Lord Flight: Britain's economic fortunes may not be restored unless we have a major renegotiation of our EU membership

Lord Flight is a former Shadow Chief Secretary to the Treasury who is now chairman of Flight & Partners Recovery Fund.

On the face of it, it is sensible and practical to argue that to support measures to head off a default and banking implosion in the Eurozone; to sort out Britain’s own public finances and to revive our economy, are the priorities for now: and that a fundamental reassessment of our involvement in the EU, including a potential In or Out Referendum, are for another day, and would not now be possible without potentially leading to a collapse of the Coalition. But it has to be questioned whether Britain’s economic fortunes can be restored and indeed our economy not damaged further – or the next General Election won – without a major and radical renegotiation of our relationship with, or withdrawal from, the EU.

Without the division of the Eurozone into a hard currency for the Germanic North and a weak currency for the South, at best the Eurozone economies will be hobbled. The Southern economies are dead in the water without a major currency devaluation. The economies of the Germanic North face the prospect of being shackled with huge bills subsidizing the South. For both North and South this raises the prospect of political turmoil and rising nationalism. The citizens of Southern Europe will resent what they see as being dictated to by Germany, and being forced to accept major cuts in pay and benefits. The citizens of the Germanic North will resent hugely being dragged into providing major subsidies to the South against their wills.

Everyone knows the enhanced bailout fund which will be pushed through notwithstanding the vote against it by the Slovakian Parliament is nowhere near sufficient to finance the borrowing needs of Southern Europe. Measures will likely follow to push through radical, fiscal integration and the federalisation of vast amounts of Sovereign Debt in the Eurozone. Voters in Germany will be furious to have to pay higher taxes to finance this and those in Southern Europe will resent greatly having effectively lost their independence.

All of this will have the reverse effect of the Eurozone being a growing market for British exports. Moreover, the Eurozone commitment to bring in a Tobin Tax, even assuming the UK opts out, will have a serious negative impact on Britain’s largest industry – the City.

It is, I suggest, self-evident that much better prospects for increasing British exports and for economic revival, lie with free trade with the growing economies of the world – India, China,  South East Asia and South America. As an EU member, Britain is precluded from making its own free trading arrangements with these successful economies.

Put even more harshly, do we want to be dragged down by the worsening economic and political conditions likely to come about in the Eurozone, or to ride in with the successful “Brick” economies, where we have complementary specialist services and products to offer them to increase our trade and exports? It is becoming increasingly apparent that a decision of such importance about our future cannot be fudged much longer; and we cannot hope to have the latter opportunity without freeing ourselves up from the shackles of the former costs, disadvantages and constraints.

I have just returned from a week in India.  Its growth has been amazing since I was last there 3 years ago. I greatly welcome the initiative taken by the Prime Minister to have visited India just after the General Election and to encourage more trade and investment, but there is a much bigger opportunity to be the main, mature economy partner with India, where we have so much in common and where our own Indian community is becoming such a vital force in the British economy.

It is no coincidence that last time Continental Europe got itself in such an economic and political mess in the early 1930s, the British economy was able to grow at the fastest rate of the 20^th Century, between 1933 and 1940, by greatly increasing its trade with what is today the Commonwealth, then formed Imperial Tariff Preference.

More narrowly, it is also self-evident that we cannot sort out our welfare system and free up our companies to grow – especially smaller companies – without escaping from mistaken EU Human Rights judgements and excessive, economically damaging, EU regulations, which are daily costing thousands of jobs.

So why not “take a leaf out of Harold Wilson’s book”. When his Cabinet was divided over “Common Market” membership, he put the decision to the people. Especially where the Liberal Party’s manifesto at the last General Election included holding an In/Out referendum on the EU, I do not see why it would not be feasible to follow the same tactic.

As we stand, moreover, as full EU members, we are already starting to see anti-British EU initiatives in reaction to our refusing to participate in the costs of the Eurozone bailout.

It is time to be radical, the elephant in the room is too big to ignore.