There are many arguments for membership of the EU. There are also many flaws in the EU. In my view it’s absolutely clear, the arguments for remaining a member are overwhelming. I don’t want to re-hash them all here, but instead look at the immediate political consequences of a ‘leave’ vote – and why people are right to be worried.
People have referred to the ‘remain’ campaign as ‘project fear’. They claim the idea is to frighten people into remaining in the EU . We’re the fifth biggest economy in the world they say, obviously we can survive without the EU. Unfortunately for all of us, there are genuine reasons for anxiety. It’s hard to predict the future. It’s even harder to predict the future when there is no historical precedent. No country has ever left the EU or any other modern trading block.
However just because predicting the future is hard, doesn’t mean the risks aren’t real.
£65bn has been converted out of Sterling in March and April. The biggest capital outflow since the banking crisis. City firms are commissioning their own polling to try to steal an advantage on their competitors. Even the ‘leave’ camp are admitting that the Pound will take a hit immediately following a leave vote. Clearly the markets are worried. The one thing markets hate more than anything is uncertainty. Consider the situation on June 24th after a vote for Brexit.
The biggest long term question is whether the UK will still have access to the Single Market. ‘Nein’ says the German finance minister – out means out. He’s bluffing says Boris and co. Would we accept, having just voted ‘leave’, the rules of the Single Market in any case, most controversially those of freedom of movement. (Just look at the agony this question is causing in Switzerland right now.)
If we are outside the single market, some large firms that located here in order to access the European market will relocate. Of that there can be no doubt whatsoever. The economic consequences are huge.
Do we seek to adopt the Swiss model? The Norwegian model? Would be allowed to? Would we want to? How long is it going to take to conclude trade deals with other countries? On what terms? What’s the worst case scenario? Quite frankly I haven’t got a clue, nor has David Cameron or anyone else in Whitehall. The answer depends not just on our own precarious government but the diplomatic, political and economic realities in the capitals of our potential trading partners.
What’s more, the moment the returning officer announces a ‘leave’ result, David Cameron’s moral authority disappears in a puff of smoke. It would be hard to see him staying on long in any event after such a bruising campaign, except possibly in the event of an overwhelming ‘remain’ vote. Having called the referendum, negotiated the deal and made the case, he would be humiliated by a rejection. The only question would be whether he stays on until the Tory leadership contest concludes or whether he immediately steps down in favour of a caretaker PM.
Whilst this is all going on, three big political questions affecting the future of the UK would intrude.
First, Scotland. If we have a situation where Scotland have voted to remain in the EU and England has voted ‘out’ the stage is set for the SNP to demand another referendum. Their continued dominance of Scottish politics would make it a very hard call to resist. If they were to be confident enough in the mood of the Scottish people, they could resign all their Westminster seats and fight 50 by-elections on the issue, creating irresistible pressure.
Second, Northern Ireland. Good cross-border co-operation between North and South is a key feature of the peace deal in Northern Ireland. Cross border trade and free movement of people is vital to the province. The idea that we want to restrict immigration from the EU but can leave our land border with the EU uncontrolled is laughable. Trade barriers between the UK and Ireland will cause hardship for both sides of the border. It’s easy to see how this could lead to a breakdown in the peace process.
The third issue which is little discussed but may just cause an international crisis is the situation in respect to Gibraltar. It is well known that the Spanish are not happy about continued British sovereignty over Gibraltar. A year or so ago the UK government complained to the EU when the Spanish sought to unofficially restrict access for people crossing from Gibraltar to the mainland and back. If the UK left the EU there would be no one to complain to. Nothing in international law compels Spain to allow people through the border. Life for the people of the rock would become intolerable were they to be cut off in that way. No doubt the jingoists would want retaliatory measures against Spain. The only plausible threat that springs to mind would be to use our newfound independence from the EU to impose trade sanctions. Undoubtedly the remaining EU would take Spain’s side in those circumstances. Never mind access to the single market, we could be lucky to avoid a full-blown trade war with our former partners.
Now it might be that not all these issues reach boiling point at the same time, or can be dealt with by deft political leadership. However the process of preparing for life outside the EU will expose fault-lines that have been hidden. Most critically in terms of just how far we should go to sign free trade deals. It’s easy to see the 19th Century battles between protectionism and free trade played out in a 21st Century setting.
All these problems – and all the other problems of government – would be faced by a party with a tiny commons majority. It may be that a self-confident new Tory leader fancies their chances of securing a clear mandate with an early general election, and that might indeed be the best way forward for everyone. However, voters tend to punish parties that make them go to the polls too often. If the immediate reaction to a Brexit vote and resignation of the Prime Minister is a market downturn, introducing the added uncertainty of an early general election will be pouring petrol on the flames. And what about if the election delivered a hung parliament?
How would the markets react to such a cocktail of uncertainty? No one really knows – but I wouldn’t buy sterling or invest in the stock market for quite some time, would you? It’s easy to dismiss these as temporary risks – things that will even themselves out in the long run. However a run on sterling could necessitate a rise in interest rates. All the foreign goods we buy will be immediately dearer. Inflation would be a worry. There has been a worry for a while that markets have become addicted to cheap money, but the aftermath of a Brexit vote is really not the time you want them to go cold turkey. Higher interest rates and lower stock values will make it harder for companies to invest.
The chances of a recession and permanently lost growth look all to real – and it’s fairly easy to imagine how a recession could turn into a full-blown depression. No one but those well-cushioned from the economic climate can afford to be complacent about the possibility of recession. Lost livelihoods, more children in poverty, wasted years.
Is it really a risk worth taking?