Theresa May, UK PM, speech on 17th January 2017
“I think this is not possible. We have four freedoms and this is not negotiable — if you have one of them and you don’t want it, it is not possible because I call it cherry picking.”
Michael Fuchs, adviser to Angela Merkel
No really, why wouldn’t they give us everything we want? They need us more than we need them. Don’t they?
The claim was repeatedly made across the Leave side of the referendum campaigns — we import a greater value of goods from the EU (£291bn in 2015) than we export to them (£223bn), so they rely on us more than we rely on them. For example, German car manufacturers, we were told, would insist on a special deal for the UK, one of their largest markets.
But…
The problem is that the sums of money are less important than the proportions. Let’s look at what would happen if trade were completely cut off. The EU currently takes 44% of our total exports, whereas the EU only send 5% of their exports to the UK. The EU could afford to lose their 5%. It would hurt, certainly, but a lot less than us losing nearly half of our exports. That’s before you factor in that we also benefit from EU trade deals with 63 other countries.
Meanwhile, the German car manufacturers are actually lobbying their government not to offer a special deal to the UK. We’ll still carry on buying BMWs, Mercedes and Audis, even if they cost more. It’s not as if we can go through with a threat to stop importing goods from overseas. If the price of food, raw materials, or electrical goods goes up, we’ll still have to pay, because we rely on imports of these things. If BMWs and Mercedes go up by 10%, we’ll still buy them.
The UK has to import goods. We export goods and services to help pay for them. If by leaving the EU we increase the cost of both imports and exports, we increase the cost of the things we buy at the same time as making it harder to sell the things we sell. We only really harm ourselves, because EU nations can shift to cheaper suppliers elsewhere, including other EU nations.
At this point, the keen-eyed Brexiter is likely to point out that this is where new trade deals with other countries come in. This is true, but a later article will show how we’ll be faced with problems negotiating new trade deals, and how the very best among them will only be as good as what we have now, not better.
There’s another factor which is often overlooked, and it stems from the fact that we’ll be negotiating with 27 other countries, all with their own priorities and interests.
Many of the EU countries don’t actually do much trade with us at all. We only send £100 million in exports to Slovakia, for example, while they send us about £3bn. But what they do have is a new Jaguar factory being built…
This is where our negotiating position is particularly weak. British-based companies rely on being able to export their products easily. If barriers are put in their way, they will simply move to the continent. We are already seeing this in the financial sector, with Lloyds of London, one of the world’s oldest and most well-known insurers, announcing it is leaving. We’re seeing warnings from Nissan and Honda. When they go, we lose the businesses, their skills, the employment they provide and the taxes they pay, and their new home countries actually profit from a hard Brexit. We can’t use the threat of a hard Brexit as a bargaining chip against these countries — they’d gain from it.
But what happens if we leave out the money, and just talk about the political side of a Brexit deal?
The EU remains an important institution to its members. While individual countries all have their right-wing eurosceptics, from UKIP to neo-nazi groups, by and large the governments — the people in charge of negotiating with us over our departure — are invested in the European project. They also have a responsibility to get the best deal for their own countries and the EU, not the best deal for the UK.
Key to the protection of the EU must be the idea that no country can get a better deal outside the group than they can inside it. Why should they? If any country could do that, all countries would want to do it, and that would mean the end of the EU. This isn’t about punishing the UK for leaving, but it is about making sure it’s understood that you can’t cancel your club membership, stop paying the membership fee, and still expect to get all the benefits of the club, plus more besides.
There are also major elections coming up in Europe. France and Germany both go to the polls to elect new presidents in 2017, and in both countries the moderate candidates face challenges from fascist opponents who are opposed to the European Union. It is likely that the issue of Brexit will be high on the agenda in all their political campaigns, and it will be vital for pro-EU candidates to show that countries are better off inside the union.
We’ve never been fully committed to Europe. Over the years we’ve pushed the EU around, done a lot to shape it how we want it, and now we want to walk away, because having the best deal of any existing member is not enough for us. The rest of Europe has watched this with bemusement and exasperation, and watched our media continually attack them. They are getting close to being fed up with us, and could easily say “Fine. You want to leave, you go then.” And leave us entirely without a relationship with our biggest market and our closest partners.
Think it couldn’t happen? That wise heads and cool business sense will rule over anger? That the EU wouldn’t cut its own financial nose off just to see an end to it all? But why wouldn’t they? We have. If you think a government would never be so stupid as to risk financial and reputational damage just to score a political point, I’d have to direct your attention to what the UK is doing now and ask if you’ve been asleep the last six months.
Next we’ll look at what the single market actually does.
