Brexit — the decision of Britain to exit the European Union – comes up for vote on June 23rd. How the vote will go is, according to the polls, too close to call. The European Union was founded in 1993. It was founded primarily to maintain peace among European nations which have a terribly long history of attacking one another.
The EU was also meant to improve the economies of member states by fostering free movement of goods and people. Most of the EU members, those in the Eurozone, have also decided to share the use of the same currency — the Euro — and, thereby, dramatically lower transactions costs when it comes to market exchange. The UK held onto its British Pound, but the British public can, thanks to the Euro, travel in 17 EU countries using a single currency to pay for what they buy.
One of the greatest gains from EU membership is the ability of workers in one country to work in another when times are tough in their own country. This makes the EU economy as a whole substantially more efficient. More importantly it lowers the unemployment risk of all workers in the EU to a significant degree — at least if we are considering people willing to relocate.
I could go on at length about the economic gains from British membership in the EU and the risks to its economy from Brexit. But let me focus on two of the British public’s major concerns with EU membership — illegal immigration and member states that seek bailouts.
Concern about illegal immigration into the EU, with the illegal immigrants making their way to Britain is a legitimate concern. But the UK is a set of islands and controlling its borders is easier than in many countries. As for being asked to bail out Greece and other EU-member countries that are in difficult economic straits, this is part and parcel of a collective cross-country insurance arrangement to the extent that recipient countries are not taking advantage of the assistance offered by EU-member states.
As I discuss in Write Me In, But Don’t Send Me a Penny Kotlikoff for President 2016 (which you can download for free at this site and, I hope, forward to one and all), the ability of EU member countries to extract extra assistance when they should be resolving their own economic problems or defaulting on their debt, if their debt burden exceeds what they can ever hope to manage, is intimately tied to the organization of banking as strange at that connection may seem.
My very simple proposed banking reform, called Limited Purpose Banking, which has been endorsed by many top economists and former policymakers, can eliminate the use of banking collapse as leverage for eliciting more assistance from EU-member nations. Consequently, I would urge the British to reject Brexit. Intead, it should demand that the EU move to Limited Purpose Banking (LPB). With LPB a like Greece could default on its debt, as needed, and a country like Britain could limit its aid to Greece without worrying about a run on Greek banks spreading to British banks as well.