14 March 2016

Brexit In Brief: Economic predictors and the negotiation process

Transcript

There’s been a lot of talk about pros and cons of Brexit, but very few hard facts. In fact, there are hardly any economic predictions about the potential pros and cons of Brexit and even when you look at some of the wider reports, they are talking about potential GDP impacts by 2030, ranging from somewhere between minus 0.8 per cent and plus 0.6 per cent -- so pretty small differences in both directions.

To risk the level of turmoil that Brexit necessarily brings, against such potentially small benefits or changes, strikes me as very high political risk. And when I look at the uncertainties that Brexit definitely delivers, there are certain things that we do know; there are certain things that we don’t know but there are some absolute certainties in the middle of it. We know that it will likely trigger another Scottish referendum. We don’t know who would actually lead the “out” negotiations, because it’s quite clear that David Cameron and his cabinet would not be the people to do that. So you would have, in one sense, a battle on two fronts with another Scottish referendum coming into the mix, with popular support having grown, if anything, since the last referendum -- in spite of the economic collapse in the price of oil and gas.

And, at the same time, you don't know who your negotiating team are, to lead you out of a Brexit referendum situation, which really matters because you’ve got a two year deadline. Yes, it can be extended by agreement, but we saw with Greece what happens in European political negotiations – showmanship, brinkmanship and frankly, a lot of delay.

It’s a complex process because you’re trying to simultaneously do two things: sever your existing relationships and connections and forge new bilateral trading agreements and other agreements, because you still have to have an ongoing relationship with the EU.

If I look at Iceland, a tiny country of around 50,000 people, it took something like three years to negotiate a free trade treaty with Europe and that was when they decided, obviously, to put their European accession on hold. At the time, they were negotiating 35 different areas to participate within the EU, ranging from goods, worker movements, services, capital, employment, public procurement, competition policy, financial policy, fisheries, transportation, energy and that was a very, very straightforward country. We’re not. All of those issues matter enormously to different parts of our economy. Agriculture matters; energy matters; oil and gas matters; financial services matters; export manufacturing – it all counts. So you've got to lead this incredibly complicated negotiation across at least 35 different areas with a two year deadline that will absolutely be used as political negotiating capital against the British, particularly in light of a Brexit decision to leave. You’re going to be facing clear uncertainty for a very prolonged period of time, not two years but potentially far, far longer, and the key question therefore is what makes that worth it? After all of that pain, all of that effort, all of that time with lawyers and government and politicians, administrators and bureaucrats -- what makes it worth it? I’ve not seen that articulated, at least in terms of an economic story.

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