Brexit bonus
Four reasons why leaving the EU will aid recovery Matthew Lynn
Trade will be disrupted, investment will collapse, and companies that are already struggling will be confronted by even more chaos. As the coronavirus crisis drags on, with no clear path out of lockdown yet emerging, lots of big businesses and their lobbyists are already arguing for the one-year transition agreement with the European Union to be extended. After all, the economy is in enough trouble already without getting into a fight with our main trading partner as well.
But hold on. That is crazy. In truth, leaving the EU on time is going to make it easier to recover from Covid-19, not harder. Why? Because we can push through the deregulation we will need; we can scrap tariffs and quotas especially on food that may soon be in short supply; we can save ourselves a bundle of money; and our negotiating position will be stronger in the next few months than it ever will be again. The Government has already insisted there will be no delay to the Brexit process. It needs to hold firm to that position – or risk even more damage to the economy.
The negotiations over our final departure from the EU once the transitional year expires early in 2021 were already difficult enough even before the whole continent was struck by an epidemic. It hardly helped that chief negotiators ended up self-isolating and meetings that would have taken place face to face will have to be held remotely. Pressure has been building to kick the can down the road, get the epidemic under control, restart the economy, and then worry about finalising Brexit later. Sure, it is easy to understand the arguments for delay, and they shouldn’t be dismissed lightly. Even so, ending the transition on time will help the economy spring back to life. Here’s why.
First, we can free ourselves of the EU’S increasingly bizarre rules and regulations. Bureaucratic inflexibility – something of a house speciality over in Brussels – is unhelpful at the best of times, but in a crisis it is lethal. There are already reports that some of the schemes to support companies have been held up by state aid rules. Likewise, its weird obsession with data privacy means tracking apps that could help us get out of lockdown might be delayed, although personally I couldn’t care less if Google knows where I am if it stops me getting the virus (just so long as they don’t tell my wife). It is still clamping down on artificial intelligence even though it may be crucial in crunching the data that will lead to a vaccine.
Even more importantly, we are going to need a wave of economic liberalisation, as well as a massive fiscal boost for growth, to start up again if we are to replace the companies and jobs we will lose over the next few months. That will be a lot easier if we aren’t forced into a “level playing field” with France and Germany.
Next, we can scrap tariffs and quotas. There are already worrying signs of some prices spiking upwards, and with production collapsing that is hardly a surprise. Food may soon be in short supply, making the EU’S tariffs on imports from outside its borders even more deranged than usual. For example, if we need to, we could buy plenty of meat and dairy products from New Zealand – where Covid-19 has almost been eliminated – and it will be cheaper as well. Across a whole range of goods, this will be the time to buy what we need from whichever country can supply it at the best price. But we need to get out of the EU first.
Thirdly, we can save money. The
‘Brussels’ bureaucratic inflexibility is unhelpful at the best of times, but in a crisis it is lethal’
final calculations are complex, but the UK is expected to make a net contribution of around £17bn to the EU this year. If we extend, it will be a similar sum next year. With tax revenues in freefall, and the Chancellor launching new bailouts every week, that is surely money that could be better spent in this country. Even more importantly, so long as we are completely out we will be off the hook for potentially ruinous bailouts within the eurozone.
A horror show is going to unfold in Italy over the next year, largely because the rules of the single currency prevent it from spending the kind of money needed to keep its economy alive (according to the Bruegel Institute, Italy’s immediate fiscal stimulus will amount to a mere €16bn compared with Germany’s €236bn). The same is true in Spain. Both countries are heading for a brutal recession. Some kind of blow-up now looks inevitable, and fixing it will be expensive – and there is no reason for the UK to pay for that.
Finally, our negotiating hand will be stronger over the next few months than it ever will be again. We have had very few patronising lectures from Michel Barnier over the last few weeks about “level playing fields”, “unfair competition” or “social dumping”. With so many other problems on its plate, the EU can hardly waste energy punishing the UK for leaving. And with economies in freefall, this is hardly the moment to throw away a valuable export market to score some political points. Barnier and his team will be under pressure to wrap a quick deal – say, for example, by cutting and pasting its trade deal with Canada, which works fine for us.
Recovering from this crisis won’t be easy. In an ideal world, we wouldn’t be leaving the EU at the same time. But we are a long way from an ideal world already.
In reality, leaving the EU promptly, and with as little fuss and drama as possible, will help us get our economy back on track far more quickly – and an extension will simply make it harder.