Jacob Rees-Mogg MP and Expert friends – Manchester fringe meeting

An address and question time with one of the most outstanding characters and intellects in the Parliamentary Conservative Party, Jacob Rees-Mogg. He will talk alongside like-minded genuine experts on Brexit; including the trade expert Shanker Singham, the advisor to Boris Johnson, Dr Gerard Lyons, and the economist Professor Patrick Minford CBE.

ADMISSION FREE AND OPEN TO ALL
Please come as the guest of the Bruges Group

AGENDA:
Lectures: 1pm – 2pm
Discussion: 2pm – 2.30pm

The Speakers

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Jacob Rees-Mogg MP
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Shanker Singham
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Gerard Lyons
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Going round in circles?

It’s now the third round of Brexit negotiations. Last week, we were given what amounted to an aspiration list – five “position papers” following on from two the previous week which went into very little detail as to how the UK negotiating team intended to go about achieving its desired objectives. The papers also made a number of assumptions about the EU’s negotiating position which do seem at first glance rather unrealistic. In short, it doesn’t seem very clear what the UK government actually wants. By contrast, the EU has made its position clear from the very start.

The EU’s Chief Negotiator, Michel Barnier, is understandably frustrated and warned about the clock ticking. He recently told the UK to “start negotiating seriously.” We are now less than 19 months to Brexit day; 14 have already elapsed with very little achieved except a foolish agreement to submit to the EU’s negotiating schedule whereby sufficient progress must be made on the divorce settlement, the rights of EU nationals and the Irish border before issues such as trade can be discussed. A helpful summary of the full areas of disagreement can be found in this article.

As far as the UK government is concerned, there has been a recognition that a long-term trade deal cannot be negotiated before March 2019 so some sort of interim arrangement will be needed. Even this is going to be a challenge as the rather nebulous statements from the government insist that the Single Market is not on the agenda, necessitating a bespoke deal (or a change of mind). Labour, however, seems to be moving round to supporting membership of the Single Market.  It now agrees with the Government that a transitional deal is necessary but disagrees with it not only on the Single Market but on the customs union too. As Dr Richard North points out, Keir Starmer, the shadow Brexit secretary, has advocated the Single Market without offering any hint of how we would access it – in other words, no mention of the European Economic Area or EFTA.

Professor George Yarrow from Oxford University, has argued that the default position for a newly-independent UK is that we would remain within the Single Market and would not need to rejoin EFTA to retain access. Not everyone is convinced by his arguments and if he is wrong, a bespoke deal allowing the UK to remain within the Single Market or the Customs Union would require a new treaty – a very challenging prospect within this increasingly tight timetable.

Of course, there are still some voices arguing against any sort of transitional agreement and claiming that a “hard” Brexit will bring economic benefit, such as Professor Patrick Minford of Cardiff Business School.  We have also highlighted the Bruges Group’s paper What will it look like? which claims that it is possible to agree a long-term trade deal within the Article 50 timeframe.  This paper has highlighted the key areas on which an agreement will be required, but if the Government is considering this route, the Position Papers offered us not the slightest hint that this is their preferred strategy.

So it looks like this week’s talks will be little more than going round in circles. We will, no doubt, be given a very upbeat assessment of the talks by David Davis, but little real progress will be made as the Government does not seem to be offering any sort of road map to arrive in the promised land of Brexit while Labour has little idea either. Meanwhile, as M. Barnier keeps reminding us, the clock is ticking away and the cliff edge is getting closer……

Photo by Digital-Designs

Britain needs fighting ‘Plan B’ for trade as EU turns screws on Brexit

By Ambrose Evans-Pritchard. The original first appeared in the Daily Telegraph.

The European Union is hardening its terms on Brexit. There is a new hint of hostility in the language. The tone is peremptory.

Those of us who hoped that Germany would push quietly for an amicable settlement can no longer be so confident. We now learn from Handelsblatt that the German finance ministry insisted on some of the most unfriendly changes to the EU’s latest working documents.

Berlin stipulated that Britain must honour “all obligations” (Verpflichtungen) for divorce payments, a tougher wording than the earlier, gentler talk of legal and budgetary “duties” (Pflichten).

It demanded that Britain desist from tax dumping and financial deregulation that would “jeopardize the stability of the union”. This demand is almost insulting. British regulators have led efforts to recapitalize banks. It is the eurozone and Germany that have dragged their feet on tougher capital rules.

There is no longer any attempt at diplomatic tact. The document states that the European Commission will “determine” when the UK has made “sufficient progress” as it jumps through the hoops, the way it handles accession talks for supplicants hoping to join. It reads like an imperial curia discussing a colony.

The French too have stepped up their demands, insisting that financial services be excluded from the trade deal. The City of London must respect the “regulatory and supervisory standards regime” of the EU in any future arrangement, suggesting that Britain will have to accept the sway of the European Court.

Some argue that France will soften its line under a President Emmanuel Macron. His economic strategist is the anglophile Jean Pisani-Ferry, co-author of a Breugel paper proposing a ‘continental partnership’ between Britain and the EU that preserves very close ties.

Sadly, Mr Pisani-Ferry has made no headway with this idea. I have met Mr Macron enough times – or have seen him at EU venues behind closed doors – to detect a messianic fervour for the European project. He is a crusader by political religion, the EU’s latterday Bernard de Clairvaux.

But it is the hardening mood in Germany that is most ominous. The reason for the sudden change is unquestionably Theresa May’s snap election. While we think that the Prime Minister’s motive is – in part – to build a buffer against Brexit ultras in her own party, that is not the view in Berlin. Germans see her gambit as anti-EU sabre-rattling and a breach of good faith.

“The EU wants to counter Theresa May’s rhetoric and kill the idea that a bigger conservative majority will make any difference to their negotiating position,” said John Springfield from the Centre for European Reform.

The German press has likened Mrs May’s démarche to the defiant posturing of Alexis Tsipras in Greece. They almost take it as a given that her Brexit plan will fail and that she too will be forced to capitulate, grovelling for mercy. One wonders where the briefings are coming from in Berlin.

The parallel with Greece is on one level absurd. Syriza caved after the European Central Bank cut off liquidity and shut down the banking system. Britain is not in the euro or vulnerable to such coercion, and the strategic contours are entirely different.

Yet the Greek saga is instructive. The lesson is that you do not bluff with the EU power structure. If Theresa May still thinks that “no deal is better than a bad deal”, she had better have a credible Plan B, and she must be willing to activate it.

Falling back to the minimalist option of the World Trade Organisation and hoping to craft global trade deals smacks of defeat. It would leave Britain in limbo, pleading with the US, Japan, China, India, and other countries to embark on talks when they have larger matters at hand.

So it is time to think in revolutionary terms.  Parliament’s Exiting the EU Committee called earlier this month for a detailed study of what it would mean if the UK left the EU without a deal. Downing Street should answer this legitimate request, and the menu should include the nuclear option of unilateral free trade.

This is a heady Cobdenite manifesto, a turbo-charged version of the Repeal of the Corn Laws in 1846. No developed country has ever attempted such a thing, though New Zealand comes closest, leaving aside the special cases of Hong Kong and Singapore.

All tariffs would be cut to zero. There would be no restrictions on imports besides obvious safeguards, such as policing child labour or environmental abuses, or for national security reasons.

It needs no reciprocation, working from the premise of Adam Smith that if any other country wishes to impose or maintain barriers that is their own folly. They suffer the welfare loss. The currency would adjust to the new equilibrium, keeping the current account close to balance over time.

Adam Smith’s Wealth of Nations laid out the argument that protectionists hurt themselves most

Adam Posen, head of the Peterson Institute in Washington, said Britain would face a rough time with no EU trade deal but at least such a plan has creative allure. “It is far more credible than other options,” he said.

The current dismal narrative on Brexit would be transformed overnight.  Britain would suddenly be seen by the rest of the world as pioneering nation at the forefront of globalism, reasserting Thatcherite audacity, rather than a crabby islanders in decline. “People’s jaws would drop,” says Professor Patrick Minford from Cardiff University.

Pure free trade cuts through the Gordian Knot, eliminating the need for an army of technocrat negotiators and for yet more of those supra-national tribunals that so proliferate, eviscerating democracies and sapping consent for globalism.

Prof Minford says the hide-bound political class has yet to give such clear blue sky proposals a serious airing. “It is so unfamiliar. It takes a mental somersault to break free of mercantilist thinking,” he said.

Economists for Brexit – now Economists for Free Trade – certainly got off on the wrong foot last year by suggesting that the UK would be positively richer under such a model. This invited a blizzard of criticism.

My own view has always been that there will be a negative shock from Brexit and withdrawal from the single market, with effects on GDP at best neutral by 2030 with the right policies.

Professor John Van Reenen, a trade expert at MIT and a vocal critic of the Minford plan, says retreat to the WTO would cost roughly 2.5pc of GDP compared to remaining in the EU, with losses rising over time to 8.5pc due to productivity effects.

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.