Ruth Lea: It really is time for a referendum on EU membership

Ruth Lea is an Economic Adviser to the Arbuthnot Banking Group:

There has already been considerable traffic on ConservativeHome concerning the impending bailout of Portugal, in general, and Britain’s commitments to contribute, in particular. Of course Britain should not contribute. After all, we made the decision to stay out of this most dysfunctional of currency unions, but are now expected to help save face for those politicians who, grandstanding on the world stage, pushed ahead with this most grandiose of political projects.

To those of us who were energetic participants in the Euro debate in the late 1990s and early 2000s it was all too horribly obvious that the economies entering the “one size fits all” Eurozone were fundamentally incompatible. But such concerns were brushed aside as “eurosceptic” and somehow it was assumed that the German economy would become more Greek, and the Greek economy more German, so that all could live in perfect harmony and fulfill the integrationist dreams of the EU’s Founding Fathers. It was a fantasy of course.

The precise details of the bailout have, of course, yet to be agreed – not least of all because Portugal only has a caretaker government. But assuming that the total support for Portugal will be around €70-80billion, the British contribution could amount to €4billion, or about £3.5billion. This arises because of the British Government’s agreement to participate in the €750billion “shock ‘n’ awe” package that was put together at the height of the Eurozone crisis last May to bolster troubled Eurozone countries other than Greece. (Greece had its own €110billion bespoke package.)

The package included three components, two of which committed the UK. The first concerned loans to countries in difficulties from the International Monetary Fund, to which we contribute. The second concerned loans through the EU27’s €60billion European Financial Stability Mechanism where we have a 13-14% share of the liabilities. The implications for Britain, agreed just after last May’s general election, somehow slipped under the radar. But there again we were informed that the “shock ‘n’ awe” package would be so “shocking ‘n’ awesome” that the “markets” would simply not have the temerity to take on the combined might of the EU. But this is all history.

The sad truth is that the EU’s rescue bailouts really are more concerned with political face-saving than rescuing the beleaguered peripheral economies. They are barely even palliatives. As the austerity packages bite, it will be all but impossible for the economies of Greece, Ireland, Portugal and Spain to prosper.

Last week’s decision by the European Central Bank to raise interest rates only adds to the pain. As with the UK in the early 1990s, when we were locked inside the ERM, jobs will be lost and people’s living standards damaged. At least Britain had a relatively pain-free exit door and left the ERM in 1992. And it can surely only be a matter of time before Greece, and possibly Ireland, Portugal and Spain, leave the Eurozone, let their currencies fall, default on their debts, take the short-term pain and go for growth. As one Herb Stein, a US economist noted for his aphorisms, said: “if something cannot go on forever, it will stop”.

But getting back to Britain. Given the huge economic difficulties facing Britain, it is time to take a hard look at our relationship with the EU and its increasing financial demands upon us. Recent ONS data showed that our net contributions to the EU last year were over £9billion, around £350 per household. Moreover, these contributions are set to rise.

It is surely time the British people were given their say on whether we should stay in the EU or go for the looser, Swiss-style relationship as I used to argue in favour of when I was Director of Global Vision. We last had a referendum on EU membership over 35 years ago - then the EEC - when the world was a very different place. We need another one now.

And this is why I support the recently launched “People’s Pledge” which campaigns for a referendum. It is cross-party and backed by people across the political spectrum including John Cryer MP and Caroline Lucas MP. Its USP is to ask people to “pledge their votes at the next general election only to those candidates who publicly support a referendum on EU membership”. It is quite the most impressive campaign for a referendum on the EU that has been set up so far. (I’m on the Advisory Council, to declare an interest.) The pledge can be found on www.peoplespledge.org. I urge you to support it.