By Brendan Brown*
The British are finding out in their Brexit voyage that escaping from the “might” of an EU dominated by Germany is perilous. At this point there are many grounds for despairing about the ability of their political leaders to achieve a meaningful exit. There would have been much stronger grounds for hope if the May government had nurtured an alliance with the US whilst simultaneously moving to provide its fellow citizens with superior money to the euro which incidentally would bolster the competitiveness of the UK financial sector once outside the EU.
Of course, British J.S.Mill-type conservatives, just as their US counterparts, have qualms about Trumpism, but that is a sideshow in the world of realpolitik. In taking on Berlin, London surely had much to gain from forging an alliance with a new US President ostensibly inimical to Chancellor Merkel and the EU and with a fondness for Scotland and the Queen. When British negotiators found out very soon after the referendum (June 2016) that Berlin was insisting on large contributions to the Brussels budget and continuing immigration from the EU as condition of not shutting UK service exports (especially financial) out of the EU, it was surely already time to strengthen their hand by reaching across the Atlantic.
Specifically, if the UK were offering the US enough advantage in terms of a strengthened alliance, surely President Trump would make a condition of any US grand deal with the EU, after the present period of intensifying trade war, that Brussels also makes a peace of equals with London.
Of what would a UK-US deal consist?
Britain would open its market to US farmers (and so incidentally providing much cheaper food) and both countries would have broadened financial integration (removing barriers to each other’s service-sector exports). On the world stage the UK would staunchly supported President Trump’s policies on Iran and Israel whilst taking the European lead against Chinese unfair trade practices. London would also lead the charge against currency manipulation, setting an example of free markets in currencies and interest rates starkly different from the Berlin-Frankfurt model.
In reality there has been absolutely none of this. The landed interests in the Conservative party have blocked any talk of a deal which would have brought down agricultural prices in the UK. Indeed the May government is now proposing that the UK join a UK customs area for goods including farm products — meaning that cheap food imports would be shut out permanently.
The arch-appeaser in the May government, when it comes to negotiating with the EU, is Finance Minister Hammond. Mr. Hammond is also a monetary appeaser – apparently getting on tremendously with Bank of England Governor Carney, an arch dove in so far as that means anything in the global central bankers club. Mr. Carney has kept money market rates at an emergency near-zero level despite inflation running at over 3% earlier this year and with Sterling ostensibly cheap.
Brexiters dislike the Governor’s closeness to the “Remainers” and his doom-laden views about the economic costs of any real escape from the EU. Unless the Brexiters get their act together pretty quick, Mr. Hammond will soon be appointing the successor to Mr. Carney, whose departure back to Canada he “successfully” delayed by one year. Under the Carney-Hammond leadership not only has the UK applied every new EU financial regulation in full but there has been a continuing crackdown on offshore market activities from which the City once flourished in competition with highly regulated and highly taxed market-places on the EU mainland.
Many Conservatives it seems are now deeply concerned that their party could pay the electoral price for a generation of failing to deliver the Brexit their party promised. Instead they are delivering the British people into a “vassal state” even more under the influence of German might than previously. The anti-EU (and anti-immigration) working class voters so essential in their consummation of power could desert in droves.
The anti-EU vote was an anti-establishment vote. But monetary inflation continues to shower riches on the establishment whilst the small saver approaching retirement has much to fear. His or her children struggle to find affordable living accommodation in a real estate market totally distorted by unsound money and crippling forms of taxation (up to an 8% tax penalty – euphemistically called turnover tax or stamp duty — if you buy a house today and decide to sell it a few months later because of a change in mind about it or the neighbourhood).
Benjamin Disraeli understood how to win working class loyalty to Conservative-led nationalism of the day (Queen and Empire) and sustain this by delivery of the economic goods (respecting free trade and the gold standard). Today’s Conservatives are failing on all scores – a phoney nationalism which is revealed as Chamberlain-style appeasement to Merkel might; soft money, currency depreciation, and inflation which ensnares the least able to defend themselves; and an embracing of high food prices to suit the landed class.
Some Brexiters say they will vote against PM May’s EU deal this autumn. Even if they do and her government collapses, it is a very long and hard road back in a shifting and dangerous global environment to a safe ground where the UK can launch a 21st century version of Adam Smith’s Wealth of Nations agenda. That philosopher founder of modern economics told a friend who lamented that Britain faced disaster after having lost its American colonies “there is much ruin in a nation”. The embracing of his economic principles by the Younger Pitt had much to do with Britain avoiding that ruin and instead leading the first industrial revolution.
Could a similarly rosy outcome follow the disasters of the May government’s flawed attempt to escape German-dominated EU might? Time will tell, though we should report that there is no Adam Smith and no Younger Pitt and perhaps crucially no Prince Talleyrand, in view.
About the author:
*Brendan Brown is the Head of Economic Research at Mitsubishi UFJ Securities International.
This article was published by the MISES Institute.