Weak EU champions hasten a hard Brexit

Posted on August 28, 2016

Owen Smith©Getty

Owen Smith, a challenger for leader of the opposition, has said he would call for a second referendum if he wins

Those who campaigned for the UK to stay in the EU are shaping up to be two-time losers. They lost the referendum vote on June 23; now they are losing the battle to keep the UK inside the single market. Both defeats are based on repeated misjudgments.

Their original mistake was to exaggerate the economic effects of Brexit. The long-run consequences are hard to gauge. What we do know, so far, is that the result did not cause an immediate crisis — and this is what matters politically. This is why the consensus within the Conservative party has been shifting towards a harder version of Brexit.

    The second mistake by the Remainers is that they have since been fighting the wrong battle. After the referendum, they should have conceded defeat, and moved on to argue the case for the closest possible relationship between the UK and the EU. That would at least have kept open the possibility of a return to the EU in the future. Instead, they are calling for a second referendum. Owen Smith, the Labour MP challenging Jeremy Corbyn to be leader of the opposition party, said he would campaign for it. There are a lot of Remainers who sympathise with that position.

    For their strategy to succeed, the following sequence of events is required.

    Mr Smith would first need to win the leadership contest — which is seen as possible, but unlikely; Article 50, the official exit procedure, would ideally not be triggered before the next UK general election, scheduled for 2020 (if triggered before 2020 but not completed, the Article 50 process would need to be judged legally reversible, which is possible but not inevitable); Labour would have to win the election with an absolute majority; in the ensuing referendum, a majority would have to vote in favour to overturn the previous referendum, ideally with a bigger margin than 52-48; and there would be no successful legal challenge to that process. Good luck!

    While Mr Smith and other frustrated Remainers have been drifting off-tangent, they have left the real Brexit debate to the Leavers. Those in favour of a hard Brexit have a strong case: it is easier to negotiate. The EU would not deny the UK a free-trade agreement along lines similar to that for Canada with some added extras to accommodate the structure of UK exports, notably the importance of services.

    A deal that keeps the UK in the single market, by contrast, would be a technical and political nightmare. The EU would surely insist on freedom of movement as a quid pro quo. Why should we expect Brussels to be inflexible on immigration control? The answer is that freedom of movement, even more so than the free flow of goods, is the essence of what the EU is all about. For the 19 member states of the eurozone, a common labour market constitutes an important shock absorber. An EU without free movement labour is like the Catholic Church without the Holy Ghost. It is not a detail you can negotiate away in the hope that the other side sees reason once you explain your position with sufficient enthusiasm.

    An EU without free movement labour is like the Catholic Church without the Holy Ghost

    I would not want to sacrifice the benefits of the single market for the illusory benefit of sending home a few thousands immigrants from eastern or south-eastern Europe. But if the British government decides to prioritise immigration control, it will have to settle for a free-trade agreement.

    This would still allow UK businesses to export manufactured goods into the EU without paying tariffs. But the City of London would lose the cherished single passport, which allows UK-based firms to conduct business everywhere in the EU with no questions asked. The City would remain an important global financial centre. But it would no longer be able to sustain its role as the eurozone’s financial centre. It could be argued, as I have done previously, that this was not a sustainable position. But the changeover will now be more abrupt. Jobs will disappear, and I suppose that house prices in London and the south-east of England will eventually fall. The excess demand that has kept them high is already shrinking.

    There is a still a possibility of an interim solution, perhaps in some form of membership of the European Economic Area with access to the EU single market. But even this is far from guaranteed given the current debate among British conservatives and the desire to slam the door shut as fast as possible. I can see why they are in a hurry. If, against the odds, Mr Smith were to become Labour leader, I would expect that this would have the perverse effect of accelerating Brexit because this would give the Tories even more of a reason to get this over and done with before the general election.

    Since the EU’s champions in Britain are so hopelessly ineffective, Brexit not only means Brexit, but quite possibly a hard Brexit.

    munchau@eurointelligence.com

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