July 16th 2016


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COVER STORY 2016 election: Malcolm makes allies malcontents

CANBERRA OBSERVED Electorate shock: PM touches reality's live wire

WA BUSHFIRE INQUIRY Ferguson report a beauty, but now the fight begins

AGRICULTURE Sweet success for farmers in Queensland sugar market

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ECONOMICS Ignore scaremongers; Britannia rules apply

PUBLIC POLICY WA Meth Strategy 2016 a most welcome first step

EUTHANASIA Measure of success of Dutch tests will be death

HIGHER EDUCATION Trigger warnings: an infantile tyranny

FREE SPEECH From disagreement to discrimination: section 18C, Part 2

AUSTRALIAN HISTORY Middle Kingdom brings eternal Now down under

MUSIC Weighing up sounds and silence in John Tavener

CINEMA Memory, self and family: Finding Dory

BOOK REVIEW Mao Maoing a culture

ERICH VON MANSTEIN: Hitler's Master Strategist

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ECONOMICS
Ignore scaremongers; Britannia rules apply


by Colin Teese

News Weekly, July 16, 2016

This writer was hoping for an “exit” win, though I did not believe it was likely to happen. I am certain it has been the right decision for Britain to disengage from the European Union.

 

The opposition to Brexit excelled in scare tactics about what would happen following a vote to leave – including, one must say, outright lies. Topping the list were the Prime Minister and the governor of the Bank of England; both predicted dire consequences for Britain and the economy should the “leaves” win. By the Monday after the vote, the pair were reassuring everyone that the problems arising from Brexit would be handled.

 

With this kind of behaviour, it’s no wonder that political elites throughout the West, including in Australia, have lost the confidence of their electorates.

All praise to Britain’s ordinary voters. They cast aside the solemn pronouncements of those judging themselves to be their elders and betters, and backed their own judgement.

After the result, the behaviour of Brexit’s opponents was, if anything, worse. Twenty-eight-year-old university-educated journalists, themselves almost totally ignorant of things European, proclaimed that the voters did not know what they had voted for.

Worse still were some of the trans-Atlantic critics, Harvard economics professor Kenneth Rogoff among them. Rogoff judged the referendum to be a travesty of democracy. Democratic legitimacy, to his taste, demanded a 75 per cent turnout and a 60 per cent majority. He seemed not to have noticed that such a discipline, applied to his own country, would have rendered every preceding U.S. election “undemocratic”.

Most of those in favour of staying with Europe built their arguments around economics and finance. Their arguments found no favour in England with voters outside Britain’s home counties. The rest of the country was concerned with immigration problems (and job losses) and, more important still, the surrender of the sovereignty of the British Parliament to unelected Brussels officials.

What about the future? Not much can be said with certainty, except perhaps a few words of caution. Ignore the scaremongering. It will surely continue; most of it from disgruntled supporters who wanted Britain to stay in Europe. They will try to make something of the difficulties for Britain going it alone.

To be sure there is much to confront in the new situation. Negotiators on the EU side are already talking tough. But it is only talk; a sure sign that deep down they are running scared. And that on two counts: first, they know that their negotiating position is weak; second, they are truly scared about the possibility that other EU member states will follow Britain’s example.

The British negotiators must now consider calmly what needs to be done, by what means, to what end and in what time frame. These are the fundamentals that must be settled before entering into any negotiations with the EU bureaucracy in Brussels.

To this end the EU has done them a favour. Brussels won’t talk to Britain until it has invoked Article 50 of the Lisbon Treaty. This is the instrument that opens the way to exit.

At the back of the collective British mind should be the fact that, in the context of European integration, Britain’s relationship with continental Europe has always been strained. They should also recall that the fault has not always been on their side. When the European Economic Community (forerunner of the European Union) was being formed, the French vetoed British entry. President de Gaulle was then asserting that Britain’s first loyalty was to its Commonwealth partners rather than to Europe.

Subsequently British prime ministers, notably Margaret Thatcher, were critical of much in the management of EU affairs by the Brussels administration. So, the relationship between Britain and Continental Europe has never been a comfortable fit.

In part that can be explained by the fact that in the last couple of centuries the British Empire has been more powerful than any single European state. Even today, Britain is the fifth biggest economy. Within the EU only Germany has a larger economy.

It could also be argued that the commitment to democracy in Continental Europe has always been somewhat compromised, compared with Britain. That having been said, the behaviour of the Brussels bureaucracy in respect to democracy has been straining the friendship of even the continental European partners, which explains why some of the existing member states, especially in southern Europe, may be tempted to follow the example of Britain.

They, like Britain, are bound by treaty obligations (Maastricht and Lisbon) negotiated at the beginning of the 21st century. Britain, however, enjoys two commanding advantages over the southern member states of the EU. Unlike them Britain has not adopted the EU currency (the euro) but has retained its own currency. Moreover, it has not signed the Schengen Agreement, and is therefore not bound by a pact that obliges signatories to allow free movement of EU citizens across all EU borders.

The Schengen Agreement was a grave mistake; such free movement is only feasible if all member countries enjoy comparable levels of wealth and welfare services. This is not so in the EU. The Eastern European member states of the EU are all poor and getting poorer, with little in the way of welfare services. Poverty is driving their citizens out of their own countries. Britain has been the target. Better job opportunities, a national health service, and the chance to learn English. For Britain the migrant flow has been disruptive and is unsustainable.

Those arguing to stay in the EU were not prepared to confront these issues; thus they found it almost impossible to present a credible case in favour of Britain remaining.

The main argument they offered in support of their case was that Britain needed to stay with Europe because it was not strong enough to prosper as a stand-alone nation in the modern world. As it turned out, this hardly had any impact on undecided voters.

Whatever merit that argument may once have had, it certainly no longer applies. Europe’s economy is in decline, not least because of the incompetency of its leadership and the policies they have developed.

As many have pointed out, the fastest growing sector of the world economy is Asia. One reason that Europe is languishing is that the EU has been unable to negotiate commercial agreements with two of the biggest Asian economies – China and India.

Disunited Kingdom?

Scotland and Northern Ireland have been identified as issues since the referendum. Both voted strongly in favour of Britain staying in Europe. Some have suggested that if these two elements of the United Kingdom decide to remain in the EU, Britain will be weakened. True enough, but by how much it is difficult to calculate.

How likely is it that the two possible breakaways will actually leave the United Kingdom? Scotland is the more problematic. We know that it voted to stay with Britain a few years ago by a narrow margin. In the referendum the Scots voted heavily in favour of Britain staying with Europe.

But the situation is complicated. At the time of the last vote Scotland wanted to break with Britain but to keep the British pound as its currency. Britain may or may not have agreed to that proposal. More importantly for Scotland, is that, if an independent Scotland wanted to join the EU, it would be forced to adopt the euro.

Moreover, if Scotland is unhappy being subordinate to Britain, how much less independence would it enjoy as a tiny sprog in the giant EU wheel – even as a nation in its own right?

The two big issues for Britain are not Scotland and Northern Ireland. They relate to finance and trade.

It is said there will be a stampede of banks out of Britain to Europe. That seems unlikely. English is the language of finance.

The other big issue is trade. Britain wants to keep its access to the common market intact. The EU has insisted that won’t be possible unless Britain accepts the EU rules on free movement of people (signs the Schengen Agreement). Britain can’t accept that, given the outcome of the vote on EU membership.

But words are cheap. The EU can huff and puff all it wants but Britain has powerful trade negotiating cards. The EU has a trading surplus with Britain. Europe sells a million cars a year to Britain. One million German jobs depend on Germany’s exports to Britain.

The worst-case scenario is that Britain gets a deal no better than the U.S. Not free access but average tariffs around 2 per cent, though 10 per cent applies to cars and 30 per cent to textiles. Now that is the deal that has been negotiated between the U.S. and the EU. But the deal cuts both ways.

True, Britain would have to pay those rates of duty on its exports to the EU. But it would be able to charge the same duties on similar imports from the EU to Britain. Since the EU sells more to Britain than Britain sells to Europe, Britain would be the winner in that deal.

Furthermore, Germany, the dominating EU player, would be paying 10 per cent duty on its exports to Britain on a million BMWs, Audis and Mercedes Benz. And Europe would be paying 30 per cent duty on its textiles exports to Britain.

Given these facts, who do you think holds the better negotiating cards?




























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