by Frank Schnittger
Wed Oct 5th, 2016 at 09:54:35 PM EST
Theresa May made great play at the Conservative Party conference this week-end of the UK leaving the EU as one unit. Well she would say that, wouldn't she? I suspect that many Scots will have a different take on that, and the situation in Northern Ireland could well become unstable all over again. She also seemed to be hinting that the UK would be opting for a "hard Brexit" with very little in the way of special access to the Single market. Perhaps that is only an opening negotiating gambit - signalling to the EU that the UK won't be held to ransom in the Brexit negotiations.
Brexit politicians seem obsessed with the notion that the EU can't afford to lose its export surplus to the UK and will thus be very anxious to offer the UK a good deal. But the UK receives only 4% of EU exports whilst the EU imports 40% of UK exports. It is easy to see which economy would be harder hit if no free trade deal is negotiated. Perhaps they also underestimate the degree to which the EU is a political project rather than just an economic arrangement. Having more or less declared war on the EU and everything it stands for, they may be surprised at the ferocity with which the EU will fight back.
But that announcement will also have sent shock-waves through the City and leading industrial businesses with complex supply chains and customers spanning many EU countries. You can't run a just-in-time manufacturing operation with vital components stuck in customs awaiting clearance. Even more worryingly, Ministers have started talking about British jobs for British people, and Irish academics in leading British Universities have been asked to furnish their passports as part of a "nationality audit".
It beggars belief that Ministers can't see how damaging both those announcements are for the long-term health of the British economy. In common with Krugman I couldn't see why the referendum result would, in itself, be immediately damaging to the UK economy; other than the usual "confidence faery" types of short term reactions and effects. But what of the countless individuals and businesses in the UK with foreign passports or linkages with EU markets who must now be making contingency plans for salvaging their careers or businesses and who will now - at the very least - be putting further investment in the UK on hold.
Deciding where to locate your next manufacturing facility or replacement plant is a decision businesses generally take years in advance. If vital components need to be sourced in the EU or significant sales are required in EU markets, it seems a no-brainer that locating the new investment within the EU may also become mandatory or at least a safer bet. The economic effects of leading academic researchers or business employees deciding that the UK no longer represents a welcoming location for their talents will take many years to be felt. But there is no upside to making them feel unsure of their future in the UK.
A combination of devaluation and looser monetary and fiscal policies may have staved off an immediate recession in the UK, but they will do nothing to prevent a gradually deepening economic crisis if more and more working individuals and businesses come to feel that their future must lie outside the UK. And there is no limit to the downside if their departure results in a downward spiral of reduced economic activity leading to reduced government revenues followed by more austere government spending policies.
The UK already has a huge deficit of skilled employees and world leading industries in the manufacturing sector. The City is where the UK leads the world, and much of that business may have to relocate to the EU if it cannot negotiate pass-porting rights to trade within the EU. And lest anyone think that that may simply involve setting up "brass plate" operations in Luxembourg, Frankfurt or Dublin, they can think again: the licensing authorities in those states are already making clear that securing banking licenses in those jurisdictions will require that all management, staff and relevant resources required to produces those services will also have to be located in those jurisdictions.
The Tory party is brilliant at reinventing itself and also at marketing the UK's relatively anaemic economic performance as world leading. As several studies have made clear, the UK's medium term economic performance lags all except Italy of the major EU members, and the UK's GDP per capita is now less than the average of the 15 members states who were or became members in 1973. Growth in 2016 is expected to be a hardly stellar 1.8%, and that is before any of the longer term effects of Brexit have had a chance to have a measurable impact. Theresa May's negotiating position will rapidly crumble if the economy takes a downward turn thereafter.
So what of Scotland and Northern Ireland as the reality of a hard Brexit starts to bite? The Scots' can legitimately claim that many of the pledges made at the time of the last Referendum have been broken, and that independent membership of the EU is now a far more realistic and desirable prospect. The timing of any new referendum may be critical, but if it takes place in a post-Brexit economic recession and political gloom it is not hard to see the narrow majority in favour of staying in the UK at the last referendum being overturned.
And that will also have massive implications for Northern Ireland, where the historic links between Unionists and the UK are far more with Scotland than with England and Wales. The Northern Ireland economy has already withered on the vine as part of the UK, moving from twice the GDP per Capita of the Republic of Ireland at independence in 1922 to barely more than half the GDP per capita of the Republic right now. The loss of EU agricultural, regional and structural supports will exacerbate that trend. The question is whether the Republic will now want the burden of taking on the Governance of Northern Ireland, given the persistence of community divisions, the possibility of violence spreading beyond a few ghettos in Belfast, and the c. 11 Billion p.a. net cost of supporting the Northern Ireland state now borne by the UK exchequer.
So while Theresa May may have captured the mood of the Conservative party and perhaps also the zeitgeist of much current English thinking around the EU, she is also being quite delusional if she thinks that Brexit is also consistent with improving UK living standards and the integrity of the UK as a whole. Any free trade deals that the UK might be able to negotiate outside the EU will take years to negotiate, may not be on as favourable terms as those that the EU can negotiate, and will not make up for the loss of trade with the EU itself. The UK has played a central role in shaping how the EU has developed in recent years (not always for the better) and now all that influence will be lost.
Having lost an empire, and soon perhaps a pre-eminant position in world financial services, the UK elite will have no one left to blame but themselves.
Alan Shatter is a former Minister for Justice, Equality & Defence who during Ireland's presidency of the EU in 2013 chaired council meetings of EU justice and home affairs ministers and meetings of EU defence ministers. He has this to say of Theresa May and her team:
Theresa May, in my experience, was an unenthusiastic participant in council meetings of EU justice and home affairs ministers. She is one of those who, while nominally for Remain, helped lay the foundations for Brexit and the English electorate's anti-immigrant paranoia.
To date, her only substantive insight into the course her government and the UK is embarked on is: "Brexit means Brexit". This threadbare but politically astute circuitous construct ensured a period of relative calm following her becoming prime minister within the Conservative party prior to this week's Tory conference while creating the illusion that there is a plan, when none to date exists. It sheds no light on the road ahead ,on what Brexit will look like and political turbulence is likely.
Publicly, the British prime minister has delegated responsibility for preparing the Brexit plan to her three cabinet Brexiteers, Boris Johnson, Liam Fox and David Davis and from an Irish perspective somewhere in the undergrowth, there is the Northern Ireland Secretary of State, James Brokenshire. But it is unclear what input he will have to Britain's proposed approach.
The only plus on the horizon is that he could not have less insight into the complexities of Brexit for the island of Ireland, the maintenance of peace and security and economic development than had his predecessor, Theresa Villiers. On occasions when I discussed with her the dangers of the Tories adopting Ukip's political roadmap I had little sense that she had any real insight into what it all meant for Northern Ireland.
The speech last week of Liam Fox, Britain's secretary for trade and arch Eurosceptic gives little scope for optimism that there is any real understanding of the difficulties ahead.
His talk of even freer free trade to result from Brexit and the belief that Britain will ultimately be able to freely trade with the EU while preventing EU nationals residing in Britain is utterly lacking in reality and any basic understanding of the fundamental principles upon which the European Community, now the European Union, was established.
The free movement of goods, services, capital and people is a core principle and the three Brexiteers and May are delusional if they believe Britain will be enabled to fully benefit from the first three to the total exclusion of the latter.
Although defeated at the last general election and out of active politics in consequence, these are not the words normally used by a senior cabinet minister in reference to his former colleagues and counterparts in a closely allied state. I have little doubt his words also reflect the unspoken views of the current Irish Government.
Meanwhile, in Northern Ireland, a cross-party group of politicians and victim advocates have launched a legal challenge to Brexit as being against the provisions of the Good Friday Agreement, which is an International Treaty between The UK and Ireland lodged with the UN.
Northern Ireland has a veto over withdrawal from the EU, lawyers opposed to Brexit have argued at the beginning of a legal bid to try to stop the UK's planned departure from the European Union at Belfast High Court.
An exit would have a catastrophic effect on the peace process, Ronan Lavery QC said.
He claimed people in Northern Ireland have control over constitutional change following the 1998 Good Friday Agreement which largely ended republican and loyalist violence.
A cross-community group of politicians and victims campaigners is challenging the Prime Minister's ability to trigger Article 50 negotiations on an exit at the High Court in Belfast.
Mr Lavery said: "Sovereignty over constitutional affairs has been ceded. It is not the relationship, as it might once have been, between a dominant partner in a relationship and a submissive partner in a relationship.
"The people of Northern Ireland have control over constitutional change, it cannot be imposed upon the people of Northern Ireland.
"If that means that Northern Ireland could exercise a veto over withdrawal then I am (asserting) that is what Britain and Ireland signed up to when they signed the Good Friday Agreement."
Special provision has been made in that agreement governing whether Northern Ireland can become part of a United Ireland if the majority wish it.
Mr Lavery added: "The people of Northern Ireland are the sole entity which has sovereignty over any change in constitutional status and it may be that change in the constitutional status is something which Britain, or England more correctly, wishes to put into effect but it does not mean that it is not a change of constitutional status here."
He said: "Withdrawal from the EU could have a catastrophic effect on the peace process and that delicate constitutional balance which we have reached."
Personally, I doubt that the High Court will find that the Good Friday Agreement prevents the UK Government from pursuing a policy of Brexit, but it may mandate that the people of Northern Ireland should be independently consulted on any such dramatic change of constitutional status, given that many of their laws will then no longer emanate from the EU, a factor which softened nationalist opposition to rule by the "British State". Northern Ireland voted 56% against Brexit despite the DUP, the largest Unionist party campaigning for it.
So if Brexit has the disastrous longer term consequences I expect, a Court mandated re-run of the referendum in Northern Ireland could well result in a vote for Irish re-unification, especially if the British and Irish Governments have agreed a detailed transitional plan which puts to rest some Unionist fears of domination by the Catholic Nationalist south. Ironically the European Charter of Fundamental rights which the UK has opted out from, in part, may form an important part of the guarantees given to the Unionist population. Although formally titled the Conservative and Unionist Party, I doubt that many Conservative politicians would object to Irish re-unification by consent if it could save them the 11 Billion p.a. Northern Ireland currently costs them to run. After all, they left the EU over a lesser net contribution.
The question is whether the Irish political elite would really want to take up that burden. At a minimum, transitional structural funds from the UK and the EU would be required to make it sustainable. But it is in no ones interest that Northern Ireland should once again become a source of instability in Ireland and the UK. Some solution will have to be found, and it will, in all likelihood result in some further break-up of the UK. Theresa May's catchphrase may be that "Brexit means Brexit": the reality is that it may come to mean the breakup of the UK as well.