The Brexit dare

You just have to admire the Brits. One way to explain it is to compare their wager through the Brexit vote to that of an airman who jumps out of a plane without a parachute. Or like those who foolhardily dive from Gozo’s window at Dwejra. Everyone who is anyone in the financial sector told them not to vote for Brexit but that is precisely what they did. Now that Brexit has won, the pound has plunged, the Stock Market had scary days and the UK still has to press the Article 50 button for the real negotiations to begin. Yet there has not been the collapse and panic on the streets that some had predicted. Or that David Cameron had warned about. On the contrary, the Brexit shock is being used to give a salutary shock to the entire country. In a way, Brexit has become a huge shock to the system as a means to kickstart the economy of the country. The UK is a strong, resilient country, an open economy, with a wide range of economic motors. The Brexit shock can ultimately be beneficial to the country and not kill off the economy and any hopes of growth. Over the past days, some of the pro-Brexit media have been coming up with lists of suggestions how to improve the economy. Basically, there is nothing earthshaking in these suggestions, nothing out of this world, nothing that any economist would not have dreamt about – training, infrastructure projects, in short a new impetus. Obviously, this does not remove the question mark as to how will the negotiations with the EU end. All EU members are now focusing on the coming negotiations (which most probably will be begun during the Maltese presidency) and some are staking out their positions. France’s Hollande, for instance, has urged the EU not to be soft with the UK, so as not to encourage the others. The best analysis of what will most likely be the UK posi- tion is that the UK will aim for what one could call European Economic Area option. Even here, the quid pro quo, at least in previous similar negotiations with Norway, Iceland and Liechstenstein, insisted on full acceptance of the EU’s four freedoms (including the most crucial: the freedom of movement of labour). Britain would also have to pay into the EU budget. The EEA or Norway option is totally inflexible. One cannot trade a bit less market access for a bit less freedom of movement. Besides, this seems to have been ruled out by Theresa May even before she became UK premier. The second option could be a bilateral trade agreement of the type the UK is negotiating with Canada. But under such a bilateral free trade agreement the City of London would inevitably lose passporting rights – the ability to offer services throughout the EU without having to subject oneself to financial supervision in other countries. There is no way the EU would allow UK-based companies postBrexit to undertake financial transactions into the EU. The UK may thus be forced to fall back on MTO trade agreements, the bottom level of trade agreements. It is in preparation for this that the UK is preparing to negotiate trade agreements with what the EU calls third countries – negotiations that cannot begin while the UK is still in the EU. The leading lights of the May administration seem optimistic these negotiations will allow great opportunities and some countries in particular have said they are very eager to enhance the trade agreements with the UK. This is all in the future. Future developments will tell. But, as said at the beginning, there is much room for reflection, and also for admiration, for this courageous people who would want to swim in a raging sea without any protection at all. It may work. And would then bring about the basic question: what is the EU for?