by Peter Franklin
Friday, 11
December 2020

Without Brexit, things would have been much worse

by Peter Franklin
Prime Minister Boris Johnson and European Commission president Ursula von der Leyen meet for a dinner to discuss our elusive Brexit trade deal. Credit: Getty

Yesterday, my colleague Ed West wrote about changing his mind — in this case, about his previous sympathies for Brexit. The same day, in a column for Bloomberg, Tyler Cowen described his journey in the opposite direction. I say “journey” because he hasn’t quite gone all the way:

“I no longer think Brexit is a bad idea. I’m not ready to endorse it, because I don’t feel comfortable with the nationalism and populism surrounding so much of the Leave movement, but I no longer wish the referendum had gone the other way.”
- Tyler Cowen , Bloomberg

Nevertheless, he believes that “in the last year, the EU has become a less workable political union, especially for the UK.”

For instance, he makes the under-appreciated point that if the EU is to deal with the growing challenge from its disruptive member states — especially Hungary and Poland — then that would “require weakening the EU’s unanimity requirements on many decisions”. Had Britain voted to remain, then that further dilution of sovereignty would have applied to us too.

Another worsening problem that Cowen identifies is the strain on the single currency. Until this year, the Stability and Growth Pact just about held things together. However, the economic impact of Covid-19 means that the hard limits on what national governments are allowed spend and borrow have been abandoned. Thus the overwhelming focus of the EU in the years ahead is going to be on saving a monetary union that the UK was never part of. Had we remained, it would have been in a club whose “focus is going to seem increasingly irrelevant” to British concerns.

Actually, I don’t think that’s the whole story, because the struggle to stabilise the Euro would have been made very relevant to Britain — but not in good way. As I explain here, the EU is propping-up the single currency by borrowing money through the European Commission — with all EU member states having to make the repayments.

On top of these fiscal demands, we’d also have seen our monetary independence come under attack. The Covid rescue package agreed this year is huge (€750 billion) and yet not big enough to see the Eurozone through the post-Covid recovery. Each member state will need to keep borrowing and the European Central Bank will need to keep buying a big chunk of the bonds they issue. Already there are calls for this ECB-owned debt to be cancelled — or, failing that, sat upon indefinitely. This will be hugely controversial because while these debts are national, the costs of cancelling them are shared.

In these circumstances, the existence of a major EU economy free from such concerns by virtue of being outside the single currency would have become intolerable to the ‘European project’. In the current Brexit negotiations we’ve seen just how desperate the EU is to constrain UK divergence. Well, nothing says divergence like controlling your own currency — and, had we remained, we’d have come under growing pressure to give up this privilege. Upon electing a Labour-led government the process of monetary assimilation would have begun — the Pound becoming a satellite of the Euro, just like the Danish and Swedish currencies are.

In the difficult days and weeks ahead we’re going to see a lot of people lamenting Brexit. But they should also consider where we’d be without it.

Join the discussion

  • ‘Until this year, the Stability and Growth Pact just about held things together.’

    Are you joking!? The Stability and Growth Pact, allied to the euro, was an unfolding disaster even before 2008, at which point it all fell apart. Read ‘Euro Tragedy: A Drama In Nine Acts’ by Ashoka Mody. He was part of the IMF team working to hold it all together, and not anti-EU per se.

    As more or less anyone except the politicians and the media could have foretold, the Growth & Stability Pact was always doomed to deliver no growth for many countries and no stability for the EU as a whole.

  • All this would be valid if the EU weren’t in a worse place. The UK ran a current account surplus in the mid nineties btw. It’s running a slight trade surplus right now. But it doesn’t matter as long as GDP increases. Current account deficit as a percentage of GDP has been falling since 2010 until now.

  • If Greece had been able to devalue an independent drachma, it would have dealt with its financial crisis much more quickly. Everyone would have been taking holidays in Greece the next summer rather than in Spain; people would have been buying Greek rather than Italian olive oil; some might have even have discovered the pleasures of Assyrtiko and Xinomavro rather than sticking to French wine.

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