New research has showed the opportunity cost of the establishment of the Euro currency has cost the UK as much as £82bn in lost exports over the last 20 years, writes Brian Monteith.
Whether you believe the love of money to be “the root of all evil” – as is said in the Tanakh or Bible – or give more weight to “money makes the world go round”, as sung in Cabaret, there is a great deal of the stuff being debated over by our politicians this week and next.
In London the big votes on how Brexit might proceed are coming up and the costs involved are enormous – but here too in Edinburgh, next week’s council vote on the tram extension has some big numbers attached to it.
For the public, the numbers are so large as to be incomprehensible; we mere mortals are unlikely to ever have a billion of anything in any quantifiable sense we can appreciate. Likewise, the way politicians spend money I doubt they can comprehend the sheer scale of it all either.
When the Leave campaign put that the EU was costing the UK £350 million a week on the side of a bus, it was all about trying to give people some sense of what the £18 billion a year that was handed over to Brussels meant. Ironically this led to an (intentionally) distracting debate challenging the numbers because the figure did not include what we might get back. The fact that the cost, be it £350m (gross) or £260m (net), was still a massive number, was what people understood. Since that time more research has been done that shows the figure going to Brussels is actually larger and that £350m a week was an underestimate.
Then there are what economists call opportunity costs; the things you can lose because an opportunity is denied to you. These are not normally felt – because you can’t lose what you don’t have – but they can be measured.
This week, research by Scottish economist Ewen Stewart showed the opportunity cost of the establishment of the Euro currency has cost the UK as much as £82bn in lost exports over the last 20 years. This will have meant fewer jobs, raising less tax revenue and having less money to improve the NHS, schools or other shared public benefits – as well as lower personal wealth for everyone.
How so? Back in 1994, the economies of the US and the countries that would form the Eurozone were of broadly similar size – each worth about 25 per cent of global GDP. Today the US economy is 30 per cent larger than the Eurozone. Had the Eurozone grown as fast as the US, then the UK could have expected to have sold a staggering £82bn more in exports due to greater economic demand. The Eurozone’s economic policies created its own problems but we have been paying for it too.
Fortunately the UK economy has outperformed all the major EU economies, including Germany, since the financial crisis. Overall we have grown 19 per cent over that period compared with growth of 13 per cent in the Eurozone. That might not seem much but six per cent amounts to £120bn, equivalent to just less than the UK’s entire NHS budget.
As many national politicians fret over the imagined cost of leaving the EU without a deal, a greater understanding of the risks of remaining in such a dysfunctional EU would be more appropriate.
Likewise we need our politicians in Edinburgh to weigh up the cost of spending great sums on a tram extension when other projects could benefit instead.
The extension is now being put at £257m, having first been estimated at “only” £165m. And does anyone believe that figure will be achieved when there are still 1,200 “local difficulties” identified beneath Leith Walk to be dealt with?
Maybe the Edinburgh public needs a big red bus going round the city with “£93m a mile” painted in huge letters on the side so councillors might get the message that, like the EU, the cost is not worth the candle?