UK chancellor Rachel Reeves told a meeting of European finance ministers that it would be “a profound mistake to abandon free trade” yesterday (9 December).
The Eurogroup meeting, which took place in Brussels, was an opportunity to convey “the mutual benefit of the government’s EU reset”, the UK government has stated.
Of particular note was the chancellor’s call for closer cooperation on financial services with the continent, and she argued that the UK sector’s facilitation of investment could rejuvenate industry across Europe at a critical moment for the continent’s competitiveness.
‘Old certainties swept away’
The world, Reeves said, is “in flux”. What she described as “old economic certainties” are being “swept away”, while Europe’s economic “dependencies” are becoming “vulnerabilities”, she added, deliberately invoking former ECB chief and Italian prime minister Mario Draghi’s recent report on EU competitiveness.
The “last two decades of crisis”, from the 2008 crash to recent high inflation, as well as “the impact of a changing climate”, have had significant implications for ordinary people, Reeves argued.
Resolving the issues raised by these challenges and by the war in Ukraine, she continued, would require “a closer economic relationship between the UK and the EU”. It is incumbent on both the UK and the bloc to defend their “collective belief that openness is the route to competitiveness”.
EU response
The EU is likely to make its own demands should the UK formally seek a change to trading arrangements with the bloc, the FT reports.
There is likely to be a call from the EU for a new deal on fishing rights for UK waters, as well as an emphasis on not allowing the UK to ‘cherry pick’ the provisions included in any deal.
A working paper being circulated within the EU is said to foresee only “limited” economic gains from a changed arrangement, though it conceded that a “significant further reduction in trade frictions” would be in the EU’s interests, but that this would “require a different model for cooperation”.
The puzzle
The Draghi report raised questions about the EU economy that have also been posed about the UK, Reeves noted:
“A decades-long productivity puzzle. Low investment. An ageing population. And a set of acute fiscal demands coming at a time of already-high public indebtedness.”
UK productivity has suffered sluggish growth and even contraction in the years following the financial crash, as described in a recent FT report. Reeves suggested this and other challenges were shared by countries across Europe.
Cooperation needed
Resolving these problems required cooperation, she said, calling it “a profound mistake” to “believe that we are stronger alone”. As well as alignment on sanctions and limiting Russia’s capacity to prosecute its war in Ukraine, there was scope for broader economic cooperation beyond what currently takes place between the UK and the EU.
She conceded that there had been drawbacks to free trade, but contended that Europe needed to reaffirm its commitment to it:
“It would be naïve in today’s world to try to go back to the world of hyper-globalisation. The shocks we have endured in recent years show that we have become too exposed to supply chain disruptions, disease and conflict. But at the same time, it would be a profound mistake to abandon free trade.
“Our citizens benefit significantly from all the investment, innovation, and lower prices that free trade brings.”
Echoing the comments from prime minister Sir Keir Starmer last week, Reeves said it was her belief that the UK did not have to make a binary choice between the US and EU – or China.
“We must also find the right way to build a stable, long-term relationship with China. Where we recognise both the value of co-operation in addressing global challenges like climate change, but also the importance of robust challenge where needed.
“But we want to and we will seek a deeper, more mature relationship with our European neighbours too after too many years of actively looking to move away.”
