Daniel J. Mitchell
I just spent several days in London, where I met with journalists and experts at think tanks to find out what’s happening with Brexit.
I think voters in the U.K. made the right decision for the simple reason that the Brussels-based European Union is a slowly sinking ship based on centralization, harmonization, and bureaucratization.
Membership already involves onerous regulations, and remaining a member of the EU would mean – sooner or later – sending ever-larger amounts of money to Brussels, where it then would be used to prop up Europe’s failing welfare states. Getting out may involve some short-term pain, but it will avert far greater pain in the future. At least that was the theory.
The reality is that the Tory-led government in London has made a mess of the negotiations. The newly announced deal is not a real Brexit.
Writing for the Telegraph newspaper, Dan Hannan, a British member of the European Parliament, sums up why the deal is a joke:
“The deal, as one Italian newspaper puts it, represents ‘a resounding victory for the EU over Her Majesty’s subjects.’ Yet there was nothing inevitable about this climbdown. On the contrary, there is something extraordinary, awe-inspiring even, about the slow-witted cowardice that led British negotiators to this point … the disastrous acceptance of the EU’s sequencing, which meant that all British leverage, including the exaggerated financial contributions, would be tossed away before the EU even began to discuss trade. … Can you blame Eurocrats for gloating? They sensed right at the start that they were dealing with a defeated and dispirited British team, whose only objective was to come back with something – anything – that could be described as a technical fulfilment of the referendum mandate. … we have ended up with the sort of deal that a defeated nation signs under duress. Britain will be subject to all the costs and obligations of EU membership with no vote, no voice and no veto.
“Unbelievably, Britain has given the EU a veto over whether it can leave these arrangements: unlike EU membership itself, we have no right to walk away. Brussels will run our trade policy, our economy, even elements of our taxation for as long as it likes. As the usually Euro-fanatical Bloomberg asked incredulously last week, “Once Britain has acceded to this, what reason is there for the EU to agree to any other kind of deal?” … Leavers never did “own” this process. From the start, it has been controlled by those who wished it wasn’t happening, and who defined success as salvaging as much as they could of the old dispensation.”
That final sentence is key. Theresa May was not a Brexit supporter. She failed to play some very strong cards and she basically worked to come up with a fake Brexit. It remains to be seen whether Parliament will approve this humiliating package. The House of Commons will vote in about two weeks and here’s how the U.K.-based Times describes the possible outcomes if the plan gets rejected:
The prime minister could bring the deal back for a second vote;
Ms. May could resign or face a confidence vote;
Ms. May or her successor could support a second referendum;
Supporters could push for a no-deal or “managed” no-deal Brexit; or
Negotiators could pursue the “Norway option.”
For what it’s worth, I fear “Scenario 1.” Members of the Conservative Party are like American Republicans. They occasionally spout the right rhetoric, but most of them are go-along-to-get-along hacks who happily will trade their votes for a back-room favor.
So I will be disappointed but not surprised if this deal is enacted. It’s even possible it will be approved on the first vote.
My preference is for “Scenario 4” leading to something akin to “Scenario 5.”
A report from the Adam Smith Institute offers a user-friendly description of this “Norway option.”
“We cannot however be subordinate to a supranational institution … Nor should we make do with a semi-detached position inside the EU that also gives us semi-detached influence while still constraining the UK in the wider world. … we have to leave and reform the relationship in a characteristically British, outward-looking and open way. … The UK therefore requires something of a “soft” exit that maintains open trade but removes Britain from political union and from all that Britain has consistently struggled with – the Common Agricultural Policy, the Common Fisheries Policy, the hollowing out and the outsourcing of democracy, the constraints on global trade deals.”
And what does that look like?
“… the most optimal way to exit would be to take up a position outside the EU but inside the European Economic Area (‘EEA’), which very likely means re-joining the European Free Trade Association (‘EFTA’). As Britain is already a contracting party to the EEA Agreement there would be no serious legal obstacle and it would mean no regulatory divergence or tariffs but it would mean retaining freedom of movement for EU/EEA nationals. … Such a deal would require agreement from the EU and EFTA but both would have strong reasons for allowing it … with the UK on board, EFTA would instantly become the fourth largest trade grouping in the world. … In short, EEA countries have a market-based relationship with the EU by having full single market access. They are free of the EU’s political union ambitions, and can class themselves as self-governing nation states. … The EEA position also opens up the ability to make trade agreements with third countries (something the UK cannot do now), would provide the UK with the freedom to set its own levels of VAT, and would allow the UK to step away from its joint liability of EU debts. That would be very attractive to Britain seeking a liberal soft exit.”
Here’s a table showing the difference between EU membership and EEA membership (see table). Sounds like the outline of a acceptable deal, right?
Not so fast.
The crowd in Brussels does not want a good deal, even though it would be positive for the economic well-being of EU member nations. They have an ideological desire to turn the European Union into a technocratic superstate and they deeply resent the British for choosing self-government and democracy.
As such, the goal is to either maneuver the British government into a humiliating surrender (Theresa May was happy to oblige) or to force a hard Brexit, which would probably cause some short-term economic disruption.
But there was also resistance on the British end to this option since it ostensibly (but perhaps not necessarily) requires free movement of people. In other words, it might mean unchecked migration from EU/EEA nations, which arouses some nativist concerns.
The anti-Brexit crowd (the “remainers”) tried to win by arguing that a vote for Brexit would cause an economic collapse. That “Project Fear” was exposed as a joke (and was the target of some clever humor).
And the new version of Project Fear is similarly dishonest. I thought the global-warming Cassandras were the world’s worst when it comes to exaggeration, but they are amateurs compared to the anti-Brexit crowd.
One of the behind-the-scenes aspects of the Brexit debate is that the eurocrats in Brussels are scared that the U.K. will become more market-oriented once it has escaped the EU’s regulatory clutches.
And just as the EU has gone after Ireland and Switzerland for supposedly insufficient taxation, it also now is trying to hamstring the United Kingdom. All the more reason to escape and become the Singapore of Europe.
Daniel J. Mitchell, chairman of the Center for Freedom and Prosperity, is on the Editorial Board of the Cayman Financial Review.