Wednesday 26 October 2016

Cool heads and slow negotiation the way forward for Britain and EU post-Brexit – Patrick Honohan

Published 06/07/2016 | 10:09

Professor Patrick Honohan. Photo: John Ohle
Professor Patrick Honohan. Photo: John Ohle

THE former Central Bank governor Patrick Honohan has called for cool heads and a slow negotiation process following on from the UK referendum decision to exit the EU.

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He called on the British people to harness their traditional tolerance in light of the vote.

“Their traditional tolerance and moderation may reassert itself to allow acceptance of a less isolationist solution than seems currently in the cards,” he said, writing as a fellow of the Peterson Institute of International Economics.

“But that would also require the British government to acknowledge and address the legitimate concerns of those parts of society that have suffered most and feel most threatened by the evolution of the economy in recent times.”

He added that British people had “been battered by misinformation and prejudice in the referendum campaign.”

Mr Honohan added that it had been difficult to establish from British officialdom what their game plan actually was in the run up to the “ill-advised” referendum vote.

And the disarray that has ensued among UK politicians in the days following the vote has postponed what he assumes will be a gradual revelation of the negotiating strategy.

Whatever the outcome, Mr Honohan said it cannot fully address the irritants that drove the vote, particularly among older Britons, to exit.

“These include dissatisfaction with austerity-induced cutbacks in public services, a sense that policymakers are out of touch and beyond the effective control of the average voter, and the mistaken projection of these concerns onto the European Union and in particular on the visible increase in inward migration seen as driven by EU rules.”

He added that EU worker mobility has been in place since before Britain joined the European Common Market in 1973 and despite an increase in this following the accession of ex-Communist countries to the EU post-2004, ever since there have been more immigrants from countries outside the EU.

In addition, he added that the economic logic that points out the net benefits of immigration to an aging society has little traction in Britain, not least because insufficient attention has been given up to now to ensure that potential losers were adequately compensated and in particular that public services were sufficiently funded to meet increased demand effectively.

“It seems unlikely that any Brexit solution that does not squarely address the immigration question could be politically viable in post-referendum Britain,” he added.

He added that domestic political repercussions in other EU member states of any potential concessions given to Britain will weigh heavily on the main decision makers in future negotiations, namely the heads of government of those other countries.

“Clearly Britain still wishes to maintain full access to the European single market in goods and services. The mutual benefit of free trade in this respect should be clear, but the remaining EU members, perhaps inevitably, have begun to speak in terms of what price Britain should pay for this access,” he said.

He added that the Norway model, which has such access but also accepts free migration and pays a financial contribution – could be an acceptable interim solution for British negotiators.

However, the model does not take into account the imperative in Britain to have greater national control over migration, he said.

“While uncertainty about future arrangements is clearly damaging for the short and medium term, the complexity of disengagement militates against any quick finalisation,” Mr Honohan said, adding that, for example, EU membership is deeply embedded in UK legislation. 

Then there are the economic issues ranging from agriculture to finance.

“In some parts of the United Kingdom as much as 85pc of farm income currently is subsidized by the EU’s Common Agricultural Policy; what will replace that?

“And much of the wholesale financial business in euros is conducted at present in London; will that continue?”

Mr Honohan added that reaching closure will test Europe’s governance structures – these have not always been effective as highlighted in the euro crisis.

“Under these circumstances, perhaps the best one can hope for is that a lengthy process of negotiation allows an improved understanding of the issues among the British people”, he said.


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