Andrew Lilico, who in my view is one of the sharpest and sanest commentators on issues such as Brexit (he is for it) has this to say about the benefits not just to the UK of leaving the EU behemoth, but arguably, to the remaining members of said behemoth:
We’ll also be able to do new trade deals with non-EU countries, which by 2030 will constitute around two thirds of our trade. The eurozone will grow faster, because by leaving the EU we will allow it to function better, enabling the euro to work. And future UK regulation can involve more experiments, where we try something, get it wrong and u-turn, rather than all our regulation being subject to the EU’s “ratchet” whereby once any measure in place it is almost impossible to undo. The ratchet works well when the best thing to do is obvious — cut tariffs, strip away non-tariff barriers. When it is not obvious — e.g. how best to regulate the sharing economy, the commercial exploitation of space, vaping, or green technologies — being able to experiment and u-turn is valuable. The UK can become an international leader the regulation of these new sectors by being able to experiment.
Of course at present many, if not all, EU member states will see the UK’s departure in these terms. They might suspect (as libertarians such as I hope) that the UK will head down a less regulated path, although it is worth noting that UK politicians are quite as capable of coming up with dotty rules as any Brussels civil servant (but at least those politicians can be voted out of office, which is the key thing). It bemuses me when I hear people wail that the UK is trying to become a tax haven. If only.
But it is an interesting observation that with the UK out of the EU, the eurozone (the UK is not a member of it) will “work”. Maybe it might. Maybe Germany, France and the others will, without those pesky Anglo-Saxons carping about regulations of carrots, vitamins and light bulbs, be able to create some sort of federal European entity where policy is in sync with the demands of a single currency. The UK gets to break free of an arrangement that has become increasingly vexatious, and the Continentals can make their vision (well, that of their political class) come true.
It might just be that the best thing for the Continentals is to get shot of we Brits and push ahead. Of course, if or when the dream of a European federal union turns out to be the authortarian clusterfuck of Biblical proportions that some expect, the UK will be in the beneficial position, hopefully, if having insulated itself from this by bringing up plenty of new trading relations with non-EU nations near and far. And it will be able to give the ultimate “I told you so” to the continent on the follies of transnational progressivism.
Lilico may indeed be “one of the sharpest and sanest commentators”, and I won’t challenge the economic points he made in the first half of the article. But I have serious reservations about the paragraph quoted here.
First, even without the (I would argue beneficent) presence of the UK, I can’t see how the euro will ever “work”. Not when you have countries (and economies) as diverse as Germany and Greece in the mix. It’s a failed experiment, kept on life support by Mario Draghi* but unsustainable without significant alteration. And second, UK “experimentation” with other (hopefully better) regulations isn’t going to benefit the EU unless it actually adopts them, which seems unlikely in the extreme. Lilico is arguing for the “laboratory” effect provided by the US federal system, wherein individual states can experiment with different laws so the best emerge out of the chaos. But for that to work in Europe the EU would have to permit individual member states to adopt their own policies, something which it absolutely refuses to do; it’s entirely antithetical to the entire political scheme. Watching the UK from across the Channel, even if it enjoys conspicuous and undeniable success, isn’t going to change that.
The only way I can see Brexit being beneficial to the eurozone is that it will demonstrate to other countries that exit can be done, and it can be successful. In other words, that it accelerates the demise of the EU itself. I don’t think that is a selling point in Brussels.
* Every time I see Draghi’s name it makes me think of the Drazi, a reptilian race in the Babylon 5 TV series universe. Somehow, I don’t think that’s a comparison he would appreciate.
“Allowing the euro to work” is the point in your quotation at which I decided not to take Andrew Lilico seriously on the subject.. So he’s happy for the southern economies to founder, strangled by the eurozone?
I am puzzled why the OP quote thinks our leaving the EU could let the euro work. We were not in the euro even when we were in the EU. We’re not leaving the euro; we’re leaving the EU.
Our exit could only help the rest of the EU if the effect on them resembled the effect of the American War of Independence on us. The British Empire learned a useful lesson from the loss of the colonies and did things differently going forward. Were the EU to learn a salutary lesson from Brexit and make a wholehearted change in how they did things, then Brexit could indeed help the EU. However you will notice I wrote that in the subjunctive tense.
Failing any such learning of salutary lessons, I’m with Laird (April 4, 2017 at 5:58 pm): Brexit will benefit the members of the EU (not the EU) by showing that “there is a world elsewhere”.
The Euro is a good idea. A uniform currency in all European countries is a good thing. It eliminates the risks of varying exchange rates on trade between the countries. It also says to all participants: You can no longer print money. The authority to print money has been removed from the individual governments, and put in the hands of one central authority (Draghi). I’m sure no one misses the lireta or the peseta.
Since Britain was never part of the Euro zone, Brexit has nothing to do with it.
Will Brexit have any influence, good or bad, on European economies? I have no idea, nor do I think that it matters. If Europe used any logic or common sense they would keep free trade with Britain intact, despite Brexit. This is, probably, too good to hope for, and what they’ll do is, probably, shoot themselves in the foot, and erect trade barriers.
I can not stand this silly word “Brexit” – but then I am Middle Aged (well just “old” would be more accurate) – and men who advanced in years are supposed to get irritated by words.
As for the “costs” of British Independence – unless the government is mad there are no “costs”.
We have given the EEC-EU some ONE HUNDRED BILLION Pounds (net – and inflation adjusted) since 1973, in return for our fish stocks being looted and vast numbers of small family owned business enterprises being destroyed by E.U. regulations.
Any demands for money to leave the E.U. should be met with the contempt they deserve.
“But the Euros will impose trade sanctions on us”.
As they sell us far more than we sell them (E.U. regulations are DESIGNED to ensure a German trade surplus – a massive German trade surplus) that is hardly a “threat” that should scare us.
The article starts by saying what we can expect GDP to do up to 2030 compared to an alternative reality in which we didn’t Brexit.
How is this in any way sane?
Jacob,
On the Euro, absolutely. It amazes me how everyone seems to think southern Europeans not being able to trash their currencies is the problem. And that rather than having this thing called the price mechanism, markets should be equilibrated by dodgy politicians messing with currencies. The problem of the Euro was the massive credit expansion it facilitated.
(There. I shortened up that quoted paragraph for you.)
Of course, it also eliminates the opportunities of varying exchange rates between the countries.
The E.U.is attempting to hand Britain a €60 billion bill for leaving the E.U., lotsa luck with that Princesses. P.M. May should tell to foxtrot oscar and hand them a bill for how much Britain has been ripped off.
I completely disagree with Jacob (and, apparently, with James G) that “[a] uniform currency in all European countries is a good thing.” In theory, such a currency would be a “good thing” if it were not subject to manipulation and debasement by ignorant and/or venal politicians; in other words, if it were not a fiat currency. But such a reality doesn’t, and never will, exist unless the current world economic system crashes utterly. And in its absence the only possible means of exerting some measure of external control over politicians is the existence of competing currencies to which people can flee. It’s a market mechanism, imperfect though it may be, and the euro circumvents it. It’s a recipe for disaster.
The euro is, and always was, a bad idea except as a precursor to outright political union. As a single currency for 27 semi-sovereign nations it cannot “work” in the long term. The UK was wise to avoid it.
“if it were not subject to manipulation and debasement by ignorant and/or venal politicians”
True, the Euro is indeed subject to manipulation by ONE “ignorant and/or venal” central banker (Draghi). That is better than having 19 different currencies, ALL OF THEM subject to same (or more) manipulation by a horde of “ignorant and/or venal” and unpredictable politicians.
The big problem for the ‘Olive Alliance’ with the Euro is not that they cannot inflate their way to a notional competitiveness, but more likely that they are either unwilling or unable to cut costs in their industries or tax bills in order to remain competitive. Put simply, if they could cut hourly rates of pay, regulations and taxes, then productivity could rise and their businesses could compete. However, employment protection laws, social security costs, VAT all conspire to assist economic lunacy.
As a single currency for 27 semi-sovereign nations it cannot “work” in the long term.
Oh it works in the manner it was intended. It created a crisis, which gave thee pretext to the EU to take action and push the agenda of political union. Unfortunately they ignored two issues. One the Euro area is not an optimum currency area so it was going to cause enormous damage. And secondly the only thing that might mitigate these effects is fiscal transfer which is explicitly illegal in thee German constitution.
BREXIT will allow the euro to work?
The euro does not work because it is does not have the required structure of an optimal currency area, for example there is no automatic redistribution of tax collected in some areas to others where money is needed, it has nineteen economies with different business cycles.
The UK, not even part of the eurozone, leaving the EU cannot change that.
The eurozone does not work because it cannot work.
Johnnydub, you are correct that the euro “works” in that sense; that’s what I meant when I wrote “except as a precursor to outright political union”. But it cannot “work” as a stable currency.
Jacob, apparently you don’t understand the concept of “competition”, at least as it relates to currencies. 19 separate currencies, all subject to political manipulation, will always be superior to a single currency manipulated by just one man (Draghi or his successor). Unless all 19 agree to operate in conformity with each other (and such cartels are extremely difficult to create and never hold together for long) competition will constrain the actions of any outliers; all will be forced to moderate their ambitions. Which benefits their citizens. Adam Smith’s “invisible hand” works with currencies as with every other product. By contrast, the euro is an enforced cartel which permits no competition. It is an inherently bad idea, doomed to failure (but not before bringing misery to millions).
Political power needs to be fragmented in order to be constrained, otherwise it always descends into tyranny. And control over the currency is perhaps the most potent form of political power which exists.
Jacob, this is why I said above ” . . . it also eliminates the opportunities of varying exchange rates between the countries.”
I can go long on shares of corporations in which I have confidence. I can short-sell the shares of corporations that I believe won’t do well.
If I want to invest in a similar manner in countries, currencies are the shares in which I deal. If I believe that some “ignorant and/or venal politician” has pegged their currency too high, I can short it, and wait for it to drop. If I think it’s set too low, I can buy it and wait for it to rise.
The pressure of whatever type of sale I pursue affects what the currency does. Thus, it’s not completely the whim of the ignorant or venal politician that determines the value of a currency. The marketplace pressures currencies towards their correct value.
A Euro – set for all participating countries – provides none of this feedback.
I’m surprised that Esperanto hasn’t become the adopted working lingo of Europe. I suppose that it has the ineradicateable quality of being simple and user-friendly, so it is unsuitable for a bureaucracy.
Reading the points made to Jacob’s point on the Euro…presumably the same arguments could be made against the gold standard? And also an argument that countries which use the dollar, or even the different US States, should ideally therefore have their own currency because they are economically different? At what point do we say a common currency is best between economic actors? Should rich people have a different currency to poor? I don’t see it this way at all. Yes, currencies appear to compete against each other, but this is simply an expression of the underlying competition between goods and services where national boundaries happen to restrict the means of exchange to a particular currency. I agree though with the point that if price fixing means only upward price movements are allowed to enable markets to equilibrate, then yes, inflating your currency is a bad way of achieving this. But that’s an argument against such control of the price mechanisms in the first place.
Bobby b.
Surely you are mostly betting on governments rather than ‘countries’. Or more particularly monetary authorities. And you can do that with the Euro the same way as you could with the Lira. At the end of the day it boils down to the argument ‘my currency is too expensive compared to what I think it should be. Can I have some devaluation please.’ This is a bogus argument. If you can’t sell your goods, lower your prices. Don’t rely on the sleight of hand that is currency manipulation.
Sure, I’ll accept that. I’m not betting on the winter wheat crop in some one country, or the productivity of its buggy-whip makers. I’m betting on the valuation choices made by those ““ignorant and/or venal” and unpredictable politicians” spoken of earlier.
The cumulative pressure of those bets against them – my bets, and the bets of everyone else in the market – does exert leverage affecting the politicians’ choices about valuation if they’re wrong, in some ways that the pricing decisions of those countries’ markets do not. If we’re denied the tool of individual currency markets because they’ve all been replaced by one commonly-valued currency, pricing decisions made in the countries can take over part of that function, but not all of it, and so we lose utility.
Can some one please enlighten me on how Europe is going to punish Britain over trade when Britain has a substantial trade deficit with Europe and Britain has several million potential hostages while Europe has no real financial centres?
We’re getting too far afield here, and I don’t want to get into an extended discussion about gold. But I will respond to James G’s question about whether “the same arguments could be made against the gold standard“. Leaving aside the word “standard” (which opens up new avenues for discussion) and taking this as referring to gold itself (generally in coinage form), my answer is no, those arguments do not apply. In brief, this is because gold is not subject to debasement by corrupt and venal politicians in the same way that fiat currencies are. Yes, coins can be adulterated with base metals, but this is easily discovered and their value (expressed as purchasing power) will diminish accordingly. The existence of an external (to the political sphere) standard effectively ties the hands of those politicians. The existence of numerous competing currencies (which is where this discussion began) helps to achieve some of that same result, but only imperfectly. Still, it is better than nothing, and the world isn’t about to return to a commodity-based monetary system anytime soon so we must make do with what we have.
Most BMW 3 Series for the Right Hand Drive markets – Japan and the Commonwealth countries – are manufactured in Pretoria South Africa. VW also has a plant making Golfs in Port Elizabeth in the Western Cape as does Mercedes Benz with their C class in East London – also in the Western Cape. I can’t see how Brexit will make much difference to German car imports of South African manufactured cars to the UK.