The European Union has deep-rooted structural problems, not least the relationship between Brussels and national parliaments, deep divisions between northern and southern economies, and high youth unemployment. It still needs a credible policy to address immigration flows.
Thankfully, a cyclical recovery is underway, as the European Central Bank keeps rates low and expands its balance sheet, much to the discomfort of many in Germany. This is one of the factors behind the expected surge of the anti-euro party Alternative for Germany in Sunday’s elections.
Appropriately, Theresa May, the UK prime minister, is making her latest EU exit speech today in Italy, a country with living standards no higher than at the turn of the century, thanks partly to the euro area’s economic policies.
Like Boris Johnson, the UK foreign secretary – for whom I worked in 2013-16 as economic adviser when he was mayor of London – I take a positive view of Brexit. In today’s address in Florence, May must set out an uplifting vision of a UK with a global role. The June 2016 referendum vote will not be reversed. Parliament has upheld it, respecting the wishes of the electorate.
Brexit means the UK will leave both the single market and customs union. This will be a ‘clean Brexit’, not a genuinely ‘hard Brexit’ that would lower working conditions once the UK is no longer obliged to follow EU rules. The UK has been at the forefront of workers’ rights, both before and after it joined the European Economic Community in 1973. This will continue.
Membership of the EU, for a country like Britain, is like walking the wrong way on an escalator. The UK has sought – and needs – to embrace globalisation, technical change and innovation. Much of the EU, led by Brussels, has been heading on an opposite route, emphasising regulation, centralisation and bureaucratic control.
Politically, too, the EU is proceeding in a different direction. There is almost no British appetite, among both Leavers and Remainers, for ‘ever closer union’. Yet the EU has stepped up talk of a common army and political union.
Concluding a free trade agreement with the EU should be straightforward. Both the UK and the 27 other members of the EU start with identical regulations, whereas trade talks often begin with both sides far apart. There will be hurdles to cross. But, by opting for a clean break, the UK is seeking to avoid an acrimonious departure that challenges core EU principles such as the free movement of people.
Money is an important issue. Some in the EU have asked for a substantial divorce settlement, with reports of an amount due of up to €100bn. Legally, the UK does not have to pay anything. And Britain should certainly not pay for market access after departure.
However, a deal is unlikely to be reached until shortly before the March 2019 leaving date. So one way to minimise business uncertainty will be to agree a ‘temporary transition agreement for Britain’, lasting no more than two years. This should be a bridging mechanism, specifically meeting British needs, so the UK and EU27 know exactly where they are going and how long it will take. During this transition, the UK may pay into EU coffers. If the UK remains involved in specific projects, then Britain should help finance them. But that will not be a blank cheque.
The cost of divorce should not be the focus. Making a success of Brexit is not just about the UK’s future relationship with Brussels. The UK must likewise address its domestic economic agenda. Departure will increase the UK’s ability to tap vast global opportunities, with the more than four-fifths of the world economy outside the EU.
Moreover, Britain’s withdrawal may trigger much-needed reform in the rest of the bloc. Brexit could be as beneficial for the rest of Europe as for the UK, and thus, with the right approach, be a win-win.
Gerard Lyons is co-author with Liam Halligan of a new book, Clean Brexit, published this week by Biteback Publishing, https://www.bitebackpublishing.com/books/clean-brexit.