Brexit – what were they thinking?
DISCUSSION about the economics of Brexit this summer was largely confined to academia and think tanks. Attempts by then British prime minister, David Cameron, the UK treasury, the Bank of England, Labour Party grandees, US President Barack Obama, the International Monetary Fund — and, for light relief, David Beckham and Richard Branson — to scare the pants off voters with warnings of immediate economic misery backfired.
They were perceived by an increasingly Eurosceptic electorate as dodgy counsel.
But with the decision made, notwithstanding cross-party attempts to unmake it, the focus now is on what the British want by way of economic and trade gains.
Anyone who says they know what the deal will be after a two-year negotiation — the most complicated ever, according to Brexit secretary, David Davis, and involving the four nations of the UK, 27 EU governments, and the Brussels commission — will be a special sort of expert.
And, as former education and justice minister, Michael Gove, drily noted, the British have had enough of experts.
A pivotal unknown when weighing gains and losses is how a British government — with or without Scotland — will untangle 43 years of ever-closer, if begrudging, integration in matters ranging from cross-border trade, taxation, competition policy, agriculture, and working hours to specifications for bananas, vacuum cleaners, hairdryers, and lightbulbs.
The British government’s plan, subject to parliament’s approval, is to:
- Repeal the European Communities Act;
- Retain in UK (and Scottish, Welsh, and Northern Irish) law the thousands of EU directives that have been enacted since 1972;
- Spend the next decade ditching what’s not wanted and keeping what is.
Working hours and employment regulations, for example, are likely to be retained, while the Brussels red tape that binds the thousands of companies that do not sell to European buyers will be binned.
Voters during the referendum campaign bemoaned the lack of incontestable facts about jobs and trade in post-Brexit Britain, but the inconvenient truth is that there weren’t any then and there aren’t any now.
“There is no definitive study of the economic impact of the UK’s EU membership or the costs and benefits of withdrawal,” said the UK government, led then by David Cameron, in a paper published in February this year.
This was the same prime minister who, in May this year, said Britain was an “amazing country” with a “brilliant economy” strong enough to survive outside the EU, while simultaneously fronting ‘Project Fear’.
Yet another known unknown is the fate of the 27-strong EU itself. The institution — or, to some, empire — might survive, says the Nobel-prizewinning economist, Joseph Stiglitz, but only by ditching its key, yet fatally-flawed project, the euro.
Quids in
Constitutionally, Brexit will be as seismic as England’s 16th-century break from Rome, and the showdown a century later between parliament and the crown. On the bright side, and all things being equal — which in this case they’re unlikely to be — an immediate economic plus, after the repeal of the 1972 European Communities Act, would be the termination of UK payments to the EU’s budget.
British membership currently costs £188m (€210m) net a week. Estimates of the recurring net cost range — unhelpfully — from 1.75% of gross domestic product to 10%, if the financial costs of complying with EU regulations are included.
The money that’s sent back from Brussels comes with strings attached. The EU Commission, not the British government, decides how it can be spent. There’ll be no strings after Brexit.
Much of the angst about the possible loss of jobs, if Britain cannot secure a free-trade access agreement with the EU’s single market, is coming from London’s financial heart, where banks — British and foreign — insurance companies, and currency traders keep 360,000 people in work.
These jobs — or a great many of them — would vanish, it’s feared, if the corporates, locked out of the single market, migrate to Frankfurt or Paris. Even Dublin fancies a slice of the action.
These alarms over financial relocation have been dismissed by the Bank of England’s deputy governor, Jon Cunliffe, who’s told a parliamentary committee that the EU does not have the same capacity as London.
“A great deal of the business [in the City] is not to do with the European Union; in fact, the minority of the business is to do with the European Union, so the idea that this eco-system is transplanted somewhere else into Europe in the foreseeable future — over time, I don’t know — I think it is highly unlikely.” But what does Jon know? He’s just another expert.
The jobs of people who make, distribute, and sell things other than money, financial instruments, and insurance, are also central to the debate about Britain and the single market.
Former German foreign minister, Joschka Fischer, says: “For the EU, Britain’s exit would be a heavy blow, but, for the British, it would be a disaster.”
The implicit threat — echoed, whenever he gets the opportunity, by the president of the EU Commission, Jean-Claude Juncker — is that trade links would be axed and British workers making and selling products and services to EU countries would be ex-workers.
It’s a logical first-base negotiating position for people whose loyalty to the European project has more to do with blind faith than reason; a “soft” Brexit deal for Britain, one that gives its companies tariff-free access to the European market, while leaving the British government free to control immigration from EU countries, would encourage exits among member states whose experience of the EU has not been quite as agreeable as it’s been for Germany and Juncker’s home country, Luxembourg, which we really must learn to take more seriously.
It’s been estimated — by Britain’s Europhiles — that “up to” to 3.5m British jobs are dependent directly or indirectly on cross-Channel trade.
That is challenged by Brexiteers, who argue that the opportunity for the UK to reach its own free trade deals in markets beyond Europe would more than compensate for EU-related job losses.
Trade with the EU is sizeable — it accounts for 44% of UK exports in goods and services — but that share has been falling, as exports to the rest of the world have been increasing at a faster rate. The European Commission concedes that, “over the next 10 to 15 years, 90% of world demand will be generated outside Europe”.
Britain has more than that one ace in its hand. Countries such as the US, China, South Korea, and Australia have access to the single market, while having no obligations in the free movement of people. Britain buys more — in goods and services, such as tourism — from EU businesses than it sells to them.
With EU exports to Britain worth £290bn year, there are no gains for any country on the continent from a vengeful post-Brexit deal.
Speaking as the head of the Federation of German Industries (BDI), Markus Kerber urges his country not to risk cross-Channel trade with punitive post-Brexit tariffs: “Imposing trade barriers between … the two political centres, the European Union, on the one hand, and the UK, on the other, would be a very, very foolish thing in the 21st century. The BDI would urge politicians on both sides to come up with a trade regime that enables us to uphold and maintain the levels of trade we have.”
Or, as might be heard in Bremen or Wolfsburg, “Man soll den Ast nicht absägen, auf dem man sitzt”, an idiom better known to us as “don’t cut your nose off to spite your face”.
Bread and butter
A tumbling pound means higher prices for imported food, whether the UK is in or out of the EU, but the end of the Common Agricultural Policy (CAP), which accounts for 40% of the union’s spending, will clear the way in Britain for a reformed — and efficient — agricultural subsidy system unshackled from a regime that keeps farm product prices 17% higher than they could and should be.
The current EU external tariff imposes taxes (ranging from 12% to 42%) on food and clothing imports that cannot be reduced by member states and which penalise Third World producers. Exiting the EU’s customs union will leave the government free to set its own import tariffs and to cut prices.
Scrapping the Common Fisheries Policy creates the opportunity to restore Britain’s exclusive rights in a defined off-shore zone. That — provided the government is able to enforce it — would enable seaports to rebuild their diminished fleets and the jobs they sustained.
None of this, of course, is going to happen any time soon. Britain’s attempt to join the Common Market (the embryonic EU) began in 1961 and, twice vetoed, astutely, by France’s General de Gaulle, continued rancorously for ten years.
Now, after a long marriage that perhaps was doomed from the outset and which has rarely, if ever, been joyful, it’s likely that computing the costs and benefits of the divorce will take ten years, and then, quite possibly, another decade, if, because of a choice made chiefly in England and Wales, Scotland votes for independence.
