Article 50, Brexit, Conservative Party, Theresa May

On #Brexit: You can have the politics or the economics; but you can’t have both

This blogpost was written on May 14th 2018

Margaret Thatcher and Jacques Delors, London 1989

It is increasingly difficult to see any way in which Brexit ends well. The reason is simple: The UK wants what it can’t have. It asks for two incompatible things.

  • It wants to be leave the EU and take back control over its money, borders, laws and trade policy so as to be able to say that it is a completely sovereign country, beholden to no one.
  • But it also wants to continue to trade with the EU in the frictionless manner that it does today so that it will suffer no economic damage as a result of leaving.

As we have repeatedly noted in this Briefing, it wants all the benefits of the customs union and the single market, but without the obligations and restraints that come with those benefits.

Throughout the process the position of the EU has been clear. In accordance with Article 50 of the Treaty it says the UK is free to leave the EU. The very fact that a country can leave the EU shows that sovereignty was never lost. Only a sovereign country can quit an organisation like the EU. Is California or Arizona free to leave the United States? A civil war says no.

However, as EU leaders and negotiators have repeatedly put it, given the red lines that the UK has drawn – out of the single market, out of the customs union, out of the jurisdiction of the European Court, out of the common commercial trade policy so it can negotiate its own trade deal – trading relations in the future will necessarily be different from today.

Frictionless trade as we know it will no longer be possible. That is the simple reality you have to deal with if you choose to be outside the EU’s systems of regulations and judicial supervision of those regulations.

Red lines have consequences and those consequences will result in economic damage.

It is how best the UK can limit that economic damage, if not wave it away altogether, that best explains the hand-to-hand knife fight in the UK cabinet over the customs issue. How does the UK have unfettered sovereignty and control while at the same leaving existing trading processes and procedures that guarantee the smooth and timely movement of good between the UK and the EU in place?

For without such smooth and timely movement modern supply chains jam up and cease to function as designed. When that happens, plants close and jobs go.

In reality, neither a customs partnership not the MaxFac option will deliver because the EU’s riposte to “Brexit means Brexit” is “Out means Out” and if you are out then you will not have the same benefits as if you were in. No point shouting “but it would be in the EU’s best interest” to give us the deal we want. The EU will decide what is in its best interest, not UK politician and commentators who have abused the EU for years and are now anxious to be gone.

The dilemma for the UK is this. You can have absolute sovereignty, or you can have frictionless trade – but you cannot have both. A choice has to be made.

A little history explains how the UK got itself into this position.

For quite a long time after the UK joined the EU in 1973 (or Common Market as it was known then) only a couple of voices raised concerns about sovereignty, Tony Benn on the left and Enoch Powell on the right, both of them on the wilder shores of left and right respectively.

Throughout the 1970s and 1980s, the Conservative Party and the business community were almost unanimously in favour of EU membership. What criticism there was of the EU mainly focused on the corporatist bent of EU employment and social policies which ran counter to the more liberal, open-market policies the UK favoured.

That split became more pronounced in the 1980s as the UK determinedly pursued a free-market approach under the Thatcher government. But the argument between the UK and other in the EU was about policy orientation, not about sovereignty.

In fact, it was the Thatcher government, in an unlikely alliance with the French socialist President of the EU Commission, Jacques Delors, that was the driving force behind the development of the Single Market and it was a British Commissioner, Lord Cockfield, who delivered it.

A large section of the Labour Party and the trade unions were opposed, generally because of what they perceived as an inbuilt pro-market bias in EU policy making seeing it, as Jeremy Corbyn does today, as a “capitalist club”. The fact that Thatcher was driving the Single Market only underscored their concerns and opposition.

After the completion of the Single Market “1992” project, Delors moved on to his next great work, the creation of the single currency, the Euro, for which the Maastricht Treaty provides the legal framework.

Despite the then UK Prime Minister, John Major, securing opt-outs from the euro and the social policy provisions of the treaty (the “social chapter”) the sovereignty argument against the EU now became fused with an economic argument. The EU had gone “too far” and was taking too much power from its member states. It was on the way to becoming a federal superstate. The euro would be a disaster, it wouldn’t last and would do untold damage along the way.

Nevertheless, the sovereignty argument had not yet crystallised into a demand to leave the EU.  It focused mainly on the UK staying out of the “excesses” of “Euro federalism”. In a recent Twitter post the commentator David Allen Green put it well:

I am not a fan of the post-Maastricht EU. I like the 1980s single market, for which Thatcher and Cockfield were in a good part responsible.

After 1997, when New Labour came to power under Tony Blair, UK government policy can best be described as being pro market-EU but against federal-EU, including euro membership. As long as the UK did not move to join the euro, and Blair’s Chancellor, Gordon Brown, saw to that, calls to leave the EU would have remained very much in the minority, passionate but with no real traction.

What changed matters was the expansion of the EU in 2004 to include countries from central and Eastern Europe, many of them former member states of the Soviet bloc and all with significantly lower living standards that their new western neighbours. Again, the UK was a driving force in pushing for eastern enlargement.

With membership for the new countries came the right to free movement for their citizens, but there was a seven-year period available to existing member states before they had to open their doors. However, the UK government did not avail of this exception and the numbers moving to the UK exploded as many sought a better life for themselves and their families.

Maybe of itself this might not have mattered but just as the UK was trying to absorb these numbers, in 2008 it was hit with the global economic crisis. Suddenly, the “leave the EU” sovereigntists had their “burning platform”. Whereas arcane arguments over economic issues, including the euro, had found no real mass audience, claims that eastern Europeans were taking jobs and depressing wages resonated with many who felt their living standards pinched, a pinch made all the sorer by the economic policies pursued by the Conservative-led government that came to power in 2010.

For the Conservatives, the rise of UKIP, surfing an anti-immigrant wave that it itself fanned, was terrifying. In response, Prime Minister Cameron promised an “in/out” referendum, but only after he had negotiated new terms for the UK with the EU, which, he promised, would include a brake on free movement. The terms he negotiated did not meet the demands of what we can now call the Brexiters to reclaim sovereignty, to “take back control” because what that demand really amounted was a demand to pull up the border drawbridge, to close down intra-EU free movement into the UK. This was never a demand the EU would entertain.

All that many moderate Eurosceptics of the class of 1992 wanted was for the UK to stay in the EU pre-Maastricht, which meant membership of the single market and the customs union, but no political union. While that delivers maximum economic advantage, it brings with it free movement.

The Brexiters put the ending of free movement at the heart of the Vote Leave campaign, whatever they might have argued subsequently. To deliver on that means going back not just to pre-Maastricht days, but back to 1972, the year before the UK joined the EU, back to when, in their view, the UK was last a fully sovereign country, in complete control of its own destiny.

Framed in this way it is easy to see what the UK Prime Minister Theresa May, with her “customs partnership”, and the Labour Party with its “a” customs union rather than “the” customs union, is doing. Quite frankly, you can fudge the customs union issue because no one, other than the diehards who believe in “Angloism” ( really care about trade deals between the UK and whoever. To put it bluntly, you can’t see a trade deal walking down the street. Out of political sight, out of mind.

But the frictionless trade between EU countries that today’s supply chains need to function require not just a tariff-free customs union but also the single market, which removes non-tariff barriers to trade and thereby greatly expands trading opportunities. But the single market comes with free movement and you can see free movement walking down the street and in the voices and accents you hear around you.

While there may be many ways to frame a customs deal, free movement is binary. You either accept free movement or you don’t. There are no half way houses even if the rules allow member states to regulate their labour markets in ways to prevent abuse. In fact, the EU is making such regulation easier with the revised Posted Workers Directive and with initiative to rewrite the Written Statement (of terms and conditions of employment) Directive.

To repeat what we said earlier. For the UK the dilemma is this, and by the UK we mean not just the government but the Labour Party as well: you can have an economic Brexit, or you can have a political Brexit, but you can’t have both.

Economic Brexit requires staying in both the customs union and the single market but leaving the political dimension of the EU behind. Otherwise you won’t have frictionless trade. Borders require physical controls. Whatever about the future, the distant future, today there are no magical technological solutions to border management that does away with controls. It’s like hunting for the elixir of youth. It doesn’t exist, even if you fervently believe that it should.

Political Brexit, on the other hand, delivers control over EU migration to the UK, the right to do trade deals with third countries, to its own tariffs and the ability to decide that some fish are British after all. You can have all of this, but you can’t have frictionless trade with the EU at the same time. If you want borders, then borders you get.

So, how do you square the economic and political circles? You don’t because you can’t.

And, if you can’t then a deal that satisfies the House of Commons is probably not negotiable with the EU.

Which is why we can’t see it ending well.

Too many people in the UK want too many different things. And no one is prepared to lose.

Oh, and did we mention the Irish border issue?

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