This EU Won't Work

…into that good night…

A friend who decided to ask his children how they would like him to vote in the 2016 Referendum will be visiting this week. We keep harping on about this but it really irritates us that Brexit discussions could be banned because our friend might ‘frexit’ our home if we asked him questions like these:

How long do you think you might live? Since you’re in your late sixties now and of average health let’s assume 20-30 years. Now ask: Do you have a right to consider your own preference over that period? What will the UK be like in 20 or 30 years if we leave the EU or stay? What will the EU be like in that time frame?

Clearly we can’t be sure what either the EU or UK will be like nor exactly how things will be during the course of those two to three decades. How should we guess? Three obvious methods are: past track record, expert forecasts or our own gut feeling.

On track record our exports to the EU will continue to decline to 25-30% of our total exports and the EU will represent less than 10% of the world economy by the 2040s, down from about 15% now. There are no current signals that suggest a revival of the EU’s economic vitality; in the very short term growth fluctuates but the UK trend has been for higher growth than the EU’s over that last 20-30 years. Meanwhile the EU faces some huge problems whereby some of its economies are stuck in a doom loop of low or negative growth with scarcely any chance of escape without defaulting on their current debts. Such defaults would sever the eurozone and possibly the EU itself, because trust in the safety of membership will be destroyed. The EU has never clearly demonstrated its overall economic benefit to the UK, including the period since 1990 when great strides have been made towards further integration. Maybe disintegration would reverse that; we might have fairer trade with looser ties between our neighbours’ economies. Or perhaps the resulting chaos would accelerate the divergence (the UK’s economy has stubbornly remained correlated more with the US and the ‘Anglosphere’ than with continental Europe throughout the post-war period).

We won’t dwell too much on ‘expert’ forecasts because they have generally proved wrong in the past and there is no reason to suppose medium and long-term forecasting techniques have significantly improved. In economics particularly the preferences of the forecasters or their sponsors play a big part in their results. If the outputs don’t feel right to the modellers it is easy to tweak the assumptions until they do. Examples of failed forecasts include the UK Treasury’s and the IMF’s on the outcome of a Leave vote in the 2016 Referendum but such failures are not limited to Brexit. Of course some things were foreseen, like the short-term impact on sterling, but the all-round picture was not (and sterling’s fall has had some positive as well as negative effects, the former being ignored by fortune tellers pre-decided on a gloomy outlook). The current Treasury model continues to predict diminished long-term growth if the UK leaves without a deal but the Treasury (Hammond?) refuses to publish its model and assumptions, despite Freedom of Information requests, so others can see how it gets (we mean manipulates) its answers.

Our outlook is not gloomy, we see opportunities for those who seek them but admit there will be shocks that we will need to strive to overcome, and some of those efforts may fail. Our gut feeling is that we will be OK but also that the EU is not OK and will have to change if it is to survive, let alone to prosper. Maybe the necessary changes, if made in time, would entice us back into membership of a reformed union. Who knows?

The immediate shocks may affect us all initially. For instance the Government is preparing for food shortages because we depend on Spain, say, for a lot of our tomatoes. Perishable goods can’t wait at ports so no withdrawal agreement could mean that Spanish consumers will benefit from lower prices due to the surplus in their own market matching the shortage in ours. Haciendas and casas might be more affordable for locals without competition from British buyers and with flight restrictions there won’t be enough German towels to cover all the sun loungers beside the swimming pools so Spaniards can relax in relative peace. Meanwhile in Britain either diets will change or there’ll be a lot more poly-tunnels growing tomatoes, or maybe the Dutch will break ranks and sell us their fruits instead. One way or another there will be adaptation, very likely including special privileges to save Spanish farmers and others. The disruption could be a mere hiccough in the remaining passage of our friend’s life.