Wednesday, June 22, 2016

THE ECONOMIC CONSEQUENCES OF BREXIT

I spent four years acquiring my two degrees in Economics (and a fifth year as a student managing the Student Union's budget of a million pounds in 1983 money).

I have spent thirty years of my working life applying the knowledge I acquired on those degree courses and trying to plan and forecast how the economy and various other factors might affect the large company I work for.

That does not give me any right to tell people who do not have equivalent knowledge and experience that they are not entitled to an opinion. Everyone is, and furthermore experts are sometimes wrong. But it does give me some understanding of the debate about what are the likely effects of a vote to Leave the EU, and why the overwhelming majority of economists, NGOs, International bodies, and the "experts" who Michael Gove so despises think that the economic impact would be bad.

Both sides have valid arguments on democracy, sovereignty and security. The Leave side can certainly point to many, many faults in the way the EU works, although I find attempt to paint it as some sort of great anti-democratic monster or "EUSSR" a ludicrous overstatement of the case.

Sadly both sides have failed completely to come up with a sustainable, fair and workable policy on immigration. (Leave landed some heavy blows on the government but their own policy on immigration is nonsense on stilts, as I explained in my previous post on Northern Ireland.)

But if there is one area where the arguments are overwhelmingly on one side it is economics and this is the second of the "killer arguments" which persuaded me to vote Remain.

There is sometimes a suggestion that if you are having trouble deciding what you want in a key decision, toss a coin - and while it is in the air you will realise which way you want it to land. My decision on the EU, though I never actually tossed a coin, came from a similar reaction to the news of opinion polls.

I have realised over the past few days from the way I feel relief every time there is a poll movement to Remain and anxiety every time I see a poll movement to Leave that I am genuinely scared of what Brexit would do to the British economy, and not because the Remain campaign has scared me, but because the facts have.

Had the Leave campaign spelt out a decent strategy such as the "FLEXCIT" proposal which would keep the UK in the single market, I might well have taken a different view. But several of the government ministers in the Leave campaign keep saying they want to leave the EEA as well as the EU and the press is gearing up to present a "Flexcit" approach if there is a leave vote as an attempt to frustrate the will of the electorate.

The strategy laid out by "Economists for Brexit" could possibly work in the long term if there was the political will to implement it but I don't think there is a cat in hell's chance that a Conservative government with a majority of 12 could get it through or that the electorate would accept the short and medium term pain.

And I apologise if this causes offence but I think the people who believe that the EU will have to offer Britain a good deal after a Brexit vote because the German car industry will suffer if they don't are living in cloud-cuckoo land (even if the German car industry, unsurprisingly, agrees with them.)

The woes of the German car industry will be one of only a number of factors that the EU Commission and EU governments will have to consider. Those governments will find their own Eurosceptic movements, most of whom make Nigel Farage look like Martin Luther King, breathing down their necks. Their electorates will simply not stand for them offering a Britain which has voted to leave the EU a better trading relationship than they themselves have.

And here is the key point: the evidence we already have that the economic consequence of Brexit are likely to be bad, not least because the widely shared view among key economic agents that leaving the EU will hurt our economy is likely to be a self-fulfilling prophesy.

Every time Leave advances in the polls, billions of pounds gets wiped of share prices - and that doesn't just affect rich speculators, much of that write-down comes off ordinary people's pension funds. Every time the polls move in the direction of Leave the stock market plummets, when they move to Remain it rises again.

When the probability of a Leave was estimated to have risen by 20% it wiped a hundred billion off the stock market - ten years' net contribution to the EU. This is extremely strong evidence that those who say uncertainties will impose a far from trivial cost on Britain if we vote to leave are right.

I am less worried about the impact a slowdown in the UK economy would have on my own bank balance than I am on what it would do to Britain's ability to pay off the crippling burden of national debt we still have, to afford the huge challenges facing the NHS, to provide adequate care for those most in need, to defend our country in this very dangerous age.

It would not take more than a slight slowdown in our economy to wipe out the saving of our net contribution to the EU. All the goodies which the Leave campaign are promising to fund from this are therefore, in my humble opinion, based on a fantasy.

Hence the two killer arguments that have persuaded me over the past few days are

1) It is likely that leaving the EU will impose a significant cost on the British economy, and

2) Leave's policies on taking control of our borders are nonsense on stilts and completely inconsistent with their promise not to introduce border controls in Ireland.


I am a patriot. I believe Britain could survive and ultimately prosper inside or outside the EU. But I have, after much reflection come to the conclusion that the "independence" the leave campaign dream of cannot really be delivered in an increasingly interconnected world, and the effort to cut ourselves off from our friends and neighbours could do real damage to our country.

I therefore concluded that it was in Britain's interests to stay in the EU, and handed in my postal vote today, voting for Remain.

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