Monday, 17 October 2016

Brexit thoughts

There are so many moving parts when it comes to Brexit; how will it work, what will Germany and France to, what will the EU do, what kind of a deal do we want, what might we actually get and was it the right decision to vote leave?

To my mind everything comes down to negotiation, anything else, especially at the moment, is hot air. The referendum, in my opinion, got it wrong. It would have given us a much stronger negotiating position with 52% in favour of remaining, but apparently it’s wrong to rig these things. A 52% remain vote would have allowed us to continue to be the stroppy spoiled child in the room demanding toys and treats and kicking up a fuss. There would be future concessions, the odd rebuke, but generally we would have got what we wanted.

Any Brexiteers reading this they will say that in voting out, we have regained control – of borders, migrants, laws and sovereignty with Elgar’s greatest hits drifting in behind them. It is true to an extent, but we lose influence, which I feel will have more of an impact over the long term.

The truth is we trade a lot with the EU, like it or not. It follows the same pattern everywhere – you trade more with your neighbours than those further away and so all parties should want to agree a trade deal between the UK and the EU quickly, a drawn out painful affair would harm everyone. Some EU officials / Eurozone countries say that the UK should be punished for leaving and that we have to be punished to dissuade anyone else from doing the same. Others say how ridiculous this punishment talk is given how the EU 27 are our allies and trading partners and it would be an act of self-harm to do so… though making that argument means the UK voting to trade with the rest of the world is an equal and opposite act of self-harm among trading partners and allies.

That aside, I think, this initial deal take too much of the focus. The results of Brexit will be felt over decades rather than days and coming back to the loss of influence, it is that loss which will be more keenly felt and more demonstrative of why it’s a bad idea to leave the club.

The reason is that the EU project is a slow moving behemoth, not a one off negotiation. If the UK “wins” this negotiation it will not, and cannot, force the EU into stasis, never changing again. It will change again soon – new laws, regulations, members, directives will continue to flow from Brussels, the important point from the UK’s points of view is that we will have no influence over those future decisions. So, the EU should agree a reasonable deal quickly for two reasons. Firstly to facilitate ongoing trade and not putting an unnecessary brake on the EU’s economy, because goodness knows it doesn’t need that… no one does. Secondly, post deal they can change some things that the UK would have always vetoed and move on to demonstrate that you have to be at the table to best protect your interests.

In a Brexit debate recently David Davis stood up and said that he thought the trade talks should go more quickly than with other countries (Canada, 7yrs and counting) because of the current common regulatory regime, which all sounds good David, but let’s extrapolate a little. What happens on the next round of regulatory discussions? The UK will have at best a vastly reduced influence, at worst, no influence; we will be outside the room waiting to be told what to do. Those regulations will be brought into force and UK firms will adopt them in order to keep on trading. We could choose not to follow them (hurrah for Brexit!) but where would be the sense or logic? Maybe India is a bigger market in general, or China, but they will have their own rules – are we going to follow all of them separately? No, you follow the one which will net you the best result, which will be lowest cost to the biggest client, which at the moment, and following generally accepted trading patterns, is and will continue to be, the EU.

The same would apply to services, especially financial services which France and Germany would particularly like to make a fairly sizable land grab. The passporting which allows us to transact in the EU could be withdrawn the moment our regulations don’t meet EU ones at the potential loss of jobs, tax and the multiplier that provides. 

It’s not a zero sum game, jobs lost from London wouldn't move directly to Paris, New York would probably benefit the most, but the power of incentives is ever present and the French, German and Luxembourg leaders would be trying their best to coax as much of that work to their shores away from London and that means actively trying to worsen the UK's position. 

Before we take the holier than thou attitude Remember when Boris said he would lay out the red carpet to Parisian entrepreneurs and bankers when their 75% tax rate was about to be introduced, well it’ll be the opposite from now on.

Moves will generally be slow and steady, a bank here, a decision not to increase capacity of a factory there. Changes will take time so the power shift represents the other reason why the EU should do a quick and ‘nice’ deal now. It will show where the power really lies – not in this one off negotiation, but in all the little ones coming up over the years where the UK will lose out again and again because we’re not at the table. It will impact on manufacturing and services, but hey, at least the twenty thousand odd UK fishermen will be free from the yoke of EU tyranny…

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