Wake Up Call

The Brexit Hangover Just Got Worse

Those who supported a departure from Europe are only now coming to terms with the crippling economic realities—including the fact that many didn’t quite understand the rules and the whims of their neighbors.
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Theresa May has left London with her husband, Philip, for a walking holiday in Switzerland, a country that is not a member of the European Union, although it does allow the free movement of people—even British prime ministers. May has said that she enjoys the peace and quiet of the Alps, which she will certainly need before the Brexit phony war ends in September and her government faces the challenge of extricating the United Kingdom from the European Union—an operation that will likely be worse than amputation without anesthetic.

Right now, I can report no advance in the understanding of what Brexit actually means, or what the three ministers charged with overseeing the surgery—David Davis, Dr. Liam Fox, and the buffoonish Boris Johnson—are planning. What is becoming clear, however, is that the U.K. is much more entangled with the European Union than the Brexit campaigners ever admitted, or even understood, at the time of the referendum. And as with any amputation there is never a plus, only one very large minus.

The Brexit camp is keen on citing the example of Greenland, which voted to leave the E.U. in 1982, a few years after the country won home rule from Denmark. But even with a population of just 56,000 and an economy that is tiny in comparison to that of the United Kingdom, it took three straight years of negotiations for Greenland to realize its emancipation. If Article 50, the mechanism that formally triggers Britain’s exit, is invoked, the U.K. is somehow expected to complete the process in two years.

Should that article be triggered, however, the clock would tick. As as each day elapses, Britain’s bargaining position with the rest of Europe would become gradually worse. (You can imagine how much the French are going to enjoy that slow torture.) No wonder the man who negotiated the Greenland deal, Denmark’s former foreign minister Uffe Ellemann-Jensen, told Bloomberg, “Basically, the British need to take time to understand what an enormous task they took upon themselves. . . . Asking for a Brexit and expecting it to be clear-cut simply can’t happen.”

There is nothing to give us confidence that anyone in the U.K. government fully comprehends the reality of the situation. After all, the government minister in charge of Brexit, the aforementioned David Davis, only realized in the last few months that it would not be possible for the U.K. to forge individual trade deals with different E.U. member states. As an old debating partner of mine—we have shared many platforms on civil liberties—I hesitate to be too brutal about Davis’s failure to grasp that E.U. countries cannot make discrete trade deals. But, frankly, it beggars belief that he lived for so long under this illusion, and that these wildly optimistic fantasies weren’t challenged.

British Conservative politicians are habitually rather scathing about Scandinavian countries on account of their enlightened attitudes towards welfare and tax. But now they are all over Norway like a cheap suit, hoping that Britain can, like Norway, become a member of the European Free Trade Association, which allows a country to enjoy the benefits of the single market while not being a member of the European Union. Not unreasonably, Norway is raising objections. “It’s not certain that it would be a good idea to let a big country into this organization,” said the country’s European-affairs minister, Elizabeth Vik Aspaker. “It would shift the balance, which is not necessarily in Norway’s interests.”

You would have thought that someone in the Brexit camp might have asked the Norwegians’ opinion before airily claiming, as Britain’s foreign minister Boris Johnson did before the referendum, that the U.K. could enjoy all the benefits of the single market without any of the onerous obligations. The British are meant to be a sophisticated nation with a long experience of the hard facts of international relations. It is simply astonishing and rather shaming that they did not anticipate Norway’s objections. The behavior was so naïve and irresponsible as to be almost incredible.

The Brexit camp, as represented by The Spectator magazine, which proclaimed “Out—and into the World” when it endorsed the Leave campaign, seems to have absolutely no understanding of international trade or Britain’s dependency on Europe. For instance, the E.U. takes 39.4 percent of the U.K.’s service exports, which is more than the next nine trading partners—the U.S., Switzerland, Japan, China, Canada, Russia, India, Hong Kong, and Brazil—combined (38.4 percent). If Britain were to lose access to the single market, or British-based banks were stopped from trading freely in Europe through the “passporting” arrangements with the E.U., it would take very little to end the City of London’s reign as the de facto financial capital of Europe. In fact, Britain could pretty soon be broke on account the enormous tax revenue the City produces.

The obvious truth, which did not occur to those advocating a renaissance of Britain’s Victorian-era hegemony in world trade, is that, even in this globalized world, countries often prefer to trade with their neighbors because of convenience and cost. Once new tariffs are brought in, as they surely will be to protect what little remains of British manufacturing industry, it will make things that much harder for British exporters of every kind to trade with our neighbors. This is to say nothing of the effect on the cost of living in the U.K., as the pound sinks, or on the country’s finances.

Lord David Hannay, who was one of Britain’s representatives when the U.K. joined the E.E.C. and who later became an ambassador to the U.N., recently wrote a piece that perfectly captures the folly of the Brexit vote. The following paragraph explains not only the tariff bind that Britain finds itself in, but more important, the lunacy of leaving an arrangement that can’t be bettered in a world where a relatively small country cannot hope to make advantageous trading deals with huge economies like China and the U.S., or with large trading blocks.

“The technicalities of constructing a new U.K. tariff, for which neither [the pro-Brexit trade minister] Liam Fox nor the officials advising him have any relevant experience, will themselves be pretty daunting. Tariff rates will need to be set for thousands of tariff positions and sub-positions. Should these be higher than those set in the E.U.’s Common External Tariff, in which case we will either have to cut tariffs on [other] products to compensate all our W.T.O. trading partners or suffer higher retaliatory tariffs from them? Or should the tariffs be set lower, in which case U.K. manufacturers will have to face up to more competition and less protection? Or should they be set at the same level as now, in which case one wonders what all the fuss was about in the first place?”

That’s exactly the question the prime minister must be asking herself as she walks with her husband through the Alpine valleys humming “the hills are alive with the sound of music.” Or perhaps more appropriately, “So long, farewell. Au revoir, auf Wiedersehen.”

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