Just when you thought that we have reached bottom in the
Brexit debate, reality has a habit of showing us that things can always be
worse than we thought. The Tory Party anointment of Boris Johnson as Prime
Minister a month ago was already a step beyond the surreal, given his past
record, but his rhetoric regarding a no-deal Brexit is taking the UK down a
dark road from which recovery may be very difficult.
This was highlighted at the weekend by the leaked details of the government’s Operation Yellowhammer (chart – zoom in to see the details) which highlights the extent of the planning required to combat “a catastrophic collapse in the nation’s infrastructure.” Amongst the contingencies for which the government may be forced to prepare are the imposition of hard borders with the Republic of Ireland and at Channel ports, which will lead to significant disruptions in trade flows and which could severely disrupt the imports of food and medicine. None of this should come as a surprise. The government and Bank of England produced analysis last November which looked at the impact of a no-deal Brexit on GDP, and my own contribution was to sketch out some back-of-the-envelope calculations for the impact on cross-channel traffic which look close to those outlined in the Yellowhammer documents.
Whilst the true believers in Brexit dismiss this as Project Fear, an inside source with knowledge of the planning categorically stated, “this is not Project Fear – this is the most realistic assessment of what the public will face with no deal. These are likely, basic, reasonable scenarios – not the worst case.” Indeed, this is coming from inside government: from a civil service which is charged with implementing the policies of the government it serves, not from those who are diametrically opposed to Brexit and have an incentive to derail it. If a modern day Rip Van Winkle were to awaken after a four year nap and see the extent of the government’s preparations, he could be forgiven for thinking that the UK was preparing for war.
In a way, it is – it’s just not clear who the enemy is. Half the population seems to believe that the plucky UK is facing off against the bullying EU whilst the other half believe the government is visiting a catastrophe on its own people. The United Kingdom has never been more disunited and its own government is stirring the pot. Irrespective of how people voted in June 2016 they certainly did not vote for this. They were sold a vista of sunny uplands in which the UK would benefit from tapping into the more rapidly growing regions of the world rather than being shackled to the moribund EU. Gerard Lyons, who has reportedly been interviewed for the post of Bank of England Governor, is one of the few respectable economists who believes that breaking trade relations with the UK’s most important trading partner will improve its prosperity.
But the view is total and utter rubbish and is based on the sort of analysis which gives economics a bad name. It is founded on a textbook idea of how free marketeers believe international trade is conducted, rather than the realpolitik on which it is actually based. The majority of the economics profession understands that the bigger partner in trade negotiations holds the balance of power. The only way that the UK will be able to close trade deals that the EU has somehow failed to achieve is to roll over and sell out its interests in favour of the more powerful partner – something the EU has refused to do. Anyone who believes differently is urged to sign up today as a trade negotiator – your country needs you!
A bigger obstacle to the Brexiteers dream of a Britain driven by fantastic new trade deals is that the world has changed significantly in the past three years. Globalisation is in retreat as economic nationalism moves to centre stage, thus removing the central plank upon which their model depends. Donald Trump has torn up NAFTA and is engaged in a trade war with China from which nobody will emerge unscathed, as the basis of the global trading system over the last seven decades is slowly pulled apart. This is the very worst time in the post-1945 period for a country to throw itself on the mercy of the international trading rules.
Brexiteers believe that the UK can perform well under WTO arrangements. But this is not a strategy – it is a default. So good are these arrangements that the only country in the world that trades solely on WTO rules is Mauritania – everyone else has made supplementary trade deals. Nor is it clear that the WTO will be in any position to enforce its own rules in future. The WTO’s Appellate Body is composed of seven members who serve for four-year terms. But as the terms of serving judges have expired, new appointments have been blocked by the Trump administration and it is currently down to three – the minimum required for a quorum. With two of them set to leave at end-2019, further blocking by the US means the WTO will be in no position to hear any disputes brought before the court. That is not a basis for the new trading relationships that the UK hopes to forge in a post-Brexit world.
Doubtless, those who continue to believe in the purity of Brexit will accept nothing less than departure at any cost. Unfortunately, those who continue to point out the pitfalls in the argument are labelled Remoaners (or worse). But this is not just about Leave or Remain – delivering a Brexit which does great economic harm will permanently damage the credibility of the Brexit case. If influential Leave politicians have any interest in remaining relevant beyond Brexit, they need a plan of how to deliver without crashing the car and the vexed issue of the Irish backstop is not the ditch they should be prepared to die in. I believe they know this, which is why I don’t take their rhetoric at face value. But if I am wrong, and the government really is intent on jumping over the cliff on 31 October, they will almost certainly be pursued by a vengeful electorate armed with ballot papers.
This was highlighted at the weekend by the leaked details of the government’s Operation Yellowhammer (chart – zoom in to see the details) which highlights the extent of the planning required to combat “a catastrophic collapse in the nation’s infrastructure.” Amongst the contingencies for which the government may be forced to prepare are the imposition of hard borders with the Republic of Ireland and at Channel ports, which will lead to significant disruptions in trade flows and which could severely disrupt the imports of food and medicine. None of this should come as a surprise. The government and Bank of England produced analysis last November which looked at the impact of a no-deal Brexit on GDP, and my own contribution was to sketch out some back-of-the-envelope calculations for the impact on cross-channel traffic which look close to those outlined in the Yellowhammer documents.
Whilst the true believers in Brexit dismiss this as Project Fear, an inside source with knowledge of the planning categorically stated, “this is not Project Fear – this is the most realistic assessment of what the public will face with no deal. These are likely, basic, reasonable scenarios – not the worst case.” Indeed, this is coming from inside government: from a civil service which is charged with implementing the policies of the government it serves, not from those who are diametrically opposed to Brexit and have an incentive to derail it. If a modern day Rip Van Winkle were to awaken after a four year nap and see the extent of the government’s preparations, he could be forgiven for thinking that the UK was preparing for war.
In a way, it is – it’s just not clear who the enemy is. Half the population seems to believe that the plucky UK is facing off against the bullying EU whilst the other half believe the government is visiting a catastrophe on its own people. The United Kingdom has never been more disunited and its own government is stirring the pot. Irrespective of how people voted in June 2016 they certainly did not vote for this. They were sold a vista of sunny uplands in which the UK would benefit from tapping into the more rapidly growing regions of the world rather than being shackled to the moribund EU. Gerard Lyons, who has reportedly been interviewed for the post of Bank of England Governor, is one of the few respectable economists who believes that breaking trade relations with the UK’s most important trading partner will improve its prosperity.
But the view is total and utter rubbish and is based on the sort of analysis which gives economics a bad name. It is founded on a textbook idea of how free marketeers believe international trade is conducted, rather than the realpolitik on which it is actually based. The majority of the economics profession understands that the bigger partner in trade negotiations holds the balance of power. The only way that the UK will be able to close trade deals that the EU has somehow failed to achieve is to roll over and sell out its interests in favour of the more powerful partner – something the EU has refused to do. Anyone who believes differently is urged to sign up today as a trade negotiator – your country needs you!
A bigger obstacle to the Brexiteers dream of a Britain driven by fantastic new trade deals is that the world has changed significantly in the past three years. Globalisation is in retreat as economic nationalism moves to centre stage, thus removing the central plank upon which their model depends. Donald Trump has torn up NAFTA and is engaged in a trade war with China from which nobody will emerge unscathed, as the basis of the global trading system over the last seven decades is slowly pulled apart. This is the very worst time in the post-1945 period for a country to throw itself on the mercy of the international trading rules.
Brexiteers believe that the UK can perform well under WTO arrangements. But this is not a strategy – it is a default. So good are these arrangements that the only country in the world that trades solely on WTO rules is Mauritania – everyone else has made supplementary trade deals. Nor is it clear that the WTO will be in any position to enforce its own rules in future. The WTO’s Appellate Body is composed of seven members who serve for four-year terms. But as the terms of serving judges have expired, new appointments have been blocked by the Trump administration and it is currently down to three – the minimum required for a quorum. With two of them set to leave at end-2019, further blocking by the US means the WTO will be in no position to hear any disputes brought before the court. That is not a basis for the new trading relationships that the UK hopes to forge in a post-Brexit world.
Doubtless, those who continue to believe in the purity of Brexit will accept nothing less than departure at any cost. Unfortunately, those who continue to point out the pitfalls in the argument are labelled Remoaners (or worse). But this is not just about Leave or Remain – delivering a Brexit which does great economic harm will permanently damage the credibility of the Brexit case. If influential Leave politicians have any interest in remaining relevant beyond Brexit, they need a plan of how to deliver without crashing the car and the vexed issue of the Irish backstop is not the ditch they should be prepared to die in. I believe they know this, which is why I don’t take their rhetoric at face value. But if I am wrong, and the government really is intent on jumping over the cliff on 31 October, they will almost certainly be pursued by a vengeful electorate armed with ballot papers.
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