Why British capitalism needs the EU

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Britain and Europe

In March, David and Samantha Cameron were received by Barack and Michelle Obama in the White House and accorded a status almost equal to that of a visiting head of state (including a 19 gun salute - just two short of that accorded to a head of state). A few months before Cameron was publicly snubbed by Sarkozy after opposing changes to the EU designed to tackle the economic crisis. To many this showed that the Euro-sceptics now control the Tories and that the ‘special relationship’ is alive and well. In fact, the situation is more complex than this description would suggest. After all, it was the same Cameron who has given funds to support the European bailout and who complied with rulings of the European Court of Human Rights in the face of calls from the press to simply ignore it. It was the same Cameron who on coming into office declared that Britain should have “a solid but not a slavish” relationship with the US, while his Foreign Secretary called for Britain to “elevate key partnerships beyond Europe and North America.[1]

To understand these apparent contradictions we have to look below the surface and examine some of the economic and imperialist issues that determine Britain’s international relationships and foreign policy.

The economic importance of Europe and the US

Examination of the statistics of Britain’s international trade shows that Europe, as a whole is the UK’s largest partner in terms of exports and imports of both goods and services but that the situation is more complex than this suggests. Although British manufacturing has been in decline for many years and makes a smaller contribution to GDP than the service sector, in terms of value it is still larger than the service sector.

In the trade in goods[2] the EU 27 accounts for well over half of Britain’s exports and imports. However the balance is not only negative but seems to have become increasingly so over the decade. In 2000 trade with the EU accounted for 60% of Britain exports and 53% of its imports, with a negative balance of £5,141m, accounting for 15.5% of the overall deficit of £33,030m in the trade in goods. A decade later the proportion of exports and imports to and from Europe still accounted for more than half of the total (53% and 51% respectively) but now made up more than 44% of the total deficit of £98,462m. This contrasts with Germany where 60.8% of exports were within the EU in 2010 and where the balance is positive.[3] Trade with the US is significantly less than with Europe but it is the only major geographical area where the balance is in Britain’s favour. The USA accounted for about 15% of exports from Britain in both 2000 and 2010 but the balance in both years was positive, with surpluses of £906m and £10,933m respectively. This tenfold increase reflects the increase in exports to the US from £29,371m in 2000 to £37,925 in 2010 and the corresponding fall in imports from £28,465m to £26,992 over the same period. It is worth noting that while trade with China has grown over the decade, as would be expected, and while trade with Asia remains significant, the balance in both cases is negative.

Turning to the trade in services, the first point to note is that the balance in 2010 in all the main geographical areas shown is positive. Overall, the surplus came to £58,778m. A decade previously, the balance with Europe was negative. In 2010 the EU 27 accounted for nearly 19% of the positive balance of trade and the rest of Europe just over 16%. However, these positive balances arise from nearly half of the value of exports. In contrast, in 2010 trade with the US accounted for over a quarter of the positive balance of trade while the trade itself accounted for only 20% of the value of exports. This suggests that trade with the US is more profitable than trade with Europe, although the situation with the latter has improved over the last decade.

Within the overall trade in services, financial services are the largest single category, accounting for 28% of total exports of services in 2009 and 25% in 2010. The Report on the British Situation produced towards the end of 2010 noted that from the 1970s onwards the financial sector grew far faster than the rest of economy and was far more profitable: “From accounting for about 1.5% of the economy’s profits between 1948 and 1970 the sector has grown to account for 15%.[4] The report also showed that the financial sector stands above all others in the gross value it adds to the economy. Examination of figures over the last two years shows that here too Europe is Britain’s largest market, accounting for 40% of exports and 35% of imports and making up 43% of the total positive balance of trade. However, the data also shows that the US is a significant partner, accounting for 20% of exports and 31% of imports and contributing 17-18% of the total positive balance.

London is the leading global centre of financial services alongside New York. “London is the centre of the UK’s banking industry, which holds the third largest stock of customer deposits of any country in the world. 17% of all global trading in equities took place in London in 2009, a higher proportion than anywhere except New York. And UK fund managers, predominantly in London, managed portfolios worth 11% of the global total - again second only to the US.[5]

Another aspect of Britain’s international position is the transfer of income from abroad. These include payments to British citizens working abroad, earnings from direct investments overseas and from other types of foreign investment. When these are balanced against transfers out of the country the overall position has been positive in recent years, but this is entirely due to the income from foreign direct investments. In May 2011 the Office for National Statistics reported that: “for the past decade net income flows have generally been positive, meaning that the UK is earning more income from its ownership of overseas assets than it is paying foreigners for their ownership of UK assets. In 2009 this positive net position raised national income by two per cent relative to GDP.[6] The apparently paradoxical aspect is that this positive return is made from a negative International Investment Position (“that is the difference between its stock of foreign assets and foreign liabilities[7]).

This examination of Britain’s international trade shows that its economic interests have their main focal points in Europe and US. This helps to explain the actions of the British ruling class in recent years and during the current crisis in particular.

On the one hand, Britain would be seriously affected by turmoil in the EU and so recognises the need for action to be taken to ensure the stability of the EU and its member countries and has little option but to support that action to some extent. This is one of the reasons why Cameron has continued to try and play a role in the EU's decisions, even after his ‘veto’ of the proposed treaty revision in October last year left him formally outside the discussions that led to the recent agreement. The central role that Britain seems to have played in drafting a letter putting forward proposals for growth suggests that this is tacitly acknowledged by other states.

On the other hand, Britain is unwilling to countenance anything that might affect its global position, especially with regard to the financial services sector given its central role in the economy. Hence the ‘veto’ last October and the opposition to a tax on financial transactions (the so-called 'Robin Hood' or Tobin tax). Trade with the US remains vital to British national interests.

While it would be an error to see a mechanical relationship between Britain’s economic and imperialist interests it would also be a mistake to deny any such link. Analysis of the economic dimension reveals some of the foundations of Britain’s strategy of maintaining a position between Europe and the US.

British imperialist strategy and Europe

In the Resolution on the British Situation adopted at World Revolution’s Congress in 2010,[8] we traced the evolution of Britain’s imperialist strategy over the last few years, ending in the impasse that characterised the last years of New Labour. The coalition inherited a serious situation and had to recognise that British imperialism had suffered a further decline in its power and status. However, the resolution underlined that the British ruling class would not simply give up and pointed to the early attempts by Cameron to find a way out “that reached beyond the dominance of the US and Germany (as the main power in Europe)”. The highpoint of this strategy to date was its ‘successful’ intervention in Libya alongside France in 2011. This allowed the British ruling class to play a role on the world stage after all the rebuffs to Blair and Brown and to show its military prowess after all the humiliation in Iraq and Afghanistan and the reduction in ‘defence’ expenditure forced on it by the economic crisis.

Britain’s strategy towards Europe has two key aspects. Firstly, within the global balance of power, Europe can provide an important counterweight to America, not least because it is generally more reluctant to follow the US into wars and imperialist adventures. Secondly, within Europe itself, Britain retains its historical opposition to the growth of German domination. Historically one of the UK’s tactics has been to support the expansion of Europe in order to dilute German influence. More recently, the Defence Co-operation Treaty with France announced in November 2010, while partly a pragmatic response to the cuts in the defence budget, was principally aimed at strengthening the capacity of both countries to act on their own to defend their interests. While couched in the language of international co-operation through the UN and EU, it also stressed the development of bilateral capability to carry out a range of operations. The importance attached to this explains the rapid patching up of relations between Cameron and Sarkozy after the insults and snubs that followed the British veto of the Treaty revision last year.

Within Britain, Cameron has effectively managed the Euro-sceptics, who, on paper, probably now form the majority in the party. Many of the new in-take of Tory MPs were trained by the Young Britons Foundation, a right-wing think tank with strong ties to the neo-cons in the US. At times he has been happy to adopt their language, moving the Tory MEPs from the mainstream centre-right group to one encompassing an assortment of far right parties and promising a referendum on the Lisbon Treaty. However, in practice he has worked to maintain British influence in Europe and has been prepared to go against the Euro-sceptics in his party to do so. The promise of a referendum on the Lisbon Treaty was scrapped in November 2009 after the Treaty was passed by every member of the EU. Cameron was able to blame the Brown administration for signing and promised he would not ratify another treaty without a referendum. The coalition with the Lib Dems brought former MEPs like Clegg and Huhne into the Cabinet and it is possible that the need to balance the Tory right was a factor in the creation of the coalition. Most dramatically of all, in October 2011 Cameron imposed a three-line whip against attempts by Euro-sceptic MPs to force a vote on a referendum on EU membership. The fact that the vote was lost and no splits appeared in the party suggests a level of pragmatism and discipline that belies the little-Englander outlook of some individual Tories.

With his opposition to the proposed treaty changes in December 2011, Cameron seemed to polish up his Euro-sceptic credentials and won the applause of the Tory right. In fact, far from being a change of approach this was a fulfilment of Cameron’s commitment to defend Britain’s financial and imperialist interests. Blocking the Treaty kept the City free of external restrictions. It also sought to limit Germany’s efforts to use the financial crisis in Europe to strengthen its domination of Europe. Cameron’s subsequent steps to restore relations with France and to re-engage in European efforts to manage the crisis were both rapid and effective. This doesn’t mean that the veto was without cost: over and above the insults suffered at the time it can only have reinforced the perceptions of British duplicity that may contribute to problems in the future. But for now, Cameron has scored another success in European policy.

North 26/03/12

[1]. Britain’s prosperity in a networked world. Speech given in Tokyo 15th July 2010. Available from the Foreign and Commonwealth  Office website.

[2] The majority of the statistics in this article are based on data in the 2010 Pink Book – United Kingdom Balance of Payments - published by the ONS.

[3] Deutsche Bundesbank, Monthly Report March 2011 German Balance of Payments in 2010

[4] Published in International Review no. 144 as “The economic crisis in Britain

[5] London’s competitive place in the UK and global economies, Oxford Economics, 2011.

[6]  ONS Economic and Labour Market Review, May 2011, p.15.

[7] Ibid.

[8] Published in WR 340. See also “British imperialism: looking for a way out of the impasse” in WR 337 for further details.