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 11 June 2016

Why Brexit Supporters Should Take An EU-turn Just Like I Did

from The Conversation

-- this post authored by Wilfred Dolfsma, Loughborough University

In 1997, a small number of academic economists in my country, the Netherlands, came out against the euro and were vilified by the authorities. I was one of them.

When my native country organised a (non-binding) referendum about adopting the so-called European "constitution", in 2005, many again protested. This time at least the op-eds that myself and others wrote had an effect on the general audience that was less easily ignored. The referendum produced a resounding "no", but was nevertheless duly ignored by the government.

The EU and the euro remain imperfect. The effects of their adoption are quite illusive as well. What people notice is the price they pay out of their own pockets in euros, which seems much higher than before.

The euro and also EU membership, however, have obviously made international trade easier. Trade has grown much faster than it would otherwise have done, spurring the economy. Interest rates have declined because in a single capital market competition is higher. Homeowners should love the EU and the euro.

Something similar happened in other markets. Many of these markets do not involve consumers making out-of-pocket expenses, but the effects are real. One powerful effect of both the adoption of the euro, as well as of EU membership, that colleagues and I found in recent research was in the so-called "market for corporate control". This is the market where firms buy other firms, or merge with them: mergers and acquisition or M&A deals. My colleague Killian McCarthy and I found that use of the euro and membership of the EU has led to significantly better deal making.

Financial risks can pay off in the EU. Shutterstock.com

A great deal of evidence shows that mergers and acquisitions on average destroy the value of companies over the years. Stock market values typically drop substantially after a deal is concluded. It's the type of behaviour that businesses receive a bad reputation for. While only some firms manage to generate economic value from these deals, many others like to claim that these value-destroying M&A deals are "strategically" important.

Creating value

In countries within the EU and using the euro, however, a new pattern has emerged. We found that firms take more risks in taking over other companies - the firms that are bought are larger, on average, and are located at a larger distance, thus increasing risks - and yet still create economic value.

Many more deals are struck as a country adopts the euro or is an EU member. Noticeably, these deals, on average, no longer destroy value. A well functioning market for corporate control is very important. The overall economy does better if badly run companies are relieved of bad management.

Should the UK decide to leave the EU it will suffer because of developments in the M&A market. Players in the UK, and London in particular, have been central in this market, often facilitating these deals and making a hefty profit doing so.

Merging: harder or easier? Shutterstock

Brexit will destroy this market for the UK as it places it in a different and, at least at first, uncertain regulatory environment. For a while it will not be clear to firms inside and outside of the financial industry what to expect, for instance with respect to exchange rate risks.

The EU and euro have significantly spread M&A activity across mainland Europe, giving others the opportunity to gain knowledge of how to complete such complex deals. As much as experts have flocked to London to support the market for corporate control, so can they flock to Frankfurt or elsewhere in mainland Europe, in the event of a Brexit.

London, and its financial services industry in particular, is of course the main beneficiary of an active market for corporate takeovers. Perhaps voters in favour of Brexit resent this. But the whole of the UK benefits from the current position London maintains as a financial centre - from M&A activity, as well as the taxes companies and their employees pay.

As competition in any sector in London's economy is reduced and the economy comes to a halt, there will be a knock-on effect across the country. Badly run companies in the UK are much more likely to continue being badly run as well. Brexit will make living in London more affordable but at the same time it will make fewer people want to live in backwater London as well.

Given my strong historic stance against the EU and the euro, it disheartens me in a way to support the two of them. While the EU should probably not grow bigger, nor become more integrated, at least for now I am forced to recognise that it has done economies (and particularly Britain's) a lot of good.

If only this economic logic prevailed much, much more in discussions. Had Europe focused on good economics, many a crisis (including Greece's, which began with it conning its way into the EU and euro by cooking its books) and many a folly (such as the common agricultural policy) would be prevented.

The ConversationWilfred Dolfsma, Professor of Innovation and Entrepreneurship, Associate Dean (Teaching), Director of the Glendonbrook Institute for Enterprise Development, Loughborough University

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

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

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Opinion


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 Problem With Obamacare Is That It Did Little To Reduce Overall Healthcare Spending
Joan Robinson’s Critique of Marginal Utility Theory
News Blog
December 2016 Livingston Survey: Forecasters Strengthen Their Predictions for Output Growth and Predict Declining Unemployment for 2017
Life Experience And Loan Delinquencies - Part 2
Homeowner Mobility Down By A Third Over Last Three Decades And State-to-State Migration At 15-Year Lows
India's Stock Market: Nothing "Random" About It
Infographic Of The Day: What You Need To Know About The Deep Web
Early Headlines: New Oil Pact, Facebook Should Crush Fake News, Trump Vs CIA, Dow 20,000?, Twin Bombings In Turkey, India Currrency SNAFU, New Charges In So. Korea, US-China Trade War? And More
Free Autographed Copies Of Frank Li's New Book Available - If You Act Fast
Most Women Inventors Come From America
Earnings And Economic Reports: Week Starting 12 December 2016
The U.S. Is Home To The Most Unicorns
Why Britain's Public Finances Will Suffer If Brexit Reduces Migration
Working From Home Is Still Rare In The United States
What We Read Today 10 December 2016
Investing Blog
The Week Ahead: Dow 20,000 Just Ahead?
Natural Gas Prices Are Headed Higher In 2017
Opinion Blog
Is Commercial Real Estate Facing A Day Of Reckoning?
The US Has A Regime-Uncertainty Problem
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Market Close: Wall Street Closes On A New High, Trump Sugar High, Crude Prices Testing Resistance, US Dollar Melts Higher
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



Crowdfunding ....






























 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 - 2016 Econintersect LLC - all rights reserved