Wednesday, April 21, 2021

An agreement to put an end to the Brexit delusions

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After four and a half painful years, we have reached the end of the start of Brexit. We have a treat. It is, inevitably, a damaging deal for the UK economy compared to the rest of the EU. But this this is much better than the stupidity of no deal. Above all, it maintains working relations with the United Kingdom’s close neighbors and its main economic partners.

No responsible government would give businesses a few days to adjust to the complexities of this new situation. Even less would he do it in the midst of a pandemic. It will remain a senseless and unnecessary divorce. But the reality of Brexit may even bring some benefits.

The EU should already see some. He would almost certainly have been unable to accept his € 750 billion in pandemic stimulus funds if the UK had stayed at the table. Now the EU will be able to move faster towards its common goals.

For the UK, too, Brexit will bring the great advantage of separating reality from illusion.

Some delusions have already disappeared. Brexiters told the country it would be easy to get a excellent free trade agreement with the EU, because it held “all cards“. In fact, it turned out to be quite difficult to do and the UK had to make some tough concessions since 2016, especially on the money it owed the EU, the Irish border, and the EU’s demands for a “Fair rules of the game”.

These illusions were supported by others. Among them was the idea that the UK and the EU would negotiate as “equal ruler“. Yes, the EU and the UK are also sovereign. But they are not quite as powerful. The UK economy is less than 20% of that of the EU. Forty-six percent of UK merchandise exports went to the EU in 2019, while only 15 percent of the EU’s merchandise exports (excluding its internal trade) went to the UK.

The economic relationship between the EU and the UK is quite similar in Canada with the US. As Jonathan Portes of King’s College London highlights, the trade agreement imposed on Canada and Mexico by the United States is quite intrusive.

Given this imbalance and the UK sovereignty fetishism, the UK has gained a lot. the 1246 page text of the agreement contains a limited and insignificant mention of the European Court of Justice. The detailed agreement on the thorny issue of a “level playing field” is symmetrical. But any action by the EU to ‘rebalance’ its policies, in response to UK action it has successfully opposed, will have a far greater impact on the UK than the reverse.

Reality is asymmetric. This will continue to be the case in the many negotiations with the EU still to come. When you’re dealing with foreign powers. and especially the most powerful, “regaining control” is somewhat theoretical.

Yet this slogan is also an illusion in other respects. In the areas of defense, education, housing, health, regional development, public investment and welfare, the UK was already largely in control. But the British are on the verge of losing valuable opportunities to do business or live, study and work in the EU. They will not “take back control” of their life, but will lose it.

Even where control is regained, in theory the reality can shock leavers. Think about immigration. In the 12 months ending in June 2016 (the month of the referendum), net immigration from the EU and non-European sources was 355,000 (with net emigration from Britons ignored). In the 12 months ending March 2020, net immigration was 374,000. Net immigration from the EU increased from 189,000 to 58,000. But that from the rest of the world – still theoretically under British control – exploded from 166,000 to 316,000.

The UK has in fact preserved relatively favorable (albeit significantly worse) access for manufacturers, in which it has a comparative disadvantage, while accepting significantly poorer treatment of services, in which it has a comparative advantage. Indeed, he fights harder for the control of fishing, which generates 0.04% of UK gross domestic product, as for services, which generate most of it.

Mr Johnson promised that the UK “prosper mightily “ even without agreement. But virtually all economists agree that the The UK will be significantly poorer in the long term, even under this type of agreement, only if he had remained a member.

Even the survival of the UK is in doubt. Scotland and Northern Ireland can both leave the Union, the former to join the EU, arguing that it too wants to ‘take back control’, and the latter join Ireland and therefore the EU as well. England could then have a border with the EU on the Irish Sea and the Tweed.

Brexit is, in many ways, the English equivalent of Donald Trump’s promise to “make America great again”. One big difference is that unlike Mr. Trump’s days as US president, Brexit is eternal. It seems almost certain to pity the prosperity and influence of the country permanently. But only now can we find out. Let’s watch and learn.

martin.wolf@ft.com

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