Ever since the Tories won the 2015 general election, Europe has been at the heart of UK politics.
Following the referendum vote in June, Europe basically is UK politics. The business of extricating ourselves from a deep economic and political union will consume pretty much all of the Government’s energies over the next few years.
Working as an economist in a large financial institution that talks to (real) companies all over the world, I have spent most of this year running around in Europe trying to test the mood. Similarly, we pour over conference speeches and other utterings in a vague hope to work out what will happen. So – more than three months after the vote – here are some of my best guesses.
A caveat before I dive in. No one knows that Brexit will look like: this kind of thing has not happened before. Most countries are still keen to join the EU, rather than leave. So what follows is all guess work. But they are, at least, educated guesses.
First, the European position. After some scrambling around in the wake of the vote, European leaders are actually relatively united. There will be no separation of the four freedoms – goods, services, capital and importantly labour – that underpin the European project. The UK will not be able to impose border controls and remain a member of the single market. So we will need some kind of new trade deal.
But I also think Teresa May does not want to stay in the single market. The second most tangible point I would offer relates to her past: before becoming PM, she was home secretary for several years. And during that time, she exhibited a strong dislike of the European Court of Justice (ECJ) holding sway over British courts.
This matters for the single market. The whole point of that market is to create a ‘level playing field’: companies are free to compete with each other purely on the basis of who can perform the best. The sporting analogy is deliberate here: because apart from the goalposts being the same size, and no slope on the pitch, competitive sport also needs a referee, to make sure that people play by the rules. For the single market, that referee is the ECJ. So rejecting it means we are out. (This also raises an interesting question about who would be allowed to ‘referee’ any new trade deal between the UK and the EU.) Red lines on immigration are fine to espouse – although Lord Hague’s recent remarks here point to a more considered approach – but May’s dislike of the ECJ will be the deal killer.
Third, the Government still does not have a consistent position. You cannot tell Nissan that all current arrangements will be respected in light of the above: either you don’t understand what you’re talking about, or you are hoping to resolve the inconsistencies later in the day.
Fourth, Liam Fox does not understand international trade. The idea that Australia and Canada might be able to compensate for our trade with the EU is laughable. He needs to go back to school and study gravity models.
Fifth, a word on the political strategy of Brexiteers. They seem to be dressing up negotiations as Europeans needing to act ‘in their best interests’ to preserve trade with us. This obviously misses the point that Europe is first and foremost a political project – indeed, this was rightly one of the key points of the ‘Leave’ campaign. Angela Merkel, the German Chancellor, has already told German business that politics will trump economics in negotiations. So Johnson and others seem to be preparing the ground in order to be able to denounce the Europeans when we do not get the deal that Johnson promised.
I think the British electorate is smarter than that: I think we are capable at looking at the consistent statements from European leaders, the apparent blind optimism of some cabinet ministers, and working out who was telling porkies and selling snake oil.
Finally, this strategy suggests to me that Brexiteers know they over-promised in the referendum. This is depressing, as it means they think that people voted on the basis of bad information. In contrast, when I talk to people across the UK – admittedly mainly outside London – many of them take the perfectly acceptable and respectable position that some economic cost to leaving the EU is worth it, if it means Britain regains sovereignty. That – not pie in the sky economics – should be the honest basis from which the Government frames its strategy.