It has become clear over the last twelve months how woefully unprepared the British government is to negotiate an exit from the
EU. As the play in the theatre of the absurd continues to unfold, we are faced
with the prospect of the British government having to take steps to secure food supplies in the event of a no-deal Brexit, which has lit up social media sites with
posts displaying a mix of trepidation and withering scorn. As more than one
person has commented, we appear to have gone from “Vote Brexit to save £350
million a week” to “Vote Brexit and we will ensure that the food doesn’t run
out.”
Against this backdrop the latest missive from the brains
behind the drive to sign new trade deals – none other than trade secretary Liam
Fox – arguing that ‘No deal’ is preferable to delaying the Brexit process is
beyond stupidity. You may recall a year ago, Fox claimed in a radio interview that “the free trade agreement that we
will have to do with the European Union should be one of the easiest in human
history.” This is the same Liam Fox who said two years ago that “we're going to replicate the 40 EU free
trade agreements that exist before we leave the European Union so we've got no
disruption of trade.” With seven months before the UK leaves the EU, let us
consider how many of those trade deals Fox has actually signed (clue: It’s an
integer less than one). So you will forgive me for not taking Fox’s latest assertion
at face value that “extending Article 50
is the definition of failure for the government.”
Fox went on to say that “The
public have told us, it wasn’t a consultation, to leave the European Union, and
the public already wonders why it’s going to take more than four years after
the referendum for us to fully remove ourselves from the EU. To attempt to
extend our membership even longer, many voters would regard as a complete
betrayal by the political class.” So where to start with this one? How
about the fact that the referendum was in effect a consultation – it certainly was
not legally binding. And why is it taking four years? Because it is a difficult
process and one which if rushed will lead to far worse outcomes than are
necessary. The biggest betrayal of all would be to sell out the public in order
to deliver a Brexit which leaves people worse off. And if he thinks people are
angry with the way politicians have handled Brexit so far, wait until it is
bungled.
Another of the Brexit-at-any-price brigade, Daniel Hannan, yesterday told readers of the Daily Telegraph “Let’s call the EU’s bluff and prepare
for a no-deal.” Hannan’s argument relies on the old nonsense that “they
need us more than we need them.” This is simply wrong. Around 47% of UK exports
are destined for the EU27 with only 16% of EU exports headed to the UK, and the
Telegraph is guilty of peddling fake news by suggesting otherwise. You can
argue, as Hannan does, that the EU is being unreasonable in its approach, and
we can look at that another day. But all sane commentators knew that the EU
held the whip hand in negotiations and expecting it to act in any other way
than to look after its members interests denotes irresponsible levels of
naivety.
There is nothing new in any of this, of course. I think the
Brexit ultras are wrong and they believe me to be a Remoaner, afraid of looking
to new horizons. So let’s have a look at some evidence. Over recent months I
have been looking at gravity trade models of the UK to assess the impact of a
hard Brexit (the final results are likely to be published in a few weeks’ time).
On my estimates, a no-deal Brexit will cost around 8% of UK export volumes and
impose a hit of 3% on imports. With exports falling more than imports, this implies
a one-off reduction of 1.5% in GDP. That may not sound like a lot but if we impose
these results on a structural model and run them over a 15 year horizon, we end
up reducing real GDP by 4% relative to baseline and real incomes by 3%. As a
result unemployment rises and public finances turn out significantly worse than
they would otherwise be. I can’t find the Brexit dividend to fund higher NHS
spending (neither can the OBR).
With support for a second referendum apparently mounting,
the whole Brexit debate is reaching a tipping point. I have to stress that I am
no great fan of this idea although I don’t buy the will of the people nonsense
(remember, only 37% of eligible voters opted for Leave). But the decision to
leave the Single Market and Customs Union is economically crazy and was certainly
not on the ballot paper. However, if Theresa May continues to believe that this
is what people voted for, then a second referendum may indeed be required to
check whether it really is “the will of the people.”
I do wish there were more important things to write about
but Brexit appears to have become an all-consuming part of this blog. However, it is
THE economic question of my lifetime – and it is being driven by ideological politics.
But as the journalist James O’Brien put it, “The one thing I still can’t quite get my head round: It’s optional. It’s
a choice. It’s voluntary.”
Sunday, 29 July 2018
Thursday, 26 July 2018
You don't know what you've got 'til it's gone
Viewed in a global context Brexit is very much a sideshow.
However, it is all part of a global backlash against the status quo which is
perceived to have acted against the interests of citizens in the developed
world. Nowhere is this more evident than in the actions of the Trump
administration which earlier this month imposed higher tariffs on the first
$34bn worth of imports from China and threatened to escalate still further,
thereby risking Chinese retaliation and a further step on the path towards a
global trade war. The biggest danger in all of this is the prospect that the
current global economic architecture could well be jeopardised, which may not
be perceived to be a problem in Hicksville USA or Smalltown England, but might
result in turning our back on the most successful period of prosperity generation
in world history.
To put some figures on it we rely on the database put
together by the late Angus Maddison which looks at very long runs of GDP data.
Measured in real terms, the increase in world GDP between 1950 and 2000
outstripped anything seen in the previous two millennia, rising at an average
annual rate of 3.9% versus 0.2% in the preceding 1950 years (chart). The same
is also true of the US, although its most rapid growth occurred during the
early years of the industrial revolution. Nonetheless, average US growth of
around 3.5% per year between 1950 and 2000 compares pretty favourably with the
4.4% rate recorded during the nineteenth century. Growth is not everything, of
course. When comparing living standards, what matters is the absolute level of
income. Whilst it is true that US per capita income growth has stalled over the
last decade, the US still ranks ninth in the world behind three oil-rich Gulf
states, four smaller European economies (Norway, Luxembourg, Switzerland,
Ireland) and Singapore. For the record, Chinese real income per head is just
23% of US levels.
It might suit some American politicians to claim that their country has never had it so bad, but the US is still a pretty good place to be. The US has attained these lofty heights, thanks to an exceptional period of technical innovation – which it drove – and a huge rise in world trade which allows it to buy products more cheaply from other parts of the world, thus allowing American citizens to spend their excess income on other products. Whilst it is true that China is closing the gap with the US, per capita GDP growth has recently slowed to an annual rate of less than 3%. At current rates, it will take China 55 years to reach current US levels and assuming China is able to sustain a 2.75% growth rate way out into the future (which is unlikely) and US incomes grow at 1% per year, it will take the better part of a century for China to match US living standards.
Worse still, the US Administration appears to have no concept of the gains from trade. As The Economist put it a few weeks ago, “Trump appears to see the world as he saw the New York property market, a place of screw or be screwed.” China may be stealing US technology and engaging in sharp practices to ensure that the playing field in the Chinese market is far from level, but that does not mean that the US should cut off its own nose to spite its face. Adam Smith – a hero of many on the right – argued in his 1776 publication The Wealth of Nations that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.
The US may no longer be the world’s primary producer of traditional industrial products such as steel, but it is still the world’s most technically advanced nation which in the past 20 years has given us Facebook, Amazon, Netflix and Google (the so-called FANGs) which also happen to be the largest global companies by market cap. Moreover, many companies rely on outsourcing production to external markets, and retaliation in response to US actions would imperil global value chains and force a rethink of how companies operate across borders with unanticipated consequences.
But rationality is not the order of the day. Western historians will probably look back at the first two decades of the 21st century as a golden period punctuated by a severe crisis that prompted irrational policy choices. They do say that you don’t know what you’ve lost until it’s gone. I miss the good old days even before they have ended.
It might suit some American politicians to claim that their country has never had it so bad, but the US is still a pretty good place to be. The US has attained these lofty heights, thanks to an exceptional period of technical innovation – which it drove – and a huge rise in world trade which allows it to buy products more cheaply from other parts of the world, thus allowing American citizens to spend their excess income on other products. Whilst it is true that China is closing the gap with the US, per capita GDP growth has recently slowed to an annual rate of less than 3%. At current rates, it will take China 55 years to reach current US levels and assuming China is able to sustain a 2.75% growth rate way out into the future (which is unlikely) and US incomes grow at 1% per year, it will take the better part of a century for China to match US living standards.
Worse still, the US Administration appears to have no concept of the gains from trade. As The Economist put it a few weeks ago, “Trump appears to see the world as he saw the New York property market, a place of screw or be screwed.” China may be stealing US technology and engaging in sharp practices to ensure that the playing field in the Chinese market is far from level, but that does not mean that the US should cut off its own nose to spite its face. Adam Smith – a hero of many on the right – argued in his 1776 publication The Wealth of Nations that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.
The US may no longer be the world’s primary producer of traditional industrial products such as steel, but it is still the world’s most technically advanced nation which in the past 20 years has given us Facebook, Amazon, Netflix and Google (the so-called FANGs) which also happen to be the largest global companies by market cap. Moreover, many companies rely on outsourcing production to external markets, and retaliation in response to US actions would imperil global value chains and force a rethink of how companies operate across borders with unanticipated consequences.
But rationality is not the order of the day. Western historians will probably look back at the first two decades of the 21st century as a golden period punctuated by a severe crisis that prompted irrational policy choices. They do say that you don’t know what you’ve lost until it’s gone. I miss the good old days even before they have ended.
Monday, 23 July 2018
Imagine ...
The morning of 24 June 2016 dawned bright and fair as
British voters awoke to the news that they had voted by a margin of 52% to 48%
to remain in the EU. It was a close run thing but was broadly in line with
pre-referendum polling that had given the Remain camp a narrow lead. As the
political establishment breathed a sigh of relief, Nigel Farage vowed to fight
on to try and extricate the UK from the EU whilst influential Conservative
figures such as Justice Secretary Michael Gove and charismatic backbench MP
Boris Johnson – both of whom had campaigned for Leave – promised to abide by
the result.
But the big story of that Friday was David Cameron’s surprise resignation as prime minister. He justified his action on the basis that he had prevailed in holding the Union together after the September 2014 Scottish referendum, and had successfully managed to keep the UK in the EU whilst lancing the boil of Euroscepticism within the Conservative Party. As he said in his resignation speech, “I was absolutely clear about my belief that Britain is stronger, safer and better off inside the European Union … and as such I think the country requires fresh leadership to take it in this direction.” The pound soared on the news that the political slate was being wiped clean, giving cover for the BoE to begin the process of raising interest rates that had been postponed during the referendum campaign.
Meanwhile, the process of finding a new Conservative Party leader got underway. Chancellor George Osborne was the runaway favourite but he had made many enemies within his party in the preceding six years. Surprisingly, the parliamentary party began to coalesce around Ken Clarke, the 76-year old Europhile who had stood unsuccessfully for the leadership on three previous occasions and whose time in front line politics was assumed to be over. Clarke and Osborne were the last two candidates standing before Osborne pulled out of the contest, with the result that a ballot of party members became unnecessary and Ken Clarke walked into Downing Street unopposed as the oldest first-time appointee to the job of prime minister.
Nine years older than opposition leader Jeremy Corbyn, Clarke’s tenure marked a switch towards a more mature style of politics. He reappointed Philip Hammond as Foreign Secretary whilst Home Secretary Theresa May swapped jobs with Chancellor George Osborne, and there were promotions for prominent Remain supporters such as Amber Rudd, Justine Greening and Jeremy Hunt. Admittedly, the Conservatives still had a sizeable minority of MPs who backed Leave but many of them had given up the fight after the referendum, promising to abide by the “will of the people.” But Clarke took the UK in an unexpected direction at the October 2016 Conservative Party conference, promising a UK application to the Schengen Area and most radically of all, membership of the European single currency. As Clarke said in his conference speech, “we are all citizens of somewhere and the referendum result has made it clear that the British people have voted categorically to align themselves with the values and institutions of the European Union.”
It was a controversial move, to say the least, and the government’s plan to apply for euro membership without parliamentary approval was only halted by the intervention of James Dyson, the businessman and prominent Leave campaigner, who sought a legal ruling as to whether parliamentary approval was required. In the event, the Supreme Court upheld his challenge prompting the Daily Mail to ask why these “Enemies of the People” should stand in the way of further European integration. But fearful of acting against the “will of the people” parliament voted through the government’s plan despite serious reservations amongst backbench MPs.
In March 2017, the government announced a formal bid for euro membership and appointed Education Minister Nicky Morgan as the lead negotiator, backed up by her new department DEnMU (Department for Entering Monetary Union). Barely had negotiations begun than Prime Minister Clarke decided to call an election for June 2017 in order to extend his wafer thin majority of 12 seats. It turned out to be a bad call, with the Conservatives falling 9 short of a parliamentary majority and requiring the support of the 12 LibDem MPs in a rerun of the 2010-2015 coalition. It transpired that voters were not quite as enthused about further European integration after all, but the real vote loser turned out to be the ongoing austerity promised by Chancellor Theresa May. Had the Tories won the expected thumping majority, it was widely believed that Clarke would have sacked her but in the event he could not afford more disruptions to his team.
From then on, the going got really tough as the UK began to understand the restrictions which membership of the single currency would entail. More fiscal discipline would be needed in order to reduce the debt-to-GDP ratio, which was now heading towards 90% compared to an entry threshold of 60%. Having raised rates by a total of 100 bps since summer 2016, the BoE was now under pressure to reduce them in order to converge with ECB levels and thus ensure a smooth transition to EMU membership by 2019 (the ECB’s main policy rate at this point stood at -0.4% versus 1.5% in the UK). There were widespread fears that this would give the economy an undesired boost which would push GDP growth above 3% – way in excess of the estimated trend of 2¼% – and in turn push wage growth above 4%.
Against this backdrop, domestic political opposition to the government’s plans mounted. The Great Integration Bill made its torturous passage through parliament, with backbench MPs trying – and failing – to thwart its progress. Negotiations with the EU also became more tricky as the UK began to ask for more concessions with regard to the EMU fiscal targets whilst calls for a permanent UK representative on the ECB Governing Council met with resistance. By March 2018, it was evident that EMU entry in 2019 was an unrealistic option and a transition period was agreed in principle that would postpone entry until end-2020. The government White Paper of summer 2018, which detailed the logistics of swapping the euro for the pound, was a brave effort but the timetable was far too tight to be realistic and the ECB objected to the five-year transition plan in which sterling and the euro would continue to operate as legal tender in the UK.
As of now, the process is deadlocked with parliament split on the issue of further EU integration. It is evident that the wounds caused by the EU referendum have not healed, whilst the government’s plan to join the single currency is increasingly regarded as unrealistic. As one prominent government minister remarked just ahead of the parliamentary recess, “Clarke’s plan will never fly and he only remains as PM due to a lack of alternative candidates. You know, I sometimes wish Remain had never won the referendum. The Leavers would never have produced an omnishambles of this magnitude.”
But the big story of that Friday was David Cameron’s surprise resignation as prime minister. He justified his action on the basis that he had prevailed in holding the Union together after the September 2014 Scottish referendum, and had successfully managed to keep the UK in the EU whilst lancing the boil of Euroscepticism within the Conservative Party. As he said in his resignation speech, “I was absolutely clear about my belief that Britain is stronger, safer and better off inside the European Union … and as such I think the country requires fresh leadership to take it in this direction.” The pound soared on the news that the political slate was being wiped clean, giving cover for the BoE to begin the process of raising interest rates that had been postponed during the referendum campaign.
Meanwhile, the process of finding a new Conservative Party leader got underway. Chancellor George Osborne was the runaway favourite but he had made many enemies within his party in the preceding six years. Surprisingly, the parliamentary party began to coalesce around Ken Clarke, the 76-year old Europhile who had stood unsuccessfully for the leadership on three previous occasions and whose time in front line politics was assumed to be over. Clarke and Osborne were the last two candidates standing before Osborne pulled out of the contest, with the result that a ballot of party members became unnecessary and Ken Clarke walked into Downing Street unopposed as the oldest first-time appointee to the job of prime minister.
Nine years older than opposition leader Jeremy Corbyn, Clarke’s tenure marked a switch towards a more mature style of politics. He reappointed Philip Hammond as Foreign Secretary whilst Home Secretary Theresa May swapped jobs with Chancellor George Osborne, and there were promotions for prominent Remain supporters such as Amber Rudd, Justine Greening and Jeremy Hunt. Admittedly, the Conservatives still had a sizeable minority of MPs who backed Leave but many of them had given up the fight after the referendum, promising to abide by the “will of the people.” But Clarke took the UK in an unexpected direction at the October 2016 Conservative Party conference, promising a UK application to the Schengen Area and most radically of all, membership of the European single currency. As Clarke said in his conference speech, “we are all citizens of somewhere and the referendum result has made it clear that the British people have voted categorically to align themselves with the values and institutions of the European Union.”
It was a controversial move, to say the least, and the government’s plan to apply for euro membership without parliamentary approval was only halted by the intervention of James Dyson, the businessman and prominent Leave campaigner, who sought a legal ruling as to whether parliamentary approval was required. In the event, the Supreme Court upheld his challenge prompting the Daily Mail to ask why these “Enemies of the People” should stand in the way of further European integration. But fearful of acting against the “will of the people” parliament voted through the government’s plan despite serious reservations amongst backbench MPs.
In March 2017, the government announced a formal bid for euro membership and appointed Education Minister Nicky Morgan as the lead negotiator, backed up by her new department DEnMU (Department for Entering Monetary Union). Barely had negotiations begun than Prime Minister Clarke decided to call an election for June 2017 in order to extend his wafer thin majority of 12 seats. It turned out to be a bad call, with the Conservatives falling 9 short of a parliamentary majority and requiring the support of the 12 LibDem MPs in a rerun of the 2010-2015 coalition. It transpired that voters were not quite as enthused about further European integration after all, but the real vote loser turned out to be the ongoing austerity promised by Chancellor Theresa May. Had the Tories won the expected thumping majority, it was widely believed that Clarke would have sacked her but in the event he could not afford more disruptions to his team.
From then on, the going got really tough as the UK began to understand the restrictions which membership of the single currency would entail. More fiscal discipline would be needed in order to reduce the debt-to-GDP ratio, which was now heading towards 90% compared to an entry threshold of 60%. Having raised rates by a total of 100 bps since summer 2016, the BoE was now under pressure to reduce them in order to converge with ECB levels and thus ensure a smooth transition to EMU membership by 2019 (the ECB’s main policy rate at this point stood at -0.4% versus 1.5% in the UK). There were widespread fears that this would give the economy an undesired boost which would push GDP growth above 3% – way in excess of the estimated trend of 2¼% – and in turn push wage growth above 4%.
Against this backdrop, domestic political opposition to the government’s plans mounted. The Great Integration Bill made its torturous passage through parliament, with backbench MPs trying – and failing – to thwart its progress. Negotiations with the EU also became more tricky as the UK began to ask for more concessions with regard to the EMU fiscal targets whilst calls for a permanent UK representative on the ECB Governing Council met with resistance. By March 2018, it was evident that EMU entry in 2019 was an unrealistic option and a transition period was agreed in principle that would postpone entry until end-2020. The government White Paper of summer 2018, which detailed the logistics of swapping the euro for the pound, was a brave effort but the timetable was far too tight to be realistic and the ECB objected to the five-year transition plan in which sterling and the euro would continue to operate as legal tender in the UK.
As of now, the process is deadlocked with parliament split on the issue of further EU integration. It is evident that the wounds caused by the EU referendum have not healed, whilst the government’s plan to join the single currency is increasingly regarded as unrealistic. As one prominent government minister remarked just ahead of the parliamentary recess, “Clarke’s plan will never fly and he only remains as PM due to a lack of alternative candidates. You know, I sometimes wish Remain had never won the referendum. The Leavers would never have produced an omnishambles of this magnitude.”
Saturday, 21 July 2018
The Black Knights of Brexit
The Brexiteers increasingly remind me of The Black Knight in
the film Monty Python and the Holy Grail,
who, you may recall, refused to let King Arthur pass over a bridge without a fight. In the
subsequent skirmish, the knight responds to the loss of one of his arms with the
wonderful remark, “’Tis but a scratch.” His response to the removal of his
second arm is “It's just a flesh wound!” Only after both legs have also been
cut off does the knight suggest “we'll call it a draw.” According to John
Cleese, one of the writers of the sketch, the story stems from his schooldays when
he supposedly witnessed a wrestling match in which neither contestant would
give up. It was only when one wrestler finally pulled away from his opponent that
he realised the other man was, in fact, dead and he had effectively won the
match posthumously. In Cleese’s telling, the moral of the story was "if
you never give up, you can't possibly lose."
I make this point because reality is coming ever closer to us and still the Brexiteers will not yield. The EU has made it clear what a no-deal Brexit will look like in a 17-page paper released earlier this week. The Commission notes that although “there might be a transition period” running to end-2020 “we need to prepare for all scenarios ... and each scenario has different consequences.” The EU makes it clear that “no deal” will result in the UK becoming a third country, with all the attendant legal consequences that will entail. Amongst other things, airline licences, certain citizen rights and medicine certificates will end overnight.
For this reason, the EU makes a clear distinction between preparedness and contingency in planning for the UK’s withdrawal from the EU. Preparedness is defined as those “measures that will have to be taken as a consequence of the withdrawal of the United Kingdom regardless of whether there will be a withdrawal agreement” whereas “contingency planning consists of envisaging the measures that would be necessary to mitigate the effects of a withdrawal of the United Kingdom from the Union without a withdrawal agreement.” Although we don’t know what contingency measures are being put in place, presumably because the EU does not want to show its hand too early, the fact that it talks about them is a sign that the EU is taking seriously the threat of “no deal” by March 2019.
Meanwhile, the Black Knights of Brexit show their unshakeable faith that all will be well. Without any form of contingency arrangement, aircraft will not fly – despite the blithe protestations of Leavers – because insurers will not cover them to do so without the requisite permissions. In the absence of any form of contingency, ports will clog up. And industrialists repeatedly warn that their businesses will suffer in the event of a “no deal” Brexit. The warnings from Airbus and BMW have been widely reported but Jaguar Land Rover – a business with a long domestic tradition, even though it is now Indian-owned – is increasingly vocal about the risks which stem from the prospect of tariffs and customs delays that would hurt its just-in-time inventory model. However, Conservative MP Owen Paterson knows better: “If we really do leave the Customs Union, Jaguar Land Rover will have access to cheaper parts and components all around the world and the European suppliers will be forced to compete or they will lose Jaguar Land Rover’s business.” After all, who needs experts?
To many of the ultras, it seems as though Brexit is merely a flesh wound to the British economy. But as Anna Soubry MP noted in the House of Commons on Monday, ”If we do not deliver frictionless trade … thousands of jobs will go, and hon. Members sitting on the Government Benches, in private conversations, know that to be the case. What they have said in those private conversations is that the loss of hundreds of thousands of jobs will be worth it to regain our country’s sovereignty – tell that to the people who voted leave in my constituency. Nobody voted to be poorer, and nobody voted leave on the basis that somebody with a gold-plated pension and inherited wealth would take their jobs away from them.”
Brexit has always been about more than about economics, and it has long been clear that using economic arguments to counter the concerns is futile. The arguments simply fall on deaf ears. The debates over the White Paper (and indeed, those leading up to it) have become increasingly ideological. To use the moral of Cleese’s tale, if Brexiteers will not give up they cannot lose. However, they are losing in the remorseless battle against reality. Metaphorically, they have already lost at least one limb and at some point they too will be totally limbless, claiming they fought to a draw. But just to remind you how the scene in The Grail ended, King Arthur simply walked past his defeated opponent with the Black Knight threatening nothing more than to bite his legs off. Fact can be stranger than fiction.
I make this point because reality is coming ever closer to us and still the Brexiteers will not yield. The EU has made it clear what a no-deal Brexit will look like in a 17-page paper released earlier this week. The Commission notes that although “there might be a transition period” running to end-2020 “we need to prepare for all scenarios ... and each scenario has different consequences.” The EU makes it clear that “no deal” will result in the UK becoming a third country, with all the attendant legal consequences that will entail. Amongst other things, airline licences, certain citizen rights and medicine certificates will end overnight.
For this reason, the EU makes a clear distinction between preparedness and contingency in planning for the UK’s withdrawal from the EU. Preparedness is defined as those “measures that will have to be taken as a consequence of the withdrawal of the United Kingdom regardless of whether there will be a withdrawal agreement” whereas “contingency planning consists of envisaging the measures that would be necessary to mitigate the effects of a withdrawal of the United Kingdom from the Union without a withdrawal agreement.” Although we don’t know what contingency measures are being put in place, presumably because the EU does not want to show its hand too early, the fact that it talks about them is a sign that the EU is taking seriously the threat of “no deal” by March 2019.
Meanwhile, the Black Knights of Brexit show their unshakeable faith that all will be well. Without any form of contingency arrangement, aircraft will not fly – despite the blithe protestations of Leavers – because insurers will not cover them to do so without the requisite permissions. In the absence of any form of contingency, ports will clog up. And industrialists repeatedly warn that their businesses will suffer in the event of a “no deal” Brexit. The warnings from Airbus and BMW have been widely reported but Jaguar Land Rover – a business with a long domestic tradition, even though it is now Indian-owned – is increasingly vocal about the risks which stem from the prospect of tariffs and customs delays that would hurt its just-in-time inventory model. However, Conservative MP Owen Paterson knows better: “If we really do leave the Customs Union, Jaguar Land Rover will have access to cheaper parts and components all around the world and the European suppliers will be forced to compete or they will lose Jaguar Land Rover’s business.” After all, who needs experts?
To many of the ultras, it seems as though Brexit is merely a flesh wound to the British economy. But as Anna Soubry MP noted in the House of Commons on Monday, ”If we do not deliver frictionless trade … thousands of jobs will go, and hon. Members sitting on the Government Benches, in private conversations, know that to be the case. What they have said in those private conversations is that the loss of hundreds of thousands of jobs will be worth it to regain our country’s sovereignty – tell that to the people who voted leave in my constituency. Nobody voted to be poorer, and nobody voted leave on the basis that somebody with a gold-plated pension and inherited wealth would take their jobs away from them.”
Brexit has always been about more than about economics, and it has long been clear that using economic arguments to counter the concerns is futile. The arguments simply fall on deaf ears. The debates over the White Paper (and indeed, those leading up to it) have become increasingly ideological. To use the moral of Cleese’s tale, if Brexiteers will not give up they cannot lose. However, they are losing in the remorseless battle against reality. Metaphorically, they have already lost at least one limb and at some point they too will be totally limbless, claiming they fought to a draw. But just to remind you how the scene in The Grail ended, King Arthur simply walked past his defeated opponent with the Black Knight threatening nothing more than to bite his legs off. Fact can be stranger than fiction.
Wednesday, 18 July 2018
Dealing with Donald
British Prime Minister Benjamin Disraeli is credited with
coining the phrase “There are three kinds
of lies: lies, damned lies and statistics.” But Disraeli never met anyone
like Donald Trump who has created a fourth kind of lie in the form of fake news
– a damned lie of a wholly different order of magnitude. Fake news goes well
beyond a mere bending of veracity – it reflects an untruth created with the express purpose of
dissemination via various forms of media in order to attract such a huge
following that it becomes virtually impossible to counter with the truth.
Trump’s world view both informs and is informed by fake news. His attitudes towards trade, for example, which his Administration views as a zero-sum game, are informed by the dodgy input of Peter Navarro who believes that the US trade deficit is a major drag on American economic prosperity. But as Trump pumps this message to a wider audience, so he gains support for taking measures that defy economic rationality. The idea of engaging in a trade war with China, for example, is an illogical proposition in which there are no winners – only losers. Admittedly, since the US imports much more from China than it exports, it can ratchet up tariffs on a far wider range of goods than China can match and in that sense the US would expect to “win” a trade skirmish. But this is a very short-term way of looking at things. There is little doubt that China will overtake the US as the world’s largest economy before too long and as a result it will write the rules governing world trade. If China takes to heart the lesson that economic nationalism is the way to go, before too long it will be able to throw its weight around in ways that the US may not like.
Even in the short-term, China can make life difficult for those US firms operating in the Chinese market. For example, Apple’s sales in China (at around $13bn) are only slightly lower than those in Europe ($13.9bn) and are growing at a much faster rate. Over the last six years, Apple’s European sales revenue has grown at an average rate of 2% per annum versus 19% in China. Another way to think of this is that Apple generates sales in China equivalent to the amount that 235,000 workers would generate in terms of salary income. In an accounting sense, these sales compensate for the absence of jobs that would otherwise be located in the US. It’s all about swings and roundabouts.
Another aspect of Trump’s world view that increasingly disturbs is his ability to ride rough shod over long-standing allies. He has threatened to withdraw from NAFTA and has already imposed duties on European steel imports. Last week’s visit to Europe was hardly a triumph of diplomacy. Before sitting down with Angela Merkel, Trump denounced Germany as a "captive of Russia" and suggested that "Germany is totally controlled by Russia." He further undermined the US commitment to NATO by demanding that every member should reach the agreed threshold on defence spending of 2% of GDP by next year (the current target date is 2024) otherwise he would "go his own way." During his visit to NATO headquarters in Brussels he even demanded a rise in defence spending to 4% of GDP. He does have a point that there has to be a greater degree of burden sharing on defence, but the way to go about it is not to annoy allies because at some point you are likely to need them again.
Similarly, his intervention in the Brexit debate was bizarre. According to The Sun, Theresa May’s soft Brexit approach means that the UK’s “trade deal with the US will probably not be made.” His intervention in a domestic British issue was – to say the least – unusual and his backing for Boris Johnson was highly inflammatory. Trump subsequently backed away from criticisms of Theresa May reported by The Sun, claiming that it was “fake news.” But this fake news was captured on tape. Trump claims to have been similarly misquoted following his meeting with Russian president Putin. When asked whether it was Russia that interfered in the 2016 presidential election campaign, Trump responded “I don't see any reason why it would be.” He later backtracked saying, “In a key sentence in my remarks, I said the word 'would' instead of 'wouldn't’ … The sentence should have been: 'I don't see any reason why … it wouldn't be Russia.”
What we are faced with is a US President who his allies simply no longer trust – certainly not on trade issues or defence cooperation. Increasingly they cannot take what he says at face value because even he is not prepared to stand by what he says. Martin Wolf in the FT offers a view of Trump based on the fact that the US position at the top of the pyramid is threatened by China and his nationalist kneejerk reaction is what the people want to hear. But he also suggests that the US economy “has recently served the majority of its people so ill” that Trump is the anti-establishment politician who can give “the rich what they desire, while offering the nationalism and protectionism wanted by the Republican base.” As one of the below-the-line reader comments put it, “America is being led by an ignoramus who thinks he's a genius, on behalf of plutocrats who claim to be populists, at the expense of the desperate who will believe anything.” Better perhaps to say “at the expense of the desperate who need something to believe in” but the point is made.
Trump is the response to a system that failed: He exists because the old guard led the economy over the cliff in 2008 and are perceived to have left ordinary voters to pick up the tab. The reason why many Germans and pro-Remain Brits are scratching their heads at Trump’s behaviour is because they are not the ones who have been left behind. They don’t need to believe in a Trump-like figure and they can see through fake news. But they do not form a majority. Moreover, Trump does not play by the old rules because he gains nothing from doing so. There is thus no point in trying to tackle him on conventional terms.
Quite how we deal with a problem like Donald is hard to work out. Part of me hopes that he is a storm that will blow itself out when his policies are demonstrated to have failed. But I fear that he could be the first in a series of nationalist politicians who decide to tear up the rulebook in order to get things done. We only need look at Erdogan in Turkey or Duterte in the Philippines to see that there is a market for strongman politicians. And if the west becomes similarly infected then the rule-based economic system we have all grown up with will be in serious trouble.
Trump’s world view both informs and is informed by fake news. His attitudes towards trade, for example, which his Administration views as a zero-sum game, are informed by the dodgy input of Peter Navarro who believes that the US trade deficit is a major drag on American economic prosperity. But as Trump pumps this message to a wider audience, so he gains support for taking measures that defy economic rationality. The idea of engaging in a trade war with China, for example, is an illogical proposition in which there are no winners – only losers. Admittedly, since the US imports much more from China than it exports, it can ratchet up tariffs on a far wider range of goods than China can match and in that sense the US would expect to “win” a trade skirmish. But this is a very short-term way of looking at things. There is little doubt that China will overtake the US as the world’s largest economy before too long and as a result it will write the rules governing world trade. If China takes to heart the lesson that economic nationalism is the way to go, before too long it will be able to throw its weight around in ways that the US may not like.
Even in the short-term, China can make life difficult for those US firms operating in the Chinese market. For example, Apple’s sales in China (at around $13bn) are only slightly lower than those in Europe ($13.9bn) and are growing at a much faster rate. Over the last six years, Apple’s European sales revenue has grown at an average rate of 2% per annum versus 19% in China. Another way to think of this is that Apple generates sales in China equivalent to the amount that 235,000 workers would generate in terms of salary income. In an accounting sense, these sales compensate for the absence of jobs that would otherwise be located in the US. It’s all about swings and roundabouts.
Another aspect of Trump’s world view that increasingly disturbs is his ability to ride rough shod over long-standing allies. He has threatened to withdraw from NAFTA and has already imposed duties on European steel imports. Last week’s visit to Europe was hardly a triumph of diplomacy. Before sitting down with Angela Merkel, Trump denounced Germany as a "captive of Russia" and suggested that "Germany is totally controlled by Russia." He further undermined the US commitment to NATO by demanding that every member should reach the agreed threshold on defence spending of 2% of GDP by next year (the current target date is 2024) otherwise he would "go his own way." During his visit to NATO headquarters in Brussels he even demanded a rise in defence spending to 4% of GDP. He does have a point that there has to be a greater degree of burden sharing on defence, but the way to go about it is not to annoy allies because at some point you are likely to need them again.
Similarly, his intervention in the Brexit debate was bizarre. According to The Sun, Theresa May’s soft Brexit approach means that the UK’s “trade deal with the US will probably not be made.” His intervention in a domestic British issue was – to say the least – unusual and his backing for Boris Johnson was highly inflammatory. Trump subsequently backed away from criticisms of Theresa May reported by The Sun, claiming that it was “fake news.” But this fake news was captured on tape. Trump claims to have been similarly misquoted following his meeting with Russian president Putin. When asked whether it was Russia that interfered in the 2016 presidential election campaign, Trump responded “I don't see any reason why it would be.” He later backtracked saying, “In a key sentence in my remarks, I said the word 'would' instead of 'wouldn't’ … The sentence should have been: 'I don't see any reason why … it wouldn't be Russia.”
What we are faced with is a US President who his allies simply no longer trust – certainly not on trade issues or defence cooperation. Increasingly they cannot take what he says at face value because even he is not prepared to stand by what he says. Martin Wolf in the FT offers a view of Trump based on the fact that the US position at the top of the pyramid is threatened by China and his nationalist kneejerk reaction is what the people want to hear. But he also suggests that the US economy “has recently served the majority of its people so ill” that Trump is the anti-establishment politician who can give “the rich what they desire, while offering the nationalism and protectionism wanted by the Republican base.” As one of the below-the-line reader comments put it, “America is being led by an ignoramus who thinks he's a genius, on behalf of plutocrats who claim to be populists, at the expense of the desperate who will believe anything.” Better perhaps to say “at the expense of the desperate who need something to believe in” but the point is made.
Trump is the response to a system that failed: He exists because the old guard led the economy over the cliff in 2008 and are perceived to have left ordinary voters to pick up the tab. The reason why many Germans and pro-Remain Brits are scratching their heads at Trump’s behaviour is because they are not the ones who have been left behind. They don’t need to believe in a Trump-like figure and they can see through fake news. But they do not form a majority. Moreover, Trump does not play by the old rules because he gains nothing from doing so. There is thus no point in trying to tackle him on conventional terms.
Quite how we deal with a problem like Donald is hard to work out. Part of me hopes that he is a storm that will blow itself out when his policies are demonstrated to have failed. But I fear that he could be the first in a series of nationalist politicians who decide to tear up the rulebook in order to get things done. We only need look at Erdogan in Turkey or Duterte in the Philippines to see that there is a market for strongman politicians. And if the west becomes similarly infected then the rule-based economic system we have all grown up with will be in serious trouble.
Tuesday, 17 July 2018
The Brexit impossibility conundrum
Events over the last week have taken us further into the
looking glass world which we now seem to inhabit. Donald Trump is never far
from the headlines and his trip to Europe last week raised some uncomfortable
questions – some of which did need to be raised and many that did not – but I
will deal with those in my next post. However, it is the surreal events in the
arcane world of Brexit that are currently top of my thoughts.
The government’s White Paper, published last week, was supposed to be the moment when we finally got some clarity on the post-Brexit nature of the relationship between the UK and the EU. After all, it is the document that the EU has been requesting for the past 16 months. “Tell us what you want,” they demanded of the UK. But when they finally saw what the UK was proposing, they probably wished they had never asked. In short, the UK is asking for an Association Agreement with the EU which preserves many of the rights and privileges which it enjoys now. It is suggested that the UK and EU create a free trade area for goods governed by EU law, underpinned by elements of the customs facilitation plans which the EU has already derided as unworkable. Moreover, although “the UK would not have a vote on relevant rule changes, its experts should be consulted on the same basis as Member States.” Meanwhile, it intends to end the free movement of labour and proposes only paying into “those EU agencies that provide authorisations for goods in highly regulated sectors” without any mention of more meaningful budget contributions.
As a brazen piece of cherry-picking, this document is up there with the best. There is absolutely no way that the EU can agree to a free trade area whilst the UK seeks an opt-out from one of the four freedoms and at the same time shows no interest in paying into EU schemes. As a starting point in negotiations, the document has its merits but it is the paper that should have been presented a year ago – and ideally before the Article 50 process was even triggered. It is very late in the game to be presenting a plan which has virtually no chance of success, especially when the UK hopes that it can determine the basis of its future relationship as soon as the EU summit in October.
Then of course, there is the small matter of domestic opposition. The ideas set out in the White Paper satisfy neither the pro-Leave nor the pro-Remain camps because the former see it as an attempt to remain in the EU by the back door whilst the latter group view it as a far worse deal than the UK enjoys today. And both are right. There is little point in leaving to get a worse deal than we have now (as I have argued all along) and the Brexiteers are right to argue that the plan crosses many of the red lines that Theresa May has delineated over the past two years. So both have been betrayed.
To add insult to injury, the plan focuses on trade in goods and downplays services trade. This makes very little sense given the importance of services to the overall economy. As the German newspaper Handelsblatt pointed out (in English) “Theresa May's long-awaited White Paper aims to keep manufacturing in Britain, and is willing to surrender London’s financial access to the EU in return. That suits Germany just fine.” Indeed, the financial services industry can argue that it has been thrown under the bus – the one part of the economy that generates a trade surplus – with the government opting not to pursue a policy of mutual recognition for financial regulation but instead relying on enhanced equivalence in which recognition will take place on a piecemeal basis. It is not the deal that the City was looking for to remain competitive at a time when life is already being made difficult by overarching regulatory changes and general trading conditions.
Yet, despite all the carping, it is probably the best that the government could deliver under the circumstances. The hard Brexit vision championed by David Davis, Boris Johnson et al risks driving the economy over the cliff (see this clip of MP Anna Soubry blasting the ideological nature of the Brexiteers’ case). Thus, in order to avoid the worst case outcome, the government has no choice but to accede to many of the EU’s demands in order to secure access to the continental European market. Hence we will end up with a half-in, half-out Brexit that satisfies nobody.
Increasingly, there are calls for a second referendum, to which the Brexiteers respond that this would be to sell out what was decided in June 2016. Yet they have had more than two years to present an acceptable plan as to how to proceed with Brexit and have failed to do so. But they oppose the government’s plans which envisage a closer relationship than they deem acceptable, and all the while we get nowhere whilst the clock ticks down. If politicians cannot come up with an acceptable compromise, they may be forced to throw the question back to the electorate. I am no fan of a rerun (Brexit II) but I am increasingly of the view that there may be little option. Former education secretary Justine Greening yesterday called for a ballot with three options: the prime minister's Chequers deal, staying in the EU or a clean break from Europe with no deal. At least the electorate will have to think about the implications of leaving in a way that they did not two years ago.
In a way, these are the choices that we always faced: The choice was never about a straight “in” or “out”. It was always “in” or choosing the least worst version of “out”. The prime minister predictably has ruled out a second referendum. But with her position weaker than ever and with an increasingly impressive track record of saying one thing and doing another, it would be unwise to rule out the second referendum option altogether.
The government’s White Paper, published last week, was supposed to be the moment when we finally got some clarity on the post-Brexit nature of the relationship between the UK and the EU. After all, it is the document that the EU has been requesting for the past 16 months. “Tell us what you want,” they demanded of the UK. But when they finally saw what the UK was proposing, they probably wished they had never asked. In short, the UK is asking for an Association Agreement with the EU which preserves many of the rights and privileges which it enjoys now. It is suggested that the UK and EU create a free trade area for goods governed by EU law, underpinned by elements of the customs facilitation plans which the EU has already derided as unworkable. Moreover, although “the UK would not have a vote on relevant rule changes, its experts should be consulted on the same basis as Member States.” Meanwhile, it intends to end the free movement of labour and proposes only paying into “those EU agencies that provide authorisations for goods in highly regulated sectors” without any mention of more meaningful budget contributions.
As a brazen piece of cherry-picking, this document is up there with the best. There is absolutely no way that the EU can agree to a free trade area whilst the UK seeks an opt-out from one of the four freedoms and at the same time shows no interest in paying into EU schemes. As a starting point in negotiations, the document has its merits but it is the paper that should have been presented a year ago – and ideally before the Article 50 process was even triggered. It is very late in the game to be presenting a plan which has virtually no chance of success, especially when the UK hopes that it can determine the basis of its future relationship as soon as the EU summit in October.
Then of course, there is the small matter of domestic opposition. The ideas set out in the White Paper satisfy neither the pro-Leave nor the pro-Remain camps because the former see it as an attempt to remain in the EU by the back door whilst the latter group view it as a far worse deal than the UK enjoys today. And both are right. There is little point in leaving to get a worse deal than we have now (as I have argued all along) and the Brexiteers are right to argue that the plan crosses many of the red lines that Theresa May has delineated over the past two years. So both have been betrayed.
To add insult to injury, the plan focuses on trade in goods and downplays services trade. This makes very little sense given the importance of services to the overall economy. As the German newspaper Handelsblatt pointed out (in English) “Theresa May's long-awaited White Paper aims to keep manufacturing in Britain, and is willing to surrender London’s financial access to the EU in return. That suits Germany just fine.” Indeed, the financial services industry can argue that it has been thrown under the bus – the one part of the economy that generates a trade surplus – with the government opting not to pursue a policy of mutual recognition for financial regulation but instead relying on enhanced equivalence in which recognition will take place on a piecemeal basis. It is not the deal that the City was looking for to remain competitive at a time when life is already being made difficult by overarching regulatory changes and general trading conditions.
Yet, despite all the carping, it is probably the best that the government could deliver under the circumstances. The hard Brexit vision championed by David Davis, Boris Johnson et al risks driving the economy over the cliff (see this clip of MP Anna Soubry blasting the ideological nature of the Brexiteers’ case). Thus, in order to avoid the worst case outcome, the government has no choice but to accede to many of the EU’s demands in order to secure access to the continental European market. Hence we will end up with a half-in, half-out Brexit that satisfies nobody.
Increasingly, there are calls for a second referendum, to which the Brexiteers respond that this would be to sell out what was decided in June 2016. Yet they have had more than two years to present an acceptable plan as to how to proceed with Brexit and have failed to do so. But they oppose the government’s plans which envisage a closer relationship than they deem acceptable, and all the while we get nowhere whilst the clock ticks down. If politicians cannot come up with an acceptable compromise, they may be forced to throw the question back to the electorate. I am no fan of a rerun (Brexit II) but I am increasingly of the view that there may be little option. Former education secretary Justine Greening yesterday called for a ballot with three options: the prime minister's Chequers deal, staying in the EU or a clean break from Europe with no deal. At least the electorate will have to think about the implications of leaving in a way that they did not two years ago.
In a way, these are the choices that we always faced: The choice was never about a straight “in” or “out”. It was always “in” or choosing the least worst version of “out”. The prime minister predictably has ruled out a second referendum. But with her position weaker than ever and with an increasingly impressive track record of saying one thing and doing another, it would be unwise to rule out the second referendum option altogether.
Monday, 9 July 2018
It’s goodbye from me and it’s goodbye from him
Today’s news that two of the “big beasts” in Theresa May’s
cabinet have quit is all of a piece with the actions of prominent Brexit
supporting politicians who, when the going gets tough, also get going –
generally in the other direction. Both resigned when it became clear that the
rest of the cabinet would not support their version of Brexit, which amounted
to nothing more than “let’s just leave and sort out the problems later” despite
the chill winds of reality which make it clear that a hard Brexit is an economic
non-starter.
Johnson’s resignation letter is a clear illustration of his inability to see the reality of Brexit. It should, he says “be about opportunity and hope … That dream is dying, suffocated by needless self-doubt.” If the UK were the EU’s economic equal, able to wring concessions by applying its clout, he might have a point. But that has never been the case: The UK was always going to be disadvantaged during the exit process. The ultras only ever see Brexit in one dimension and have totally failed to grasp that the rest of the world may not see the process in quite the same way.
Regular readers will know I have no truck with the positions of Boris Johnson or David Davis on Brexit. But I am both encouraged and depressed at their departure. Encouraged, because I believe the chances have risen that the government will be able to unify around a plan that delivers a softer Brexit than might otherwise have been the case. But the depressing aspect of it all is that it has taken supposedly intelligent people two years to arrive at a position that many of us realised was inevitable five years ago. That said, the Brexiteers are right about one thing: The idea of accepting the plan outlined by the prime minister at last weekend’s Cabinet away-day represents a significant crossing of Theresa May’s red lines which puts the UK in a very awkward position.
Indeed, these red lines which have been set out over the last 22 months have all but been rubbed out. The plan – further details of which are due to be published later this week – calls for a “common rulebook for all goods including agri-food”; adherence to common standards in a whole range of areas and an ongoing role for the European Court of Justice “as the interpreter of EU rules.” In short, the UK is proposing associate membership of the sort enjoyed by Norway. Johnson might be overdoing it when he says “In that respect we are truly heading for the status of a colony – and many will struggle to see the economic or political advantages of that arrangement.” But he has a point in that a policy requiring the UK to remain a rule taker with no say over the drafting of legislation, and which will probably require continued contributions into the EU budget, puts it in a far worse position than it enjoys today.
Furthermore, we have so far only heard from the British side. The EU’s negotiators in Brussels might well view the plan as representing another attempt at cherry-picking by the Brits. For example, the document talks about a trade partnership with the EU whilst simultaneously calling for an end to free movement of labour thus “giving the UK back control over how many people enter the country.” As an aside, it is worth noting that on latest data through September 2017, the decline in net immigration has come about purely because of a decline in migrants from the EU. Net immigration from non-EU countries – the element that the UK already controls – hit record levels over the preceding 12 months.
Nonetheless, the departure of Davis and Johnson raises the chances that the government will be able to coalesce around a plan for a soft Brexit without having to worry about Davis’ view. Johnson will be more of a problem but since he never cared much about collective cabinet responsibility in the first place, he will simply continue to take a position that is at odds with the government.
Naturally, the press is now full of “crisis talk” and speculation of a leadership challenge. But the rebels do not really have the numbers to mount a challenge. The (inaptly named) European Research Group, which is the bastion of pro-Brexit support within the Conservative Party, has at most 80 members of which only a maximum of around 50 are believed likely to support a change of leader. With the Conservatives comprising 316 MPs, the arithmetic is currently in May’s favour so market talk of a “government crisis“ looks overdone. Johnson may be a charismatic politician with a high degree of public support, but his parliamentary colleagues simply do not trust him. He is not in a position to challenge for the leadership of the Tory party, and as one who has flouted the rule of collective cabinet responsibility over the past two years, many people will be very happy to see the back of him. But as Donald Tusk put it in a Tweet today, ”politicians come and go but the problems they have created for people remain. I can only regret that the idea of Brexit has not left with Davis and Johnson.”
Johnson’s resignation letter is a clear illustration of his inability to see the reality of Brexit. It should, he says “be about opportunity and hope … That dream is dying, suffocated by needless self-doubt.” If the UK were the EU’s economic equal, able to wring concessions by applying its clout, he might have a point. But that has never been the case: The UK was always going to be disadvantaged during the exit process. The ultras only ever see Brexit in one dimension and have totally failed to grasp that the rest of the world may not see the process in quite the same way.
Regular readers will know I have no truck with the positions of Boris Johnson or David Davis on Brexit. But I am both encouraged and depressed at their departure. Encouraged, because I believe the chances have risen that the government will be able to unify around a plan that delivers a softer Brexit than might otherwise have been the case. But the depressing aspect of it all is that it has taken supposedly intelligent people two years to arrive at a position that many of us realised was inevitable five years ago. That said, the Brexiteers are right about one thing: The idea of accepting the plan outlined by the prime minister at last weekend’s Cabinet away-day represents a significant crossing of Theresa May’s red lines which puts the UK in a very awkward position.
Indeed, these red lines which have been set out over the last 22 months have all but been rubbed out. The plan – further details of which are due to be published later this week – calls for a “common rulebook for all goods including agri-food”; adherence to common standards in a whole range of areas and an ongoing role for the European Court of Justice “as the interpreter of EU rules.” In short, the UK is proposing associate membership of the sort enjoyed by Norway. Johnson might be overdoing it when he says “In that respect we are truly heading for the status of a colony – and many will struggle to see the economic or political advantages of that arrangement.” But he has a point in that a policy requiring the UK to remain a rule taker with no say over the drafting of legislation, and which will probably require continued contributions into the EU budget, puts it in a far worse position than it enjoys today.
Furthermore, we have so far only heard from the British side. The EU’s negotiators in Brussels might well view the plan as representing another attempt at cherry-picking by the Brits. For example, the document talks about a trade partnership with the EU whilst simultaneously calling for an end to free movement of labour thus “giving the UK back control over how many people enter the country.” As an aside, it is worth noting that on latest data through September 2017, the decline in net immigration has come about purely because of a decline in migrants from the EU. Net immigration from non-EU countries – the element that the UK already controls – hit record levels over the preceding 12 months.
Nonetheless, the departure of Davis and Johnson raises the chances that the government will be able to coalesce around a plan for a soft Brexit without having to worry about Davis’ view. Johnson will be more of a problem but since he never cared much about collective cabinet responsibility in the first place, he will simply continue to take a position that is at odds with the government.
Naturally, the press is now full of “crisis talk” and speculation of a leadership challenge. But the rebels do not really have the numbers to mount a challenge. The (inaptly named) European Research Group, which is the bastion of pro-Brexit support within the Conservative Party, has at most 80 members of which only a maximum of around 50 are believed likely to support a change of leader. With the Conservatives comprising 316 MPs, the arithmetic is currently in May’s favour so market talk of a “government crisis“ looks overdone. Johnson may be a charismatic politician with a high degree of public support, but his parliamentary colleagues simply do not trust him. He is not in a position to challenge for the leadership of the Tory party, and as one who has flouted the rule of collective cabinet responsibility over the past two years, many people will be very happy to see the back of him. But as Donald Tusk put it in a Tweet today, ”politicians come and go but the problems they have created for people remain. I can only regret that the idea of Brexit has not left with Davis and Johnson.”
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