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Sean Rickard - Independent Economic Analysis
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Wednesday the 29th March 2017 was a sad day for those who view the UK’s decision to leave the EU as an irrational threat to the UK’s prosperity, security and stability.   Ironically, when announcing the triggering of Article 50, Theresa May stated; ‘now more than ever the world needs the liberal democratic values of Europe.’   Indeed, only the deluded or ignorant believe that a Europe of nation states is the way forward.   Maddeningly, the Brexiters I know clearly perceive the dangers of President Trump’s attempt to take the US back to splendid isolation; the more so at a time of a resurgent Russia and pan-national threats eg, climate change, but are blindsided when it comes to the UK’s membership of the EU.   They defend separation as necessary to protect the UK’s culture and/or sovereignty but as George Orwell observed rampant nationalism is the ‘worst enemy of peace.’  

 

If we define Brexit as leaving our seat at the European Council then it is probably going to happen but realism is beginning to raise its head.   It is only the Brexit zealots – a small minority residing largely within the ranks of Ukip and the Tory party – who want us to walk away from the EU without a deal.   Mrs May does not have a mandate for such foolishness and she has promised business leaders there would be no resort to WTO tariffs for trade with the EU.   Mrs May, probably to avoid shattering the Tory party allowed herself to be influenced by the zealots, but recent events suggest that she has woken up to the dangers.

 

The zealots might fairly claim that currently those who voted leave want it to happen but sentiment is unlikely to pertain.   The multi-millionaire, part-time UK resident, Michael Caine justified his leave vote by claiming it is better to be a ‘poor master than a rich servant’ but I doubt such a view is shared by those nearer the poverty line.   What confronts the nation bears little resemblance to the ‘better prospects’ so confidently predicted by the Leave campaigners.   No Leave campaigner stated that failure to agree a trade deal with the EU would be ‘okay.’   Neither did they consider the issues of Scottish independence, the peace process in Northern Ireland nor exit costs – which could exceed half the annual cost of the NHS.   Having spoken to many Brexiters, it is clear that while they had a vision (erroneous or otherwise) of what they were voting against – eg, immigration – very few had any serious appreciation of the risks.  

 

I see the dawning reality lying behind Mrs May’s announcement of a snap general election only weeks after receiving an overwhelming Parliamentary majority to trigger Article 50 and after months of declaring she would do no such thing.   Her claim that it is necessary to strengthen her hand in the forthcoming negotiations may not, as she implies, be directed at our erstwhile partners but closer to home; her need to face down the zealots in her party.   Despite Mr Corbyn’s lack of credibility a 2020 election would be high risk as by then the failures of her government and the divisions within her party will be manifest.   The economy is slowing, household incomes are coming under pressure and the shortfalls in public expenditure are multiplying.   And, having being manoeuvred by her Tory zealots, the reality of the chaos resulting from ‘no deal’ will also be in sharp focus against the poorly performing economy.   All the signs are that Mrs May has ditched her flirtation with ‘no deal is better than a bad deal’ position but a long term trade deal with the EU by 2019 is an impossibility.   The European Parliament’s overwhelming vote ruling out such a deal before the UK becomes a ‘third country,’ – no doubt confirming the government’s private soundings with EU heads of state – means that far from a position of strength Mrs May must now sue for a transitional deal – or as she has started to say ‘an implementation deal.’

 

In belatedly resiling from her threat of a hard Brexit and joining her Chancellor in recognising that a transitional deal is imperative, the PM was on a collision course with her zealots.   The announcement on the steps of number 10 should be viewed in this light.   Theresa May can, according to the polls, expect to achieve a position of absolute power on the 8th June.   A large majority, with no heir apparent in sight, will allow her to face down the zealots.   The EU’s negotiating guidelines stipulate that if the UK wants to stay part of the single market during a transitional period it will have to stick to existing rules, which include making budget payments, accepting the jurisdiction of the European Court of Justice and allowing the free movement of people.   It looks increasingly as though a transitional arrangement would amount to the UK transferring to a European Economic Area agreement.  

 

Post the election she will be able to accept both an EEA agreement and a transitional period in excess of two years.   The zealots fear such a course of action as it increases the likelihood that a majority of the population will come to see Brexit for what it is: irrational and costly.   But from Mrs May’s perspective an EEA agreement would avoid the severe disruption to EU trade caused by tariffs, regulations and queues at border posts.   Moreover, staying in the single market provides a compromise between the narrowly expressed desire to leave in England and Wales but resounding margins to remain in Scotland and Northern Ireland.   In her Article 50 letter the PM adopted a noticeably softer tone, setting the objective of a ‘new deep and special partnership’ with the EU and she went further when speaking to journalists while visiting Saudi Arabia telling them that she would not rule out the free movement of people for a transition period.  

 

A  T R A N S I T I O N A L  E L E C T I O N

28th April 2017

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