EU Referendum


Eurocrash: on Britain leaving the EU


09/08/2012



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An interview in Die Zeit with Tony Blair has him telling his audience that the UK is strongly affected by what is happening in the eurozone – as if we didn't know that.

The former prime minister and full-time europhile also – rather predictably - warns that Britain should not turn away from "Europe", while conceding that it is unlikely that the UK would agree to any new treaty commitments. Commitments.

Nevertheless, said Blair, the euro crisis would lead to a "huge political transformation of the EU", about which he had "deep concern" that Britain could have a referendum and leave the EU entirely.

It seems, though, that Blair is not the only one to be thinking about Britain leaving the EU. According to Ambrose Evans-Pritichard, Japan's biggest bank, Nomura, has been considering the possibility.

In an 11-page report written by Alastair Newton, senior political analyst at Nomura International plc since October 2008, the bank comes up with the stunning statement that:
The effect a looser relationship with the EU would have on the UK economy in general and on the financial services sector in the UK in particular is not clear at this time, even though British eurosceptics argue that being freed from EU regulation would be a booster.
That really sets the tone for a report which rehearses all the old clichés, although Newton is also kind enough to tell us that the prospect of Britain leaving is, in our view, "bound to raise concerns" – indeed, is doing so already in the City".

The core point, we are told, is that the eurozone "may have to take drastic steps in integration (fiscal union, etc) to save the euro, making it nigh impossible for a fully sovereign state to remain part of the Project".

Possibly, I would suggest, it might even make it difficult for the UK to remain in the UK, so we are still in "now tell us something we don't know" territory.

Alastair Newton, by the way, is an ex-British diplomat and former head to Tony Blair's G7 team. He was also intelligence co-ordinator in the first Gulf War. Unfortunately, that means he is a europhile, FCO clone, which makes his work suspect, as well as quite evidently superficial.

Even occasional visitors to this blog will, for instance, know full well that, if the eurozone does not collapse completely, "it is only a matter of time, in our view, before crisis-related steps are agreed which necessitate treaty changes".

If you are Alastair Newton, however, writing that gets you into the Failygraph, complete with the speculation that: "In those circumstances, the British government will almost certainly demand 'treaty change for treaty change' in an effort to repatriate powers", looking to win repatriation of powers to London for every concession on treaty reform.

Newton then acknowledges that which we have been saying for some months, that the UK would "likely be looking to repatriate powers which EU partners may be unwilling to concede within he context of the single market", which means that he does not rule out the possibility of a serious schism between the EU and the UK.

From this, we get the stunning observation that Cameron could find himself in "a very difficult position indeed", under even more intense pressure from within the ranks of his own party to call an immediate referendum. Thus, we learn, "Mr Cameron's current roadmap to get from where he stands now on the EU to the other side of the next election looks to be a very tricky one to navigate successfully".

As one delves more into this derivative tripe, one wonders why Ambrose spent the time and effort reviewing it, although he does then observe that this is the first time that he has seen a global bank issue such a report. To paraphrase Johnson, therefore, we could suggest that a global bank talking about Britain leaving the EU is like a dog walking on his hind legs. It is not done well; but you are surprised to find it done at all.

Namura, in fact, have a poor record for producing intelligent analysis of EU politics, having published in March 2011 an "optimistic" report on the fate of the euro.

While the euro area monetary union had design flaws from the outset, it said, "there is strengthening evidence that the policies that are to be announced by Europe's leaders in the 'Grand Bargain' on 24 March are likely to fix many of these issues".

As a result, the report went on, Europe stands to become less prone to the sorts of problems that have been afflicting it, and better able to deal with new types of shock should they occur.

Putting in place the requisite policies to ensure the survival and further development of the euro area into a robust monetary union depended ultimately on political will, the bank said. "And the evidence is that this is, and is likely to remain, strong".

Nevertheless, Ambrose uses the current Namura report as a springboard to tell us that it has been his "gut feeling" for some time that the EMU debt crisis – or rather the intra-EMU currency misalignment crisis since debt as such is not the root problem (except for Greece) – has already led to de facto divorce.

Britain is no longer part of the Project. Furthermore, he says, this is proving less traumatic than supposed. It is quite possible to imagine various forms of semi-detached, or mostly-detached status where we carry on trading much as before.

In the Ambrose scenario, Britain would tilt more towards Asia, the Americas, and Africa. UK relations with Europe would settle down over time and would probably prove better.

But he doesn't like the Swiss or Norwegian analogies since Britain "is not remotely comparable. It much bigger and more diversified, much more difficult to push around. The fact that Norway feels it must go along with almost all EU law – a point invariably made by status-quo defenders – is irrelevant. It tells us nothing about Britain".

Ambrose thus, is not excelling himself in his own analysis, and is clearly bouncing along the margins without giving any serious thought to Britain outside the EU. His views on the EU without Britain, though, are interesting: it would become less free-market, more protectionist, more dirigiste, more prone to quarrel with the US.

Thus does out man look forward to another report by Nomura – or perhaps a Chinese bank next time – on the investment implications for Europe without Britain in it.

But don't hold your breath. With the quality of analysis on offer, it is not surprising that the banks are making such a mess of their affairs. Like the markets as a measure of political developments, they are grossly over-rated.