Tuesday 29 December 2020

The next few weeks will be crucial for Brexit

The ERG are set to endorse the deal today, according to the FT.  So the deal is going to pass and become law before Friday. I confess I have skimmed through the 1246 page document and it takes some understanding. Written by lawyers to cover all sorts of eventualities, this is perhaps not surprising. I leave it to others to comment on it. 

What many experts do agree on is that Brexit is not 'done' and will continue more or less forever. The deal can be thought of as a framework, with some initial elements built onto it but with many more to follow. Negotiations will continue ad infinitum which may prove pivotal in future.

Charles Grant, of the Centre for European Reform, has a piece with ten observations about the deal, including this issue about the UK getting into permanent, continuous negotiations with Brussels, more or less like Switzerland. He makes a sobering point.

In 1992, the Swiss voted narrowly (50.3%) to NOT join the EEA as a prelude to becoming a full member of the EU. Since then they have negotiated over 100 bilateral agreements and are in continuous dialogue with the EU. This has not persuaded the population to rethink the 1992 decision, current polling suggests only ten per cent are now in favour. This has warnings for remainers like us in Britain.

What I would say, is that Switzerland is a rich country quite unlike Britain. I only really know one company in Switzerland and that is Buhler of Utzwil. Most people have never heard of them but they are probably the world's leading supplier of flour mills and flour milling machines and the same in chocolate manufacturing. 

They are ridiculously good. Buhler have their own flour mill and operate it commercially so they understand the industry perfectly. They also have their own hotel! Machinery is one of Switzerland's most important exports and Germany their main market, so they must be good in other fields too.  I used to fly in and out of Geneva airport regularly and Switzerland always looked scrubbed and prosperous to me.

Per capita income in Switzerland (at purchasing power parity) is $69,000 dollars compared to our $45,000.  In other words they are 50 per cent richer and presumably perfectly happy with that.

So a lot will depend on what happens in the future. I paint two scenarios over the next few weeks and months.

Next week sees some disruption but it quickly settles down as UK importers and exporters get to grips with the massive increase in paperwork. By February, things are pretty well back to normal and while a few people, fishermen for example, moan about the deal, business just gets on with it. This is not impossible.  A period of slow economic decline begins which people may not notice for years.

Alternatively, there is severe disruption. British industry and government shows that they're both totally unprepared for Brexit. Shortages quickly appear and traffic volumes across the Channel fall to less than half the normal levels and does not pick up, even as spring arrives. 

Kent is constantly gridlocked. There are severe shortages of some fresh food products and companies across the country complain of problems in getting parts for their operations. The car industry is badly hit with constant stoppages. Nissan threatens to close for good and BMW shift more mini production to Holland.

Unemployment, rising because of covid, rises further as companies go under due to Brexit related problems. UK exports slump alarmingly as people begin to realise many exporters to the RoW use EU parts that are in short supply. Exports to the EU are badly hit.  Fishing businesses collapse because of the additional paperwork burden. The pound comes under pressure.

Norther Ireland citizens, retailers and businesses complain bitterly and loudly about the huge burden of paperwork that the NI protocol imposes on them and about rising prices in an area with the least disposable income in the UK. Support for the DUP collapses.

In May, the SNP in Scotland get a huge boost. They sweep the board in the Holyrood elections with a manifesto giving a clear commitment to hold a second independence referendum and polling suggests they would win convincingly. The nation is on its way to breaking up.

By the end of 2021 the British economy is in real trouble and support for Brexit has fallen to less than 30%. Polling shows people are starting to get really angry about the lies told by the Tory party, and the huge gap between the 2016 promises made and the reality.

Either scenario  is possible. The fact is that nobody really knows what will happen or how prepared, how capable and how willing British industry is to cope with the huge changes and challenges that Brexit will bring.  Grant speaks of how little people realise the changes coming along nest year. I think that's true, even among cabinet ministers, including Gove and Johnson.

He also says that even if Labour got in in 2024 on a platform to rejoin, the EU may not consider allowing it until there was a settled consensus, which means that the Conservative party would also need to change tack. This sounds logical to me and I can't see it happening - at the moment.

A lot will depend on the extent to which people think Brexit was indeed a mistake. Once the idea that it was becomes the dominant narrative, the Tories must either try to counter it or accept that it was an error and that they were indeed responsible for it.

Is that conceivable?  Not at the moment but I wouldn't entirely rule it out forever. The Conservatives are always power hungry and if they thought the way to get back into government was to advocate returning to the EU, they would switch policy in a heartbeat.  I have no doubt about that.

The task for remainers therefore is to constantly point to the problems and make sure voters understand the reason.

If Scotland became independent and became an EU member, it would make England and Wales' isolation that much harder to argue.

The UK is not Switzerland and in the years ahead, if things get bad, I don't believe any government would have a choice. If living standards and economic growth lags behind the EU and the eurozone, it will make Brexit even more difficult to sustain.