There is no status quo in the EU Referendum. It’s a battle of two journeys

What are we actually voting for in this referendum? To answer that, let’s suppose the IN vote wins. What happens then?

Well the one handbrake on EU integration – the building of a country called Europe – will have been released as the club’s most awkward member state falls into line. The UK Government and all of Westminster will declare with one voice that “we’ve had two votes in 40 years – the matter is now settled for good”. The EU will be cock-a-hoop; there will be high fives in Brussels and in several cities around Europe. The takings in the Belgium Capital’s bars and restaurants will surge. All those news stories in British newspapers – crazy regulations, unwanted taxes (and fraud) from Brussels, unexpected demands on the UK taxpayer to cough up an extra £1.7bn by Christmas, arguments over mass immigration, the whole corporatist racket – those stories probably won’t disappear but they’ll become entirely academic & inevitable. Like an unwanted tax bill or weeds in your garden. The people will have voted for it, you see.

The EU will then press hard on the accelerator towards political union. And the UK will be a part of the historic journey into that new country, whatever shape it may take. Indeed the whole process of the last 40 years has been a stealthy journey towards this destination, with Westminster in denial at every step of the way. If the UK votes IN, the process won’t only continue but it will speed up. “The UK hasn’t voted out”, the narrative will go, “so it never will”.

This is the point: A vote for IN is not a vote for the status quo. It is a vote for a wild journey – a journey that finishes building a country called Europe, into which the UK will be absorbed and in which the UK will eventually adopt the euro, just as respected writers like Wolfgang Munchau in the FT have suggested. Absurd? Who could have guessed in 1975 that voting on a ‘common market’ would bring us to this point 40 years later, with common policies on almost everything including a mooted EU army (despite those Westminster denials)?

 

Munchau quote

 

To fight this journey, we first need to step off the ‘EU train’ where it is now. That doesn’t mean we are suddenly magically transported somewhere else. It means we stay broadly where we are – in the single market with the existing body of EU law entangled with ours but importantly not on the journey to political union. That means taking a step back from full EU membership and into EFTA/EEA.

And that will be the first step in our own new journey: to become a reinvigorated, democratic, globally-networked Britain with a world view. We will have an important network of relations including the EU, EFTA, the Commonwealth, the Anglosphere and continue to make full use of our leading positions in the G20, the G8, NATO, and the UN security council. It is immensely exciting but it will not happen overnight and we will continue to play a big role in the geographic continent that is Europe. There will still be European agreements aplenty – some are extremely desirable. But we won’t be part of another country.

It’s a battle of two journeys. Time to choose OUT.

EU Referendum: Norway has no influence? Yeah right…

Norway has no influence in single market rules? That’s highly debatable.

As an EEA & EFTA member, Norway does in fact have influence. It has formal influence in shaping new EU law through joint EU/EFTA/EEA committees and working groups. Norway can push for adaptations and exemptions from harmful clauses in EU law, and can contest the law through a separate court. It has a veto over EU law if the law runs against its own interests. It also has an emergency brake on freedom of movement. The only thing it doesn’t have (because it isn’t an EU member) is a formal vote in EU institutions to ratify new law. This last point gets blown up into “Norway has no influence”.

A further new angle to this comes from a recent EFTA report showing that the vast majority of single market law includes policy areas now covered by the UN or other global bodies. As a result of globalisation in the 21st century, ASA, UNECE, Codex Alimentarius, WTO, NAFO, ILO and a whole host of bodies few have ever heard of are the new sources of law that then gets handed down. The EU takes a seat on such bodies and negotiates on our behalf meaning we effectively have one twenty-eighth of a seat. Norway takes a single seat on such bodies so has much greater influence than Britain in shaping laws originating from these sources – a seat it uses to great effect, particularly for industries where it has significant interests like fishing, and oil & gas.

Anne Beathe Tvinnereim, a Norwegian minister, therefore flatly denies Norway has no influence. Norway has more influence than we do. Of course there are some Norwegian politicians who support claims that they have no influence. But these politicians tend to want EU membership for Norway so arguably have their own agenda. Or they simply haven’t kept pace with the force of globalisation that leaves their argument high and dry.

And that’s where we really find the clue that the “no influence” claim is wrong: the country as a whole is now firmly against EU membership. The Norwegian organisation pushing for Norway’s full membership has given up. Iceland, another EEA member, has gone the same way. These countries “constantly awaiting orders from Brussels” – or so we are told – are, in reality, nations at ease with themselves.

One other point. The assumption in all this is that the UK enjoys major influence inside the EU. But it doesn’t. When we joined, the UK had 17% of votes in the Council of Ministers; now we have 8%. The veto is now almost non-existent and the UK hasn’t managed to block single Commission proposal passing through the Council despite trying 55 times. More recently we have even been outvoted on financial services measures, which historically was not the case given the UK’s power in this area. Commentators often report how marginalised Britain is in the EU.

The most the IN lobby can realistically say is that influence is constrained in certain ways both inside and outside the EU. But short of setting up a dictatorship with omnipotent powers, that is always going to be the case. It is not an argument for staying in.

Can we just walk out the EU and then trade with it?

Could the UK simply walk out of the EU (and the single market) without any negotiation and then trade with the EU “like any other country in the world”? It sounds easy….but the devil is in the detail.

The EU discriminates against countries outside the EU and EEA unless it has agreed preferential trading agreements (PTAs) with such countries. The EU already has such agreements with 55 countries and a further 80+ are in progress. That’s 145+ countries. Once it had left, the UK would obviously become a non-member and without its own UK-EU PTA could then face tariffs from the EU and trade discrimination arising from the 145+ countries operating under a PTA.

On average, tariffs are low these days and advocates of this approach always stress that. But this average hides some high and low tariffs. For example, an 8% tariff is applicable to car imports. The other larger aspect to this is the issue of non-tariff barriers, which are likely to re-emerge causing havoc with business supply chains – especially just-in-time ones – that have been built around the EU/EEA being a single “domestic” market. It’s estimated that performing a UK exit in this way would cost £26bn annually, most of it from non-tariff barriers.

“Ah”, say supporters of this option, “but the EU would have to make an agreement with us on exit because they buy half our exports and we buy loads from them – they’d be mad not to do a deal”. Firstly, while the EU does buy half of UK exports, the UK only accounts for circa 10% of exports from the EU. The UK would be in a weak position to negotiate access on its terms.

Plus one bigger issue: trade agreements can take years and years to hammer out. After an Out vote, there would be enormous political and financial market pressure for the UK to conclude a deal fast. And that may be simply impossible, even in the 2 years allowed for by an exit under Article 50.

Is this approach therefore bad? No, several options are better than staying in and this one has a number of features to commend it, not least “fuller” independence. But it comes with enough uncertainty that it may not survive a referendum campaign so we’d never actually get out.

Far better to focus on a quick exit using existing structures, which means an initial step back to EFTA/EEA membership and therefore continued participation in the single market. Then we can take time to consider longer term arrangements.

UKIP’s contribution

Dan Hannan has penned an article for Capx that is possibly his most critical of UKIP’s damage to the Brexit cause.

Well, there is an election coming…

As is Dan’s habit on Twitter, he retweeted someone who linked to his article. This time he retweeted me, which not only opened up the prospect of many more retweets (and a few more followers to prop up one’s vanity) but it also meant I saw the 20+ replies.

Aside from the one or two in agreement, the replies fell into two camps:

1. “UKIP deserve credit for forcing the issue into the wider political debate”
2. “UKIP is the only game in town where Brexit is concerned”

There is some truth in the first, but only in the narrow sense that UKIP’s issue is specifically about high immigration, some of which is caused by EU membership. And importantly the emphasis is on the immigration bit not the EU membership bit. Indeed the latter has taken a distant back seat.

Part of the party’s problem is a mistaken conclusion about its own journey: the conclusion that says making a shouty tell-it-like-it-is noise that plays to a particular gallery is what brought them to this point *and* what will carry them through to victory and EU exit. Hence more of the same: foreign voices on trains, immigrants clogging motorways, and immigrants with HIV.

Their theory is presumably that the wider electorate will one day wake up from their slumber and see that there is something important in all that green ink and that they should also get angry. But the reality is that this approach doesn’t work because it quickly hits a ceiling and indeed has already switched off so many people that In/Out polls are now utterly dire for the Out cause.

By any criteria of success for developing a mass movement or plan for Brexit – and the Yougov poll is about as good as they come – UKIP has totally failed.

As to the second point about them being the only Brexit game in town, there is some literal truth in that statement, but their poisoning of the Brexit case illustrates the limits of that literal truth. To quote an older Hannan article, the party has become an end in itself and UKIP’s electoral success only has one relationship with the prospects for Brexit – an inverse one.

A dramatic about-turn in strategy could possibly save the party and with it the Out case. But given the constituency of supporters that UKIP has nurtured over the years, I suspect that will be near impossible.

So the issue is that we now have a dysfunctional UKIP occupying the Brexit field yet simultaneously destroying it by turning people off. And all the while, the pro-EU side jumps up and down pointing to this state of affairs as representative of the Out case.

Sadly what would now be better for the anti-EU movement as a whole is for UKIP to fail at the election and create space for more reasoned arguments.

We shall see soon enough whether that will happen.

The Whiggish Family Tree

A first stab at a “Whiggish” family tree (PDF).

Orange signifies the main Whiggish/Liberal inheritance. Anyone in bold indicates a Whiggish person of interest (OK this is a bit subjective).

Clearly not everyone on the tree is considered to be Whiggish – the right-hand side shows mainstream Conservatives; Labour is also included for context.

May be developed further.

Something is happening in the anti-EU movement

Something is happening in the UK’s anti-EU movement.

There are of course the well-documented defections of MPs Douglas Carswell and Mark Reckless to UKIP. And at the time of writing, there may be a trickle of others – MPs and other noteworthy figures – moving in the same direction.

This caps a successful six months for the party which drew record votes at the European Parliament Elections, has experienced consistently higher opinion poll ratings, and has seen for the first time more than one opinion poll indicating its support at three times that of the Libdems. All of this against a backdrop of David Cameron sacking or demoting stars of the Right, Owen Paterson and Michael Gove.

But other moves – or non-moves – have arisen from those events:

1. Firstly Daniel Hannan had a golden opportunity to defect to UKIP in the wake of the Reckless defection. But, true to his word, he has not done so. It is now almost guaranteed that he will remain a Conservative.

2. Secondly, Owen Paterson is now freed from collective cabinet responsibility to speak his mind. He has wasted no time doing so and is in the process of setting up his own Conservative grouping which, in itself, makes clear that he will remain a Conservative.

3. Thirdly, EU historian, researcher and author Dr Richard North is moving into a position behind Owen Paterson thus making both stronger.

As a result, we will soon see a new force within the Conservative Party which effectively puts Paterson , North and Hannan in the same tent. This is no small matter: North has been critical of Hannan over a long period; a classic example of what some despairing voices say is the “Judean People’s Front” character of the UK’s anti-EU movement.

So we watch and we wait to see how this evolves. The approaching General Election is starting to focus all minds on the frustrations associated with Miliband, Cameron and, to some, Farage. Then again so is the promise of an In/Out Referendum.

There could be some further interesting developments just ahead of us.

Why I’m Not a Conservative – Hayek revisited

It seems time to revisit, amend and clarify Hayek’s chapter in The Constitution of Liberty…..

(With mentions of UKIP, Hannan, Reckless, Carswell and Allister Heath).

Hayek meets White Wednesday: Why I am not a Conservative… revisited

And with markup….

Open Europe: Fisking Lord Leach

In the EU debate, the ‘Out’ side increasingly sees Open Europe as a false flag operation: a group that believes in Britain’s membership but publicly professes euroscepticism.

I don’t want to labour the argument over the meaning of the term ‘eurosceptic’ which originated in the early 1990s reputedly by UKIP founder Alan Sked. Suffice it to say that back then, the concept of withdrawal was often muttered in hushed tones, but the term steadily evolved into agitation for UK exit.

Open Europe has tried with some success to redefine euroscepticism back to its original meaning: Literally sceptical of some key aspects of the European Union.

But they stop a long way short of promoting withdrawal. In fact, they openly attack the idea. In particular Open Europe’s founder Lord Leach and director Mats Persson are very keen to point out – as they and Europhiles see it – the lack of workable exit strategies.

Put another way: There is No Alternative to EU membership.

And now Lord Leach has given us the benefit of his thinking in The Times and on the Open Europe blog. It is worth unpicking and showing how Lord Leach would like us to read it:

“Fifteen years ago, when a handful of businessmen set up Business for Sterling to stop Britain joining the euro, we were cold-shouldered by the BBC, patronised as Little Englanders by the Establishment and attacked relentlessly by the CBI’s leadership.”

Leach sets up his credentials as an experienced eurosceptic: the BBC doesn’t like him; he’s been called a Little Englander; even the CBI has attacked him. So he must be one of us, right?

“By the time the previous Government dropped the idea of entering the eurozone, we had nearly 1,000 chairmen or chief executives on our supporter list.”

Translated: I’m also a winner

“The centre of gravity has shifted as politicians today line up to argue that the EU in its current form has exhausted its usefulness, and exit is no longer to be feared. Even the most ardent Europhiles pretend amnesia about their former enthusiasm for the single currency. “More Europe” as the answer to every problem has become a bad joke. Even “Thus far and no further” has been replaced by serious questioning of the status quo. In short, the game is up for the Europhiles.”

By this time, you should be cheering him to rafters – your early suspicion that he is ‘one of us’ and thinks like us is confirmed.

“I disagree, however, with Nigel Lawson and others who have given up on reform and want us to head for the exit.”

Hang on, what’s this? Goodness, I had better sit up and listen to this great sage.

“Procedurally, withdrawal would be a nightmare. The famous Article 50 in the EU Treaty would give us two years to negotiate, during which time EU laws would still apply to the UK, without us having any effective say, as we would be sidelined in the EU institutions. That alone should make us pause before pushing the eject button.”

Oh dear [picking self up from floor], and I thought that was the best way out! So exit and particularly Article 50 would be a disaster…?

“The majority of the public, the political class and business, as shown by multiple polls, are sceptical about the EU but rather than leaving it they want a new deal to reduce its power over their lives.”

Well I suppose we did just sign up to common market, didn’t we? If we can just get that then I guess we’d be fine…?

“With good reason, for there are two jokers in the pack. First, none of the recent “outers” has set out a credible alternative. It is easy to say “Europe needs us more than we need it” or that if Asians and Americans can trade happily with the EU from outside it, so can we.”

Having dispatched the more tricky [for Leach] Article 50 exit route when I was least expecting it, he is surely right to highlight the absence of any other strategy among “outers”…?

“But this glosses over the reality that without free trade agreements many of our businesses would lose a chunk of their market. The car industry and the City would be especially hard hit. In theory, free trade agreements could cure that, but they would take time to negotiate and the EU would see no advantage in protecting our lead in those business areas. The eurozone’s attack on the City has been brutal enough; and the French would be particularly keen to block British financial services firms from having access to EU markets in perpetuity.”

Gosh this is sounding awful. And all from an ‘experienced eurosceptic’. My oh my!

“But it is the second joker in the pack, Germany, that is far more important. Angela Merkel is a cautious leader and doesn’t shoot from the hip. She knows that without radical reform the risk of Britain leaving is huge. She also knows what the consequences would be, as do the Netherlands and Sweden. The EU would lose half its military capacity, nearly 15 per cent of its budgetary contributions, its financial powerhouse, its principal channel to the Anglophone world and its main opponent of protectionism. Berlin would be in a voting minority against the French-led, high spending, uncompetitive Club Med countries.”

OK, this is where I stop playing the role of a dopy reader. Leach has just been telling us what a disaster exit would be (very similar to Cameron who has declared on multiple occasions that he won’t lead Britain out) and scoffing at those advancing exit. Yet Leach is now suggesting that Merkel will play ball because she fears a UK exit. Work that out: Attack the people you don’t like (e.g. UKIP) because of their stupid ideas about exit…but then rejoice in the fruits of their dirty work.

“Both David Cameron and Chancellor Merkel would therefore be playing with fire if they tried to buy off the British electorate with trivial concessions, as Harold Wilson did in 1975. The public won’t wear it and Germany would risk finishing off its dream of European unity and losing its most effective fellow reformer.”

Indeed they would. So Lord Leach, just imagine for a moment that your great insight (that very few share, by the way) doesn’t actually come to pass; that Cameron only gets small concessions. What do you do then?

“The first necessary step to a new order would be to redefine the EU as the Single Market, not as a vague aspiration to political union, still less as a currency union. Safeguards would have to be put in place to ensure that the eurozone does not write the rules for the rest of the member states. The next step would be to strengthen the powers of Westminster over EU decisions.”

So Leach’s objectives are laid bare and one certainly can’t call them timid: he wants to tear up all treaties, renounce the founding fathers’ goals, reverse 60 years of ever closer union and ‘revert to the Common Market we signed up to’ [even though we didn’t just sign up to a Common Market, because the Heath government lied to us – this is all now on public record courtesy of the 30 year rule]

“There is already support for these two reforms in Europe.”

Did you see what he did there? He set out some unrealistic twaddle about changing the EU into the Single Market only, tacked on two “reforms” that have been vaguely muttered about in the corridors of power (but may well come to nought) and then wrapped up the paragraph with a line that indicates his whole package is just a hair’s breadth away from triumph.

“With those in place, Europe could move to much greater flexibility. Member states could group together in passport unions, fishing or agricultural regimes, defence arrangements or tax and currency unions, but none of this would be obligatory. Subsidies, employment law and energy policy would no longer be micromanaged from Brussels.”

Anyone with any knowledge of the EU and its history will recognise Leach has now moved from la-la land into a kind of parallel universe.

“These kind of reforms would ensure that Britain would be at ease in Europe for the first time for 30 years. Norway and Switzerland could join such a structure and the Turkish issue would become more soluble. The euro problem would not go away, but the taboo that makes any change to the eurozone unmentionable would be broken.”

And I dare say we’d all be able to afford apple pie on Sundays.

“We cannot go on as we are, firefighting crises and ill-judged regulations inside a Union that has become the world’s economic laggard. Most of the necessary reforms have been identified and discussed across the continent. Now we will have to see whether Germany and its Nordic allies will be willing or able to deliver them.”

None of us knows what will happen next. There is still all to play for, and this complex game with so many other players should not be reduced today to a black-and-white argument about staying on the pitch or going home.

So what have we learned apart from Leach and Open Europe being stuck in a fantasy world?

The main thing we’ve learned is that Leach and his Open Europe organisation have now completely boxed themselves in. They have stated their wildly optimistic objectives; they have stated that a Wilsonian renegotiation won’t wash; and they have blocked the exits.

If – and humour me on this – if Open Europe is wrong and they don’t get anywhere near their objectives for the EU, what will they say then? Where will they go?

There are only two places:

  1. Grab the old slogans that “OK we didn’t get everything”, “Europe is a process”, “We need to stay to fight our corner” yadda yadda. In other words, fall back on all the mainstays of Europhilia that have haunted us for 40 years. Or
  2. They will say that “we tried, we failed and the UK now needs to exit”.

I’d love to say that it’s obvious they’ll go for the first, but is it really? Either route would represent an enormous loss of credibility for Leach and Open Europe which is why I say they are completely boxed in.

The problem with Open Europe is we don’t know which way they will jump and I suspect they don’t either. They may be a false flag operation to us, but to Europhiles they may be a false friend.

Whichever way they go, it can only end with their credibility in tatters. If I had ‘shares’ in Open Europe, I’d sell them now.

Sarkozy has a neo-Rumsfeld moment

Sarkozy at a press conference in Berlin on 17/06/11:

“We want to go as quickly as possible without fixing a date … Since September is not as quickly as possible and we may have other concerns in August and we are in the second half of June, you see what I mean.”

Nope, I don’t have a clue what you’re on about mate!

And he is one of the key people in charge of the euro-crisis.

Sell !

 

The Euro: the world’s best-known CDO

Do you remember what kicked off this whole financial crisis that started in 2007/2008? It was those infamous collateralised debt obligations or CDOs – a financial instrument that packaged up good and bad mortgage loans into tradable securities.

Around the time of the Lehman’s crash in Sept 2008, some clever wag explained in very simple terms what a CDO was: it was like having a bucket full of high quality ice-cream, with a teaspoon of dog shit mixed in. He went on: the trouble is that once you know this fact, you will always be able to taste the dog shit. And more importantly, you can’t easily pick out the dog shit to ‘rescue ‘ the ice-cream.

The lesson was clear: the high quality loans within the CDO did not crowd out the bad quality loans; the reverse was actually true with the bad quality loans contaminating the rest of the asset.  As Warren Buffet noted, these securities actually spread the risk of their weaker constituents through the rest of the asset – a view which gained traction and ultimately led to the sub-prime crisis which in turn led to ‘Lehman Day’.

At almost exactly the same as the Lehmans debacle (and for similar property-related reasons), we witnessed the very conservative Lloyds Bank taking over the indebted and somewhat gung-ho HBOS.

But the CDO principle applied here too: Lloyds had simply contaminated itself with HBOS’s poor financial position and thus we saw a Lloyds share price collapse and government taking a significant shareholding. The merged Lloyds Banking Group’s difficulties were thereby ‘socialised’ to avoid another Lehman-style ‘permitted collapse’ which had caused such a shockwave through financial markets.

It is instructive to note another common theme with both the CDO situation and with the merged Lloyds Banking Group: in both cases, government played a major role in their creation.

For CDO’s and sub-prime mortgages, the rot had started when the Clinton Administration in the 1990s wanted to expand home ownership to the poor and made it very clear to the financial community that solutions were needed.

Equally Lloyds was strongly encouraged to merge with HBOS by the UK government who clearly gave Lloyds assurances regarding competition policy. Lloyds’ mistake – or was it the UK government’s? – was that competition policy was now an EU competence.

And so we come to the euro where ‘The CDO principle’ applies in spades.

Here is a currency that is an entirely political project (to foster convergence between EU member states to create a European federal state) and which mixes wildly divergent economies from Germany through to Greece.  Worse still, creative accounting was used in the construction of this continent-sized CDO with some of the best city brains (Goldman Sachs) complicit in fiddling the entrance criteria. I might also add that public debate in the run-up to the creation of the euro was so subdued as to be non-existent in many countries – the UK being a notable exception (which didn’t/hasn’t joined).

But the sheer size and ambition of the birth of this ‘Euro-CDO’ in 1999 was enough to impress – or rather blind – investors, other nations and other continents across the world.

Europe even created its very own (now over-leveraged) hedge fund called the European Central Bank that trades the Euro-CDO.

Of course some were never persuaded by all this even in the 1990s (or in the years beforehand): among them were a number of economists from Milton Friedman through Martin Feldstein and many others in the UK and Europe. And of course at a political level, there were the ‘eurosceptics’: a disparate group dominated in the UK by Conservatives who found an expression of their anxiety through Baroness Thatcher’s Bruges Speech in 1988.

Fast-forward to 2011 – the euro and eurozone politicians are now caught in a double bind with no palatable exits; the eurosceptics’ predictions are coming true.

Going back to our bucket of ice-cream analogy, euro-politicians could:

1. Continue trying to convince us that the bucket still contains very high quality ice-cream, perhaps by throwing money at better spoons (for mixing) and for chocolate sauce. The problem is that the ice-cream *is* contaminated and people know it, so this option is just delaying harder choices some way down the road.

2. Try and separate out the dog shit from the ice-cream. This is going to be difficult and very messy with no guarantee of success.

3. Let the northern nations who have a very good reputation for making high quality ice-cream walk away from the contaminated bucket and start a brand new bucket full of nice high quality (and uncontaminated) ice-cream.

Option 3 is the best of a bad bunch except that:

a) Every day for 50 years these northern nations have worshipped the existing bucket and everything that went into making it. They are emotionally wrapped up in it. They do so, because they fear that abandoning the bucket will cause one of their number to go and dig up a highly toxic bucket of dangerous ice-cream that was buried underground over 60 years ago.

b) the contaminated bucket will still exist and will steadly poison those ‘peripheral’ nations who eat from it.

c) the ice-cream from the new bucket will immediately become expensive relative to the contaminated ice-cream.

Ultimately the contaminated bucket needs to be totally abandoned and buried. But much more than that, the entire mindset and edifice of flawed thinking that brought the bucket into existence (the EU) needs to be abandoned.

For some countries like the UK who never wholly bought into the faith – and it is a *faith* – it will be relatively easy to walk away. But for true believers on the continent, facing up to generations of intellectual error will be a much bigger issue.

It remains to be seen whether they can do it.