Matthew Sinclair is Head of Economics at Westbourne Communications.
“You’re in the great game now. And the great game is terrifying.” – Tyrion Lannister.
That should be a mantra for Tory Leavers. The referendum result (however necessary and in the long-run productive) involves enormous economic risks. You can see those in the foreign exchange market reactions. It also involves political risks. There will likely be fewer rules to constrain a Far Left government if one is ever elected.
At the same time, European leaders do not see our position. I have visited a series of other member states besides the UK in recent weeks, and the picture is pretty clear: Those who were never fond of the UK and its role see an opportunity to profit at our expense (they’re wrong, but may succeed in hurting us nevertheless). Those who relied upon the UK to argue their case feel abandoned.
There will come a point at which the Government will have to start negotiating in earnest. It is great news that Oliver Letwin made preparations with a new unit, which is now being transformed into a fully-fledged Ministerial Department. In the spirit of a friendly submission, I would like to offer the following idea: we need to show (not just say) that we are still committed to the stability and security of Europe. We need to convince our friends that finding a new institutional relationship, which could suit both sides better, does not mean a retreat from the field.
In order to do that, we need to give them some things that are genuinely awkward for us (either because it seems unfair in principle, and/or because it has some financial cost) and address their existential concerns. A real prize for a reasonable deal. Otherwise we will get trapped, with nothing but an ugly trade-off between migration controls and safeguards for the financial services sector.
Here are some suggestions:
1. A renewed diplomatic and/or military commitment to the defence of Eastern Europe. Ask the Poles, Estonians and others on the frontline what they need to feel secure. Bend over backwards to give it to them.
2. A financial commitment to support the stability of the Eurozone that is not open-ended, but does make a material contribution. This might take the form of providing some kind of guarantee for some periphery bank debts, some new facility that contributes to their financial security. Or it might take the form of helping with a new Greek bailout. Of course, more contingent liabilities are, taken in isolation, bad news. But reassurance about the post-Brexit deal will more than make up for any impact on the state of the public finances.
3. A contribution to meeting the costs associated with the Schengen Crisis. This might take the form of an agreement that, while the UK’s contributions will fall over time to reflect our leaving (to zero or about half depending on whether we are leaving entirely or joining the EEA), in the short-run we will increase contributions to help them through the exceptional fiscal demands associated with large scale refugee flows.
The measures may not be exactly right, but you can see the idea. All of this should be a quid pro quo for a reasonable deal. Nothing unilateral. We need something serious on the table in order to send the right signals and create the right incentives for our neighbours to act in a neighbourly fashion.
This approach is not some panacea which will mean no compromises elsewhere, but it can mean those compromises are less painful. It is a means to start rebuilding trust.