econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 27 October 2015

Why The Bank Of England Wants Britain To Stay In The EU

from The Conversation

-- this post authored by W David McCausland, University of Aberdeen

The Bank of England has entered the EU referendum debate. Its report, along with comments from governor Mark Carney, emphasise the benefits that membership of the EU brings the UK. Carney says membership makes the UK more dynamic, giving it greater potential for growth, and more resilient to shocks. But he also warned of the need to safeguard the UK against further eurozone integration.

The referendum, scheduled to take place before the end of 2017, will ask voters whether they want to stay in the EU or leave. If the UK chooses to leave the EU, this will have implications for how the Bank of England controls inflation and manages financial stability. If, for example, the free movement of labour were restricted, this may affect supply and drive up inflation.

Freedom and vulnerability

Bank chief Mark Carney. EPA/Will Oliver

The key theme underlying the bank's analysis is "openess". By this it means openness to trade and the free movement of goods and services, capital, and people. It argues that the EU's single market drives down the cost of trade and increases competition, which reduces prices and helps to keep inflation low.

The free movement of capital helps to overcome supply constraints, and the bank reports that the UK has been particularly successful in attracting foreign direct investment as a result of EU membership. The free movement of labour helps reduce skills shortages, keeping employment high and wage costs in control. As wage inflation feeds through into price inflation, this also helps the central bank in its key objective of price stability.

In short, a free, open, competitive environment, the Bank of England argues, is a good foundation to build a dynamic and resilient economy with good potential for growth.

The bank claims that the UK has been particularly good at harnessing the benefits of this open environment while avoiding the drawbacks faced by some other EU members which have less flexible economies. But the bank's report warns of the UK's vulnerability to crises in the eurozone and the need for safeguards against them and further economic integration with the EU. Openness to the EU has brought with it risks of falling EU demand and exposure to the recent debt crises in Greece, Italy, Ireland and Portugal.

Politics at play

Clearly, therefore, there are elements of the report that can be seized on as ammunition by both sides of the EU referendum debate. Both David Cameron and George Osborne welcomed Carney's comments. Indeed, the report seems to be supportive of David Cameron's general direction of travel in the referendum debate - to stay in but renegotiate.

[blockquote class="twitter-tweet" lang="en"]

[a rel='nofollow' rel='nofollow' rel='nofollow' href="https://twitter.com/David_Cameron/status/656897866452115456"][/a]

[/blockquote]

[blockquote class="twitter-tweet" lang="en"]

[a rel='nofollow' rel='nofollow' rel='nofollow' href="https://twitter.com/George_Osborne/status/656894903859941376"][/a]

[/blockquote]

On the other hand, much is made in the report of the benefits of the free movement of people, keeping wage and hence price inflation low and enabling the UK to have the right mix of skills and talent. This is at some variance with the current government rhetoric on immigration - which features much talk of reducing immigration, tightening up on visas and aiming to negotiate away some of the rights associated with free movement of people. The bank's report would suggest that in this respect Cameron's policy is on the wrong track.

Eurosceptics may take away other messages from the bank's report. Those on the left may question how the benefits from this open trade, free market environment are distributed. The high employment, low wage outcomes may be good for business and the bank's ability to control inflation, but this may be at some cost to workers and the more vulnerable in society. Rising inequality has also been a feature of the UK economy in recent years.

On the other hand, eurosceptics on the right may also be sceptical of an establishment view that advocates remaining in a club whose ethos they do not agree with and that is perceived to have a democratic deficit. They may argue that further openness to trade at a wider, global level would be more beneficial than at the more restricted European one.

So, in short, the bank has taken a positive view of the UK's membership of the European Union, but one based firmly and narrowly on the benefits of a free market, free trade, competitive environment. This leaves the referendum debate wide open to consider the broader benefits and drawbacks of EU membership, assessed from a wider perspective.

The ConversationW David McCausland, Professor of Economics, University of Aberdeen

This article was originally published on The Conversation. Read the original article.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 1
News Blog
February 2017 Headline New Home Sales Improve and Above Expectations
18 March 2017 Initial Unemployment Claims Rolling Average Again Worsens
Get Around Baggage Check Fees With This Luggage Jacket
What Prompted The Electronic Devices Ban
Infographic Of The Day: The History Of Money Explained In One Infographic
Early Headlines: Asia Stocks Mixed, Oil, Dollar Up, Gold Down, Health Care Bill Fighting For Life, UK Car Mfg Hits 17-Yr High, UBS Charges 0.6% Int. On Deposits, China Debt Risks And More
Documentary Of The Week: Lee Harvey Oswald And The Call To Raleigh
Dallas 'Dirkules' Goes Past 30,000 Points
Number Of Migrant Deaths 2016 Highest Ever Recorded
Astronomers To Peer Into A Black Hole For First Time With New Event Horizon Telescope
The U.S. Spends More On Defense Than All Other NATO Members Combined
What We Read Today 22 March 2017
February 2017 Headline Existing Home Growth Pace Slows
Investing Blog
Brother, Can You Spare A Bitcoin?
Bull Market Still Intact ... For Now
Opinion Blog
A New Agenda Will Win In France
After 75 Years, Isaac Asimov's Three Laws Of Robotics Need Updating
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
23Mar2017 Pre-Market Commentary: Major Global Markets Are In The Green
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved