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PostLet's Get Brexit Over With: Allister Heath (Angel Vinas, Belgium, 03/12/19 7:00 am)
Although I've been very busy feverishly working on my book, now due on April 9, over the last year I always found time to follow up to a point the Brexit negotiations in Brussels, at least an hour a day.
I have always been a great admirer of the British civil service and, in particular, of the Foreign Office. Hélas! The political leadership has miserably failed. Whether this is a boon or a disaster, the future will tell. Recently, I don't know whether the British media reported or not, the Danish PM stated his belief that the whole episode was a circus and the British political system was melting down.
I therefore thought that WAISers might be interested in the article below which has just appeared in The Telegraph, a quality newspaper which has consistently fought for Brexit.
Obviously the nightmarish negotiations won't end at the end of this month (with high points expected this week in Parliament). Whether the UK crashes out of the EU or not, the day after the same problems will remain unsolved: how to shape the future relationship. My sincere belief is that, to the extent that one can look into the future, it's likely to be highly asymmetrical, and the UK will finally learn how to negotiate with the EU as a third country since its political class apparently never learned how the EU works even after almost 50 years of membership. (I have taken this idea from Sir Ivan Rogers, former HM Ambassador to the EU. He was fired for his efforts.)
I will deplore the still possible cliff-edge Brexit personally. However, I know many EU high officials and politicians who will be more than happy to see the UK in its undoubtedly historically well-established place. Meanwhile I highly recommend reading Mr Heath's narrative.
By Allister Heath
6th Mar 2019, 9:00 pm
If the Treasury was being honest, it would admit that EU membership has made little difference to our prosperity.
Like almost everybody who voted for Brexit, I wanted to leave the EU with a trade deal. I certainly assumed that we would: it is in both sides' interests, and EU manufacturers and farmers do especially well from the present arrangements. I thought the Government would negotiate robustly and sensibly, following Vote Leave's advice not to trigger Article 50 until the outlines of a deal had been agreed, all the while preparing for a hard exit. I expected the EU to realise that a refusal to play ball would mean a calamitous financial, defence and security hit.
It wasn't to be. The abject lack of leadership provided by the Prime Minister, the Government's staggering refusal to leverage the UK's strengths, its bovine nastiness on the rights of EU citizens and, of course, the fact that so many on the UK side were trying to reverse Brexit, all combined to deliver the greatest failure of British statecraft since Suez. The EU was emboldened into laying a series of traps into which we jumped enthusiastically, with what ought to have been the minor issue of Northern Ireland's border turned into a case study in technocratic sabotage.
What now? Tory Remainers are in full swing, threatening either a delay or permanent membership of the customs union and single market--in other words, no Brexit--if MPs don't sign up to the Prime Minister's appalling deal. We must hope that, against all the odds, Parliament doesn't fall for this madness.
Like most Leave voters, my position has hardened. I still don't relish the idea of leaving without a deal, but I'm now, for the first time, reconciled to doing so. As matters stand, a so-called no-deal (in reality, we've already agreed lots of mini-deals) would be our least bad option. It wouldn't be pretty, especially for one or two industries, but would probably cost just 1-2 per cent of GDP. Ifo, the German think tank, is even more optimistic: it believes the cost of a no-deal accompanied by radical tariff cuts would be only 0.48 per cent of GDP. Indeed, the Government's reported plan to eliminate 80-90 cent of tariffs, maintaining protection in only a handful of sectors, would dramatically reduce the net costs of departure. There can be no contest between a Hotel California Brexit or the greatest unilateral reductions in tariffs since the repeal of the Corn Laws.
Even the Bank of England believes the side-agreements it has signed and other preparations have halved the cost of no deal compared to three months ago (and that is before tariff cuts and other, as yet unannounced, palliative measures). The downsides of a clean Brexit have been massively exaggerated, as have the benefits of single market and customs union membership. We have been led up the garden path, in the worst campaign of official disinformation since Tony Blair's dodgy Iraq WMD dossier.
The foundational lie that underpins the myth that no deal would amount to economic hara-kiri, remains the Treasury's preposterous claim that EU membership increased trade with member states by 68-85 per cent, or 115 per cent for goods and 24 per cent for services. Such numbers are bogus: the reality is that EU membership did boost trade with Europe, but not by much. As a liberalising venture, the EU has been a flop since the launch of the single market and euro.
Britain's exports of goods to the EU's 11 founder members have grown by 2.65 per cent a year since 1973, according to an analysis by Michael Burrage published by Civitas; exports to the rest of the world went up by 2.35 per cent. Does anybody really believe that our goods export growth to the EU would have collapsed to just 0.79 per cent a year, far less than to any other developed market such as the US or Australia, had we not been part of the EU, which is what the Treasury model implies? Of course not.
Between 1960 and 1972, before we joined the Common Market, UK exports to what would become the EU were growing strongly. Why would such growth have suddenly collapsed if we had remained outside the EU? The Treasury numbers are a gigantic con. They are not merely orders of magnitude wrong: they are a disgrace to the economics profession.
Gordon Brown's Treasury, for all its flaws, was more honest about the EU than George Osborne's and Philip Hammond's. In 2005, it conducted early (and now conveniently forgotten) research, EU membership and Trade, a 21-page note released in December 2010 after a Freedom of Information request.
Our trade with the EEC grew significantly after we joined in 1973, it notes, but then, as the years went by, the impact dimmed, especially after the single market came into force in 1992, the very time when it should have accelerated.
The paper concludes that Britain's trade with EU members increased by 7 per cent as a result of EU membership, but that this came at the cost of reducing trade with non-EU countries by 4 per cent.
By contrast, EU member states boosted their trade with each other by 38 per cent. "This may reflect the fact that the UK was more open to trade than some member states before accession, and therefore the relative impact may have been less," it says.
The rest of the paper is equally fascinating. The Common Agricultural Policy (CAP) cost EU citizens roughly €100 billion (£86 billion) a year, it calculates.
"The UK, as a net food importer, suffers particularly from higher food prices, impacting both on the consumer and on the food processing industry," it argues.
It then--oh, happy days--goes on to cite the great free-market economist Patrick Minford, who estimated that the CAP costs the UK 0.5 per cent of GDP, "and in economic and budgetary terms is probably the most costly factor of EU membership."
So, this is my plea to Tory and sensible Labour MPs. Listen to your voters. Opinion among Leave supporters has changed radically. There is much greater support for no deal. Don't kill Brexit. Don't force us into an anti-consumer permanent customs union, or keep us stuck in the overrated single market.
In the absence of a miraculous breakthrough in the talks, there is only one sustainable solution: a clean break with the EU.
I write this with reluctance, and much trepidation, but it's no deal or the Tory party will be finished.
JE comments: Just rip off the Band-Aid, we'd say in these parts. That act in itself would mean a kind of certainty--a known unknown. Mr Heath has a way with words. Bovine nastiness? I'm going to steal that expression. I'm also intrigued by a "Hotel California" Brexit, which presumably means "checking out" without actually leaving.
Is there any way the Tories can survive their present troubles? But how has Ms May stayed in power even until now? Might she be more wily than we credit her for?
And Ángel: best of luck in the final sprint on your book. Please let us know when it comes out.
Brexit Fatigue and "Brexit Means Brexit"
(John Heelan, UK
03/12/19 9:24 AM)
I am surprised by Ángel Viñas's respect for the UK Foreign Office presided over by Bojo the Clown. Ángel is nonetheless correct in suggesting that UK politics are in melt-down over the Brexit mess. However one should be careful about using the right-wing broadsheet--the Daily Telegraph--as a litmus paper, given its nickname is the "Torygraph" due to its personal links between the paper's editors and the leadership of the Conservative Party, along with the paper's generally right-wing stance and influence over Conservative activists. Only the Daily Mail (aka "Daily Heil") is a more fervent supporter of the Conservative Party.
I suspect that the UK public is getting heartily sick of the whole Brexit business (as I am personally).
It seems that another day brings another EU obstacle to any negotiation. I have long argued that the PM should have called a general election to support a single mandate ("Brexit means Brexit"), thus cutting the ground beneath the feet of the Second Referendumists, the Labour party as well as rebel Tory MPs by not only deselecting those who are misrepresenting their constituencies, given that the data is now available demonstrating which constituencies and wards voted Remain or Leave. (A more telling punishment would be to loosen their pins on future Honours Lists.)
I note with interest that Saturday's El País headlines, "Europe becomes the world epicentre of the slowdown in the world's economy, quoting revisions of GDP forecasts IMF, OCDE, the EU Commission and the European Central Bank." The Eurozone is on it way to a long-expected collapse: IMF reduced its GDP forecast by three points, OCDE (by 8 points), EU Commission (by six points), EU Central Bank (by six points).
Ironically, the long-awaited collapse of the Eurozone (which the UK was wise to avoid joining) might well aid the PM in her negotiations, given that the EU (and especially the net beneficiary members and net contributing members) will need the UK's contribution to the EU budget to counter the growing trend of nationalism among EU Member States that is challenging the creation of an EU superstate.
JE comments: I don't follow your last point, John. Doesn't Brexit mean no UK contributions at all to the EU budget?
Many Flavors of Brexit
(John Heelan, UK
03/14/19 5:44 AM)
JE asked on 12 March: "I don't follow your last point, John. Doesn't Brexit mean no UK contributions at all to the EU budget?"
It depends which flavour Brexit one is talking about. (Tom & Jerry, eat your heart out; there is a new kid on the block!)
The plethora of UK political tastes include "No Deal," "Norwegian," "Second Referendum," "No more funding for the EU," and "Take control of UK legislation by refusing to be dictated to by the European Court of Justice as well as the far more insidious machinations of the European Commission and Parliament (sic!)."
The choices and implications are so bewildering, I suspect that MPs themselves have lost track of what they are voting for and are relying on party whips to direct them to the correct voting lobby via the political sticks and carrots of political career-making and hopes of becoming knighted or eventually lolling on the benches of the increasingly irrelevant House of Lords for £300/day expenses.
JE comments: We're down to the Final Fortnight on Brexit. Has there been a looming day/deadline of such uncertainty since Y2K?
Next on Brexit ("Nextit"?), José Ignacio Soler.
Brexit Update: An Extension for the UK?
(Timothy Ashby, Spain
03/14/19 11:25 AM)
(Writing from London): Actually London real estate prices have been declining for the past 12-18 months. Part of this is due to Brexit anxiety, but also prices for housing had reached such ridiculous levels that very few people (especially young people trying to get on the bottom rung of the "property ladder") couldn't afford to buy. My theory is that real estate, like water, always reaches its own level.
Last evening there were two majority votes in Parliament to rule out a "No Deal" Brexit. While these are not binding in law, they certainly indicate the mood of Parliament. If Article 50 is not amended or overturned by Parliament, Brexit will still take place, by default, on 29th March. I don't think this will happen, and I expect that Parliament will tonight pass a resolution to delay Brexit by at least two months.
Theresa May plans to again introduce her tarnished "deal" to a Parliamentary vote next week, despite the fact that it has been overwhelmingly rejected twice. I had lunch today with a well-known MP (a determined Brexiteer) who told me that MPs are so fed up with May that the Speaker of the House is being urged to rule that she cannot submit her "deal" a third time. I don't know a single Tory MP who supports PM May--many privately revile her. When I asked my friend (who favours a "hard" Brexit) what he thinks the future holds, he shook his head and said that at this stage no one knows.
My prediction is that the EU will allow an extension, Theresa May will be ousted, and her successor (Boris Johnson?) will come up with a new exit plan, which may run into the same problems, especially over the issue of the border between Eire and Northern Ireland.
JE comments: Tim, really appreciate this insider's perspective. Is BoJo willing to take the job? I presume he is. As for the Irish border, aren't there turnstiles and shacks left over from the old days? Slap some paint on them, and...
- Thoughts on the British Foreign Office, Boris Johnson (Angel Vinas, Belgium 03/16/19 1:48 PM)
I'm back from Madrid where I attended a conference on the 40th anniversary of the Spanish Constitution. Upon my return I saw John Heelan's surprise (March 12th) at my statement that I have a lot of respect for the British Foreign Office. It shouldn't be surprising. It's one of the great offices of State. The British foreign service is amongst the best in the world if not the best. That doesn't make British foreign policy the best in the world though.
I quite agree that Boris Johnson was a shameful figure as Foreign Secretary, even though the Foreign and Commonwealth Office wasn't tasked with negotiating Brexit. A new Department was created to this end. Unfortunately DEXEU was in the hands of some of the more incompetent members of the British government. In any case, given the red lines established by the PM, the possibilities for exiting the EU according to British leavers' wishes were drastically curtailed. The Withdrawal Agreement (WA) negotiated with EU was the best the UK could aspire to. I submitted the article published by the Telegraph as a reminder of the arguments exhibited by leavers.
If I were one of them I would have had no compunction in voting for the WA. It disconnects the UK from the political side of the EU. However the economic disconnection is a pipe dream. The UK will learn in the next few years what it means to negotiate a deep economic agreement with the EU as a third country.
In Brussels all my contacts and former colleagues are thoroughly fed up with the British government and its antics and wish for nothing more that the UK should leave the EU. Perhaps it will by June 30, if the European Council agrees to an extension of the delay established by Article 50 of the EU treaty, given the British inability to transpose in domestic legislation the consequences of leaving the EU.
With all caveats, my feeling is, as of today, that the PM may be lucky at her third attempt to get the WA approved by the Commons. If not, we may have to put up with the Brits for some time more.
JE comments: How was the conference, Ángel? I presume the topic of "Catalexit" was addressed. What's the latest?
- A No-Deal Brexit? Reflections on Allister Heath's Essay (José Ignacio Soler, Venezuela 03/14/19 6:34 AM)
I have carefully read the article by Allister Heath, recommended by Ángel Viñas in his latest post about Brexit (March 12th).
I would not dare to question or refute Heath's arguments regarding the advantages and benefits of Brexit for Great Britain. His reputation as an economist and journalist speak for themselves.
Essentially he argues that:
1. UK exports to the EU have not significantly grown since they have belonged to the common market;
2. Brexit's impact on the UK´s GDP is also very low, on the order of 1-2 per cent, and it would only affect one or two industries;
3. The UK government´s plan after Brexit to eliminate 80-90% of tariffs would dramatically reduce the net cost of departure;
4. The loss of the common-market advantages is going to be compensated by alternate foreign markets;
5. "The UK, as a net food importer, suffers particularly from higher food prices, impacting both on the consumer and on the food processing industry";
6. The cost of the Common Agricultural Policy (CAP) costs EU citizens roughly €100 billion (£86 billion) a year;
However, I would dare to make some comments on his arguments, of course only as an amateur economist and based on pure and basic common sense.
It is unclear if the "exports" quoted by Heath include all sorts of products, goods and services, particularly financial and other services. I do not know the real numbers for the export of goods and the benefits that UK industries had as participants in the tariff-free market in the EU, although I suspect and estimate it should have been huge. Also, if I understand correctly, the UK has had great privileges and benefits as the most important financial center in the EU, as a product of the free transit of capital and services. This most probably benefited it a great deal, as the decision to move the headquarters of important financial institutions to other cities in the EU shows. These privileges most likely will be lost after Brexit.
I believe that to assert that only one or two British industries will be affected by Brexit is too optimistic. It is very unlikely that the industrial sector of produced goods, the food sector, the automotive sector, the technology sector, tourist sector, or the financial sector will be unaffected by the increased cost of freight, tariffs, customs barriers or taxes to other alternate markets, until other bilateral trade agreements are arranged.
The UK's plan to eliminate 80-90% of tariffs on imported goods is probably necessary to reduce the increasing costs to UK citizens. However Heath seems to overlook the cost to the UK's budget, and these numbers are probably not insignificant.
Furthermore, I believe the likely devaluation of the pound--or increased valuation?--will exert great pressure on inflation, employment, productivity, the cost of living, cost of real estate, tourism, the cost of imported and exported products. It seems to me very optimistic to believe that all these effects after Brexit would not impact significantly the GDP in the short and the medium term.
A Brexit deal would probably mitigate all these impacts, until the economy is stabilized again. A no-deal Brexit as suggested by the author and which seems to be the most likely scenario after Parliament´s most recent rejection of May's deal, I suspect it would be much more dramatic for the UK and the rest of the EU, an undesirable scenario.
JE comments: If you missed Heath's essay, here it is again:
Uncertainty, uncertainty. There are way too many moving parts. Yet can't we be fairly sure that UK real estate prices will decline post-Brexit? I don't see the Russians taking up the slack.
- Thoughts on the British Foreign Office, Boris Johnson (Angel Vinas, Belgium 03/16/19 1:48 PM)
- Brexit Update: An Extension for the UK? (Timothy Ashby, Spain 03/14/19 11:25 AM)
- Many Flavors of Brexit (John Heelan, UK 03/14/19 5:44 AM)