News reports are depicting the United Kingdom as the “loser” in recent negotiations in Europe, and now “isolated” as it alone opts out of the proposed European fiscal union, in which the other European Community nations agreed to cede a portion of their fiscal sovereignty to the European Union.
In reality, it is the countries that opted in that are the losers, while the United Kingdom’s increased flexibility puts it in a new leadership role in Europe. Some economists believe the new European fiscal union, assuming it succeeds in passing, will usher in a lost decade in Europe, an extended period with little or no growth in per capita GDP. The United Kingdom, though, will easily avoid this, and could plausibly form the largest national economy in Europe by the time we get to 2022.
Some good could come from the coordinated fiscal actions in Europe. Bizarre business taxes like Denmark’s coconut oil tax could be repealed, along with narrow tax exemptions that allow businesses to enjoy a tax haven in a particular country. Businesses that move operations between countries to avoid taxes are not the cause of the EU’s financial problems, though, and at this point, the fiscal union is a dangerous and problematic distraction that can only prevent Europe from addressing its real issues.
There is some indication that the fiscal union will not entirely succeed. Poland’s participation in the bailout fund, for example, appears to be larger than that country’s constitution will permit. Meanwhile, today, polls indicate that a plurality of Britons not only agree with their country’s rejection of the fiscal union, but want to take the opportunity to pull out of the European Union entirely.