Fear Not a No Deal


So, a no deal with the EU will lead to civil unrest within 2 weeks, will it? That is the opinion of Doug Gurr of Amazon, who seems to look on the bright side of life.

In the run up to the referendum, we were told (with perfectly straight faces by those who told us) that the economy would suffer an immediate disaster as a result of voting to leave the EU. Manifestly, this has not happened. Our GDP has continued to rise at roughly the same rate as it has done for the last nine years. Our trade continues to flourish, rising by about 10% between the referendum in June 2016 and June 2017. Manufacturing has risen by 1.9% for the same period, and this is comparable to the increase over the year 2007 to 2008, before the crash. It is also comparable to the rise in GDP for the same period.

The principle premise of the Remainers has been that trade will stop completely between the UK and the EU if we do not concede to the demands of the single market. This is palpable nonsense. Nearly all EU countries need access to the lucrative UK market far more than the UK needs access to theirs. In particular, Germany needs the UK for a very large part of its vast manufacturing industries. And what Germany needs from the EU, Germany gets, regardless of the objections of other member states.

Meanwhile, the UK is steadily doing more and more business with the rest of the world and the proportion of trade that we do with the EU is steadily diminishing. Admittedly, it is difficult to assess exactly what the split is because a large percentage of UK exports to the rest of the world are routed through Rotterdam and Antwerp and these are counted as exports to the EU – the so-called Rotterdam Effect. So all UK export statistics to the EU are overstated – the linked article suggests about 4% or so.

The 2008 banking crash was global in its extent, and the effect upon UK international and domestic trade was far-reaching and very deep. As a result the UK lost about 6.5% from its GDP and took four years to recover before GDP was restored to the pre-crash peak. There is no doubt that the UK relationship with the EU vis à vis trade is important, even if it is diminishing, but it is very much more restricted to the limits of UK and European economies. Importantly, most of UK GDP is generated within the UK rather than by trading with other countries. This suggests that UK is much better insulated against punitive action by the EU than would be the case if we had a much more export-oriented economy, such as Germany. All EU countries need to trade with each other and artificial constraints put upon that trade by the EU are unlikely to have the same reach as a global banking crisis similar to 2008. But it is instructive to look at what happened in the immediate aftermath of the 2008 crash:

Figure 1 – Proportion of UK Exports to EU and non-EU countries (Source: ONS)

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Note that prior to the crash, UK exports to non-EU countries were exceeded by exports to the EU. By 2009, UK exporters’ response to the crash was to diversify into markets outside the EU. By 2011 the gap between EU and non-EU exports increased and now, EU exports are actually diminishing in real terms. Back in 2008, it was almost as if the kicking given to us by the crash was the necessary stimulus to get the UK out in to the rest of the world again. This trend is continuing.

This exploration of the rest of the world by UK exporters suggests that the inherent flexibility of attitude was what caused trade to recover back to its pre-crash peak within twelve months. It suggests that even if EU bureaucrats enforce punitive action against the UK and effectively reduce a large proportion of UK exports to the EU, the response would be for those exporters to go elsewhere and recovery would be swift – i.e. within twelve months. UK GDP is unlikely to be seriously affected.

So, if there is cause to be confident that defensive measures against aggression by the EU are robust, does that still allow for the irrepressible optimism of those leavers who argue that we are standing on the threshold of a new, confident dawn?

My own view is that it does.

It is clear that there are huge areas of untapped economic productivity lurking within the UK. I feel that the financial services sector is at full capacity, or nearly so. The real potential for economic growth lies in the relatively downbeat areas of the North, the Midlands and the devolved countries of Wales, Scotland and Northern Ireland. Here lies potential for a return to manufacture as the basis for regional economies. One of the things that George Osborne got right was his insistence that there should be a “Northern Powerhouse”. Even here in Cornwall, there is a sense of engineering and mining returning once again to this quiet backwater of the United Kingdom.

This is not to say there are no serious problems lurking in hidden corners of the EU – and which are waiting to jump out and grab us by the throat. There are two principle difficulties ahead: The first is the size and location of a vast debt mountain lying un-talked about in Irish, German and Italian banks. The Greek problem rumbles on, with every bail-out only serving to repay the interest on loans given to them by German banks. Italy is a mess. Once these financial problems burst into the light of day, it will probably be enough to bring down the Euro.

The second problem is political. The invitation by Angela Merkel to millions of young men of Middle Eastern and North African origin to enrich themselves by coming to Europe, was unilateral and done without any consultation with the people of Europe. The invasion, by a culture which is alien and predominantly antagonistic to European culture, will eventually cause political unrest within Europe on a scale unseen for decades. The Visegrad countries of the Czech Republic, Poland, Slovakia and Hungary have already refused to accept these so-called “refugees” and have erected border fences on  a scale which has not been seen since the Iron Curtain was demolished. The refusal by Poland to accept the situation imposed upon them by Brussels is leading them to a showdown in the European Court of Justice, and the potential for fines etc. Given that Poland is the biggest recipient of EU largesse, this is a potentially risky strategy by Poland. But Poland has had its national identity crushed by successive waves of Germans and Russians in recent history, and my suspicion is that they are unlikely to want to lose that identity again – this time to Brussels. Within this dispute, along with the departure of the UK from the EU, lie the seeds of break-up of the European Union.

These two issues represent indirect risks to the UK economy within the next decade. But they are not “because of Brexit” and neither are they insuperable. There is every reason for confidence for our future as an independent, sovereign nation once again. We have only to grasp the opportunities which will present themselves to us; and ensure that our politicians do as they are told.

David Eyles spent the first twenty years of his career as a quantity surveyor in civil engineering. He started work on the Thames Barrier Project in the mid 1970s and from there moved on to building hardened aircraft shelters in East Anglia – those being the days of a rather warm Cold War. On RAF Lakenheath, he was once observed nearly slithering his mini under the wheels of a taxiing F111 loaded up with tactical nuclear weapons. If nothing else, it would have been one helluva motor insurance claim and a sense of humour loss by the US Air Force. Later, he went to Nigeria for two years to build roads and see first hand what corruption can do to bring down an intrinsically prosperous country. There he had his first experience of seeing British overseas aid being wasted. He returned to the UK and attempted to write a novel, but was instead diverted into bird ringing and spent far too many nights chasing radio tagged Nightjars around Wareham Forest at dangerously high speed. By a mysterious route, then fell into farming via six worn out commercial hens; and wound up with a flock of 350 Dorset Down ewes and forty Traditional Hereford cattle. He then divorced, changed his life and arrived in Cornwall to find solace in the pedantry of hard data, wonderful pubs, good people and writing. His other interest include walking; some very poor quality photography; the philosophy of consciousness as it pertains to animals and humans; and a certain amount of politics. David’s writing can be found here