Britain may not be able to get access to the single market and control of immigration right now, says Matthew Lynn. But don't count on it staying that way.
There can be no compromise on free movement of workers. The UK can't expect to have its cake and eat it. There can be no "cherry-picking" of the advantages of the single market. The mantra from German Chancellor Angela Merkel and most of the leaders of the EU ever since the UK voted to leave the Union three months ago has been unrelenting. If the UK wants to trade freely with the rest of the continent, it must allow people to move freely as well.
Don't expect that line to last. Why? Because Germany is about to face the same pressures that led the UK to vote to leave. Germany is starting to see precisely the same kind of trends as Britain has seen, with high levels of job creation, and yet with those positions nearly all filled by cheap migrant workers and the knock-on effects that has on productivity, pay and social cohesion.
When the EU had only nine members, all at roughly the same level of economic development, free movement of labour was a great idea. A few architects or engineers might travel from the UK to Germany, or France to Italy, but it was a right which only a small number of people exercised. Few blue-collar workers bothered.
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The difference in wages was not even close to being enough to justify the upheaval involved. In fact, not many professionals bothered either. Language barriers made it too hard for most to move, and differences in qualifications often made it impossible. It worked fine, precisely because so few people actually worked in other countries.
Extending the EU to eastern Europe changed all that. Suddenly there was a mass movement of workers, first to Britain, and then more slowly as interim restrictions were lifted, to other European countries as well. For the Poles, the Czechs and the Hungarians, wages were ten times more in western Europe than anything they could earn at home.
For the Romanians and Bulgarians it was more like 20. We have few clear empirical experiments in economics, but this one was clear: offer people ten times as much money, and they will move country. We saw that most dramatically in the UK, with more than a million east Europeans coming here, transforming the labour market.
The same thing is now happening in Germany. Last year, the country created 403,000 jobs, according to High Frequency Economics. But unemployment only fell by 113,000. The difference? Immigration, mainly from eastern Europe, as well as from the one million refugees who have flooded into the country in the past year. As new jobs are created, they are filled by newly arrived workers from abroad, not by unemployed Germans.
According to the central statistical agency in Warsaw, there are now 2.6 million Poles overseas, or 6% of the country's population. Hardly surprisingly, the largest number are in the UK, home to 720,000. But there are now 655,000 in Germany, and that number is rising faster than it is in Britain. As you might expect, they go where the jobs are there are fewer than 100,000 in depressed Italy, for example, even though it is a similar size to the UK.
Germans are not likely to feel any more comfortable with this than the British have been. That will then be reflected in the politics. Right now, most of the EU insists free movement has to remain part of any trade deal with Britain. But that will change when other countries start to feel the same pressures that Britain is feeling as the economy gets hooked on cheap labour. We may not be able to get access to the single market and control of immigration now. But in a few years the rest of Europe will he happy to give it to us because they will want it too.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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