Monday, 22 May 2017

Brexit: dangerous games

There has been a terrible atrocity in Manchester, the details of which are not yet fully confirmed. Sad though these deaths are, one has to observe that the next week will be taken up with media incontinence since the media can only deal with one subject at a time. That means Brexit will be buried even further in an election where this pivotal issue is already woefully neglected. This blog will make no diversion on account of events since Brexit is still the most pressing concern.

We are now at a crunch point. David Davis says he is prepared to walk away from the table without a deal. The EU, it would appear, is taking that threat very seriously. It is therefore a political artefact that this government believes the UK can walk away from the table.

There has been much discussion as to what this would entail. In basic terms it means that, since all of our present relations with the EU are tied up in EU membership, we would have no formal relationship with the EU. That means no trade agreement and an immediate suspension of the multitude of cooperation programmes and an end to automatic recognition of UK institutions including those certification bodies that allow for trade and authorisation of goods and services. Residency rights are cancelled immediately, for those here and abroad.

This means a termination of airline passenger rights and free passage between ports. It means customs inspections and it means tariffs are reinstated. All treaties and agreements therein cease to have effect.

The debate around this tends to centre only on tariffs and those remedial measures we would take to ensure that ports do not become congested. This, though, does not even begin to touch on the multiplicity of other issues from food safety to counter-terrorism. In that respect nobody has a full picture of the full impact. All that we can say with absolute certainty is that the consequences would be far reaching and profound, throwing many systems into chaos, and in some cases, bringing them to a complete stop.

This is what we refer to as the cliff edge. Dangerously though, the Brexit cult within the Conservative Party has convinced themselves that there is no cliff edge. Through obfuscation and denial they have built up an elaborate belief system based on a number of self-deceptions.

One of those being that the half of UK trade is not with the EU and therefore already trades on WTO terms. This is incorrect. The UK is a member of the EU which has a number of agreements with other countries. There can either be comprehensive free trade deals or a number of treaties or individual sector specific agreements. The USA, for example, has around fifty of them.

Dr Lee Rotherham, ramping up the propaganda for Conservative Home, has it that "What people forget is that what are referred to as “WTO terms” are accompanied by a range of other agreements that build on them and further facilitate trade. There will be no default to simple “WTO membership” terms between the UK and the EU unless one of two things happens: either a trade war breaks out, and no deal on anything at all is reached; or the Department for Exiting the EU engages in an Animal House-style party for 24 months, and declines to leave the building".

This is a key misunderstanding among Brexiteers. WTO terms most definitely does mean an absence of any formal agreements with the EU, and though there are is a basic framework that allows the UK to continue exporting to the EU, there is nothing that compels the EU to automatically accept our goods as compliant even if we continue to conform to standards and there is nothing that obliges the EU to grant us free passage at the borders.

The suggestion that WTO terms "are accompanied by a range of other agreements that build on them" by definition is not the WTO option. Those "other agreements" would have to be negotiated with the EU. But here we are talking about a scenario where the UK of its own volition terminates all formal arrangements with the EU. There are no "other agreements".

In the most basic terms we are talking about flicking the off switch on forty years worth of mature governance systems from public health to maritime surveillance and nuclear safety. There are no defaults except for much looser global conventions which again do not oblige the EU to make any special concessions for third countries.

Whether or not this is something known to the Tory Brexit cult is unclear. We know that their general understanding does not usually extend beyond tariffs which is why they have adopted Professor Patrick Minford as their poster boy. To them everything else is just pesky "red tape" they intend to chuck on the bonfire. These individuals are either operating from a position of obstinacy and ignorance or they are engaged in an elaborate ideological deception. In either case, it is quite malicious.

The ultra Brexiteer wing of the Conservative Party is one that believes in universal disarmament where tariffs are concerned, dropping all of our protectionist measures, seeking to move us to an ultra low tax, regulation lite economy. Superficially, to a conservative like me, this is appealing, but it falls over on close scrutiny in that whatever planned reforms we have in mind, we cannot afford to dispense with roughly half of our trade - and consequently that will require a high level of conformity with our nearest and largest customer.

Like it or not, the EU is a regulatory superpower and we do not operate in a vacuum. The EU will continue to influence our laws and we will have to conduct our affairs in recognition of the fact that the EU is a power in its own right. It will not cooperate with the UK if the UK enters a race to the bottom to become a European tax haven. It has been able to wield significant influence over Switzerland to prevent them doing the same. Further to this, were we to have that "bonfire of regulation", UK goods would be treated as higher risk and subject to more checks and inspections.

As much as this is undesirable there is very little point since the rest of the world tends to adopt global standards which are catching up to Brussels so that the rest of the world can enjoy enhanced trade with Europe. There is little merit to deregulation and most surveys of UK business indicate they do not want it. If there is any streamlining and simplification they would like it is the UK domestic tax code, which we were never prevented from reforming even in the EU.

As to whether there is any merit in a no deal scenario, on balance it is something to be avoided at all costs. Tory Brexiteers suggest that whatever barriers the EU restores, the UK can reciprocate. They have not thought this through. The UK is dependent on food imports and any barriers we erect would effectively result in higher costs for UK consumers - the very opposite of what they promised.

In some instances, we may see firms moving their manufacturing to the UK to service the UK market but by the same token, a number of banks and factories would relocate to the EU as the EU is the larger market. Without any formal agreements, buyers of UK produce would be forced to find alternative suppliers either within the EU or in countries which have formal trade agreements with it. Meanwhile we would lose tens of billions in trade in services - which ultimately hits the City - which finances much of our social sector.

In that regard I rather suspect this is the motive behind the Tory Brexiteers - to destroy social welfare and move us to a us model of private care and health provision. What they have not been able to do in government, they can effect by way of a total severance from the EU - where we can no longer afford much more than a basic NHS. Again, I could almost be persuaded by that but not if it comes at the cost of everything else.

There is no question that a no deal Brexit will result in a deep and long recession. How can it not? It will shatter consumer confidence, inward investment will plummet and we would struggle to restore relations with the EU. It hurts them too. Having broken away from the EU by way of tearing up treaties our credit rating turns to junk and then we will find that in a world of interconnected trade agreements and global treaties we do not have that ultimate sovereignty so craved by Brexiteers.

We do not know as yet what settlement figure the EU has in mind. Some have suggested as much as 100bn Euros. Possibly more. As I understand it there is no suggestion that we would have to pay it in a lump sum. But were that so, we could borrow it. We'd have to. Measured against the £240bn in EU trade per annum that we stand to lose, there is nothing in a self-immolation Brexit that would make it worth it.

In a pure rhetorical sense, no deal is better than a bad deal, but how bad would it have to be to be worse than a no deal Brexit? There is a suggestion that a deal could have a punishing exit cost -and that we would not enjoy anything close to the same participation the single market, but that would be a consequence of our decision to leave rather than EU obstinacy. In that respect, we should be prepared to swallow some unpalatable compromises. No deal isn't really an option.

There are those who argue that any deal with the EU is de facto a bad deal because it comes with certain conditions and certain future obligations. That though is the nature of having a comprehensive agreement with a regulatory superpower. Every trade agreement carries obligations. This attitude is not a reasonable one. It is born of an intense phobia of cooperation with the EU and an irrational hostility to regulation.

In many respects it is that hostility to regulation that is driving their no deal ambitions. If you read the output of Tory think tanks such as the Institution of Economic Affairs, they see regulation as a petty incursion on liberty rather than a facilitator of trade with its own inherent utility in removing the negative externalities of cross border trade. They have never grasped its purpose or the necessity for it which is why they repeatedly recommend a one in, one out policy whenever the government expresses a wish to deregulate.

Put simply we are dealing with profoundly dishonest, ill-informed, obstinate and stupid people. Countless efforts have been made to get this across to the government and to Tory grandees, but ultimately they are in hock to a tribal conformity. Before the referendum, noted Brexiteer Owen Paterson was open to the idea of a staged Brexit utilising the EEA agreement as a departure lounge. Because this approach is at odds with Tory scripture (based on some yawning misconceptions of the EEA) he found himself ostracised from the Tory clique to a point where funding for his vanity think tank was threatened.

And this is ultimately what's wrong here. It is well known that the IEA and Conservative Home et al are part of a London network who are all in some way kept afloat by the same handful of Tory donors, many of whom have a commercial interest in a hard Brexit. They are the ones calling the shots, they can buy conformity - or the Tory clan can bully people into submission. That's how it works. Those who are not true believers are simply intellectual and moral cowards like Owen Paterson.

This is not being driven by rationality, knowledge or wisdom. This is being driven by idiotic ideologue zealots who have not updated their knowledge of the EU or developments within it since 1992 and are fighting old tribal battles as old as euroscepticism itself. That this toxic clan have managed to capture the ear of the PM is deeply alarming. David Davis believes and so does Boris Johnson. It is an article of faith.

In any other circumstances I would have to hold my nose and vote Labour. Something that goes against every fibre of my being. But these are not normal circumstances. We have a Labour party that is manifestly unfit to govern with a front bench whose collective IQ would not rival a potato. The idea that Diane Abbott would be put in charge of anything more substantial than a tea trolley is too disturbing even to contemplate. As much as this iteration of Labour would wreck the country, they will probably make a balls up of Brexit too. For that reason I find myself unable to vote at all.

Over the last few days we have seen that Theresa May is a politician way out of her depth. She has no natural ability for government. She is surrounded by yes men and zealots. That she would even allow the suggestion of a no deal Brexit speaks to her inability to comprehend the task at hand. In any negotiation a threat has to be credible. That she believes "no deal" is a credible threat tells us all we need to know. Additionally the continued insistence that Brexit can be accomplished inside two years tells us she does not reside on this planet.

There is always the outside chance that this is just electioneering and signalling to the electorate, but if you are not by now deeply worried then you simply haven't been paying attention. If this government believes its own rhetoric then there is no longer any doubt. We are screwed.

No comments:

Post a Comment