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EU Exit brexit

Before June 23rd, Leave campaigners argued (I believe correctly) that the EU was heading toward a federal super state, driven by an out of control bureaucracy. But since June 24th, some Leavers now argue other member states and that EU institutions (involved in the low level negotiations), will be fair and reasonable, happy to see us depart.

This is wrong. The EU Commission wants Brexit to fail and fail badly. The Member States face divided electorates at home. Post-referendum, support for the EU and Euro rose due to doom-laden predictions about a post-EU UK. Yet if the UK succeeds, this support will drain away. A thriving UK exiting the EU will mean others will follow within a decade or so. Europe’s leaders know this to be the case, and so Brexit must fail. The meeting of Italian, German and French leaders this week was defiant.

Trade will not save us

While Europe benefits from trading with the UK, the net effects are small and distributed among a small number of countries. In 2014 just eight EU countries had trade worth more than £10 billion (in either exports or imports). Only four have a net positive trade imbalance greater than £5 billion. Spain, a major partner, sees overall trade with the UK at $50 billion, given current exchange rates. This is not huge in a $1.5 trillion economy. Germany has a $150 billion UK trade sector in a $3.8 trillion economy. If we have a WTO tariff rate of 10 per cent (and under WTO rules this is at the top range), in both directions, this works out at a ‘cost’ to the countries of around 0.3 per cent of GDP. Not worth sacrificing European unity for.

The real strategy must be to divide and reform Europe

So we face a hostile Commission and at best ambivalent nation states. Of course, some European politicians have publicly or privately lost faith in ‘ever closer union’. Even more, people in Europe have lost faith. Before the Brexit vote, in countries bar the UK, Pew polling found 42 per cent wanted more powers back for Member States, 19 per cent wanted more powers for the EU, and 27 per cent want no change. As the graph below shows, the UK is not an outlier in its views of the EU. Another major Euro crisis, or a thriving UK outside the EU, would make the current EU unviable in many states.

Views of EU

Our new terms under Article 50 merely require a vote in the European parliament (including UK MEPs) and a Qualified Majority Vote. This QMV is 72 per cent of the member states comprising at least 65 per cent of the EU’s population.

The goal must be to get this QMV, or even if we fail, trigger others to push for a new status as well, splitting Europe and forcing the creation of a genuine two-tier union. We will not get a good deal as a single country – but with other member states the chances begin to shift as trade and geopolitical considerations tip in our favour.

Since 2000 referendums have rejected EU centralisation in Ireland, Holland and France. Eastern Europe is unhappy about migration and neglecting NATO. Southern Europe is unhappy about German-led Eurozone economic policies. Scandinavia never really bought ever closer union in the first place. Holland and Germany resent what they see as Southern profligacy. Superstar economists such as Joseph Stiglitz criticise the Euro. The ground is fertile for a decentralised Europe.

We need to return to the successful European Common Market

We are inevitably in a showdown with pro-federalist EU politicians. So we need to get other countries to think that the UK deal may one day apply to themselves.

To win we need to push three key elements. Firstly, we must make it clear we want a Europe of national states – a Common Market of national governments – not just Brexit. This means freedom of movement of goods, services, and capital, but where regulatory difference is accepted, not a single regulatory zone controlled by Brussels; co-operation on crime and other areas, but voluntary and inter-governmental; and smaller (although still operating) transfers of funds between countries.

Secondly, we should not put EU and non-EU citizens on equal footing. Bringing EU migration down to ‘tens of thousands’ means reducing numbers by 20-30 per cent. In 2015, 270,000 EU citizens came to the UK while around 85,000 left, giving net migration of 185,000 a year. Some UK citizens also move to the EU, though the data here is limited, giving us this 20-30 per cent figure. We could reduce unskilled labour through restrictions on in-work benefits, place geographical restrictions on work (so you can come to London but not East Anglia), and limit spousal/family unions to those who can work. But we must give EU migrants a higher priority than others.

Thirdly, we need to argue the Euro has failed. The Euro is the great delusion that will doom the federalists (and it is is why EU net migration to the UK has surged). When the next Euro crisis hits this will be our moment of maximum opportunity and we must be ready to seize it.

We must subordinate all other policies if necessary to secure this goal

This strategy will only succeed if other policies are brought to bear, some of which were discussed by Vicky Ford earlier this week. We will help Greece by diverting aid funding to refugees there. We will support our Eastern European allies by being firm on defence. We will not cut corporation tax if that annoys Sweden. We will still allow some unskilled European migration to high growth areas like London. We will bear down more on non-EU migration (starting with 140,000 non-EU students, few heading to Oxbridge or Russell Group universities), not drive net EU migration to zero. We will engage in scientific collaboration. We will spend aid previously given to the EU on Bulgaria (GDP per capita $7,500) and Romania (GDP per capita $9,500).

The UK will not get fair treatment in Brexit. Fortunately, the Euro and a federal Europe will unravel. We need to realise Brexit is not just a trade discussion, and start developing a strategy accordingly. Brexit means politics.

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