The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Here's Why U.K. Should Prepare for "No Deal" on Brexit

"Deal or no Deal" event speech by Professor D.R. Myddelton.

Background

General de Gaulle was a difficult Frenchman!In 1963 he rejected Britain's application to join the Common Market – on the grounds that England was too different from the continental countries.I share that political judgement. So I voted in both Referendums – in 1975 and again last year – for the UK to leave the EU.

Several unexpected events led up to last year's surprise vote for Brexit:

1. UKIP's rise led the Conservative Party to promise a referendum.

2. Labour ran a poor election campaign in 2015, and the Lib Dems were almost wiped out, so the Conservatives won a small overall majority.Cameron honoured his referendum promise, expecting to win easily.

3. He and the EU both misjudged the chances of Brexit.The UK failed to demand significant reforms and the EU failed to offer any.

4. Of the two rival Brexit groups, one stressed immigration, the other constitutional matters.I don't think that difference was deliberate.But it meant that Remainers couldn't pin down a single set of arguments to attack.

5. The government's over-the-top Project Fear propaganda backfired badly.

Article 50

The EU's perverse interpretation of Article 50 has got them into a real mess.The key sentence reads as follows:'In the light of the guidance provided by the European Council, the Union shall negotiate and conclude an agreement with that State [wishing to leave], setting out the arrangements for the withdrawal, taking account of the framework for its future relationship with the Union.'

Well, that's the English version.The EU seems to be using the gobbledygook version – which clearly doesn't take 'account of the framework for its future relationship'.The EU could have been more flexible. After all, it chose to ignore the Stability and Growth Pact when it didn't suit Germany and France.

Agreeing new Trade Arrangements on leaving the EU was never going to be easy, partly because they are such lousy negotiators!Look at how few trade agreements the EU has actually managed to conclude in all the years since the Single European Act. And how long they have all taken.

I agree with the European Commission on one thing. I too regard Brexit as a political issue.It expresses our national preference for being an independent democratic sovereign state rather than a province of an 'ever closer union' (which hardly any of us want), ruled by unelected and unsackable foreign politicians.

Economic aspects

Last year PricewaterhouseCoopers produced estimates for our long-term economic prospects that were far more credible than the government's.PwC reckoned that, if we remained in the EU, by 2030 real UK income per head would increase by 29 per cent compared with now; while if we were to leave and trade on WTO terms, it would increase by 25 per cent.

In other words, the long-term economic pros and cons roughly balance out.The difference is only ¼ per cent a year, which I regard as negligible.But I repeat: PwC thought under WTO rules by 2030 we'd be 25% better off than now.

I'm not worried about the UK's economic outlook.Nearly all the world's economic growth will come from outside the EU in future; and there will be plenty of exciting opportunities for the UK, both internal and external.

We want the EU and its member-states to prosper; but their approach is complacent and inflexible.They are sorry we're leaving, because we are taking our cheque book with us!But they failed to make a serious offer to reform when they had the chance.

Planning for No Deal

We want to get on and implement the Brexit decision.Yes, we'd like a sensible agreement on our future trade arrangements with the EU.But it takes two to tango.

Of course 'no deal is better than a bad deal'.But the Chancellor's threat – which is what it amounts to – to leave any spending on No Deal 'until the last minute' hardly fills one with confidence. Nor is it likely to convince the EU that we're willing to walk away from a bad deal.That is essential to give us the chance of a good deal.

David Cameron's government wouldn't allow our civil servants to do any planning for a Leave vote before the Referendum.That was grossly irresponsible.And the five senior politicians mainly to blame were all remain-supporting: David Cameron, George Osborne, Teresa May, Philip Hammond and Michael Fallon.

I reckon the Treasury is heading down the same path as the Foreign Office.As you may recall (from Yes Prime Minister), the Foreign Office uses a four-stage strategy:

1.nothing's going to happen.

2.something may happen, but we shouldn't do anything about it.

3.maybe we should do something, but there's nothing we can do.

4.maybe we could have done something, but it's too late now!

The House of Commons can 'vote against' accepting a 'No Deal' outcome till they're blue in the face – but if there isn't a deal, then we'll be leaving the EU without one.All the 'Loyal Opposition' is doing is undermining the UK's negotiating position.

Anyway, when is the 'last minute'?We're legally obliged to remain in the EU until two years after the Article 50 letter; but, if we continue to see little prospect of a trade agreement in good time, we should make the provisional decision to walk away before the end of this year.We need at least fifteen months to organize properly for a 'No Deal' outcome.In order to convince the EU that we're prepared to walk away without a deal, we must start now.

What are the chances of No Deal?

Much media gossip is heavily biased in the EU's favour.I should know, since I read the Times, the Financial Times, the Economist and the Evening Standard – and watch the BBC!The fact is most of us have no idea what's going on behind the scenes.

It seems quite likely we might end up with No Deal.There may well be serious technical problems that can't be resolved in time.The European Parliament might vote against any deal, as many of their members want to punish us for leaving.

Both sides are making the same mistake as before.We assume we'll get a trade deal at the eleventh hour; but by then it may be too late.Many British businesses will already have made other arrangements.The EU can't believe we'll walk away.If we do end up with No Deal, I predict both sides will say they couldn't have foreseen it!

What would 'No Deal' mean?

Suppose we do 'crash out' over the 'cliff edge' – to use suitably neutral language?We currently export less than 30 per cent of our national output.Under half of our exports currently go to the EU – some 12 per cent of our output.The other 88 per cent of our national output we don't export to the EU!

If we end up trading under WTO rules, no doubt there'll be some serious short-term problems.But let's not take too much notice of the attempt to re-run Project Fear by people who're keen to pretend No Deal would be a complete disaster.

Suppose we lost as much as 10 per cent of our current level of exports to the EU, which I reckon is a higher proportion than is likely.Even that only amounts to 1 per cent of GDP.Not good news – but hardly a cataclysm.

We'll soon be free to seek trade agreements with other countries across the globe.And we'll be working 100 per cent on our own behalf, instead of having only a 1/28th share of the Swedish Trade Commissioner's effort.She negotiates for the whole EU – whose trade interests, incidentally, are very different from our own.

Since the Referendum, most people who would have preferred the UK to remain in the EU have been pessimistic about our economic prospects.Joseph Schumpeter, a famous economist, said: '… pessimistic views always seem to be more 'profound' than optimistic ones.'

But since the start of the Industrial Revolution, the economic optimists have been right and the pessimists have been wrong.Thanks to massive economic growth, the planet's population has increased more than tenfold, as has average real income per head.And in the past hundred years, absolute world poverty has fallen enormously.

The EU is desperate for the money.The highest net total 'divorce bill' I've heard of is 60 billion euros.But amortising that amount over fifteen years, makes less than £4 billion pounds a year – about 0.2 per cent of our GDP.For once I agree with Martin Wolf.In yesterday's Financial Times, he thought it hard to get too excited about that.

Indeed, if that were to be the price of escaping from the EU, I'd regard it as the best investment the government is ever likely to make – certainly a great deal better than vanity projects like HS2 or Trident!

The Greek word catalassein, meaning 'to exchange', also has a second meaning – 'to turn from enemy into friend'.Last year, I wrote to congratulate my former student David Davis on becoming the UK's chief negotiator on exiting the EU.I said that if the EU tried to block trade between the UK and European countries with whom we've been trading for more than four hundred years – there was a risk they could achieve the seemingly impossible and turn Britain from friend into enemy.

Unless the EU changes its hostile attitude – which there's little sign of – we might be leaving at the end of March 2019 without any agreement on trade arrangements.'No Deal' wouldn't be the best outcome for us and it wouldn't be good for them either.But no doubt we'll follow the well-established EU rule:'Nothing is agreed until everything is agreed'.

That means any provisional offers of money that we may have put forward, during the two years after triggering Article 50, will be taken off the table.Then the EU would really have something to complain about.It would leave a nasty hole in their budget.

Of course they could try suing us in the courts, but that would take years and I doubt if they'd win very much.I gather the UK's strict legal liabilities are rather small.

If in the end there were no deal, most of us in this country, fairly or not, would blame the EU.It could poison relations between Britain and Europe for at least a generation.

What a triumph for a political project that five years ago won the Nobel Peace Prize!

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Thursday, 14 December 2017