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Analyses Last Updated: Jul 13, 2018 - 9:02:37 AM


The EU is threatening to destroy the UK economy – but will only bring a doomloop that guarantees its own ruin
By Ambrose Evans-Pritchard, Telegraph, 12 July 2018
Jul 12, 2018 - 9:38:44 AM

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An Airbus without wings is a just a bus. It is an old joke in the aerospace industry. It is also true.

Wings for the A320, A330, A340, A350, and A380 series assembled at Airbus plants in France and Germany are built in Britain. Some are flown in giant Beluga transport aircraft to Toulouse. Others are shipped by water on special craft, and hauled in convoys from Bordeaux through the villages of Aquitaine. 

Airbus warns of “catastrophe” following Brexit if there is a total rupture in trade. It fears a “€1bn (£800m) weekly loss in turnover”. The supply chain would “fall apart”.

The company’s "Brexit risk assessment" says 4,000 UK firms supply over 10,0000 aircraft parts, including Rolls Royce engines.

Airbus is running at full capacity. It does not have the means to stockpile wings and other parts for a long siege. Talk of trying to cover the breach with old-technology wings from China is laughable.

It would take years for the company to replace the UK’s operations. Costs would be crippling. Europe’s foremost industrial venture with a 130,000 employees and enormous global prestige would either risk bankruptcy or require a massive EU rescue in breach of WTO rules. 

The Airbus monitum was reported in the British and EU press as a warning to Theresa May – or rather her opponents – that the UK must back down on Brexit or lose much of an aerospace sector worth £35bn a year. Yet it could equally be read as a warning to Europe’s leaders. Integrated supply-chains cut both ways.

I wish no ill towards Airbus. Chief executive Thomas Enders has done a superb job. The ex-Bundeswehr parachutist has fought a long campaign to liberate the company from meddling by governments. He has turned it into a genuine market animal rather than a trophy project for Euro-nationalists. He has been a firm friend of Britain.

The Airbus doom scenario assumes that certification for parts would break-down and there would be no roll-over of (EASA) flying authority. This is possible, given the ideological fever of Martin Selmayr’s punishment task-force in Brussels.

Yet if the EU were to impose such an absurd settlement – to discourage future apostasy – there would be greater matters to worry about than trade. The strategic order of Europe would disintegrate. It would also entail mutual assured destruction, our old friend MAD from the Cold War.

The fact is that aircraft parts are exempt from tariffs under WTO rules. The aerospace lobby ADS told the House of Lords that the tariff barrier challenge was “doable” for the industry.
"Let us hold the Tories to electoral pledges. Let us encourage Brexiteers to force a leadership contest that goes to the party base"

If Britain remained outside the customs union but had a comprehensive free trade deal with the EU, any raw materials that were not exempted could flow back and forth on a “fast-track” basis. It is no more than a friction. Only if the EU refused to make the relationship work would Airbus be prevented from carrying on more less as before.

The car sector faces a parallel saga. If the EU acts on the Selmayr method – to create havoc unless Britain swallows the customs union, the single market, and the European Court of Justice, using the Irish border as the pretext – it will inflict a massive shock on its own companies.

The German auto firms would be shut out of their biggest market, and the one with the highest profit margin. Their cross-Channel supply-chain would also “fall apart”. Were this to combine with Donald Trump’s 25pc car tariffs, it would quickly pose a systemic danger to Germany’s core industry.

We have the spectacle of VW, BMW and Daimler eagerly pushing for the abolition of EU car barriers in order to assuage Mr Trump’s wrath. They are not demanding that America accepts the writ of the ECJ, or submits to the EU regulatory regime. They are not insisting on the "four freedoms", or babbling pieties about the sanctity of the single market. They just want to trade.

Yet the same companies are sternly demanding – through their business federations – that trade barriers be erected against Britain (and themselves) unless the UK bows to EU control over great swathes of its laws and policy social policy. They are taking this hard line because they think Europe has us over a barrel, encouraged in thinking this by large parts of the British establishment, Parliament, and the press.

You can go through the sectors one by one – airlines, tourism, agro-industry, etc – and it is obvious that a full attempt by the EU to suffocate the British economy would recoil with shattering force. Blowback from a punishment Brexit would be enough to trigger a violent recession. Financial contagion would lead to a chain of sovereign defaults and a "doomloop" on steroids for the banking system. 

The stock EU narrative is that Britain would face the greater devastation by far. But you can construct the opposite case, and not merely because the EU has an £80bn trade surplus with the Britain to protect. At the end of the day, the UK has its own central bank and currency, a deep Gilts market, and resilient institutions. The ordeal would be horrible, but Britain has survived worse. 

The brittle EU Project would not survive. It is an open question whether the euro can hold together through the next global downturn even without the accelerant of a Selmayr-induced firestorm. It still has no fiscal union to back it up. Bail-out fatigue pervades in the North; rebel eurosceptics run Italy.

The European Central Bank has run out of powder. Interests rates are minus 0.4pc. The South has exhausted its fiscal space. Debt ratios are far closer to the danger zone than in 2008. Clemens Fuest, head of German IFO Institute, warned last week of an almighty disaster when the cycle turns.

The denouement is laid out in “Collapse: Europe after the European Union”. It is a cri de coeur by Ian Kearns, co-founder of the European Leadership Network and a British diplomat of pro-EU sympathies. His point is that the toxic legacy of the last crisis has never been resolved.

“Macron’s fiscal union is going nowhere. The eurozone is a sitting duck waiting for the next crisis to happen. When it comes the fundamental weaknesses will be exposed brutally by markets, and Italy will be at the eye of the storm. We are looking at an unmanaged rout,” he told a gathering of the European Council on Foreign Relations.

His book explores all the “triggers of disintegration”, from the migrant crisis, to Putinism, and the ascendancy of the Salvini generation.

My own view is that if the EU pushes a maximalist line on Brexit to the point of total rupture – ie economic warfare – it guarantees its own ruin. It will cause tectonic rifts across multiple strategic fault-lines.

The difficulty is that many of those currently in charge of the EU machinery believe their own propaganda. They think that Brexit is largely British self-harm, with slim implications for them if it goes wrong.

If the UK chooses to resist – rather than accept colonial status – there may well be a hair-raising episode that would test nerves before the metaphorical penny drops in Brussels that you cannot fly an Airbus without wings.

This could be mitigated on the British side by a pre-funded fiscal bazooka worth 4pc of GDP for "shovel-ready" infrastructure projects, starting with a shock-and-awe blast as soon as the economy slows. That would alter the political optics of a no-deal Brexit in those crucial early months. It would greatly raise the chances that the EU would blink first.

Would Parliament vote for such a policy under its current composition? Of course not.  So let us get rid of it. Let us hold the Tory Party to its electoral pledges. Let us encourage Brexiteers to force a leadership contest that goes to the party base. We know from Conservative Home’s snap poll that over 60pc oppose the Chequers Deal. Let the party members pick a leader less terrified of shadows on the wall. Let them carry out a deselection purge of those Tory MPs in breach of their electoral Manifesto.


Source:Ocnus.net 2018

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