Amid all the current horrors, doubtless you have been comforting yourself with the thought that at least we are shot of the Brexit wars. But Brexit is about to return to bite us. Although the UK formally left the EU on Jan 31, we are still in the so-called transition period until Dec 31.
We are currently in negotiations with the EU about a trade deal, to be effective after the transition period has expired. They are not going very well. So our old friend, the no-deal Brexit, has re-emerged as a real possibility for the end of this year. But there is an option to extend the transition period. Would such an extension be in the UK’s interest?
Yesterday, the recently established think-tank, the Centre for Brexit Policy (of which I am a fellow), published a report arguing that a delay is very much not in our interests, regardless of whether we have secured a trade deal. To some extent, the arguments about this issue will be all too familiar. If you believe that leaving the EU is going to entail severe economic costs – even more so if we leave without a deal – then delaying our effective exit appears to make good economic sense. And for many delayers, there is the added hope that an extension may lead to yet another extension and, you never know, we may never leave the beloved EU.
一本道理不卡一二三区Unsurprisingly, if you believe, by contrast, that leaving the EU is going to bring economic benefits, then why should you not want to proceed with all speed in order to secure those benefits sooner?
But the coronavirus crisis has added a new dimension. Superficially, at least, it appears to argue in favour of an extension. At the least, in the short term, Brexit will bring a measure of dislocation, especially if we leave without a deal.
一本道理不卡一二三区In today’s world, where businesses are battling for their very survival, why lumber them with another set of costs, added administrative burdens and increased uncertainty?
一本道理不卡一二三区This is a respectable argument. But when you think about it seriously, it is not very convincing. In particular, it fails to take cognisance of some major factors pointing in the opposite direction.
All along, the costs and delays to be incurred by business once we have fully left the EU were grossly exaggerated – even if we leave without a trade deal and trade with the EU under WTO terms. Most of our non-EU trade, including with our largest single trading partner, the US, is currently done on WTO terms.
Ironically, whatever congestion and delay businesses might encounter at borders will be reduced in the current circumstances, since trade volumes will be depressed for a while as a result of the economic effects of the virus.
Moreover, far from ending uncertainty, an extension to the transition period would actually increase it. Furthermore, if we were to delay our full exit, this would jeopardise our prospects of securing free trade agreements with umpteen countries, especially the US. Our prospective partners would probably withdraw, wondering whether we would ever properly leave the EU’s ambit.
一本道理不卡一二三区But the really important factors that should concern us derive from the collision between the quite extraordinary position in which the transition period places us and the dire circumstances and acute risks created by the coronavirus crisis.
While we are in the transition period, we are still subject to the EU’s laws and regulations, as interpreted and enforced by the European Court of Justice (ECJ). This is a bizarre position for a sovereign state to be in. So far, this has not done us much harm. But if we were to extend the transition period, we would expose ourselves to massive risk in three different areas.
一本道理不卡一二三区First, in the wake of the coronavirus it is absolutely vital that the British Government has complete freedom to set its own laws and regulations, including on such things as state aid to industry. As I have repeatedly argued, the way out of this crisis is through economic growth.
一本道理不卡一二三区But it will be challenging to raise our growth rate and we have to do everything to promote that end. This will include fashioning a regulatory regime that is appropriate to Britain’s interests. That requires diverging from the EU’s business-unfriendly regime.
一本道理不卡一二三区Second, extending the transition period implies continued contributions to the EU’s budget. In 2018 the net sum was £11bn. That is not to be sneezed at, but the risk is that from now on the UK’s contribution will be much higher as the EU enters a new multi-year budget period.
一本道理不卡一二三区Remarkably, the third danger is even greater. The euro has always been a halfway house – a currency and a central bank without a fiscal authority to back them up.
In recent days it has become clear that there is also a massive legal problem at the heart of the EU. The ECJ claims jurisdiction over all national courts, while the German constitutional court asserts, by contrast, that the ECJ has acted ultra vires – in other words, outside its competence, in relation to endorsing the European Central Bank’s bond-buying programme. The EU is heading for a train wreck.
一本道理不卡一二三区Meanwhile, Italy is facing an economic and financial disaster if it stays in the euro under the current policy regime. In particular, its banks are precariously placed. Either the hairshirt governments in the north will falter and agree to substantial bailouts of southern euro members, or there will be an Italian default, possibly combined with an exit from the euro, with devastating effects across Europe. While Britain is still attached to the EU, we risk being drawn ineluctably into a massive financial bailout.
一本道理不卡一二三区If the balloon is about to go up, we had better make sure that we get as far away as possible from the impending wreckage – and that we do this PDQ.
Roger Bootle is chairman of Capital Economics; email@example.com