Discussion on EU Referendum Result

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Lecture date: Sun, 24th Jul, 2016
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I voted for the UK to remain in the EU because I thought this would be better for all parties involved, both the UK and the EU. That being said, I agree with David Cameron’s refrain throughout the referendum campaign that the UK can indeed survive and eventually thrive outside the EU.

So, where are we as of August 2016? I think the government has been smart since Theresa May took over as Prime Minister. She needs to buy time and is doing that well. European partners have acquiesced that the government won’t initiate Brexit until the coming December or January. That’s valuable breathing space for the government to formulate a plan of action and build up a staff to manage trade negotiations. The aim will be to conclude these negotiations by 2019.

But before then, there will have been German, French Dutch, Austrian, and possibly early Italian elections. Discontent with the EU is rapidly increasing in all these countries, some of which are calling into question the wisdom of unrestricted free movement in the EU. A new constellation of European political elites could soon emerge and significantly change the major bargaining positions on Brexit negotiations. This is speculative and somewhat unlikely, but the point is that a lot can change over the course of two or three potentially very volatile years for the EU.

So buying time is the best strategy for the government right now. As things stand, the UK’s bargaining position with regard to both the EU and the rest of the world isn’t at all as bad as some tried to make out during the referendum campaign. The UK is a major importer
of goods from several European countries, especially Germany, so there are incentives for EU countries to make concessions in any trade deal. It will not simply be an offer from the EU, which the UK must either take or leave.

Also, when the Leave campaign drew up a picture of the UK as a kind of James Bond of world trade, a global and flexible agent playing by its own rules to suit itself, it doesn’t now seem to have been painting an entirely false picture. The US has made it clear that it will not leave the UK out in the cold, while Australia is rushing to do a trade deal. Meanwhile, the UK isn’t the only one that’s under pressure to
conclude deals. To take one example, the members of the South American trading bloc Mercosur are trying to compete with the Trans Pacific Partnership – a mega trade deal between the US, Mexico, Canada, Australia, Japan and several other Asian countries – and very keen to trade more with the UK.

Depending on your perspective, the UK’s newly forming trade ambitions may have their drawbacks. For example, a trade deal with the US is very likely to be on similar terms as the Trans-Atlantic Trade and Investment Partnership (TTIP). This deal-in-progress between the EU and US has hit the rocks recently, due to opposition in many EU member states, especially Germany. There have been concerns raised about poor quality US products flooding European markets, as well as provisions that would allow private enterprise to take governments to court over policies that may harm these enterprises in their quest for profit. Ironically, given opposition towards TTIP
inside the EU, the UK may be more likely to become part of something like TTIP on the outside. This will be particularly true if it finds itself under economic pressure to have improved access to larger markets. And the intensity of this pressure will in large part be determined by the kind of trade deal the UK manages to strike with the EU – currently the destination for roughly half of the UK’s exports.

So what are the options with regard to Europe? The UK could join the European Economic Area, like Norway. But this would be emocratically dishonest: it wouldn’t achieve the kind of restrictions on free movement, or the kind of reduction on rule imposition from Brussels, that a vote to leave the EU implies. Norway is required to accept free movement, as well as three-quarters of all legislation passed in Brussels while paying substantial sums to the EU budget, without the right to have a say in how any of this legislation is made by way of participation in European institutions.

Switzerland rejected joining the European Economic Area in 1992, but since then its government has been pursuing dozens of bilateral treaties with the EU that effectively bring Switzerland close to EEA membership. And this has created a tense atmosphere in Swiss politics over the last decade: those who voted against EEA membership feel that they’ve been cheated, brought in by the back door. The populist and xenophobic Swiss People’s Party capitalised on this sentiment and is now the biggest party in that country.

In 2014, this Party provoked a referendum where the Swiss rejected free movement with the EU. If the government has to enforce this vote by 2017, as required by law, all bilateral Treaties between Switzerland and the EU are at risk of being called off. This is the kind of situation the UK should avoid. Any agreement it makes with the EU should not be seen as circumventing the intention of the Brexit vote.
It may be tempting for those who voted Remain to advocate a subtle circumvention of the vote. But this kind of thing will come back to haunt the UK in the end, some way or another, whether through another destabilising referendum in the future or by fuelling populist and xenophobic parties.

Others have pointed towards the Canadian or Turkish model, where there is free trade of goods but no free movement. The problem is that these trade deals don’t cover services, which make up 80 percent of the UK economy. So there’s no blueprint out there that fits the UK. Any decent trade deal is going to have to be a unique “British model” that allows at least some market access for services and significant restrictions on free movement. Failure to strike such an agreement could produce a worst case scenario, where the UK secures little or no preferential access to the European market.

But we’re behaving like there’s only one urgent problem to be solved. Right now the government, and most observers, are asking only this: how can we best continue business as usual in a globalising world after Brexit? The government might be right to ask that question. However, if the UK is to make a success of itself in the new world it has chosen for itself, it must also ask another question: how can we spread the benefits of globalisation more evenly and protect the vulnerable from its drawbacks? In other words, how can we improve the situation of the working poor, the squeezed middle, and depressed regions of the UK?

Here are some research findings, released during June/July, which most people have missed due to the attention focused on Brexit. Over the last year, child poverty has increased by 200,000, giving us a grand total of 2.3 million children living in poverty. Unless something is done, that figure is expected to increase to 3.6 million by 2020. Two-thirds of these children aren’t destitute, but have one working parent. The Resolution Foundation claims that the next generation of parents will be significantly poorer than the previous one, with the average couple currently earning 8,000 GBP less a year in their 20s than their parents did. Now, at first glance, the unemployment figure of 5% looks pretty good, but look closer and you see that 9 out of 10 new jobs created are highly insecure self-employed jobs, like we find in Uber or Deliveroo. The Institute for Fiscal Studies reports that middle income families with children now resemble more  closely poorer families in the past. For example, half of these families are now renters rather than owner-occupiers.

In my view, the vote to leave the EU was a warning signal that made apparent the level of anger and the feeling of being “a second-class citizen in my own country”, as one former mining worker in Wales put it recently. Unless the problems motivating such sentiments are addressed, there’s no global strategy that the UK can successfully achieve. When you feel that you’re being left behind by your society, as that society continues to open its arms to the world, there’s no such thing as an acceptable level of immigration from the EU or elsewhere – it will always look like too much immigration. There’s no agreement with the EU that will be seen as acceptable because too much will always have been conceded.

My great fear for Britain is not whether it can get good trade deals, but whether it can ensure that the benefits of its globalisation strategy will be felt across a much wider spectrum of society. This will be all the more difficult should the economic uncertainty provoked by Brexit lead to a recession, while additional funds will need to be secured that can both replace and supplement regeneration funding that was previously secured through EU grants for depressed regions in the UK. Failure to improve the situation of those who
are feeling left behind, and I worry about the direction in which the energies of discontent might be taken in future. Who will be the next Nigel Farage, and what will be his claims? Let’s just say I hope Donald Trump doesn’t have a British cousin.


Thinking on Sunday

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