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.  Bexiteers consistently argue, that to be an independent soveriegn nation, the UK must have control of its borders, with the laws that govern them made in Britain and not Brussels 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 retain access to tariff-free EU markets.
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, 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.   
 
It's certainly remains a possibity that if the EU apply enough pressure, Theresa May will renege on the referendum result and remain wedded to the EU via the Single Market.
Some will say 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 it is unless the Government had already decided to grasp the nettle, pull out and let the EU to get on with developing the European Superstate the UK has been resisting for fifty odd years.

So, if I'm right, that the Government is preparing the UK for a manufacturing revival and a much lower pound, it shouldn't be too long before a full Brexit is announced.  Whether that will work in our favour is another point and all that I'm saying is, 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 will citizens from other coutries who will 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 mainly 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, who win.

Can we dare be optimistic?  Well, maybe we can, but only in the very long run.  After twenty years of adjustment as the UK unravels fifty years of manufacturing malaise, the economy may re-emerge with a thriving export market. It's possible, therefore, that the next generation could do very well out of Brexit and who knows, 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 have to endure rising prices in the shops, caused in part by increased import tarriffs and in part by rising labour costs after free movement of labour ends post Brexit.  
 
So, buckle up people, there's no magic money tree (unless your bankrupt bank) and as always, it's working people that take up the slack as our corporate saviours reorganise themselves to cope with lofe outside a tarrif free EU Single Market.

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