Thursday 27 October 2016

Forget Brexit u-turn, the real threat is EU break-up

Cameron's massive gamble has only delivered political and economic uncertainty for the foreseeable future, writes Colm McCarthy

Published 03/07/2016 | 02:30

RESULT: Former London Mayor Boris Johnson is questioned by journalists near his home last week. GETTY
RESULT: Former London Mayor Boris Johnson is questioned by journalists near his home last week. GETTY

It is no longer imaginable that Britain's Conservative party will risk further political dislocation by ignoring the popular vote and seeking an escape from the unexpected Brexit decision. This prospect disappeared with the demise of Boris Johnson's leadership campaign last Thursday.

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Johnson, an opportunistic rather than a committed Brexiter, might have sought some route back from a hard exit but none of the remaining candidates seems likely to do so. The front-runner, Theresa May, has stated that 'Brexit is Brexit' and will be taken at her word. There will be neither a fresh general election nor a Brexit II referendum.

The trouble is that each day this blindfold exploration project uncovers fresh deposits of collateral damage from David Cameron's extraordinary gamble. The most significant discovery, if the European trade commissioner Cecilia Malmstrom is to be believed, is that there will be an extended purgatory of negotiations, first about exit and only then about a new trade relationship. As soon as the UK parliament triggers the Lisbon treaty's Article 50, a period of two years for negotiations would be followed by actual British exit before talks on a new trade deal even commence. It could take several further years before that second negotiation concludes, if it ever does. Britain's access to the single market will, if Ms Malmstrom's understanding of the process prevails, contain three distinct phases. Until about the end of 2018 Britain will be a full member of the EU. It would then, possibly for several years, be a third country with no preferential access at all. It would trade with EU countries under the default rules of the World Trade Organisation which embraces 162 countries accounting for virtually all of international commerce. The WTO is not a free trade area: there are tariffs, mainly at low levels, for manufactured goods (many are zero) but with less liberal arrangements for agricultural products and services. This WTO interregnum would usher in a golden career autumn for Ireland's smuggling fraternity, whose ancient skills have fallen victim to the evils of free trade and globalisation.

During this second period in a WTO regime, the UK would be free to negotiate the details of a third and possibly permanent trading deal with the EU. This could follow the so-called Norwegian model, giving full access to the single market, more or less a return to the current position. Or the negotiations could be protracted and ultimately unsuccessful with no deal at all. The list of intermediate possibilities is endless.

For Britain (and for Ireland) this is a nightmare programme, attended throughout with crippling business uncertainty and political destabilisation. Even in this optimistic Norwegian outcome Britain and the EU would erect tariff and other trade barriers on Exit Day only to dismantle them all a few years later. This is the kind of stuff which gives politicians a bad name with those who pass their days in the real world.

Commissioner Malmstrom is the latest European politician to offer an interpretation unfavourable to the deserting Brits and her proposal may be deliberate mischief-making. There appears to be nothing in the treaties to prevent parallel negotiations on exit and the follow-up trade deal, and the British will surely reject it, refusing to trigger Article 50 until a business-like schedule has been agreed. The French and European Commission presidents have also been coat-trailing, demanding that Britain commence the exit process immediately with maximum damage all round.

The greatest danger to Ireland in all of this is not just a poorly executed exit. The UK may not be the last deserter and France itself could collapse the scrum by choosing Marine Le Pen at next year's presidential election. Ominously the odds against her have shortened to where the Brexit odds were a year ago. Even if the European Union survives, Irish officials face an impossible task in preparing for a negotiation whose parameters are simply unknown. A few clear issues have however, emerged. Several central European countries have been putting down early markers about free movement and could object to Irish people enjoying rights of access to the UK labour market not available to their own citizens. The continuance of the Irish corporation tax regime will be targeted again, particularly if Nicolas Sarkozy, who has form in the matter, returns as French president next year. If he is beaten by Le Pen, there might be no corporations to tax.

There have been some enthusiastic prognostications about an influx of financial refugees from London post-Brexit. The unmentioned downside includes extra supervisory burdens for the Central Bank and bail-out risks for the Exchequer, not to mention the unwelcome addition of demand pressure in the Dublin housing market. It would be prudent to insist that foreign financial institutions establishing, or expanding, operations here be back-stopped in their home countries. Department of Finance officials will feel that Irish taxpayers have done enough bailing out of the European banking system and should confine any further exposure to our own.

The Palace of Westminster has been the venue this last week for a very public nervous breakdown in both Conservative and Labour parties. Shakespeare would have hesitated to overload a single act with the extraordinary succession of plots, betrayals and assassinations. The UK faces, as well as Brexit, an intense political crisis and the UK constitution is being revised on the fly.

The referendum is a distinctly un-British device. Sovereignty attaches to the Crown in Parliament, there is no written constitution and the parliament is free to legislate without constraint. The House of Lords has had no veto for over a century and the 650 MPs are free to vote for EU exit, the invasion of France, the expulsion of Essex, the declaration of a republic or the introduction of a decimal calendar. The referendum on June 23 was only the third national plebiscite in British history and the first to be lost by the prime minister. There is no majority in the House of Commons for leaving the EU and the effect of Cameron's folly is the invention of a third decision-making chamber, the 31 million voters whose expertise has been so vividly in evidence.

One lady in Bradford explained candidly that she was voting to leave the EU because "…the Muslims have taken over". In fairness to her she has not stood for election: an Irish TD called during the week for Irish exit from the EU because the Water Framework Directive, passed with the consent of all EU governments in the year 2000, ignored the democratic outcome of this year's General Election.

The outsourcing of political decisions by elected MPs extends to the choice of party leaders. Jeremy Corbyn enjoyed the backing of about 20 of Labour's 230 MPs when he won the leadership last year, sweeping to victory in an electorate of 332,000 - many of whom had paid €3 over the internet for a vote. Had Boris Johnson stood for the Tories he could well have won without the backing of a majority of Conservative MPs reflecting his popularity with the membership - there are just 150,000 Tory party members in the country, since it costs €25.

This abdication of responsibility by the new political class, not Brexit, is the real watershed in British history.

Sunday Independent

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