David Cameron’s EU referendum proposal has put the cat amongst the pigeons, but what real impact is it likely to have on inward investment in the UK?

I’ve commented previously that the UK is the ideal gateway for business into the European Community.  I’ve enumerated the following advantages:

1. It’s quick and cheap to set up here
2. It’s not within the Eurozone
3. Its internationalist outlook – a polyglot nation if ever there was one
4. London’s status as the world’s most important financial centre
5. The flexibility of its labour market
6. Its business sophistication and innovation
7. The dependability of its legal system

The UK’s pragmatist approach to the EU and its oft-expressed view that the EU’s greatest attribute is the Single Market attracts a substantial level of support from within the EU itself – one need only read Angela Merkel’s balanced comments to realise that even within the Eurozone, there is a recognition, perhaps grudging, that the UK frequently has a point.  Amongst non-Euro members of the EU, the UK’s stance that the Single Market is the EU’s primary purpose is well-regarded.

The EU currently comprises three distinct groupings – existing Eurozone countries, countries committed to joining the Eurozone, and those with no such commitment.  There are divergent positions within each of these groups.

Most obviously, within the Eurozone, there are industrialised successful economies such as Germany and Finland, there are the wannabe’s with varying degrees of problems led by France, and there are the strugglers – Greece, Spain etc.  Concerns about the future of the Eurozone may be making less headline news today than they were last month, but they haven’t gone away.   Solutions need to be found to tackle mass unemployment in the periphery and a hugely burdensome welfare structure that threatens all.  The problems are economic – the solutions are political.  That’s seventeen countries attempting to find compromises between each that their political leaders can sell to their own electorates.  No-one knows how long it might take, and no-one has a clear idea of what the outcome might look like.   So if you’re an inward investor, how certain can you be that the location you choose today will still prove to be the right one tomorrow?  You can’t.  You’ve no real idea what you’ll be getting into.

Whatever the compromises Eurozone members conclude between themselves, inevitably they will impact on the EU as a whole.  So non-Eurozone members need also to participate in the compromise process. And as the non-Eurozone members are an even more diverse group, what form might those compromises take?  What impact might they have on individual states?  Will they incline an inward investor toward Bulgaria, perhaps, as opposed to much more highly developed  – and relatively expensive – Poland?  Will either or both be within the Eurozone itself by the time the dust has settled?  There are no answers to these questions.  Uncertainty reigns.

Inward investment is by its very nature long-term.  The rationale for it must always be economic, and that requires there to be a degree of certainty about the longer term.  One could surmise that in the longer term the Eurozone will become the EU, but that’s simply not going to happen within any reasonable estimate of what might be a foreseeable timescale.  It is inconceivable that either Denmark or the UK – the two countries not committed to ever join the single currency – would choose to do so in the next 10 to 15 years just as it’s inconceivable the other EU members could eject them from the EU against their wishes.

So to come back to the original question, what real impact is the promise of a referendum on a renegotiated membership terms likely to have on inward investment in the UK?

It’s worth bearing in mind Stephanie Flanders’ recent post.  Currently Germany’s largest trading partner is the UK – not a relationship either Germany or the UK would want to lose.  Given Germany’s status within the EU and its role as paymaster for the ills of the Eurozone, it will ensure such steps are taken as are necessary to enable a future Conservative government to present a renegotiated treaty to a referendum.  A referendum to either continue with the known, but on better terms, or to step into the unknown.  It would be a seriously failed government, supported as it would be by all but the foaming at the mouth diehards, that couldn’t sell that to the UK population.

So – the conclusions I reached in my earlier posts remain the same – the UK is still the gateway to Europe.   The pigeons were there anyway, squabbling as per usual – all Cameron’s done is to place the cat needed to give them a fright.