Suppose that Theresa May’s “deal” is as dead as a dodo. What then? The obvious course is to try to negotiate a better deal. Doubtless the EU will say that there is no better deal on offer. Or they will make some footling concessions. It may indeed be true that there is no negotiating room left. But in any negotiation, one or other of the parties usually says something like this even when there is ample scope for further movement.
You don’t know the true position until you have tried, and possibly tried over and over again. Anyone who has bought a carpet in a Turkish bazaar understands this. You have to be prepared to walk away.
Admittedly, this is a Government that could not negotiate its way out of a paper bag, never mind buy a Turkish carpet. A new government must begin with a different approach to negotiation.
Supposedly, suspending Article 50 to give us more time to negotiate is a possibility. Under some circumstances this could be desirable, but it drives us back to the fundamental question of what sort of deal we want to achieve.
The so-called Norway option is often put forward, at least as a temporary berth. Hence the expression “Norway for now”. Much then depends upon how long “now” is and how we could move beyond the temporary. But this option is pretty unattractive. Norway is inside the single market. This brings some benefits but at the expense of having to accept both the free movement of people and EU regulations. For the UK, being a rule-taker would be downright dangerous, particularly for financial services.
A more appealing option would be the Canada deal, preferably with some additions, hence “Canada plus”. Is there time to achieve this? Perhaps this option could be combined with some sort of limited delay to our scheduled exit on March 29. But the EU may not countenance this.
The fall back option is to leave the EU without a deal. This is what Mrs May should have been preparing for from the beginning. In reality, despite all the hyperbole surrounding it, a no-deal Brexit, that is a Brexit that involves us trading with the EU on World Trade Organisation (WTO) terms, amounts to a real Brexit. Unlike Mrs May’s “deal”, it offers the opportunity to realise the economic benefits of leaving the EU.
It would still be possible for the UK and the EU to conclude various side-agreements on such things as aircraft landing rights. The more of these that can be agreed, the lower the costs of exit will be, both in the short-term and the long-term. In that case, you might reasonably think, we had better get on with negotiating these side-agreements with all possible haste. You would be right.
Nevertheless, the immediate effect of a no-deal Brexit would be adverse because there would be some disruption which would be bound to have costs for business. Equally, it would take time for the benefits of Brexit to come through. So, the immediate effects would be negative.
But how large would they be? The Bank of England has joined the chorus of people saying that the short-term loss would be catastrophic. It suggested that after a no-deal Brexit, the one year drop in GDP could be as much as 8pc. In its defence, it has said that this is not a forecast but rather the stress test of a worst-case scenario.
In that case, it might as well have modelled the outbreak of war between the UK and the EU. Unfortunately for its reputation, the Bank is trying to hide behind this flimsy defence what is in reality a crude attempt to frighten people, aimed at persuading politicians and the public that they should not contemplate the no-deal option.
As regards the long-term, a no-deal Brexit involves a balance of positive and negative factors. The leading negative is the cost of trade frictions at the border. Yet we have lots of evidence from businesses involved in international trade that such frictions are minimal.
Moreover, if they were so overwhelming, why is it that countries all around the world which are not members of the EU manage to export into it so successfully? Indeed, their exports into the EU have been growing faster than the exports of most EU members to other EU members. The explanation is staring you in the face: border “frictions” aren’t quite what they are cracked up to be.
The positive factors are the gains from FTAs and deregulation for which the Treasury has estimated remarkably low numbers. So, hey presto, it comes up with a large net loss. There is a nice expression to describe what has been going on – “policy-based evidence making”.
Meanwhile, has anyone in the establishment noticed what is happening in their blessed EU? The great EU enthusiast, the wunderkind President Emmanuel Macron, increasingly looks like a busted flush. He has already succumbed to the power of the Parisian street. Germany is trying to feel its way to the post-Angela Merkel era.
It is likely to involve not more Europe but more Germany. In eastern Europe, governments are openly flouting both the letter and the spirit of EU law. In Italy, it is only a matter of time before the balloon goes up. This is the entity from which the UK supposedly cannot safely withdraw. The truth is that it is the entity of which it cannot safely remain a member.
At major timing points, the British economic establishment, suffused with defeatism and pessimism about their own country, has repeatedly blundered – over the Gold Standard in the early Thirties, over Margaret Thatcher’s reforms in the Eighties, over the ERM and (very nearly) over the euro in the Nineties. They are at it again. At the present critical juncture in our history, MPs should listen to the blunderers no more. For once, they should have faith in Britain’s future.
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