment rate remains at 5.8% (compared with 6.5% in Germany and 11.4% in the EU), despite a long period of intense economic and financial crisis. A critical issue that affects voter sentiment is net wages, which is determined by the companies located in Britain, as well as the public employers. If Britain were to stop EU and any other form of immigration (it is doubtful that employers would welcome this) the perceived pressures on health, housing and social services would not change since most EU immigrants would presumably remain. The exception is if such a police were to be combined with (forced) repatriation, which is unimaginable at the present time. If so, in theory Britain would have to make allowance for the 1.3 million Britons in other EU countries to return from EU countries to the UK. Verdict: possible short-term gain but likely long-term loss. The change would affect 32% of Immigration (2012 data) at the very most, but asylum and immigration would not end. There would only be perceptible changes, if a policy of terminating EU immigration were to be combined with deportation. I cannot imagine the average British voter wanting this or the consequences of enforcing such a policy.
  • Education/schools: this is entirely the responsibility of the UK and the pressures have been decades in the making. The issue that the EU has concentrated on is harmonizing qualifications and certification to ensure greater scope for freedom of movement of workers. This is advantageous for Britons as well as for others. Verdict: no change. The children of EU migrants make-up a small percentage of all children in schools across the country. If their parents are working here, they are entitled to study in Britain unless the Government and the British electorate wishes to evoke the deportation route.

So in terms of the most important issues to UK voters, there is not a huge amount of immediate gain from Brexit, based on the top four voter priorities. I am not even going to discuss the possible losses which would be the consequence of gaining control over EU immigration. Britain is already in charge of two of the three key elements of immigration, which makes up the majority of immigration. It is an island, which gives it more protection than others in the era of globalisation. The fear that there is uncontrolled immigration from the EU is overdone. When the economic downturn started, many EU migrants simply left the UK of their own accord and the migratory pattern turned towards Germany instead, the only EU country experiencing strong economic growth. When the UK economy started growing again in mid-2014, the immigration trend started reversing (though probably influenced by the A2 countries,namely Romania and Bulgaria). In any case, if the unemployment rate is 5.8% and decreasing, it is worth asking the question: who is employing the EU migrants and benefiting from their contribution to the economy, to tax inflows and to company profits? Might the answer be Britons and Britain? If the real issue is decreasing net wages and benefits in Britain, the question is who is gaining from this development? Might the answer be certain segments of British society?

Below I address the remaining voter priorities:

  • Europe/EU: The issue which the EU insist on is that the freedom of movement of people (as well as goods, services, capital) be maintained, allowing all EU citizens to travel for tourism, study, work and retirement purposes. Many, if not most Britons, enjoy some or all of these freedoms in one way or another. 1.3 million Briton live in other EU countries, and a large number travel, work, study, invest (e.g. second homes and pension funds) or retire in EU countries. This is something which is currently taken for granted at present. I believe the loss will be felt much more rapidly and keenly than most British voters may realise.
  • Unemployment: leaving the EU might result in less European migrants, but it would not put an end to EU immigration or lead to zero unemployment. British-based enterprises compete globally for many skills essential to maintain productivity and innovation. I doubt that there would be a significant reduction in qualified labour coming from the EU.It is not certain that the agricultural, tourism, hospitality, etc. businesses would be able to satisfy their needs simply from UK-based sources. There might be a reduction in less qualified labour and thus in unemployment but this is unlikely to be more one or two percentage points and will lead to other pressures. Verdict: possible short term gain but likely long term loss.
  • Benefits: very few EU migrants claim benefits. Immigrants were 45% less likely to receive state benefits or tax credits than UK natives during 2000-2011. They are also less likely to live in social housing than the UK born population. EU migrants of working age who are not students, not in employment and receive some kind of state benefit, amount to 39,000 or less than 1% of all foreign nationals in the UK and 1% of all EU nationals in the UK.  Recent analysis of 23 out of 27 EU countries shows that there are at least 30,000 Britons claiming unemployment benefit in countries around the EU. In other words 2.5% of Britons in other EU countries are claiming unemployment benefits, roughly the same as EU nationals doing the same in Britain. The numbers are tiny: the political and media coverage of this issue is completely disproportionate. If this is the case, an even smaller sub-set of them are living in Britain for benefit tourism/abuse purposes. Verdict: no change (but one less emotive topic for certain parts of the media and politicians to bang their biased drum about).
  • Taxation: the UK is in entirely in charge of all its taxes, including Corporate Income Tax, Income Tax, Capital Gains Tax and VAT. Verdict: no change.
  • Housing: The UK is entirely in charge of its housing policy, construction, planning system, etc. There would be fewer EU immigrants, which might affect the housing situation in terms of rent levels and house prices. However, this would only be a marginal effect since the trend in housing supply, demand and pricing is a long term trend of over 30 years and any nationality is able to buy property in Britain. I have already referred to the fact that fewer recent immigrants claim benefits and live in social housing than the UK born population. Verdict: no change. I have written the first of my blog posts comparing the British and German housing systems to illustrate aspects of this point.
  • Foreign affairs: in terms of foreign affairs this role is, to some extent, coordinated with the High Representative of the Union for Foreign Affairs and Security Policy for specific issues. In the main, each EU nation does its own thing and Britain is no different.
  • Pensions: the UK is entirely in charge of the retirement age, contributions, qualifying years, minimum state pension pensions, etc. The EU facilitates freedom of movement of people and capital, so develops rules to ensure that if people work in different countries, that their contributions are acknowledged and count towards their overall pension entitlement. Furthermore, it seeks to ensure, under the same two freedoms, that Britons and others can receive their state pension in any of the EU-28 countries without suffering from arbitrary reductions, cancellations, fees, etc. Since many Britons enjoy their retirement in the sun and have bought second homes in other EU countries (rather more than is the case in terms of EU nationals buying properties in the UK), it would appear that to be well worth remaining in the EU.

EUroscepticism: much ado about nothing?

Ultimately, it is up for each voter to assess their personal gain or loss from staying in or leaving the EU. Based on the analysis above, the anti-EU sentiment is much ado about nothing, as far as the most important issues to voters are concerned, except for the freedom of movement of people. The EU has helped to secure so many rights and opportunities across all 28 nations that it is hard to imagine life without them. It is not simply that not much would change overnight. A moment of reflection on what would be rolled back as a result of leaving the EU, should show just how much we perceive as being normal and do not even actively consider. The fact is that we usually do not miss that which we take for granted… until it is no longer there.

Ricardo Pinto, AngloDeutsch™ Blog, www.AngloDeutsch.EU