Liam Halligan

Project Hope

If we hold our nerve and take our time, Brexit will be good for Britain and good for the rest of Europe too

Project Hope
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Boris Johnson famously said that Winston Churchill would have voted for Brexit. The wartime leader’s grandson — staunch Remainer and Tory grandee Nicholas Soames — dismissed such claims as ‘appalling’ and ‘totally wrong’. This bad-tempered referendum rift between two traditionalist, Old Etonian Conservatives symbolises, somewhat incongruously perhaps, the broader state of the nation. Deep and traumatic divisions have been drawn between friends and families everywhere — and, of course, within political parties.

David Cameron’s dignified resignation speech has quickly given way to a grim determination to ‘Stop Boris’ from taking the Conservative crown and the Premiership. Labour, meanwhile, is in self-destruct mode, the parliamentary party in full rebellion against Jeremy Corbyn for his ineffective Remain campaign; which was unsurprising after a political lifetime spent needling the European Union.

Beyond domestic political pyrotechnics, the bigger picture is that the UK now faces an extremely complex negotiation with our soon-to-be-erstwhile EU partners. The rest of Europe — the entire world, in fact — is watching. After an exhausting campaign, UK voters on both sides of the referendum divide now want to know what Britain will argue for and what the EU high command will accept in terms of trade relations, cross-border regulation and, of course, immigration. It’s inevitable, though, that for some considerable time we simply won’t know.

Mere minutes after it became clear that Brexit had won, embittered Remainers were accusing Leavers of ‘cluelessness’ and ‘betrayal’ for being unable to provide detailed answers as to what exactly would happen now. The drumbeat of negativity has sounded ever since. But this is not only irresponsibly divisive, it’s also absurd.

A Brexit vote was always going to give a ferocious shake to the UK’s political kaleidoscope. Having campaigned so vehemently to Remain, there was no way Cameron could stay on as Prime Minister. Given this, how can we start negotiating even among ourselves, let alone with the broader EU, until there’s a new prime minister, chancellor and foreign secretary and their opposition counter-parts? A new Conservative leader won’t emerge until 2 September. Even with the best will in the world, which there obviously isn’t, Labour also needs time to recover from the internal trauma sparked by this result.

What’s clear, despite the focus on Westminster intrigue and finger-pointing, is that the UK’s vote is reverberating across the continent. Brexit could alter the course of the entire ‘European project’. Also apparent, even from very early exchanges, is that Britain has far more bargaining power than the Remain side has so far allowed itself to admit.

The ‘Europe will punish us’ doom-mongers were always paid-up members of Project Fear’ — and wrong. Forget the bad-tempered bluster of pompous officials like European Commission President Jean-Claude Juncker and assorted Brussels nonentities. Angela Merkel runs Europe. ‘There is no need to be nasty,’ observed the German Chancellor, within hours of our Brexit vote. ‘We want a good, objective atmosphere,’ she said, kicking Juncker into touch. ‘We must work together to achieve the right outcome.’

That means keeping UK markets open for Italian furniture-makers, French food-exporters and German car-producers. The UK’s goods trade deficit with the EU — a record £24 billion during the three months to April — represents hundreds of thousands of eurozone jobs and billions of euros in profit. It would be ‘very, very foolish’ to impose protectionist barriers against Britain, said BDI last week, a large German industrial lobby. Merkel, too, knows that trading freely with Britain helps bring home Europe’s bacon.

Our position is strengthened, also, by a growing realisation that, far from being about UK exceptionalism, Brexit is the first serious rebellion in a broader electoral uprising against this relentless Brussels power-grab. Some 73 per cent of voters in Holland oppose ‘ever closer union’, says the latest Pew Global Attitudes Survey, and 85 per cent in Sweden — hardly illiberal, reactionary countries. In Greece, it’s 86 per cent — I can’t think why. Even in core EU member states like Germany, Italy and France, no fewer than 68, 65 and 60 per cent of voters, respectively, reject Brussels-driven empire building.

Self-serving Eurocrats and out-of-touch Remain supporters portray Brexit as a temper tantrum by stupid, misguided Brits. The reality is different. Leave won in part because its claims that the EU is arrogant, complacent and guilty of ghastly economic policy-making are true. The democratic deficit is real — and widening. Free movement of people, handy for big business and virtue-signalling professionals, is making countless millions of economically vulnerable people, in the UK and across Europe, feel even more under threat.

Rather than responding to Brexit with humility or self-reflection, Brussels has immediately pressed ahead with plans for a ‘great leap forward’ to ‘political union’, as outlined in a new joint paper from the French and German foreign ministries. Such a proposal, at this time, amounts to bureaucratic megalomania: a move guaranteed to rile Dutch, Nordic and East European voters, as even the EU’s most ardent British supporters now acknowledge. ‘The knee-jerk reaction of the Commission is always to try to seize on any crisis to push for more Europe and closer integration,’ says Charles Grant from the Centre for European Reform. ‘This time, they can dream on.’

Rising EU-scepticism across Europe — galvanised by this Brexit vote — will make it impossible for the Commission to stonewall the UK once negotiations begin in earnest. Of course the talks will get testy — the stakes are too high for them not to. But Merkel and other EU grown-ups will be extremely mindful of the rising popularity of the Swedish Democrats, the True Finns, Italy’s Five Star movement and AfD in Germany — all highly critical of the EU.

That’s why Brexit could well provoke copycat referendums elsewhere. Given that Article 50 won’t be invoked until September at the earliest, and the haggling could take two years or more, such votes could happen at the same time as the UK is striking a better deal. As Britain turns the screw, and other EU members follow — their leaders impelled by increasing voter discontent — Brussels could be forced, iteratively but inexorably, to accept a looser, more democratic and sustainable union.

‘Rubbish!’ I hear EU ‘experts’ snort. But did such ‘experts’ predict the fall of the Berlin Wall or the Arab spring? Of course they didn’t. Because, just like Treasury economists with their laughably one-sided projections of long-term woe, Brussels-focused ‘experts’ have every professional incentive to think and say only what their political masters want.

Much has been made of the market reaction to this referendum result, and rightly so. Financial gyrations represent real money, so sharp falls in sterling and the FTSE the ‘morning after’ and since are alarming. Market turmoil is also politically potent, of course, with those who most vehemently opposed Brexit pointing to the business pages and declaring: ‘I told you so.’

A big reason the pound has fallen so sharply, though, is that all ‘the smart money’, steered by erroneous opinion polls and punditry, was convinced Remain would win. When that didn’t happen, the instantaneous unwind was always going to be violent. Currencies tend to ‘overshoot’ — and the 10 per cent fall in sterling over the last week is likely partly to reverse. Bear in mind, also, that practically every major economy has been trying covertly to devalue over recent years: part of the reason for all that quantitative-easing money printing. Brexit has just delivered that in a stroke. I’m not saying there aren’t losers when sterling falls, but when you’re sporting an external deficit of around 6 per cent of GDP, the export-boosting effects of a lower pound are worth having.

The UK has also had its credit rating downgraded since Brexit. Again, this is serious. Having said that, we first lost our triple-A rating (for the first time since 1978) back in 2013, when Moody’s took umbrage at the rate at which the government was piling up debt. Since then, we’ve seen little fiscal improvement, with borrowing higher so far during the current financial year than in 2015/16.

Yes, you’d have expected other US-based rating agencies to now finally join Moody’s, going along with the ‘official line’ that the UK should stay in the EU. But the initial loss of our stellar credit rating happened three years ago, long before Brexit, and is largely about the doubling since 2009 of our national debt. The main reason Leave’s victory is causing ructions on global markets is that such markets, after years of central bank largesse, are a house of cards.

When it comes to delivering Brexit, despite calls from the Eurocrats for an instant break, the UK should not be rushed. It is perfectly reasonable, given how this vote has shattered the illusions of our two major parties, that the UK’s body politic pauses for breath before plunging into complex EU deal-making.

Before that, senior Leave campaigners must head off the mischief-makers, reassuring 17.5 million voters that Brexit will happen. They should also make clear that the closeness of the vote, and the need to strike a deal with Europe, means some concessions will be made.

‘We are linked to Europe, but not combined,’ wrote Churchill in 1930. ‘We are interested and associated but not absorbed.’ That sentiment, to my mind, rings true – and Soames now backs Johnson for leader anyway. If negotiations go well, if we hold our collective nerve, Brexit could become an inspiration, a source of strength for the other peoples of Europe who have long demanded EU reform but have been haughtily rebuffed by political and business elites. It is the ‘European Project’, not the UK, that’s now on the back foot.

Liam Halligan writes an economics column for the Sunday Telegraph.