UK gives up EU presidency as IMF rows back on recession fears

Prime Minister Theresa May has  made it clear that she will not be rushing to invoke Article 50 of the Lisbon Treaty and begin the process of taking the UK out of the EU. “I do not under-estimate the challenge of negotiating our exit from the European Union and I firmly believe that being able to talk frankly and openly about the issues we face will be an important part of a successful negotiation”, she said last week.

However, one small step has been made. She has decided that the UK will give up its rotating presidency of the European Union, which was due to begin in July 2017. Mrs May told Donald Tusk, the European Council President, Tusk that it was “the right thing to do given we will be very busy with negotiations to leave the EU”. So it looks like Article 50 will be implement early next year.

The uncertainties about both the timing of Article 50 and the details of the exit strategy have been the main reasons for the widely-reported claims of an economic slowdown. However, according to a piece in the Daily Mail, the  Bank of England said that it has not found “clear evidence” that a sharp slowdown was underway in Britain’s economy after the June 23rd vote to leave the European Union, though around a third of firms it spoke to plan to curb hiring and investment.

The Bank claimed that business uncertainty “had risen markedly” but there was little evidence that consumers were spending less either. “A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next 12 months,” However, the Bank was adamant: “As yet, there was no clear evidence of a sharp general slowing in activity.”

Nonetheless, the Interational Monetary Fund has downgraded its projections for global growth, citing Brexit as one of the reasons. For this year, glolbal GDP would grow by 3.1% instead of 3.2% and 2017’s figures were downgraded from 3.5% to 3.4%.

This is based on an assumption that trade talks go well. A piece published by Bloomberg suggests that the IMF would expect to see global growth drop as low as 2.8% in the event of a messy divorce looming. It is hard to believe that our country’s economy is of such importance that an impasse on trade talks really would knock 0.6% off the entire world’s GDP growth.  It is worth remembering that the IMF has not always been terribly  accurate in its forecasts in the past. In 2013, the institution did own up to being totally wrong over the scale of Greece’s financial woes and some commentators have asked the question as to whether the IMF ever gets anything right.

However, one prediction worthy of comment is that the IMF still reckons we will not only escape recession but record a faster rate of growth this year than the Eurozone.  Certainly, the UK’s economic fundamentals appeared to be pretty sound in the immediate run-up to the referendum and although the pound has fallen in value since June 23rd, the Bank of England’s failure to find any evidence of a serious economic downturn is unsurprising. No stimulatory measures were taken at last month’s Monetary Policy Committee and  it is possible that nothing much will happen next month either.

There are plenty of stories doing the rounds about optimism falling in some UK businesses, but if Brexit is managed successfully – and the delay in invoking Article 50 suggests that a detailed strategy will be developed before this takes place – we believe that Brexit will be economically neutral in the short to medium term and a benefit rather than a disaster for the UK economy in the longer term.

Wth the referendum now behind us and the summer recess just beginning, news is likely to be rather thin on the ground until the beginning of September. We do, however, intend to send out our usual weekly e-mail throughout this period as there will always be a few things to report.

Before signing off for this week, one further article by our friend Joris Luyendijk deserves a mention. This Dutch author and chat-show host is such an enthusiastic supporter of the EU’s federalist agenda that he makes  Jean-Claude Juncker seem like a eurosceptic. The Guardian occasionally gives him a slot and his latest offering is even more full of bile against our country than usual. The man opposes giving us a reasonable deal and says that the EU must inflict “Project Pain” on us to ensure we face economic disaster. He fears that if it doesn’t, other countries may follow us out of the door.

Two points in response. Firstly, he mentions all the distortions told by the leave campaign which he fears could be used as a template in other countries. While we in CIB were uncomfortable about the way the issue of our contribution to the EU was handled, for example, this is nothing compared to the nonsense put out by remainers. At a debate in which I participated, one of my opponents said that we would not be allowed to re-join EFTA.  This is pure hogwash. On a different occasion, a former cabinet minister insisted to my surprise that David Cameron would trigger Article 50 on June 24th if Leave won. Instead, he resigned as Prime Minister.

Secondly, while Mr Luyendijk’s  determination that no other country will leave the EU is shared by most, if not all, of the leaders of the 27 remaining member states, some of them at least are much more pragmatic, including Germany’s Angela Merkel. Trade has to continue and punishing us for voting to leave is in no one’s interests. Furthermore,  Luyendijk’s extremism calls into question the whole purpose of Article 50. If the other countries feel it will be made into essentially a dead letter and that they will be irrevocably locked into something that they may decide at a later date they want to escape from, the EU may well end up facing a violent implosion a some point in the future.

Luyendijk is all aggression and spite when it somces to our country, but this is to hide the weakness of his position. In another piece for the Guardian, he admits that in his own country, support for the EU is plummeting. Ambrose Evans-Pritchard made the point over two years ago that “superstate rmonatics are on the back foot almost everythere.”  Of course, if the EU project isn’t about federalism, what is it about? If it is holding together simply through inertia, with the federalist idealism confined to a few people like Luyendijk, it is in grave danger indeed. The arch-federalist former MEP Andrew Duff has lamented that the EU may be destined to remain an association of states committed to “never closer union.” If he is correct, Brexit may well turn out to be a blessing. Our example may enable it to dismantle itself peaceably country by country rather than leaving an ugly mess behind like the Soviet Union or Yugoslavia on its demise.


General Electric, China and an erstwhile remainer with regrets

On 1st July, barely a week after the Brexit vote, the FTSE-1oo index of leading shares touched its highest point in over six months.

The pound may still be down by 10% against the US dollar and some banks are suspending lending to buyers of commercial properties in London, but not everyone is gloomy. John Mills, a CIB Committee member, has long argued that the pound is overvalued and that UK exporters have been struggling in consequence. Furthermore Arcadis, a construction consltant, predicts that the London property market will actually boom once the dust has settled.

Furthermore, following on from noises from Australia and New Zealand about improving trade links with  a newly-independent Britain, Chinese officials, frustrated with their lack of progress in getting the EU round the table, have apparently been discussing the possibility of lauching trade talks with our country too.

As for those job losses with which we were threatened, Mark Elborne, the head of the American manufacturing giant General Electric, reaffirmed his belief that the UK will remain an attractive country for investors.

General Electric employs some 22,000 staff in the UK and Mr Elborne recently praised “the UK’s ‘strong export mindset’ and attractive domestic market”, described Britain as “a good place to do business” and “a good place to run a business from”. Interestingly, these comments come from a man who backed  “remain” during the referendum period.

Another “remainer” who has made some interesting comments is Mark Piggott. Writing in The Spectator, Mr Pigott says that he now wished he had voted leave.  It has been the attitude of remainers to losing the referendum which has prompted the re-think:- “As the week progressed, and demonstrators with radical piercings marched on Parliament in solidarity with EasyJet and George Osborne, I found my mood change. As one Guardian commentator after another dismissed the opinion of the poor, the old, the white, the uneducated, I began to wonder if the Leavers hadn’t been right all along. Perhaps the Remain side were out of touch with what much of Britain thought.”

More appalling than the predictable racist claim has been the dismissal of older voters as reactionaries, wreckers of our children’s future“, he continues. “As if ‘older’ people, who’ve worked, paid taxes, brought up children in far tougher times, shouldn’t have a say and that the young, many of whom couldn’t be bothered to vote, should have their non-votes registered.

Then came the petitions. Remainers calling for the referendum to be ignored, or worse, re-run, revealed themselves to be the enemies of democracy. How many of them would tolerate similar calls from the Leave camp if the vote was reversed?

Actually, I think we’d win a re-run.  While I came across a few young zealots wearing their “In” t-shirts, I recall being quite shocked to observe that in one debate in which I took part, the handful of self-identifying “remain” people handing out literature were all older than me unless, that is, their support for the EU has caused them to age prematurely!

Leavers showed passion and commitment. They worked their socks off and would do so again. Would all the Generation Snowflake students who have been demonstrating about the vote during these last two Saturdays be willing to dig in for the long haul of a gruelling campaign stretching out several months? I’m not so sure.

Furthermore, whoever the next Prime Minister is, he or she would not be using the full weight of government machinery to support remain and the Leave side would surely not be so foolish as to enter a second campaign without a decent exit strategy.

Nonetheless, in view of the widespread publicity given to some leave voters who now regret their decision, the candour of Mr Piggott has been refereshing. In view of the positive prospects for the UK economy and the length of time needed to call a further referendum, however, the likelihood of a second ballot looks remote, especially as one of its leading advocates, the former Prime Minister Tony Blair, has had his last shred of credibility ripped apart by the publication of the Chilcot report.

Photo by JefferyTurner

Our Chairman’s letter to the Derby Telegraph in the aftermath of the referendum


I am astonished at the downbeat response from many industries about the decision to leave the EU.

They appear to have been deliberately misinformed by the government – and to have swallowed it!

Around three quarters of EU legislation is geared to nudging us ever nearer to the Single European State – a country called Europe. That is the main purpose of the EU – “Ever Closer Union”.

The remaining 25% relates to trade regulation of the European Single Market, the only part of the EU project in which industry is interested. Arrangements already exist for non EU member countries to be in the Single Market without being in the EU political project. It is called the EEA – European Economic Area – the “Common Market” part of the project.

You can Google the detailed plan for continued participation in the Single Market. It is called “ FLEXCIT” . There are two versions – a forty eight page pamphlet and the full policy which extends to some 420 pages.

One objection to this policy is that the EEA involves the acceptance of the principle free movement of people. But, under Article 112 of the agreement, EEA member states can unilaterally impose restrictions when they experience excessive immigration. They do not have to ask anybody’s permission.

Another development which the government failed to mention is that most new business regulation is now global and comes from bodies like UNECE (United Nations Economic Commission for Europe) which, for instance, sets the standards for motor vehicles. Whilst there is an EU Directive about this, it was not made in Brussels but merely transcribed from what UNECE agreed in Geneva.

As an EU member Britain has no voice at the real “top table” in Geneva. As an independent country, it will be able to influence matters there.

So there is every reason to look forward to a period of greater British influence in the way world trade is regulated.

Yours faithfully

Edward Spalton

The UK’s liabilities to the financial mechanisms of the European Union

Independent research, commissioned by the Bruges Group from acknowledged expert in this field Bob Lyddon, shows that the true extent of the UK’s potential exposure to the European Investment Bank (EIB), European Central Bank (ECB) and EFSM (European Financial Stabilisation Mechanism) is over £80 billion. If the crisis in the Eurozone continues this already high figure could increase massively. Far from Brexit being an economic disaster, as Mr Osborne has claimed, it could be hugely beneficial, extracting us from a large potential black hole.

The UK carries huge financial liabilities as an EU Member State, liabilities that could translate into calls for cash far higher than our annual Member cash contribution. These are created through various funds and facilities of the EU itself, and through shareholdings in the European Investment Bank and the European Central Bank. Each of these bodies engages in financial dealings on a large scale, with the Member States acting as guarantors for sums borrowed. The main recipients of funds are the Eurozone periphery states: Italy, Spain, Greece, Portugal and Ireland.

The UK, being one of the largest and most creditworthy of the Member States, is looked at as one of the guarantors most able to stump up extra cash as and when demanded, demanded, that is, by a Qualified Majority of Member States with no unilateral right of refusal. Such calls can be expected if another crisis blows up in the Eurozone.

The UK’s leaving the EU would relieve us of these considerable risks and liabilities. This independent research shows that Britain should leave the European Union. To download it, please click here.

A call to Brexiteers to fill the void on the economic effects of Brexit.

I think that we Brexiteers can be very grateful to Michael Gove for his sparky performance on Sky TV. Apart from having to defend the rather silly figure work of the UK paying £350 million per week to the EU, which we all know to be misleading, he was hung out to dry on his lack of supporting evidence for his assertion that the UK could prosper outside the Single Market.

As the Vote Leave campaign have decided to go for the `nuclear option’ of freeing themselves from the clutches of the Single Market and not embracing the Norway option /EEA route (probably because of the worries about the attendant problems of free movement of people) they must somehow build a firm foundation for this view. At the moment there is a generally held view that evidence for a good outcome is lacking, one which John Major hammered home on the Marr Show on Sunday.

Luckily, there is a group of well-known economists which calls itself Economists for Brexit and which shares Vote Leave`s view. The group has produced a pamphlet which is available on the internet.

This body of erudition can be found here and the summary of their views in the leaflet is that Brexit will result in a better economic outcome than remaining in the EU. Economic forecasts (based on proven financial modelling by Patrick Minford) show that on leaving the EU:

  • Output grows 2%
  • Competitiveness rises 5%
  • Real disposable wages up 1.5%
  • Exchange rate falls 6%
  • Inflation and interest rates rise to 2-3% range
  • Current account improves to -1.5% of GDP
  • Unemployment reduced by 0.2% (75,000 on benefit count)

It also points out that:-

  • The UK does not need to do a trade deal to trade. It already trades extensively with many countries across the globe under the rules of the WTO and can continue to do so with EU countries in the future (in the same way that the US, Japan and China does). Leaving the EU will decrease prices and boost GDP.
  • The City of London will retain its role as the world’s leading financial centre outside of the EU.
  • The UK is a net contributor to the EU budget and those funds could be utilised far more efficiently elsewhere.

To quote from their pamphlet, which is downloadable, they state that: “The Economists for Brexit is a group of eight independent, leading economists who are convinced of the strong economic case for leaving the EU. To date, debate on the economic merits of whether the UK should remain in the EU has become overwhelmed by the Government’s Project Fear campaign. Each of the eight economists have become exasperated by the scaremongering and often economic illiteracy of this campaign.

At the same time, the group believes that whilst there are a substantial number of economic arguments to support Brexit, they are yet to be made in public. The purpose of this group is to explain the very clear economic arguments in favour of Brexit, offering voters – who are crying out for clarity on the economics of Brexit facts based on proven economic models, as opposed to speculation.

It is a useful and insightful view on the way forward if we break loose from both the EU and the EEA and do our own thing. There is even a short but detailed post-Brexit forecast to be found towards the end of the report by Patrick Minford.

Whilst one can understand that were the Leave campaign to link itself to such a document it is then open to the opposition mercilessly to analyse it, tear it apart and use portions of it against them. However, here is a body of professional opinion which is robustly positive for the economic outlook after Brexit and which has some realistic opinions on the excessive burdens which are placed on business by the regulatory zeal of the EU.

The Leave campaign must now ‘up its game’ and use the supporting information which is out there to form a compelling case for life after Brexit. It should also make more use of the information which points to the very real dangers of remaining in a failing, ove- regulated customs union which contains a host of countries whose economies are in a precarious state.


Photo by HowardLake

The only show in town, says Ambrose Evans-Pritchard

Leave camp must accept that Norway model is the only safe way to exit EU

By Ambrose Evans-Pritchard

The Leave campaign must choose. It cannot safeguard access to the EU single market and offer a plausible arrangement for the British economy, unless it capitulates on the free movement of EU citizens.

One or other must give. If Brexiteers wish to win over the cautious middle of British politics, they must make a better case that our trade is safe. This means accepting the Norwegian option of the European Economic Area (EEA) – a ‘soft exit’ – as a half-way house until the new order is established.

It means accepting the four freedoms of goods, services, capital, and labour that go with the EU single market. It means swallowing EU rules, and much of the EU Acquis, and it means paying into the EU budget.

Leavers know that if they gave in to these terms, they would drive away all those other voters who want to slam the door on immigration. So the campaign has been evasive, hoping to muddle through until June 23 with the broadest possible church.

Some Brexiteers have tried to square the circle with blue sky romanticism on trade, or sweeping talk of a ‘Hong Kong’ model, or by suggesting we fall back to the default settings of the World Trade Organisation.

Professor Patrick Minford from Cardiff University was refreshingly candid in proclaiming that his Brexit vision would “eliminate” most of Britain’s manufacturing – what he describes as a Schumpeterian “good shock” to clear away dead wood  – but this is just as Utopian as EU ideology itself. It is no an answer to the politics of Project Fear.

As my colleague Allister Heath argued last week, there are great numbers of middle-class, centrist, Tory-leaning readers of The Telegraph who want Britain to restore sovereign self-government, but have been rattled by the barrage of taxpayer-funded propaganda. They crave reassurance that it really is safe to vote for Brexit.

Prof Minford is right to denounce the Treasury’s document on the short-term horrors of Brexit as “intellectually deceitful”, but his reasons are different from mine. The Treasury claimed that a “vote to leave would cause an immediate and profound economic shock”. The hit to GDP ranges from 3.6pc to 6pc, with a loss of 800,000 jobs in a ‘severe’ scenario, comparable in scale to the collapse of Western banking system in 2008.

What is striking about this ghoulish document is that it did not model the Norwegian EEA outcome, even though this ‘off-the-shelf’ option is the most likely counter-factual. The reason is obvious. Had the Treasury done so it could not have come up with such alarming figures. 

There have been two excellent reports on the EEA option, one by the Adam Smith Institute and another entitled ‘Flexcit’ by Richard North from the EU Referendum blog

The Adam Smith Institute starts from the premise that the EU is “sclerotic, anti- democratic, immune to reform, and a political relic of a post-war order that no longer exists.” It says the EEA option lets the public judge “what ‘out’ looks like” and keeps disruption to a minimum.

“The economic risks of leaving would thus be neutralised – it would be solely a disengagement from political integration. All the business scare stories about being cut off from the single market would fade away,” it said.

The report argues that everybody could live with an EEA compromise, whether the Civil Service, or the US, or the EU itself. Britain would then be a sovereign actor, taking its own seat on the global bodies that increasingly regulate everything from car standards, to food safety, and banking rules.  

“As Britain is already a contracting party to the EEA Agreement there would be no serious legal obstacle,” it says.

David Cameron disparages the Norwegian model as a non-starter. “While they pay, they don’t have a say,” he says.

Actually they do. As our forensic report on Norway by Szu Ping Chan makes clear, they have a de facto veto over EU laws under Article 102 of the EEA agreement. Their net payments were £106 a head in 2014, a trivial sum.

They are exempt from the EU agricultural, fisheries, foreign, defence, and justice policies, yet they still have “passporting” rights for financial services. Their citizens can live in their Perigord moulins or on the Costa Del Sol just as contentedly as we can. 

They do not have to implement all EU law as often claimed. Norway’s latest report shows it has adopted just 1,349 of the 7,720 EU regulations in force, and 1,369 out of 1,965 EU directives. 

The elegance of the EEA option is that Britain would retain access to the EU customs union while being able to forge free trade deals with any other country over time. 

There would be no need for a desperate rush to both reach a modus vivendi with the EU and to renew all the EU’s 80 bilateral deals with other countries and regional blocs before the two-year guillotine fell under Article 50, the EU secession clause. 

Miriam Gonzalez Durantez, a former EU trade official (and Nick Clegg’s wife), argues that Britain is so short of trade expertise that it would struggle to assemble 25 experts even after repatriating staff from the EU. 

In this she is right. Where she is on shakier ground is to claim that we would need 500 officials “working intensely for a decade” to renew our third party trade deals.

Really? There is a simple administrative mechanism for the switch-over. All it requires is a filing at the United Nations under the “presumption of continuity” and trade goes on as before,  a procedure used time and again over the post-war era. 

This is what occurred after the break-up of Czechoslovakia and Yugoslavia. It was the formula used for decolonisation in the 1960s. It  would take a willful decision to override this mechanism of international law, and it is hard to see why a close allies such as US, Canada, or Japan would act in such a fashion.

The G20 and the G7 profess to stand for free trade and keep telling us a lurch towards protectionism would shatter the world’s fragile economic order. 

What is true is that any EU state could stop Britain stepping back to the EEA. Hell hath no fury like a union spurned. But Article 3 of the EU’s Lisbon Treaty says the union will uphold “free and fair trade” with the rest of the world, and this has legal force.

 Such vindictiveness would be the quickest and most certain way to tear the EU apart, for would it deeply damage the interests of the Dutch, Nordics, and Germans. It would cut across Britain’s intimate defence ties with France, and across Britain’s NATO pledge to Poland and the front-line states of Eastern Europe.

There may be many powerful reasons why Britain should remain in the EU, whether to ensure the comity of these Isles and show solidarity to Ireland, or to close ranks with our fellow liberal democracies at a time of civilizational threat. One thing that we do not have to worry about is a trade embargo, provided we stick to the safe ground of the EEA.

So we have bizarre situation. The Leave campaign is in effect lying about the Norwegian imperative because it dare not admit that EU migrants will continue coming to work in a post-Brexit Britain; and this in turn allows the Remain campaign to air its lies on economic Armageddon.

Just ignore them both. Every citizen is capable of reaching his or her own verdict on 40 years of EU conduct.

This article first appeared in the Daily Telegraph on 2nd June 2016.