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The EU: No economic theory suggests being in it is better than being out of it (CC BY-SA 3.0)

Two kinds of nation are found in the modern world — a minority (28) that belong to the European Union and a majority (more than 160) that do not. Most of the world’s roughly 190 nations have their own currencies. All have assets that constitute national wealth, and a great many have stock exchanges where the assets can be bought and sold.

Economists and others have put forward numerous theories to explain the valuation of both currencies and assets, where the word “assets” embraces houses, land, equities, bonds and so on. Currency markets behave crazily from time to time, but the most plausible view is that an exchange rate is just another price. Like every price it is set by supply and demand. If governments and central bankers create too much money relative to demand (as they did in Germany in 1923 and Zimbabwe in 2008, and as they are doing now in Venezuela), the value of money falls.

No theory proposes that the value of a currency depends on the nation’s loneliness, its geographical location or its abstention from this or that international organisation. Counter-examples are so obvious that they can be limited to one paragraph. Switzerland is a country of eight million people, little more than 1 per cent of the continent (defined mostly widely) in which it is situated. It does not belong to the EU and until 2002 it did not belong to the United Nations. The Swiss franc is about as lonely a currency as could be imagined. But it has appreciated against all the world’s other currencies, including the euro, in the last 50 years. Japan could claim to be Asia’s most peripheral nation, in the atlas sense. But, again, its currency has been impressively strong for much of the last four decades. 

Further, not one school of macroeconomic thought has argued that assets within EU member states have systematically more expensive valuations than nations which are not EU member states. No evidence whatsoever has been presented that companies quoted on the stock markets of Germany and France are more highly rated (in terms of price/earnings ratios, market-value-to-book ratios and so on) than their equivalents on the stock markets of the US or Australia, or that any such superiority in valuation is attributable to their EU membership. Not a single published academic paper has attempted to claim that EU membership by itself improves the valuation criteria of corporate equity.

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