Brexit frees UK to be a beacon of free trade
THE immediate reaction of financial markets to Britain’s decision to leave the EU has been telling. Sterling has fallen sharply but gilt yields have rallied and the FTSE 100 has been one of the betterperforming equity markets in the world.
Instead, the locus of pain is peripheral Europe. Bond yields in Greece, Italy, Spain and Portugal have risen, reviving fears of the “doom loop” whereby undercapitalised banks prop up overindebted governments by buying their bonds in a circle of insolvency.
The doom loop was broken in 2012 by Mario Draghi, the president of the European Central Bank, with his vow to “do whatever it takes” to preserve the euro and the unprecedented central bank intervention that followed. But the underlying problems of southern Europe remain unresolved. In the two trading days after the vote, the FTSE 100 fell 5.6%, the Italian equity market shed 16%, Spain 14% and Greece 16%.
The prophets of UK doom will argue that it was the weakness of sterling that made the difference. But that is the whole point: sterling can act as a shock absorber. Portugal, Italy, Greece and Spain are locked into a currency system that is imposed from above and does not reflect their economic needs.
The euro doom loop is symbolic of everything that is wrong with the EU. Success in the 21st century economy will not be about centralised command-and-control bureaucracies. It will be about freedom to innovate, flexibility, experimentation and networks. The EU’s bureaucracy has stifled innovation in biotechnology, financial services and technology.
The centralisation of all lawmaking for the single market in Brussels has turned it into a lobbyists’ meat market, defending the interests of big business against disruptive innovators. Freed from the bureaucracy, Britain can become Europe’s centre for innovation, knowledge-based industries and entrepreneurship.
The same ethos hampers trade policy. The EU is not a free trade area. It is a customs union with an average tariff wall of 3%-4%, a tariff on cars of 10% and an average tariff on agricultural products of 18%. This is not only (in the case of agriculture) morally indefensible. It is also bad economics.
The reason trade agreements with the EU take so long is that they have to be agreed and ratified by each separate member state. The EUCanada trade deal, which is still not in force, was held up for years by a dispute with Greece about the naming rights for feta. The EU has only 32 trade agreements in force, mostly with very small countries. It still has no trade agreement in place with Japan, the US, India, China or Australia.
Freed from its EU constraints, Britain can get on and sign bilateral trade agreements with China, India, the US and all the members of the Commonwealth that are naturally aligned with us through bonds of language, culture and common institutions and that are almost all growing much faster than the EU. News bulletins in the next two or three years will be punctuated by the exciting agreements that Britain forges as it becomes a beacon of free trade.
While people in this country had many reasons to vote to exit the EU, the leaders of the official Vote Leave campaign were united in their commitment to freedom, democracy, open markets and an enterprise economy.
This was not about Little England but an end to Little Europe.
The opportunities of the global market place are far too large and exciting to be approached through a regional trading bloc run by a command-and-control bureaucracy. © Financial Times 2016
Leaders of the official Vote Leave campaign were united in their commitment to freedom