Britain: Europe's Hong Kong?

Hong KongThe world is changing fast. Just 20 years ago, 1992 was heralded as the year of the Single European Market. Since then monetary union has been created and nearly destroyed, and much of Europe is coalescing around closer political union. At the same time, the world's wealth is shifting eastwards and southwards.

Over the next 10 years, Britain could reinvent itself to be for Europe what Hong Kong was -- and is -- to China: a trading post that acts as the window to the rest of the world.
Wouldn't it be marvellous if, instead of staring across the fog of the channel fretting about what is happening in the eurozone, our leaders turned their attention outwards to the rest of the world and cemented Britain's place in it, while our competitors are preoccupied with the intricacies of fiscal, banking and political union?

Of course, it's impossible to predict what will happen in Europe. It's the uncertainties of the fallout from the ill-conceived monetary union that are dogging markets. But it looks fairly certain that in 10 or 20 years' time there will be a two-tier Europe. The core eurozone states are moving towards much closer political and economic integration than the UK is likely to find acceptable.

But both Britain and the rest of the EU gain much from Britain's membership of the single market. With Britain having a net negative balance of payments with the EU, Europe has more to lose than the UK were the country to leave. So whether Britain ends up in an outer zone of the EU, or in some form of reinvigorated European Free Trade Area, it should still enjoy close trade ties.

But whereas Britain's place in Europe has been the subject of endless debate, wouldn't it be better if that were taken for granted and the country turned its attention towards the outside world where wealth is now being generated?

That must inevitably start with China. The country is moving on from rapid investment-led growth to becoming a large and wealthy consumer society. It is financing Western deficits, and increasingly investing directly into Europe. The Chinese government expects outflows of direct investment to match inflow by 2015. Similar arguments apply to the other BRIC countries and emerging markets.

The UK remains the most attractive destination for inward investment in Europe, according to Ernst & Young's recent European attractiveness survey, but Germany is catching up. Last year it secured more foreign direct investment projects from BRIC countries than the UK did. That isn't how it should be. Cameron and Osborne should be courting international investors while Merkel and Schäuble spend their time calculating how to punish overspending eurozone governments.

The UK is uniquely suited to this outward facing role. The list of its advantages is embarrassingly long. They include:
  • Language: English remains the lingua franca of global business;
  • The London Stock Exchange, which brings international capital and foreign companies to London;
  • The City generally: (mostly) strong banks, accountants, lawyers, and all of the paraphernalia of supporting professional services which makes London the premier global financial hub in the European time zone;
  • English law, English courts and fair regulation;
  • An openness to inward investment;
  • A reputation for transparency and being an easy place to do business;
  • An openness to immigration, and an attractive place for foreign expats to live;
  • World-class universities and a reputation for innovation;
  • Historic strong ties with the US, India and parts of the Far East and Africa (i.e. former colonies).
The danger is that we will miss this opportunity by focusing too much on the past that might have been. We risk looking inwards to Europe, not outwards to the world, for two main reasons.

Firstly, politicians of every hue are too easily seduced by the riches and rewards on offer from the European Union. There's power and privilege for those with ambition to become a European Commissioner and possibly, for one lucky Eurolotto winner, the golden prize of President of Europe.

And secondly, it's a hard reality for us all to swallow, to recognise that our prosperity lies in being a far-flung dot on the map of the Chinese Empire, rather than the other way round. We speak of China and similar countries as 'emerging markets' and ourselves as 'developed markets'. Sooner or later we will have to substitute terms such as 'new powers' and 'former powers'.

There is a cost the thinking of the world in these terms. We can't be too sniffy telling other countries how to conduct their affairs or govern their peoples if we want to take their money. Riches go with Realpolitik as poverty to principles.

But at least we could make those decisions for ourselves. For every speech politicians make about the turmoil in the eurozone, I'd like to see them make one about our place in the rest of the world. I can only wish...

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