I’m sure everyone is fixated with the circus that is UK politics at the moment. The problem as I see it is the desire to “have a deal”. The stark reality is that there are no deals to be had – certainly no better deals.
Talking to a UK based friend last year about why she voted remain there were three points:
- She favoured close economic ties with Europe – that is a bigger market argument,
- She perceived many of the Leave arguments to be racist – yes, there was an element of racism in some of the Leave arguments,
- She hoped the EU would get a wake up call and negotiate a better deal for the UK after the referendum.
Point 3 is worth discussing. The fact is that the UK already has a preferential deal, many deals, with the EU. They can legitimately ask the question, “More? You want more?”. Then David Cameron went to Brussels a few weeks before the vote and tried to get a better deal and the Europeans said no. So there was no better deal on the table if the UK had voted to remain.
But we know the UK voted to leave. The Remainers put up a whole bunch of legal challenges but in big pictures terms lost the fight. The UK parliament passed legislation that takes the UK out of the EU at the end of March. That part of the process is on automatic pilot and will occur unless the legislation is amended.
Now let’s look at some incentives. From the EU as an organisation perspective it doesn’t pay for the UK to successfully exit the EU. Bigger is better and successful exit will only encourage other defectors. That undermines the whole notion of the EU. So it pays them to play hard ball – as hard as they can get away with and they have. In their shoes I would act in precisely the same way – get the UK to blink before March 29. After March 29, it is more or less game over. For individual EU members, however, the incentive structures are different. In the first instance it would be better if the UK remained in the EU, but if they exited it would be ideal to maintain good economic ties with the UK. Imposing any economic damage on the UK is not good policy. Especially for those economies that have many of their citizens working in the UK – they might come home and swell the ranks of the unemployed.
From the UK perspective. There were two choices: remain or leave. The electorate chose to leave. I view that as a shake-the-dust-from-your-sandals leave. Enjoy-the-rest-of-your-life leave. Instead of spending the last two years trying to negotiate a we’re-not-really-getting-divorced leave the UK should have been negotiating trade deals with the rest of the world,* and side deals with EU members. Now I understand that people are going to say that you’re not allowed to do side deals with EU members. But my view is that you make the offer and people accept or they don’t. It is simply astonishing that the Irish border is being negotiated in Brussels with EU officials and not directly and solely with the Irish government. Have they got no pride? Ditto the EU telling the Irish what their corporate tax rates should be. Sovereign nations set their own tax rates and maintain (economically, legally, and militarily) their own borders.
Long story short – there is no “better” deal available to the UK. There never was – it doesn’t pay the EU bureaucracy to provide a better deal. To the contrary it pays them to inflict as much damage as they can to the UK economy. The UK government should have realised this ex ante and acted accordingly. The problem is that they had a remainer as PM.
*or adopt a unilateral free trade policy.
Update: Krugman on the EU:
Part of the problem is that there don’t seem to be many rational actors out there. Much has been written about the fantasies of many Brexiteers; I don’t have anything to add to all that.
But we should also note the fantasies of the Eurocrats, who have behaved at every step of this process as if Britain were Greece, and could be bullied into capitulation.
Minor gestures could have saved Remain in 2016; a bit of flexibility, a bit less determination to impose humiliating terms, might have led to a soft Brexit now. But it was arrogance all the way.
Now we hear that EU officials are horrified by the scale of May’s defeat, and my sense is that European leaders are starting to realize that a disorderly break would do a lot of damage to a fragile eurozone, too. No kidding.