10 October 2017

Will Britain genuinely EXIT the EU?

Nobel Prize winner Richard Thaler says that voting for Brexit was more about how people feel than thinking hard and long about the economic consequences of leaving the European Union (EU).

“Most voters aren’t really thinking about it in a very analytical way… the people behind the leave campaign are voting with their guts. There’s no spreadsheet. This is much like a divorce without a pre-nup. You’re voting to leave, and we’ll take care of all the financial details later,” Richard Thaler:Read the full interview MarketWatch.com 

After fifteen months fruitlessly arguing about how much UK citizens will have to pay to leave the EU, the Government risks appearing indecisive and weak.  This itself makes it increasingly unlikely that Theresa May will be able to deliver the Single Market solution business leaders say they need. 

The problem Theresa May faces, day-in-day-out, is that remaining part of the Single Market is incompatible with the reasons why Brexiteers, both within and outside the Conservative Party, voted to leave the EU, that is: to have control of UK borders, regain national soveriegnty and have the laws that control what they do made in Britain and not Europe Alongside this, if the UK wants to remain part of the EU Single Market, there's the additional headache of which law applies to business activity: trade agreements, contract law, health and safety and so onUltimately, if we agree to be part of the EU Single Market it's hard to imagine Brussels doing a deal with the UK Government without British business having to obey the European Court of Justice (EUJ). Add to that the embarrassing fact that no one yet seems to know how much the British people will have to pay to get out of the EU, and it's easy to sympathise with Theresa May's who's life must be unbearable.  

The reality the UK government faces is that being part of EU Single Market means (as near as makes no difference) remaining in the EU. 
Brexit is a living nightmare, it was always going to be and looking into the haggard faces of ministers commuting to-and-fro the EU it looks as if they've had enough too. I just can't see the UK being able to agree to the EU Divorce Settlement as proposed (£60bn) and, even if that is ever agreed the Government will have to sit down with EU officials yet again to try and work out the size of fee the UK will have to pay (just as Norway had to) to stay wedded to the EU Single Market.

While politicians will keep talking behind the scenes, all this time-wasting is becoming all too much for the government  who, I believe is planning for a full-blown EU exit.

Since the EU referendum in June 2016 the pound has fallen dramatically, public services are being squeezed and at the same time as the 
country's national debt is heading for the stratosphere. In normal circumstances interest rates would have the rise to control the supply of money and prop up the pound and help prevent import costs spiralling out of control. So why is the Bank of England (BOE) ignoring the Government's inflation target of 2%?  

While the BOE has a responsibility to keep prices in check, it appears to be deliberately letting inflation rip.  It's this change of economic policy that I believe demonstrates that the Government's end game is for the UK to leave the EU lock stock and barrel. No Single Market, no European Court of Justice, and no more being  held to ransom by the EU in the hope that somehow, if enough pressure is applied, Theresa May will renege on the referendum result and remain wedded to the EU via the Single Market.

Some will say that this all-out strategy is just a clever negotiating position designed to regain leverage when attempting to do a deal with their fastidious European counterparts.  It's possible, but I doubt that the BOE would be rebalancing the UK economy in the dramatic way that it is unless the Government had already decided to grasp the nettle.  The nettle that is the reality that the EU believes that the sooner the UK gets out of their way the sooner they can get on with developing the European Superstate that the country has  been actively resisting for fifty odd years.

So, if I'm right, that the Government, as evidence by the actions of the BOE in preparing the UK for a manufacturing revival and a much lower pound, it shouldn't be too long before Theresa May will announce a full Brexit. Whether that will work in our favour is another point and all I am saying is that, at this rather pathetic stage in the Government's negotiations, it appears to me that the BOE are moving the UK towards the economic circumstances that Brexit could actually mean Brexit. 

So who are the winners and losers as the Goverment devalues the pound in readiness for life without the EU? In the long run it will be those working for export businesses and their owners who will benefit most as EU citizens take advantage of cheaper goods and services courtesy of a more favourable UK exchange rate. But who will pay?  In the medium term, say in three to five years, it will be the general public that pays the price of Brexit in the form of higher prices in the shops and particularly those that spend  larger proportion of their income on essentials, such as food, oil and white goods imported from Europe, China and the USA.  As ever, it's the working people that pays the biggest price of economic disruption and the in-the-know business folk, because they can move their money more easily than people can shift their labour, that will win.

Can we dare be optimistic?  Well, maybe we can, but only in the very long run.  After twenty years of adjustment as Britain unravels fifty years of manufacturing malaise, the UK enomony may re-emerge with a thriving export market.  It's possible, therefore, that the UK people, overall, could do very well out of Brexit.  The UK might even restore some national pride and export it's own motor cars again?  In the meantime, however, the average man and woman will struggle with relatively lower wages, higher interest rates, rising prices in the shops and falling asset values. On top of that, because we're told by Theresa May that there's no magic money tree, the people will have to struggle a few years more as our corporate saviours reorganise themselves to cope outside the tariff free EU Single Market.

More on the EU: Brexit could take 10 years and might not happen at all