Britain and Europe: The road to Brexit
THURSDAY, OCTOBER 6, 2016
Britain’s prime minister must resist her party’s dangerous instincts
by Emily Straton and Biodun Iginla, Political News Analysts, The Economist Intelligence Unit, London
Oct 8th 2016 |
THE destination was decided in June, by simple majority: Britain is leaving the European Union. The journey, however, will be complex and perilous, beset by wrong turnings, chicanes and elephant traps.
With 64m Britons in the back seat, perhaps that is why Theresa May has avoided talking about the road ahead. But at the Conservative Party conference this week the new prime minister could delay no longer. In a speech that thrilled party activists, she declared that she will invoke Article 50 of the EU treaty by the end of March, triggering a two-year countdown that should see Britain leave the union in early 2019. She also hinted that she would be prepared to steer Britain towards a harder sort of Brexit, involving a wide separation of labour, product and financial markets.
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Mrs May is at risk of putting her party before her country—with grave consequences. Brexit will determine Britain’s fortunes in the decades to come. If it is to be done at all, it must be done right.
Hard, soft or half-baked?
Mrs May faces an inevitable tension. Domestically, if she is not to be overwhelmed by the politics of Europe, as so many Tory prime ministers have been before her, she needs to convince those who voted to leave that their victory will be honoured. That is why her speech conveyed urgency and, when it came to immigration, sovereignty and the jurisdiction of the European court in Luxembourg, she took a hard line.
In Europe, however, this domestic rhetoric will impede Mrs May’s task of negotiating the best possible form of Brexit. To maximise her bargaining power, Mrs May needs time. To get the best deal, she needs to be flexible on immigration.
The centrepiece of the deal ought to be to secure maximum access to Europe’s single market. Brexiteers say that, once outside, Britain would eventually negotiate low or no tariffs on its trade with the EU. Yet, even if it did, tariffs are less than half the problem. Without harmonised regulations, British firms will discover that their products do not meet European requirements, and vice versa. And it is unlikely that a trade deal between Britain and the EU would cover services, including the financial sort that are among Britain’s biggest exports. A study by the Treasury before the referendum estimated that the hit to GDP within two years of Brexit would be nearly twice as large if Britain left the single market than if it remained a member.
Mrs May seems to want to carve out a special deal with the EU, in which Britain limits immigration and determines product standards—on, say, food-labelling—while still operating fully in the single market. Perhaps the negotiations will show that this is possible. However, the signs are that she is overestimating the EU’s willingness to give ground. Each country has a veto over Britain’s status (see article). On almost every issue, from immigration to financial services, at least one of them will be reluctant to surrender its advantages.
If that means Mrs May must give ground on immigration, remember that such “concessions” actually benefit Britain. The supply of workers and students from the EU has helped Britain grow faster than any other member state in recent years. To avoid suffocating industry, ministers have already indicated that they may let in financial-services employees, as well as seasonal agricultural workers. There are sure to be more exceptions as bottlenecks emerge.
The second ingredient of a good Brexit is a sensible transition to the new regime—especially if Britain is about to walk away from the single market. The bureaucracy and cost of a sudden imposition of tariffs and non-tariff barriers would lead to a brutal dislocation. Separation from the EU will involve divvying up EU-owned assets, pensions and much else. Everything from fishing rights to aircraft-landing slots are agreed on at an EU level; these rules must be redrafted and re-regulated.
Amid the world’s most complex divorce, Britain’s diplomats also have another vital task. Through its membership of the EU, Britain is a member of the World Trade Organisation (WTO) and party to free-trade deals with 53 other countries. When it leaves, it will lose all that. So Britain must urgently prepare to rejoin the WTO as an individual country—which, again, requires the consent of every other member.
Mrs May seemed to acknowledge the benefits of a smooth transition this week. Her proposed “Great Repeal Bill”, which will get rid of all existing EU law from the statute book, will in fact merely translate it into British law, to be chipped away later at leisure if desired. She should likewise negotiate an interim trade deal—through temporary membership of the European Economic Area, say, of which Norway is part. This would mean paying into the EU budget and accepting free movement but, in return, Britain could take as long as it needs to line up WTO accession and trade agreements with the EU and other countries, while still under the shelter of the single market.
Ardent Brexiteers worry that, ensconced in such a halfway house, Britain would stay put for ever. That is indeed a possibility, and there is no reason it should not be: with half the population having voted to Remain and many of those who voted to Leave reluctant to quit the single market, a majority might favour such a “soft” Brexit.
Open all hours
The final ingredient of the approach Mrs May put forward was her broad agenda to open Britain to the world beyond the EU—which she calls “Global Britain”. In theory this should entail a willingness to welcome international capital and labour, which would benefit the country whatever its relations with the EU. Sadly, the reality looks less rosy. The home secretary, Amber Rudd, this week complained that some companies were employing too many foreigners and talked about “flushing out” the worst offenders. Likewise, Mrs May’s conference rhetoric was strikingly interventionist, putting the state at the heart of the economy. A flirtation with industrial policy sounds worryingly as if it is designed to keep foreigners out.
A Brexit of some sort looms and Mrs May will determine its course. If Britain is not to suffer a car crash, she must ignore the back-seat drivers and fix her eyes firmly on the road ahead.
MIND YOUR STEP
MAY’S REVOLUTIONARY CONSERVATISM
THERESA MAY KICKS OFF BREXIT
PARLIAMENT MUST PUSH FOR A BIGGER ROLE IN THE BREXIT NEGOTIATIONS
DOWN TO EARTH
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Posted by Biodun Iginla at 8:08 PM Email This
Labels: Brexit, Britain and Europe, Emily Straton and Biodun Iginla, Political News Analysts, the economist intelligence unit, The European Union, theresa may, uk immigration