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Business Last Updated: Nov 23, 2018 - 1:44:56 PM


Theresa May's 'culpable naivety' means an explosive Brexit showdown in two years
By Ambrose Evans-Pritchard, Telegraph,21 November 2018
Nov 23, 2018 - 1:44:01 PM

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Angela Merkel and Emmanuel Macron have both said Brexit must be seen to fail, yet Theresa May's Brexit plan submits the UK to their laws

Sometimes you have to restate the fundamental premise. The UK is legally and morally entitled to withdraw from a European project that keeps evolving in a direction where British voters do not wish to go.

The EU and its states are equally obliged by membership of the UN, the WTO, the Vienna Convention, and a nexus of accords, to respect that decision in good faith and a spirit of cooperation.

There is nothing dishonourable in seeking the restoration of sovereign self-government. Nor is it unreasonable to reject a system with a ‘democratic deficit’ long decried by the Left as well as the Right.

The EU establishes an upper level government that is not elected and cannot be removed by voters, even when it persists in error - as it did by turning the intra-EMU banking crisis of 2010 into an economic depression through fiscal, monetary, and regulatory incompetence, and for which no EU official has ever been held to account.

It is not churlish to protest that both Labour and the Tories campaigned on manifestos to leave the EU single market and customs union, and that to resile from this pledge is political felony.

Little has changed in the economic circumstances since June 2017 to justify this breach. The British economy has held up tolerably well. It has grown faster than Germany, France, Italy, and Japan over the last six months.

The eurozone’s V-shaped catch-up spurt in 2017 has fizzled, as it was bound to do once the low-hanging fruit had been picked and the output gap had been closed. The old pathologies have returned.

It remains a slow-growth zone that missed much of the IT revolution of the last quarter century. It is still wedded to the Precautionary Principle - otherwise known as a racket for the defence of vested interests - and which the UK must accept in the text of the political declaration.

As a matter of realpolitik you can argue that the EU remains cursed by its dysfunctional monetary union and will lurch back into crisis when the next global downturn hits in 2019 or 2020, and therefore that there is no point in rocking the boat over Theresa May’s Brexit plan.

Whatever the documents say about the Irish backstop or the perpetual customs territory, the denouement of the QE debt bubble will change Europe’s circumstances in ways that we cannot predict.

The next recession will come when EMU interest rates are already minus 0.4pc. Monetary policy is near exhaustion. Budget stimulus a l’outrance is forbidden by the Fiscal Compact. The eurozone will slide into a deflation trap. This in turn will cause Club Med debt dynamics to spin out of control. They are stuffed.

Yet that is to stake Britain’s constitutional future on the vagaries of markets and timing. The larger fact is that the Prime Minister’s agreement is unacceptable on any terms, ever. We go from being legally sovereign as an EU member, entitled to exit unilaterally under Article 50, to non-sovereign status as a legally-captured adjunct to the EU.

Brussels has a veto on whether Britain can leave the Irish backstop and therefore whether we can leave the ‘customs territory’.  Level playing field clauses lock the UK into EU law on labour, the environment, taxation, competition, and state aid, with varying levels of ‘dynamic alignment’ on future law. The European Court will have the final say on disputes.

Brussels has no motive to release us from this straitjacket unless we accept comparable terms in any trade deal. It submits Britain to a foreign legislative power run by politicians (Merkel, Macron) who state openly that Brexit must be seen to fail. Those who say we can wriggle out of it later by abrogating an international treaty give dangerous counsel.

There is no doubt that the EU weaponised the Irish border to shoehorn the UK into the customs territory, but I strongly suspect that the Cabinet Office, the Treasury, and the Prime Minister were complicit.

It enabled the switch from a constitutional Brexit that respected core demand of democratic self-rule to a supply-chain Brexit that serves chiefly the interests of CBI multinationals, the foreign car industry, and EU-linked parts of the traded goods sector. It is not even a workable customs union.

It has no transport agreements, and no permits for 95pc UK trade into the Continent. It has no phytosanitary accords for cross-border agricultural flows. It is far from ‘frictionless trade’ yet it nevertheless entails legal obligations for Britain that are close to both customs union and single market membership.

It really is the worst of all possible worlds. All that Theresa May has secured is the end to free movement, which was self-correcting anyway as Eastern Europe runs out of labour and wage differentials narrow.

The EU has locked in its £95bn surplus in goods while offering nothing in exchange for services beyond the thin gruel of basic ‘equivalence’. Tiny Singapore did better with a weaker hand.

It is irrelevant whether Theresa May has shown resilience, or whether her Tory foes are likeable. She promised British independence in her Lancaster House speech but retreated at each stage on meeting EU resistance. She has been guilty of “culpable naivity”, in the words of Sir Ivan Rogers, her former chief Brexit negotiator.

Sir Ivan said in his recent Cambridge lecture that the EU “closed the trap door” before the Prime Minister realized what had hit her. Its aim has been to “maximise leverage during the withdrawal process and tee up a trade negotiation after our exit where the clock and the cliff edge can again be used to maximise concessions from London. So that they have the UK against the wall again in 2020.”

Nothing is resolved. The next phase of talks will be worse. We will have even less leverage. “If we do stagger over the line with a Withdrawal Agreement, coupled with a pretty thin Political Declaration which all – or enough – can just about swallow, I will make three predictions about where we shall be in two years.”

“First, we shall be having precisely the same debate over sovereignty/control versus market access as we are now. The private sector will still be yearning for clarity on where we are going, and not getting much.”

“Second, it will be obvious by early autumn 2020 that the deal will not be ready by the year end, and that an extension is needed to crack the really tough issues,” he said.

The EU is in no rush. “It sits rather comfortably with the UK in its status quo transition, with all the obligations of membership and none of the rights, and will use the prospective cliff edge to force concessions.”

“Third, the Irish backstop, enshrined in the Withdrawal Treaty will still be in place,” he said.

This cannot be a stable equilibrium or the basis for a concordat with Europe. This ‘unequal treaty’ - to borrow a Ming Dynasty phrase - will compound the grievances that led to Brexit. It is a recipe for another decade of ruinous cross-Channel relations.

Theresa May told MPs today that they "risk no Brexit at all" if they reject her deal. That is a risk that I am willing to take, for nothing can be worse than foreign legal writ in perpetuity, with no veto. Obviously it would be better to remain in the EU.

My preference at this juncture is a no-deal on WTO terms, mindful that Mrs May’s failure to prepare has made this very hard. Global Britain’s report this week is right to argue that the costs of trading on this basis (until free trade deals are negotiated) have been systematically exaggerated by the Treasury and commercial interests talking their own book.

The UK could mitigate the initial shock by tearing down all tariffs on incoming goods until the dust settles and blockchain customs technology is installed.

Sterling would take the strain and balance the capital accounts. State aid policy could be deployed aggressively to cushion the blow for industrial sectors in the firing line, if necessary by temporary nationalisation and backed by extreme fiscal stimulus akin to emergency mobilisation in war time. Where there is will and executive energy, things can be done.

We could set trigger dates for a snap-back of tariffs later to preserve leverage in negotiating deals with the US, the EU, Japan, China, and India. 

Would it lead to a short-term recession? Yes, of course. Would it be catastrophic” as so often claimed? People might be surprised how quickly industry adapts when faced with irreversible reality.

Needless to say, Parliament has set its face against any such action. It will impose a deal that ends its own legislative supremacy.

My working assumption is that a bloc of Labour MPs will support Theresa May’s package and push it over the top in December. Britain will then be a legal prisoner until the EU sees fit to release us.


Source:Ocnus.net 2018

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