Scheherazade S. Rehman is a professor of international finance/business and international affairs at The George Washington University. You can visit her homepage here and follow her on Twitter @Prof_Rehman.
If the United Kingdom's Prime Minister David Cameron wins the next British elections (set for 2015) he has committed to hold a referendum on the U.K.'s membership in the European Union. Cameron's proposal is to hold a referendum in 2017 in the form of a simple "in" or "out" vote for the U.K. regarding its EU membership.
Many inside the U.K. have criticized Cameron for using European membership as a vote-gathering maneuver for national elections in 2015. They say he has turned British membership in the EU into a Labor Party/Liberal Democrats versus Conservative/Tory/euro-skeptic's issue. Cameron's critics say that this is a clear demonstration that he is willing to do just about anything to win the next elections with no regard for the overall national interest of the U.K. Most economists agree that the U.K. is going to see a very difficult few years ahead amidst austerity and lackluster growth rates. Cameron may be using European membership as Plan B, as a lightning rod, to ignite his reelection bid if Plan A (his economic recovery plan) stalls and is does not show results before the elections in 2015.
Many outside the U.K. see this as a forceful play by Cameron to renegotiate the terms of U.K. membership in the EU. Cameron is reacting to the European call for further integration, especially fiscal integration, to help deal with future financial crises, unemployment and growth issues. Cameron wants a new British contract with the EU and if he doesn't get what he wants he is suggesting Britain simply leave the 27-member Union. The Europeans feel Cameron is using threats to strengthen his hand during his attempts to renegotiation an a la Carte style membership especially with regards to future European fiscal integration. Over the last few decades, British influence in EU decision-making has been diluted due to the large increase in EU membership and changes in the Union's voting system.
The arguments Cameron is making are easy to defend considering the mess the euro zone is currently in and the series of muddled financial rescues causing more harm than good in some countries. The financial bailouts saw a noteworthy wealth transfer from the rich north to the poor south within Europe. Also the specter of EU fiscal integration (which might include more social and labor laws moving in a more liberal versus conservative direction) and possible additional wealth transfers from the northern countries to the southern crisis-ridden countries could make for a difficult re-election bid for Cameron in 2015. The British are more likely than not to be outvoted on most issues in any future EU integration talks under the current voting system. Thus, Cameron want to cut a separate deal for the U.K.
Nonetheless a gauntlet has been thrown down and a dangerous and reckless gamble has been undertaken. This could create five years of additional uncertainty for the British in a world where risk, uncertainty and anxiety are fast becoming the new normal. No good can come out this increased uncertainty and anxiety. This is particularly true given the interdependence between the U.K. and the other 26 EU members through trade and commerce. As of 2011, the UK's main export partners were: Germany (which accounts for 11.6 percent of its trade), the U.S. (10.6 percent), the Netherlands (8.4 percent), France (7.8 percent), Ireland (6.4 percent), and Belgium (5.7 percent).
Perhaps Cameron's aides are best advised to remind their boss that "the sun has set on the British Empire." British GNP was approximately $2.3 trillion in 2011, which, compared with other countries, does not look impressive. For example, U.S. GNP is $15 trillion, China $6.6 trillion, Japan $5.8 trillion, Germany $3.6 trillion, France $2.8 trillion, Brazil $ 2.1 and India 1.8 trillion. In fact, the entire EU 27-member nation GNP is approximately $17.6 trillion. There is little doubt that there is not a single European country today that is large or impressive enough by any metric (economic, political, military) to stand alone without the EU behind it's back. In a previous blog post I had mentioned "The Europeans, albeit reluctantly, have acknowledged that alone as singular nation states, they are no longer able to sit at the grown-ups table." The U.K. is not an exception.
This reckless gamble by Cameron can only deter foreign investment and growth in the U.K. in an already anxious global market.