Thursday 27 October 2016

Take the Churchillian view on Brexit - and do nothing

Published 14/07/2016 | 02:30

The statue of Winston Churchill stands silhouetted in Parliament Square in London
The statue of Winston Churchill stands silhouetted in Parliament Square in London

'I have not become the King's First Minister in order to preside over the liquidation of the British Empire," Winston Churchill told the US Congress in a famous speech. How much more important, then, not to become the Queen's First Minister to preside over the liquidation of the United Kingdom?

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Alas for him, David Cameron's place in history is already allocated.

His putative successors might like to ponder theirs. They certainly ought to ponder what is at stake. The end of the 300-year old union of Scotland and England is certainly one, although the exact mechanism and timing of such an event is far from certain.

But there is more. The end of Britain as a G-7 economy and a significant player on the world stage is also a distinct possibility, if it departs from both the European Union and the single market, which seems the most likely outcome.

In between could be a sterling crisis, an international bailout and an austerity recession. Mr Cameron would move up a place in the long list of failed prime ministers to make way for whoever presides over that.

It still beggars belief that such a risk is being run, whatever the results of the referendum. Everyone is rushing for the lifeboats; not because the ship has hit an iceberg, but because the captain intends to scuttle it.

There is of course much debate about whether the apocalyptic vision is the correct one, but that is not the point. Government, like management or investment, is about balancing risk against potential reward.

Most people instinctively prefer reduced risk to greater possible reward, but only a wild gambler chooses to run greater risks for smaller potential gain. In this case, one does not have to be able to predict the future to see that the risks from Brexit outweigh the possible gains by perhaps the greatest margin ever seen in such a choice. On one side of the ledger, dangers on an unprecedented kind: on the other - well, what exactly?

Not much more than a dream. For holiday reading, it being the Fourth of July, I went dabbling into David McCullough's 2001 biography of John Adams, one of the founding fathers of the United States, and read, "We should always remember that a free constitution cannot be purchased at too dear a rate, as there is nothing on this side of Jerusalem of equal importance to mankind."

Those of us who have jibbed at Patrick Pearse have to say, from the perspective of the 21st century, that this is dangerous rot. There can be too high a price, even for a republic.

Almost any price is too high a price for the pursuit of an illusion, which is what Brexit ultimately represents. It is hard to know where to start with the arguments for leaving, but one of the most instructive must be that it will reduce regulation. The British businessman who feared a "mountain of paperwork" outside the free market was spot on.

But John Adams, and Pearse, were right about human nature. Historians still argue about the degree of oppression in the American colonies and the Irish kingdom, but the supposed oppressions of the EU, once examined, amount to little more than irritations - albeit often both annoying and unnecessary irritations. Yet there is no doubt about the strength of feeling among many English people in particular, that their freedoms have been seriously eroded.

This is the choice which faces the British prime minister: the possible ruin of her country from a combination of imaginary, media-fed grievances and genuine economic and social distress which is the responsibility of the British government, or a decision that she will not run such a risk for so little gain, and will face the political consequences.

How likely is that ruin? One cannot foretell the future, but events already point to the probability of irreparable damage. Recession is on the way.

There can be no other result from a run on property so severe that some funds are unable to repay investors their money at present, the biggest fall in consumer confidence in 20 years, and an investment strike.

Beyond that lies the possible end of Britain as the "world's biggest hedge fund". The country reaps enormous benefits from investment flows into the City of London, as well as the profits, salaries and bonuses from firms established there, yet still has to borrow around £7 abroad for every £100 it spends.

There has been no problem raising such loans, partly because of the UK's unique financial and political place in the world. There soon may be, as sterling falls below $1.30 for the first time in 30 years.

A financial recession will be added to the demand one - the kind Ireland has just come through, where austerity policies to close the deficit make the recession worse. An external bailout might even be needed, with accompanying terms and conditions.

Such balance of payments crises used to be a chronic British problem. The last severe episode was 40 years ago but the problem has not gone away. Of all the delusions on show in the referendum campaign, the biggest was that the UK "fundamentals" are sound. They are not, but since both sides wanted to say so, the claim went unchallenged and the danger under-estimated.

Britain cannot afford to lose a significant chunk of the City income, yet this is the prize which other major EU countries covet most, and the one it is easiest for them to grab. Even Norway and Switzerland, with contributions to the EU budget and adoption of EU rules, do not have full access. Fat chance that Britain will be given it. Everyone in Dublin business circles is astonished at the degree to which UK firms are making plans to operate outside Britain, if necessary.

We too would like a slice of Lombard Street, but, unlike the bigger EU states, not if it entails the collapse of the UK economy.

Not that they should like it either. It is hard to comprehend the folly of those European leaders and officials who urge Britain to apply for exit at once. At times, it seems like 1914 - thankfully, without guns - where everyone blundered into something none of them intended, because they could not distinguish the wider national interest from the narrow.

Britain simply cannot afford to lose a significant chunk of the City income, Which is where Churchill comes in. Surprisingly, he conceded in that speech that someone would probably dissolve the Empire. Just not him.

Article 50 can be triggered only by the supreme UK body - not the people, as in Ireland, but the government in parliament. It will be a deliberate decision and it has not yet been taken. The new prime minister should take a leaf from the Churchill book and say, not by her.

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